<PAGE>
- - --------------------------------------------------------------------------------
CLARION CMBS VALUE
FUND, INC.
- - --------------------------------------------------------------------------------
ANNUAL REPORT
OCTOBER 31, 1999
- - --------------------------------------------------------------------------------
CLARION CMBS VALUE FUND, INC.
- - --------------------------------------------------------------------------------
OFFICERS AND DIRECTORS
Frank L. Sullivan Jr.
Chairman of the Board of Directors
Daniel Heflin
President, Chief Executive Officer and Director
Fredrick D. Arenstein
Treasurer, Compliance Officer and
Chief Financial Officer
Joanne Vitale
Secretary and Director
Robert Kopchains
Vice President
Paul S. Schreiber
Assistant Secretary
E. Robert Roskind
Director
Stephen Asheroff
Director
- - --------------------------------------------------------------------------------
INVESTMENT ADVISER
Clarion Capital, LLC
335 Madison Avenue
New York, NY 10017
- - --------------------------------------------------------------------------------
ADMINISTRATOR
State Street Bank and Trust Company
2 Avenue de Lafayette
Boston, MA 02111
- - --------------------------------------------------------------------------------
CUSTODIAN
Investors Fiduciary Trust Company
801 Pennsylvania Avenue
Kansas City, MO 64105
- - --------------------------------------------------------------------------------
LEGAL COUNSEL
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
<PAGE>
CLARION CMBS VALUE FUND, INC.
c/o Clarion Capital / 335 Madison Avenue / New York, NY 10017
Tel 212-883-2500
December 1999
CLARION CMBS VALUE FUND
Dear Shareholder,
Enclosed is the Annual Report for the Clarion CMBS Value Fund, Inc. (the
"Fund"). This report covers the period from November 1, 1998 through October 31,
1999. The Fund is a non-diversified, open-end management investment company
which was initially capitalized on December 21, 1994 with the sale of 10,011,100
shares of common stock. As of October 31, 1999, the Fund had investments in
commercial mortgage backed securities with a net investment value of $96,588,023
($117,481,981 par amount) and investments in cash equivalents and other net
assets with a net investment value of $2,661,693.
For the period November 1, 1998 through October 31, 1999, the Fund generated an
annual gross total return of 3.8%. This compares to a total return of 1.4% for
the Lehman Brothers Aggregate Intermediate Index and -11.2% for the NAREIT
Index. While the Fund was affected by spread widening brought about by the
market dislocation experienced in the fall of 1998, it has benefited from the
high current income generated by its investments. Currently, the Fund has an
average yield to maturity (7.4 years) of 11.5% with a BB+ average credit
quality, representing excellent value. Given its superior yield, the Fund is
positioned to continue to outperform all relevant indices moving forward.
From a credit perspective, the Fund's seasoned portfolio continues to offer
strong downside protection. The Fund currently invests in a diversified
portfolio of 31 securities, which are backed by more than 5000 loans. The
average mortgage origination date of the loans underlying the portfolio is 1995.
As these mortgages have paid down, the portfolio's subordination level has
increased to 22%, resulting in an effective LTV (average origination date LTV
less subordination) on the current portfolio of 53%.
Given its strong credit quality, the Fund is expected to continue to benefit
from credit upgrades, as mortgages pay down and subordination levels increase.
Over the past two years, the Fund has experienced five credit upgrades based on
the credit quality of its underlying portfolio, and has never had a downgrade.
These upgrades have resulted in additional capital gains, adding to the Fund's
total return. Adding to the Fund's return potential is the anticipated spread
compression in the commercial mortgage sector. CMBS spreads remain at
historically wide levels and are expected to tighten, resulting in substantial
capital appreciation.
In summary, we continue to believe that the Clarion CMBS Value Fund offers one
of the best risk-adjusted returns in today's market.
Daniel Heflin
President
<PAGE>
[GRAPH]
COMPARISON OF VALUE OF A $10,000 INVESTMENT IN CLARION CMBS VALUE FUND, INC.
vs. LEHMAN BROTHERS AGGREGATE INTERMEDIATE INDEX
<TABLE>
<CAPTION>
Clarion CMBS Lehman Brothers Aggregate As of
Value Fund Intermediate Index 12/94
<S> <C> <C>
10,000.00 10,000.00
10,030.09 10,000.00
10,201.12 10,223.47
10,462.78 10,499.74
10,544.04 10,567.57
10,687.08 10,732.36 04/95
11,119.03 11,125.57
11,233.04 11,209.83
11,201.92 11,219.32
11,317.45 11,346.51
11,508.29 11,451.22
11,777.06 11,591.63 10/95
12,016.79 11,763.26
12,183.26 11,918.64
12,286.22 12,034.50
12,113.66 11,886.29
12,160.16 11,822.28
12,136.64 11,776.98 04/96
12,184.05 11,755.80
12,387.77 11,918.94
12,460.54 11,964.30
12,545.38 11,971.50
12,793.45 12,182.43
13,175.56 12,445.13 10/96
13,517.41 12,643.10
13,488.74 12,555.47
13,515.52 12,631.59
13,760.12 12,667.74
13,714.25 12,552.38
14,067.41 12,747.41 04/97
14,490.04 12,878.96
14,813.69 13,030.02
14,550.63 13,329.33
14,565.52 13,267.29
14,934.39 13,452.05
15,182.40 13,624.67 10/97
15,175.25 13,664.90
15,187.53 13,798.08
15,504.97 13,987.66
15,515.61 13,993.26
15,650.26 14,051.51
15,574.07 14,136.79 04/98
15,733.72 14,251.73
15,872.08 14,346.03
15,889.19 14,413.97
16,000.29 14,630.71
16,142.20 14,964.30
15,416.88 14,944.37 10/98
15,207.37 14,978.57
15,377.52 15,048.67
15,508.48 15,154.94
15,335.45 14,975.48
15,464.48 15,097.96
15,570.11 15,161.52 04/99
15,704.24 15,043.42
15,689.95 15,025.97
15,681.80 14,964.86
15,693.63 14,972.09
15,885.04 15,183.84
15,874.01 15,252.09 10/99
</TABLE>
The Lehman Brothers Aggregate Intermediate Index represents securities with a
maturity from 1 up to (but not including) 10 years that are U.S. domestic,
taxable and dollar denominated. The Index covers the U.S. investment grade fixed
rate bond market, with index components for government and corporate securities,
mortgage pass-through securities, and asset-backed securities. Unlike the
returns of the Fund, the total return of the Lehman Brothers Aggregate
Intermediate Index do not include the adverse effects of shareholder
transactions costs and fund operating expenses.
PERFORMANCE INFORMATION
<TABLE>
<CAPTION>
ONE YEAR ENDED INCEPTION TO
OCTOBER 31, 1999 OCTOBER 31, 1999 (a)
---------------- --------------------
<S> <C> <C>
Clarion CMBS Value Fund, Inc. 2.97% 9.65%
</TABLE>
(a) Average annual total return from commencement of Fund operations
(December 21, 1994)
"TOTAL RETURN" IS CALCULATED INCLUDING REINVESTMENT OF ALL DIVIDENDS AND
DISTRIBUTIONS. RESULTS REPRESENT PAST PERFORMANCE AND DO NOT INDICATE FUTURE
RESULTS. THE VALUE OF AN INVESTMENT IN THE FUND AND THE RETURN ON INVESTMENT
WILL FLUCTUATE AND REDEMPTION PROCEEDS MAY BE HIGHER OR LOWER THAN AN INVESTOR'S
ORIGINAL COST.
<PAGE>
CLARION CMBS VALUE FUND, INC.
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1999
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (a)
- - -----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE SECURITIES (97.32%)
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CBM Funding Corp.,
1996-1 Class C 7.860%, 2/1/08 ......................................... $ 3,000,000 $ 2,928,864
CBM Funding Corp.,
1996-1 Class D 8.645%, 2/1/08 ......................................... 960,000 925,471
CS First Boston Mortgage Securities Corp.,
1995-WF1 Class D 7.532%, 12/21/27...................................... 3,000,000 2,945,592
CS First Boston Mortgage Securities Corp.,
1995-WF1 Class E 8.251%, 12/21/27 ..................................... 2,000,000 1,792,686
CS First Boston Mortgage Securities Corp. & DLJ Mortgage Acceptance Corp.,
REMIC 1995-T1 Class D 8.400%, 1/25/05 (b) ............................. 5,839,000 5,034,701
CS First Boston Mortgage Securities Corp. & DLJ Mortgage Acceptance Corp.,
REMIC 1995-T1 Class E 8.400%, 1/25/05 (b) ............................. 11,087,000 8,693,250
CS First Boston Mortgage Securities Corp. & DLJ Mortgage Acceptance Corp.,
REMIC 1995-T1 Class F 8.400%, 1/25/05 (b) (c) ......................... 9,139,184 4,326,115
Chase Commercial Mortgage
1997-2 6.600%, 8/19/12 ................................................ 5,800,000 4,053,150
DLJ Commercial Mortgage Corp.,
1998-CF1 Class B4 7.60%, 1/15/13 (b) .................................. 2,100,000 1,487,913
DLJ Commercial Mortgage Corp.,
1998-CF1 Class B3 7.60%, 1/15/13 (b)................................... 10,000,000 7,793,500
DLJ Mortgage Acceptance Corp.,
1995-CF2 Class B2 8.8196%, 12/17/27 (b) ............................... 2,000,000 1,979,108
DLJ Mortgage Acceptance Corp.,
1996-CF1 Class B2 8.2622%, 5/12/09 (b) ................................ 1,000,000 962,134
EQI Financing Partnership,
1997-1 Class C 7.580%, 2/20/17 (b) .................................... 5,000,000 4,426,155
FFCA Secured Assets Corp.,
1996-C1 Class D 8.910%, 6/25/14 (b) ................................... 2,000,000 1,930,680
Federal Deposit Insurance Corp.,
REMIC Trust 1994-C1 Class IIE 8.700%, 9/25/25.......................... 3,035,390 3,088,203
First Union - Lehman Brothers,
CMO 7.120%, 11/18/12................................................... 1,000,000 831,155
GMAC Commercial Mortgage Securities Inc.,
1997-C1 Class G 7.414%, 12/15/13 (b) .................................. 10,000,000 6,953,720
J.P. Morgan Commercial Mortgage Finance Corp.,
1996-C3 Class E 8.2179%, 4/25/28 ...................................... 500,000 484,554
LB Commercial Conduit Mortgage Trust,
1998-C1 Class E 7.000%, 11/18/12 (b) .................................. 1,000,000 820,552
LB Commercial Conduit Mortgage Trust,
1996-C2 Class E 7.9047%, 10/25/26 ..................................... 1,944,050 1,820,484
LB Mortgage Trust,
1992-M1 Class BE1 8.000%, 2/25/24 ..................................... 1,210,369 1,204,317
See Notes to Financial Statements.
4
<PAGE>
CLARION CMBS VALUE FUND, INC.
PORTFOLIO OF INVESTMENTS --(CONTINUED)
OCTOBER 31, 1999
<CAPTION>
FACE
AMOUNT VALUE (a)
- - -----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE SECURITIES--(CONTINUED)
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Merrill Lynch Mortgage Investors,
1995-C2 Class D 7.689%, 6/15/21 ....................................... $ 979,811 $ 966,377
Midland Realty Acceptance Corp.,
1996-C1 Class E 8.1799%, 8/25/28 ...................................... 2,784,000 2,586,027
Morgan Stanley Capital
1997-HF1 Class F 6.860%, 2/15/10 ..................................... 5,680,000 4,427,441
Morgan Stanley Capital,
1999-WF1 6.979%, 8/15/10 .............................................. 2,000,000 1,748,104
Morgan Stanley Capital I,
1999-1NYP Class F 7.4188%, 5/3/06 (b) ................................. 2,000,000 1,877,762
Mortgage Capital Funding, Inc.,
1995-MC1 Class A4 8.350%, 5/25/27 ..................................... 4,575,500 4,559,207
Nationslink Funding Corp.,
98-1, F 7.05%, 2/20/08 (b) ............................................ 5,000,000 3,784,490
Prudential Securities Secured Financing Corp.,
1995-MCF2 Class F 8.5492%, 12/26/22 (b) ............................... 5,557,000 5,166,632
Resolution Trust Corp.,
1995-C2 Class F 7.000%, 5/25/27........................................ 3,094,142 2,906,891
Resolution Trust Corp.,
1994-C2 Class G 8.000%, 4/25/25........................................ 4,196,535 4,082,788
- - -----------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL MORTGAGE SECURITIES
(COST $101,950,547)................................................... 96,588,023
- - -----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (1.18%)
- - -----------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT (1.18%)
State Street Bank and Trust Company 4.250%, due 11/1/99
(Collateralized by $1,175,000 U.S. Treasury Note,
6.500%, due 10/15/06) (COST $1,171,000)......................... 1,171,000 1,171,000
- - -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.50%)
(COST $103,121,547) (d)................................................ 97,759,023
- - -----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS, NET OF LIABILITIES (1.50%)................................... 1,490,693
- - -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100.00%)....................................................... $99,249,716
===================================================================================================================================
</TABLE>
(a) See Note A to Financial Statements.
(b) 144A Security. Restricted as to public resale. Value of restricted
securities at October 31, 1999 was $55,236,712 or 55.65% of net
assets. (Cost $59,098,891)
(c) Security is deemed illiquid at October 31, 1999.
(d) The cost for federal income tax purposes was $103,121,547. At October
31, 1999, net unrealized depreciation for all securities based on tax
cost was $5,362,524. This consisted of aggregate gross unrealized
appreciation for all securities of $1,789,256 and aggregate gross
unrealized depreciation for all securities of $7,151,780.
See Notes to Financial Statements.
5
<PAGE>
CLARION CMBS VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
<TABLE>
<S> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at Cost......................................................... $ 103,121,547
================
Investments, at Value........................................................ $ 97,759,023
Receivable for fund shares sold.............................................. 450,000
Interest Receivable.......................................................... 1,343,323
Paydown Receivable........................................................... 377,409
Prepaid Expenses............................................................. 149
- - ---------------------------------------------------------------------------------------------------------------------------------
Total Assets.................................................................... 99,929,904
- - ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable to Custodian......................................................... 398,417
Accrued Advisory Fee - Note B................................................ 125,317
Other Liabilities............................................................ 156,454
- - ---------------------------------------------------------------------------------------------------------------------------------
Total Liabilities....................................................... 680,188
- - ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS...................................................................... $ 99,249,716
=================================================================================================================================
NET ASSETS CONSIST OF:
Paid in Capital ............................................................. 106,728,180
Dividends Paid in Excess of Net Investment Income............................ (523,542)
Accumulated Net Realized Loss................................................ (1,592,398)
Unrealized Depreciation...................................................... (5,362,524)
- - ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS...................................................................... $ 99,249,716
=================================================================================================================================
COMMON STOCK
Shares Issued and Outstanding, ($0.01 par value) (Authorized 250,000,000) 12,195,302
Net Asset Value Per Share.................................................... $ 8.14
=================================================================================================================================
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
CLARION CMBS VALUE FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Interest.............................................................. $ 9,304,070
-----------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees - Note B..................................... $ 657,158
Administrative Fees - Note C.......................................... 60,000
Custodian Fees - Note D............................................... 72,510
Audit Fees............................................................ 20,000
Legal Fees............................................................ 130,000
Transfer Agent Fees................................................... 20,000
Directors' Fees - Note F.............................................. 5,200
- - ---------------------------------------------------------------------------------------------------------------------
Total Expenses..................................................... 964,868
Less Fee Waived.................................................... (156,058)
- - ---------------------------------------------------------------------------------------------------------------------
Net Expenses....................................................... 808,810
- - ---------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME..................................................... 8,495,260
- - ---------------------------------------------------------------------------------------------------------------------
NET REALIZED LOSS ON INVESTMENTS.......................................... (1,592,398)
NET CHANGE IN UNREALIZED DEPRECIATION ON INVESTMENTS...................... (3,892,957)
- - ---------------------------------------------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS................................................... (5,485,355)
- - ---------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................... $ 3,009,905
- - ---------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
CLARION CMBS VALUE FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- ----------------
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income...................................... $ 8,495,260 $ 8,186,971
Net Realized Gain/(Loss)................................... (1,592,398) 426,252
Net Change in Unrealized Appreciation/(Depreciation)....... (3,892,957) (6,693,840)
- - ----------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations..... 3,009,905 1,919,383
- - ----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
- - ----------------------------------------------------------------------------------------------------------------
Net Investment Income..................................... (8,368,404) (8,186,971)
In Excess of Net Investment Income......................... - (41,270)
Net Realized Gain.......................................... - (3,106,063)
Return of Capital.......................................... - (3,486,411)
- - ----------------------------------------------------------------------------------------------------------------
Total Distributions.................................... (8,368,404) (14,820,715)
- - ----------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
Issued - Regular........................................... 850,000 -
- In Lieu of Cash Distributions...................... 15,400 4,030,045
- - ----------------------------------------------------------------------------------------------------------------
Net Increase from Capital Share Transactions............. 865,400 4,030,045
- - ----------------------------------------------------------------------------------------------------------------
Total Decrease............................................. (4,493,099) (8,871,287)
Net Assets:
Beginning of Year.......................................... 103,742,815 112,614,102
- - ----------------------------------------------------------------------------------------------------------------
End of Year (including distributions in excess of
net investment income of $523,542 and $650,398,
respectively) ............................................ $ 99,249,716 $ 103,742,815
- - ----------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------
(1) Shares Issued and Redeemed:
Shares Issued............................................. 104,251 -
In Lieu of Cash Distribution.............................. 1,862 430,789
- - ----------------------------------------------------------------------------------------------------------------
106,113 430,789
- - ----------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
CLARION CMBS VALUE FUND, INC.
STATEMENT OF CASH FLOWS
For the Year Ended October 31, 1999
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets from operations....................................... $ 3,009,905
Adjustment to reconcile net increase in net assets from operations
to net cash provided by operating activities:
Purchase of investment securities.............................................. (38,385,840)
Proceeds from sale of investment securities.................................... 28,478,864
Net decrease in short-term securities.......................................... 6,113,000
Principal paydowns............................................................. 3,748,946
Increase in interest receivable................................................ (339,257)
Increase in payable to Custodian............................................... 398,417
Increase in accrued expenses................................................... 86,488
Unrealized depreciation on investments......................................... 3,892,957
Net realized loss on investments............................................... 1,592,398
Decrease in other assets....................................................... 7,204
- - ----------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities.................................... 8,603,082
- - ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES: *
Cash Subscriptions Received...................................................... 400,000
Cash Distributions Paid.......................................................... (9,003,402)
- - ----------------------------------------------------------------------------------------------------------------
Net Cash Used for Financing Activities....................................... (8,603,402)
- - ----------------------------------------------------------------------------------------------------------------
Net Decrease in Cash........................................................... (320)
CASH AT BEGINNING OF YEAR........................................................... 320
- - ----------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR................................................................. $ -
- - ----------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-cash financing activities not included herein consist of reinvestment of
dividends of $15,400.
See Notes to Financial Statements.
9
<PAGE>
CLARION CMBS VALUE FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR DECEMBER 21,
ENDED ENDED ENDED ENDED 1994 (2) TO
PER SHARE OPERATING PERFORMANCE OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 1999 1998 1997 (1) 1996 1995
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 8.58 $ 9.66 $ 9.25 $ 10.82 $ 10.00
- - ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income.............................. 0.70 0.68 0.81 0.93 0.75
Net Realized and Unrealized Gain (Loss)............ (0.45) (0.52) 0.40 0.06 0.78
- - ------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations............... 0.25 0.16 1.21 0.99 1.53
- - ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income.............................. (0.69) (0.68) (0.80) (0.98) (0.71)
In Excess of Net Investment Income................. - - - (0.06) -
Net Realized Gain.................................. - (0.27) - (0.48) -
Return of Capital.................................. - (0.29) - (1.04) -
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions............................ (0.69) (1.24) (0.80) (2.56) (0.71)
- - ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD........................ $ 8.14 $ 8.58 $ 9.66 $ 9.25 $ 10.82
- - ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN
Net Asset Value (3) (4).......................... 3.10% 1.55% 13.65% 10.26% 15.69% (5)
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands)................. $ 99,250 $ 103,743 $ 112,614 $ 107,833 $ 115,796
Ratio of Net Expenses to Average Net Assets........... 0.80% 0.80% 0.79% 0.80% 0.80% (6)
Ratio of Net Investment Income to Average Net Assets.. 8.40% 7.42% 8.56% 9.03% 8.30% (6)
Ratio of Voluntary Waived Fees and Expenses
Assumed by the Adviser to Average Net Assets..... 0.15% 0.13% 0.10% 0.08% 0.05% (6)
Portfolio Turnover Rate............................... 29% 6% 42% 25% 72% (5)
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Effective July 21, 1997, Clarion Capital became the investment adviser to
the Fund.
(2) Commencement of Operations.
(3) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
the period, and assumes dividends and distributions, if any, were
reinvested at net asset value. The Fund's shares are not traded, therefore
market value total investment return is not calculated.
(4) Total return would have been lower had certain fees not been waived during
the periods.
(5) Not annualized.
(6) Annualized.
See Notes to Financial Statements.
10
<PAGE>
CLARION CMBS VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
Clarion CMBS Value Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as a non-diversified, open-end management
investment company. Prior to July 8, 1999, the Fund was registered as a
closed-end management investment company. The objective of the Fund is to
provide high current income by investing primarily in commercial mortgage-backed
securities.
Effective May 11, 1999, the Fund changed its name from 13A Commercial Mortgage
Securities Fund, Inc. to the Clarion CMBS Value Fund, Inc.
The Fund's common stock is not registered under the Securities Act of 1933. The
Fund has two classes of shares, Class A and Class X. Class A Shares are offered
on a private placement basis only. Class X Shares are owned by investors who
received their interests in the Fund at the time the Fund was a closed-end Fund.
There were no Class A Share transactions during the year ended October 31, 1999
and no shares were outstanding as of October 31, 1999.
A. SIGNIFICANT ACCOUNTING POLICIES: The following significant accounting
policies are in conformity with generally accepted accounting principles. Such
policies are consistently followed by the Fund in the preparation of its
financial statements. Generally accepted accounting principles may require
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results may differ from
those estimates.
1. SECURITY VALUATION: Commercial mortgage securities' and other
fixed income securities' valuations are based on information with
respect to transactions in such securities, quotations from dealers,
market transactions in comparable securities and various relationships
between securities. Short-term investments that have remaining
maturities of sixty days or less at time of purchase are valued at
amortized cost, if it approximates market value.
The value of commercial mortgage securities for which no quotations
are readily available are determined in good faith at fair value using
methods approved by the Board of Directors. These prices may differ
from the value that would have been used had a broader market for the
securities existed and the differences could be material to the
financial statements.
2. FEDERAL INCOME TAXES: It is the Fund's intention to qualify as a
regulated investment company under Subchapter M of the Internal
Revenue Code and to distribute all of its taxable income. Accordingly,
no provision for Federal income taxes is required in the financial
statements.
3. REPURCHASE AGREEMENTS: In connection with transactions involving
repurchase agreements, the Fund's custodian takes possession of the
underlying securities, the value of which exceeds the principal amount
of the repurchase transaction, including accrued interest. To the
extent that any repurchase transaction exceeds one business day, the
value of the collateral is monitored on a daily basis to determine the
adequacy of the collateral. In the event of default on the obligation
to repurchase, the Fund has the right to liquidate the collateral and
apply the proceeds in satisfaction of the obligation. In the event of
default or bankruptcy by the other party to the agreement, realization
and/or retention of the collateral or proceeds may be subject to legal
proceedings.
4. DISTRIBUTIONS TO SHAREHOLDERS: The Fund will distribute
substantially all of its net investment income monthly. Any realized
net capital gains will be distributed annually. All distributions are
recorded on the ex-dividend date. Under the Fund's Automatic Dividend
Reinvestment Plan, all dividends and capital gain distributions are
automatically reinvested
11
<PAGE>
CLARION CMBS VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
in additional shares at net asset value. Shareholders who do not elect
to participate in such Plan will receive their dividends and
distributions in cash unless the Board of Directors elects to pay such
distributions in shares of the Fund's common stock.
The amount and character of income and capital gain distributions to
be paid are determined in accordance with Federal income tax
regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing book and
tax treatments of distributions.
5. RESTRICTED SECURITIES: The Fund is permitted to invest in
privately placed restricted securities. These securities may be resold
in transactions exempt from registration. Disposal of these securities
may involve time consuming negotiations and expense, and prompt sale
at an acceptable price may be difficult.
6. OTHER: Security transactions are accounted for on the trade date,
the date the trade was executed. Costs used in determining realized
gains and losses on the sale of investment securities are based on the
specific identification method. Interest income is recognized on an
accrual basis.
B. ADVISORY SERVICES: Clarion Capital provides investment advisory services to
the Fund at a fee calculated at an annual rate of 0.65% of the Fund's average
monthly net assets. The Advisor has waived its fee to the extent necessary to
limit the Fund's total expenses to 0.80% of average net assets.
C. ADMINISTRATION SERVICES: The Fund engages State Street Bank and Trust
Company (the "Bank") to provide limited administration services in accordance
with the administration agreement.
D. CUSTODIAN: Investors Fiduciary Trust Company serves as custodian for the
Fund's assets held in accordance with the custodian agreement.
E. PURCHASES AND SALES: For the year ended October 31, 1999, the Fund made
purchases of $38,385,840 and sales of $28,478,864 of investment securities other
than long-term U.S. Government and short-term securities. There were no
purchases or sales of long-term U.S. Government securities during the period.
F. DIRECTORS AND LEGAL FEES: Each Director, who is not an officer or
affiliated person, receives $1,500 per annum plus $250 per meeting attended.
Legal fees of $16,620 were paid to a law firm in which a partner is an officer
of the Fund.
G. OTHER: At October 31, 1999, 99.9% of total shares outstanding were held by
one record shareholder.
12
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REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Clarion CMBS Value Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and cash
flows, and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Clarion CMBS Value Fund,
Inc. (the "Fund") at October 31, 1999, and the results of its operations and
cash flows, the changes in its net assets and the financial highlights for the
year then ended, the year ended October 31, 1996 and the period from December
21, 1994 (commencement of operations) to October 31, 1995, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above. The financial statements for the year ended October 31, 1998,
including the financial highlights for each of the two years in the period ended
October 31, 1998, were audited by other independent accountants whose report
dated November 19, 1998 expressed an unqualified opinion on those financial
statements.
PricewaterhouseCoopers LLP
New York, New York
December 16, 1999
13
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CHANGE IN INDEPENDENT ACCOUNTANT
On August 13, 1999, McGladrey & Pullen, LLP ("McGladrey") resigned as
independent auditors of the Fund pursuant to an agreement by
PricewaterhouseCoopers LLP ("PwC") to acquire McGladrey's investment company
practice. The McGladrey partners and professionals serving the Fund at the time
of the acquisition joined PwC.
The reports of McGladrey on the financial statements of the Fund during the past
two fiscal years contained no adverse opinion or disclaimer of opinion, and were
not qualified or modified as to uncertainty, audit scope or accounting
principles.
In connection with its audits for the two most recent fiscal years and through
October 31, 1998, there were no disagreements with McGladrey on any matter of
accounting principle or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
McGladrey would have caused it to make reference to the subject matter of
disagreement in connection with its report.
Effective October 31, 1999, the Fund, with the approval of its Board of
Directors and its Audit Committee, engaged PwC as its independent auditors.
14
