<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, 1999
----------
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
Statements of Net Assets Available for Plan Benefits as of
December 31, 1999 and 1998...................................................... 2
Statements of Changes in Net Assets Available for Plan Benefits for the
Year Ended December 31, 1999 and 1998........................................... 3
Notes to Financial Statements............................................................ 4
Supplemental Schedule of Assets Held for Investment Purposes as of
December 31, 1999........................................................................ 9
Supplemental Schedule of Reportable Transactions for the Year Ended
December 31, 1999........................................................................ 10
</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 benefits
of the plan of the Crescent Real Estate Equities, Ltd. 401(k) Plan (the "Plan")
as of December 31, 1999 and 1998, and the related statements of changes in net
assets available for benefits of the plan for the years then ended. These
financial statements and the 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 auditing standards generally accepted
in the United States. 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 the Plan as of December 31,
1999 and 1998, and the changes in net assets available for the years then ended
in conformity with accounting principles generally accepted in the United
States.
Our audits were made 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 purposes
of additional analysis and are not a required part of the basic financial
statements, but are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. The supplemental schedules 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
June 16, 2000
1
<PAGE> 4
CRESCENT REAL ESTATE EQUITIES, LTD. 401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Investments, at fair market value: (See Supplemental
Schedule of Assets Held for Investment Purposes) $ 6,264,676 $ 4,129,064
----------------- -----------------
TOTAL ASSETS 6,264,676 4,129,064
----------------- -----------------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $ 6,264,676 $ 4,129,064
================= =================
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
2
<PAGE> 5
CRESCENT REAL ESTATE EQUITIES, LTD. 401(k) PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
ADDITIONS:
Additions to net assets attributed to:
Net realized/unrealized gain (loss) $ 320,393 $ (460,675)
Interest and dividends 116,727 88,674
Contributions:
Company's 350,450 166,869
Participant's 1,403,871 1,034,755
Rollovers 393,325 409,181
---------------- ----------------
Total Contributions 2,147,646 1,610,805
TOTAL ADDITIONS 2,584,766 1,238,804
---------------- ----------------
DEDUCTIONS:
Deductions from net assets attributed to:
Benefits paid to participants (447,289) (149,948)
Other Expenses (1,865) (7,102)
---------------- ----------------
TOTAL DEDUCTIONS (449,154) (157,050)
---------------- ----------------
FORFEITURES -- --
---------------- ----------------
NET CHANGE 2,135,612 1,081,754
NET ASSETS AVAILABLE FOR PLAN
BENEFITS:
BEGINNING OF YEAR 4,129,064 3,047,310
---------------- ----------------
END OF YEAR $ 6,264,676 $ 4,129,064
================ ================
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
3
<PAGE> 6
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 21 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"). The Principal
Financial Group ("Principal") serves as the asset custodian and recordkeeper
for the Plan.
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 in
1999 and 1998). 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 7% 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> <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, 1999 and 1998. 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 Company's contribution and
Plan earnings. Allocations are based on participant earnings or account
balances, as defined.
4
<PAGE> 7
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% 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 11
investment options during 1999 and 1998. A brief description of each
investment option is provided below:
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 for 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.
5
<PAGE> 8
8. Vanguard Wellington -
Funds are invested 60% to 70% in stocks with the remainder
invested in bonds.
9. Large Cap Stock Index -
Funds are invested in companies with large market
capitalizations.
10. International Emerging Markets Fund -
At least 65% of funds are invested in equity securities from
emerging market countries.
11. Stock Fund -
Funds are invested in common shares of Crescent Real Estate
Equities Company. As of December 31, 1999 this stock was
trading at $18.38.
Participants may change their investment options daily for any of the funds.
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% 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 rates at December 31, 1999 and
1998, were 10.25% and 10.5%, 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 $5,000. 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 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 1999 and 1998 were $264 and $845, 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.
6
<PAGE> 9
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.
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, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Small Company Blend $ -- $ 208,231
International Stock Account -- 227,333
Principal Stable Value Fund 645,675 412,997
T. Rowe Price Mid-Cap Growth 877,623 533,194
Vanguard U. S. Growth Fund 2,006,575 1,013,061
Vanguard Wellington 532,939 352,403
Stock Fund 1,187,009 1,157,642
</TABLE>
During 1999 and 1998, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) appreciated in
value by $320,393 and $(460,675), respectively, as follows:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Mutual funds $ 496,554 $ 245,309
Common stock (274,202) (732,251)
Pooled Separate Accounts 87,032 6,752
Common / Collective Trusts 11,009 19,515
-------------- --------------
$ 320,393 $ (460,675)
============== ==============
</TABLE>
The Principal Stable Value Fund includes investment contracts underlying the
funds that are fully benefit responsive. The crediting interest rates range
from 6.5% to 7.1%, while the average yield approximated 8.5%. The investment
contracts are carried at contract value which approximates fair value. There
is no valuation reserve provided for on the contracts. In 1998 the contracts
were not fully benefit responsive and were carried at fair value.
7
<PAGE> 10
4. NONPARTICIPANT-DIRECTED INVESTMENTS
Information about the net assets and significant components of the changes
in net assets relating to the nonparticipant-directed investments is as
follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
-------- --------
<S> <C> <C>
Net Assets:
Crescent Operating Stock $ 3,482 $ 6,657
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
-------- --------
<S> <C> <C>
Changes in Net Assets:
Contributions $ -- $ --
Interfund Transfers (24) (364)
Sales (437) (1,244)
Loss on Sales (2,714) (28,997)
-------- --------
$ (3,175) $(30,605)
======== ========
</TABLE>
5. 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% vested in their accounts. Amounts
will be distributed in accordance with Plan provisions.
6. 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, 1998, and the Company obtained a new
Internal Revenue Service determination letter dated October 1, 1999, for the
amended Plan.
7. RELATED-PARTY TRANSACTIONS:
All administrative expenses and accounting fees of the Plan are to be paid
by the Company. The Company paid approximately $16,867 and $13,415 for
administrative and accounting fees on behalf of the Plan during fiscal years
1999 and 1998, 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.
8
<PAGE> 11
CRESCENT REAL ESTATE EQUITIES, LTD. 401 (k) PLAN
SUPPLEMENTAL SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF DECEMBER 31, 1999
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 $ -- $ 116,006
* The Principal Financial Group Pooled Separate Account - Bond Emphasis Balanced Account -- 168,913
* The Principal Financial Group Pooled Separate Account - Small Company Blend Account -- 261,143
* The Principal Financial Group Pooled Separate Account - International Stock Account -- 264,245
* The Principal Financial Group Principal Stable Value Fund -- 645,675
* The Principal Financial Group Large-Cap Sock Index -- 62,242
* The Principal Financial Group International Emerging Markets -- 35,545
T. Rowe Price Associates Mutual Fund - T. Rowe Price Mid-Cap Growth -- 877,623
Vanguard Mutual Fund - Vanguard U. S. Growth Fund -- 2,006,575
Vanguard Mutual Fund - Vanguard Wellington -- 532,939
* Crescent Real Estate Equities
Company Common Shares (Par value $.01) -- 1,187,009
* Participant Loans Loans to Participants (Interest rates range from
9.75% to 10.25%) -- 103,279
* Crescent Operating, Inc. Common Stock (Par value $.01) 16,998 3,482
---------- ------------
$ 16,998 $ 6,264,676
========== ============
</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, 1999, as required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure.
9
<PAGE> 12
CRESCENT REAL ESTATE EQUITIES, LTD. 401(k) PLAN
SUPPLEMENTAL SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
PLAN NUMBER: 001
EIN: 75-2526839
<TABLE>
<CAPTION>
(a) (b) (c) (d) (f) (g) (h) (i)
EXPENSE CURRENT VALUE
IDENTITY DESCRIPTION INCURRED COST OF ASSET ON NET
OF OF PURCHASE SELLING WITH OF TRANSACTION GAIN
ISSUER ASSET PRICE PRICE TRANSACTION ASSET DATE (LOSS)
----------------------- ---------------------- -------------- --------- ------------------------ --------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
SERIES OF TRANSACTIONS:
There were no series of transactions greater than 5% of the fair market value of
plan assets at the beginning of the year for nonparticipant directed
investments.
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's Rules
and Regulations for Reporting and Disclosure.
10
<PAGE> 13
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 27th day of June 2000.
Dated: June 27, 2000 CRESCENT REAL ESTATE EQUITIES, LTD, 401(k) PLAN
By: /s/ JERRY R. CRENSHAW
--------------------------------------------
Jerry R. Crenshaw
Trustee
11
