<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934
      For the fiscal year ended December 31, 2000

                                       OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

        For the transition period from ______________ to ________________

                         Commission File Number: 1-14167

                        CLARION COMMERCIAL HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)

              Maryland                                     13-3988895
--------------------------------------------------------------------------------
  (State or other jurisdiction of              (IRS Employer Identification No.)
   incorporation or organization)

            335 Madison Avenue,
             New York, New York                              10017
--------------------------------------------------------------------------------
 (Address of principal executive offices)                  (Zip Code)

        Registrant's telephone number including area code: (212) 883-2500

           Securities registered pursuant to Section 12(g) of the Act:

      Title of each class:           Name of each exchange on which registered:
      --------------------           ------------------------------------------
      Class A Common Stock                      New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|

At March 15, 2001, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $31,772,465 based upon the
closing sale price of the Class A Common Stock ($.001 par value) on the New York
Stock Exchange on that date. As of March 15, 2001, 4,073,393 shares of Class A
Common Stock ($.001 par value) were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy Statement to be issued in
connection with the 2000 Annual Meeting of Stockholders are incorporated by
reference into Part III hereof.


                                       1




<PAGE>



TABLE OF CONTENTS

PART I.........................................................................3

   ITEM 1.  BUSINESS...........................................................3
   ITEM 2.  PROPERTIES........................................................12
   ITEM 3.  LEGAL PROCEEDINGS.................................................12
   ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............12

PART II.......................................................................12

   ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
            SHAREHOLDER MATTERS...............................................12
   ITEM 6.  SELECTED FINANCIAL DATA...........................................13
   ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS.........................................14
   ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........19
   ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................22
   ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
            AND FINANCIAL DISCLOSURE..........................................22

PART III......................................................................22

   ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................22
   ITEM 11. EXECUTIVE COMPENSATION............................................22
   ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....22
   ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................22

PART IV.......................................................................23

   ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K..................................23


                                       2




<PAGE>



                                     PART I

ITEM 1. BUSINESS

GENERAL

Clarion Commercial Holdings, Inc. (the "Company"), a Maryland corporation, was
organized in February 1998 as a specialty finance company and has elected to be
a real estate investment trust (a "REIT") for U.S. Federal income tax purposes.
The Company's objective is to build a diverse portfolio of commercial real
estate investments ("Real Estate Investments") in an attempt to provide a high
rate of return to its stockholders, without incurring risk deemed unacceptable
by the Company's investment manager or that would compromise the Company's REIT
qualification.

On October 12, 2000, the Company's Board of Directors unanimously voted to
recommend that a plan of liquidation and dissolution be submitted to its
stockholders. After reviewing the Company's strategic alternatives, the Board
concluded that the liquidation of the Company was the best available alternative
for maximizing stockholder value and, accordingly, was in the best interest of
the Company and its stockholders. On March 6, 2001, the Company's Board of
Directors approved a specific plan of liquidation and dissolution and determined
to submit the plan to the Company's stockholders for their consideration. In
addition, on March 8, 2001, the Company entered into a liquidation agreement
pursuant to which, subject to the approval of the plan of liquidation and
dissolution by the Company's stockholders, (i) the Company's existing management
agreement with Clarion Capital, LLC would be amended to provide that Clarion
Capital, LLC, the existing manager of the Company's assets, will manage the
liquidation of the Company and (ii) the Company would sell to Clarion Capital,
LLC for $250,000 the Company's 10% membership interest in Clarion Capital, LLC
and the Company's option to purchase the remaining 90% membership interest in
Clarion Capital, LLC. The liquidation agreement also extends the exercise period
for the Company's option to purchase the remaining 90% membership interest in
Clarion Capital from March 31, 2000 to November 30, 2001 so that the Company
will retain the ability to exercise this option if the plan of liquidation and
dissolution is not approved by the Company's stockholders and, as a result, this
option is not sold to Clarion Capital, LLC.

The Company is not soliciting the vote of any of its stockholders with respect
to the plan of liquidation and dissolution pursuant to this Annual Report on
Form 10-K. The Company intends to provide to stockholders as soon as reasonably
practicable a definitive proxy statement relating to an annual meeting of
stockholders at which, among other things, the plan of liquidation and
dissolution will be considered.

The Company focuses primarily on the following types of Real Estate Investments:

The Company may acquire various classes (primarily subordinate, including "first
loss") of commercial mortgage-backed securities ("CMBS"). CMBS are generally
multiclass debt or pass-through securities backed by a commercial mortgage loan
or a pool of commercial mortgage loans. Subordinate classes of CMBS offer a
higher expected rate of return than more senior classes of CMBS, but are subject
to greater risk of loss of principal and nonpayment of interest.

The Company may also make other investments in commercial real estate assets,
including mezzanine investments, real property investments and investments in
companies that have substantial holdings of real estate related assets.


                                       3




<PAGE>



The following table sets forth the composition of the Company's principal
assets:

                       Table 1.1 - Principal Assets as of

<TABLE>
<CAPTION>
                                              December 31, 2000            December 31, 1999
                                        -------------------------------------------------------
                 Asset                                    Value as %                 Value as %
                                             Value         of Total        Value      Of Total
                                          ($ million)       Assets      ($ million)    Assets
-----------------------------------------------------------------------------------------------
<S>                                          <C>            <C>           <C>             <C>
CMBS                                         $ 48.6         59.3%         $  100.9        76.4%
Deposits with brokers as collateral
for securities sold short                      28.0         34.2%             25.2        19.1%
Mezzanine investment                            3.9          4.8%              3.9         2.9%
                                        -------------------------------------------------------
     TOTAL                                   $ 80.5         98.3%         $  130.0        98.4%
                                        =======================================================
</TABLE>

THE MANAGER

The Company has no employees. The Company's day-to-day operations are managed by
Clarion Capital, LLC (the "Manager"), subject to the direction and oversight of
the Company's Board of Directors and the terms of a Management Agreement (the
"Management Agreement") between the Manager and the Company. The Manager was
formed in December 1997 and has registered with the SEC as an investment
adviser.

The Manager is responsible for the investments and day-to-day operations of the
Company and performs (or causes to be performed) services and activities
relating to the assets and operations of the Company, including:

1.    Serving as the Company's consultant with respect to formulation of
      investment criteria and preparation of policy guidelines by the Board of
      Directors;

2.    Representing the Company in connection with the purchase and sale of
      assets, the commitment to purchase and sell assets, and the maintenance
      and administration of its portfolio of assets.

3.    Furnishing reports and statistical and economic research to the Company
      regarding the Company's activities and the services performed for the
      Company by the Manager;

4.    Monitoring and providing to the Board of Directors on an ongoing basis
      price information and other data obtained from certain nationally
      recognized dealers that maintain markets in assets identified by the Board
      of Directors, and providing data and advice to the Board of Directors in
      connection with the identification of such dealers;

5.    Providing executive and administrative personnel, office space and office
      services required in rendering services to the Company;

6.    Administering the day-to-day operations of the Company and performing and
      supervising the performance of other administrative functions agreed upon
      by the Manager and the Board of Directors as necessary in the management
      of the Company, including the collection of revenues and the payment of
      the Company's debts and obligations, the submission of required public
      filings by the Company and maintenance of appropriate computer services to
      perform such administrative functions;

7.    Communicating on behalf of the Company with the holders of the Company's
      equity or debt securities as required to satisfy the reporting and other
      requirements of any governmental bodies or agencies or trading markets and
      to maintain effective relations with those holders;

8.    Designating originators, servicers, property managers, developers, asset
      managers and other servicers with respect to the investments made by the
      Company and arranging for the monitoring and administering of those
      service providers;


                                       4




<PAGE>



9.    Counseling the Company in connection with policy decisions to be made by
      the Board of Directors;

10.   Engaging in hedging and financing activities on behalf of the Company,
      consistent with the Company's status as a REIT;

11.   Counseling the Company regarding the maintenance of its status as a REIT
      and monitoring compliance with the various REIT qualification tests and
      other rules set out in the Code and Treasury Regulations thereunder.

During the term of the Management Agreement, the Manager has agreed not to
provide any of the foregoing services to any public REIT with investment
objectives similar to those of the Company.

MANAGEMENT FEES

For performing its services under the Management Agreement, the Manager receives
an annual base management fee, payable monthly, and an annual incentive fee,
payable quarterly, as described below. (Capitalized terms used and not defined
in this section have the meanings assigned to them in the Management Agreement.)

Base Management Fee - 1% of the average stockholders' equity in the Company,
excluding any mark-to-market adjustments to the Company's assets. Stockholders'
equity will be determined in accordance with generally accepted accounting
principals.

Incentive Fee - The product of (A) 25% of the dollar amount by which (1)
Adjusted Net Income of the Company per share of common stock (based on the
weighted average number of shares outstanding) exceeds (2) an amount equal to
(a) the weighted average of the price per share of the common stock at the
initial offering and the prices per share at any secondary offerings of common
stock by the Company multiplied by (b) the Ten-Year U.S. Treasury Rate plus 2.5%
per annum multiplied by (B) the weighted average number of shares of common
stock outstanding, calculated as a quarterly average over the prior four
quarters.

In accordance with the terms of the Management Agreement, the Company paid the
Manager $536,297, $575,928 and $495,596 in base management fees for the years
ended December 31, 2000 and 1999 and for the period June 2, 1998 (commencement
of operations) to December 31, 1998, respectively. The Company has neither
accrued for, nor paid, the Manager any incentive compensation since commencement
of operations.

INVESTMENT OBJECTIVES AND POLICIES

The Company pursues policies and strategies for acquiring Real Estate
Investments in an attempt to provide a high rate of return to its stockholders
without incurring risk deemed unacceptable by the Manager or compromising the
Company's REIT qualification. The Company's income results primarily from the
spread between the interest generated by the Company's assets and the cost of
financing and hedging these assets. The Company also realizes gains or losses
upon the disposition of its assets. The Company leverages its investments in
such assets primarily through repurchase agreements. The Company also engages in
a variety of interest rate risk management techniques for the purpose of
managing the interest rate risk of its assets and liabilities. All of these
transactions are subject to risks and may limit the potential earnings from the
Company's investments.


                                       5




<PAGE>



INVESTMENTS

The Company invests principally in the following types of assets:

CMBS

The Company acquires various classes (primarily subordinate, including "first
loss") of CMBS. CMBS are generally multiclass debt or pass-through securities
backed by a commercial mortgage loan or a pool of commercial mortgage loans.
CMBS include, but are not limited to, regular and residual interests in REMICs
(the term "REMIC" means a real estate mortgage investment conduit) and regular
interests in certain FASITs (the term "FASIT" means a financial asset
securitization investment trust) and may be issued in public (registered) or
private transactions by either governmental or private entities. Private issuers
include investment banks, commercial banks, insurance companies and property
owners.

Of the interests in CMBS that the Company acquires, most are in subordinate
classes; however, the Company may also purchase more senior classes or combined
classes of subordinate and more senior classes. Subordinate CMBS are generally
not registered under the Securities Act of 1933, as amended, and are traded in
the private market. However, a significant number of U.S. investment banks are
active dealers in this market and act as principal underwriters of new CMBS
issues.

Generally, investors in senior securities are protected against potential losses
on underlying mortgage collateral through priorities as to payment of principal
and interest. Although protections against loss to investors in subordinate
securities may include investor guarantees, reserve funds, excess interest,
cross-collateralization and over-collateralization, subordinate securities may
lack sufficient credit protection and are thus more sensitive to the default of
underlying mortgage collateral than senior securities of the same issuer.

The yield-to-maturity on subordinate CMBS may be extremely sensitive to the
default and loss experience of the underlying mortgage collateral and the timing
of any such defaults or losses. Because the subordinate classes generally have
little or no credit support, to the extent there are realized losses on the
mortgage collateral, the Company will experience a concurrent loss and as a
result may not recover the full amount, or any, of its investment in such
subordinate CMBS.

Ratings may be assigned to CMBS by the rating agencies such as Fitch IBCA
Investors Service L.P. ("Fitch"), Moody's Investors Service, Inc. ("Moody's")
and Standard & Poor's Ratings Group ("S&P"). These ratings are substantially
determined by the debt service coverage and loan-to-value ratios of the pool and
are relative, representing the subjective opinions of the agencies. It is
possible that an agency may change its rating, after its initial evaluation, to
reflect subsequent events, both negative and positive. Therefore, although these
ratings will be used by the Manager as an important factor in its selection
process, the Manager will rely principally upon its own credit analysis.

The following tables present information on the Company's investments in CMBS as
of December 31, 2000 and 1999. Included in the tables are the following terms:

DELINQUENCIES - Represents the total unpaid principal balance of the loans
underlying the CMBS more than 60 days delinquent at the indicated date as a
percentage of the unpaid principal balance of the collateral at that date.

ISSUE DATE - Represents the date on which the indicated security was issued.

SUBORDINATION PERCENTAGE - Represents the principal amount of securities and the
reserve fund (if any) that are subordinate in right of payment to the indicated
class of CMBS, expressed as a percentage of the entire outstanding amount of
securities and the reserve fund.


                                       6




<PAGE>



WEIGHTED AVERAGE DSCR - Represents the weighted average of the debt service
coverage ratios of the loans underlying the CMBS, which is calculated by
dividing cash flow available for debt service by debt service as reported in the
offering memorandum for each issue.

WEIGHTED AVERAGE LTV - Represents the weighted average of the ratio of the loan
amount to the value of the underlying collateral as reported in the offering
memorandum for each issue.

          TABLE 1.2 - CMBS Investments as of December 31, 2000 and 1999

<TABLE>
<CAPTION>

                                                                                           Subordination
Securities as of                                        Wtd. Avg DSCR    Wtd. Avg LTV      Percentage as     Delinquencies
    12/31/00           Face Amount       Issue Date      at Issuance      at Issuance        of 12/31/00     as of 12/31/00
---------------------------------------------------------------------------------------------------------------------------
<S>                       <C>              <C>               <C>             <C>                <C>                   <C>
CCMSC 1998-2              $ 6,155,000      11/19/98          1.53            68.39%             5.36%                 0.00%
DLJCM 1998-CF1              5,000,000      03/02/98          1.35            65.40              6.53                  0.45
DLJCM 1998-CF1             15,000,000      03/02/98          1.35            65.40              2.84                  0.45
DLJCM 1998-CF1              6,300,000      03/02/98          1.35            65.40              2.07                  0.45
DLJCM 1998-CF1             16,800,140      03/02/98          1.35            65.40              0.00                  0.45
GMAC 1997-C1               15,000,000      09/30/97          1.33            71.48              7.28                  0.15
MART 1999-1                16,440,000      11/25/97          2.46            57.67              0.00                  0.00
                          -----------                        -------------------------------------------------------------

Total / Wtd. Avg          $80,695,140                        1.73            64.62%             3.32%                 0.18%
                          ===========                        =============================================================

<CAPTION>
                                                                                           Subordination
Securities as of                                        Wtd. Avg DSCR    Wtd. Avg LTV       Percentage as     Delinquencies
    12/31/99           Face Amount       Issue Date      at Issuance      at Issuance        of 12/31/99     as of 12/31/99
---------------------------------------------------------------------------------------------------------------------------
<S>                       <C>              <C>               <C>             <C>               <C>                    <C>
BTR 1998-SIA              $22,000,000      02/13/98          1.65            73.91%            54.34%                 0.00%
CDCSC 1999-FL1             15,000,000      12/16/99          1.47            57.60             47.00                  0.00
DLJCM 1998-CF1              5,000,000      03/02/98          1.35            65.40              6.45                  0.32
DLJCM 1998-CF1             12,000,000      03/02/98          1.35            65.40              2.81                  0.32
DLJCM 1998-CF1              6,300,000      03/02/98          1.35            65.40              2.04                  0.32
DLJCM 1998-CF1             16,800,140      03/02/98          1.35            65.40              0.00                  0.32
DLJCM 1999-STF1            10,000,000      11/05/99          1.16            69.20             50.00                  0.00
GMAC 1997-C1               15,000,000      09/30/97          1.33            71.00              6.98                  0.44
MART 1999-1                16,440,000      11/25/97          2.46            57.67              0.00                  0.00
MSC 1998-XL1                4,776,000      06/11/98          1.90            58.40              1.52                  0.00
MSC 1998-XL1               13,888,151      06/11/98          1.90            58.40              0.00                  0.00
                          -----------                        -------------------------------------------------------------

Total / Wtd. Avg          $137,204,291                       1.65            64.97%            24.91%                 0.09%
                          ===========                        =============================================================
</TABLE>


                                       7




<PAGE>



              TABLE 1.3 - Distribution of Loans Underlying the CMBS
                     Investments by Property Type and State

<TABLE>
<CAPTION>
                          Percentage as of                   Percentage as of
     Property Type           12/31/00 (1)         State         12/31/00 (1)
     ------------------------------------------------------------------------
<S>                           <C>            <C>                    <C>
        Retail                54.1%                CA               28.6%
      Multifamily             12.1                 MO               12.3
        Office                11.7                 NY                6.3
         Hotel                 9.9                 NJ                6.1
      Industrial               4.7           All others (2)         46.7
         Other                 7.5
</TABLE>

            (1)   Based on a percentage of the total unpaid principal balance to
                  the underlying loans.

            (2)   No other state comprises more than 5% of the total.

          TABLE 1.4 - Distribution of CMBS Investments by Rating Class

<TABLE>
<CAPTION>
                                                    Distribution
                                  Rating           as of 12/31/00
                         -----------------------------------------
<S>                                                         <C>
                         BBB                                 33.1%
                         BB                                  42.1
                         B                                   18.5
                         NR                                   6.3
                                                  ----------------
                         TOTAL                             100.0%
                                                  ================
</TABLE>

COMMERCIAL MORTGAGE LOANS

During 1999, the Company disposed of its investment in a commercial mortgage
loan for proceeds of $11.9 million. The Company realized a loss of approximately
$1.0 million during 1999 due to impairment provisions and the ultimate sale of
the loan. The investment was a first mortgage loan secured by The OMNI Hotel in
Newport News, Virginia. The mortgage loan was made on December 18, 1997 and had
an original principal amount of $12.6 million.

As of December 31, 2000, the Company did not own any commercial mortgage loan
investments.

MEZZANINE INVESTMENTS

The Company may make mezzanine investments, primarily in the form of preferred
equity. A preferred equity investment is an ownership interest in real property
that is generally entitled to receive preferential treatment with respect to
distributions of income generated by that property.

Mezzanine investments generally provide the Company with interest at a higher
rate than typically paid on the senior mortgage plus, in most cases, a
percentage of gross revenues or, to the extent consistent with REIT
qualification, net operating income from the underlying property, payable to the
Company on an ongoing basis, and a percentage of any increase in value of the
property, payable upon maturity or refinancing. In other instances, the Company
may receive an interest rate that provides an attractive risk-adjusted return.

As an example of a mezzanine investment, the Company may lend to, or invest as
preferred equity in, the owner of a commercial property that is subject to a
first mortgage lien equal to 70% of its value an additional 20% to 25% of the
value of the property. Typically, in the case of a loan, either the owner would
pledge to the Company, as security for its


                                       8




<PAGE>



debt to the Company, the property subject to the first lien (giving the Company
a second lien position), or, subject to REIT qualification requirements,
partners (or members) of the owner would pledge a partnership or limited
liability company ("LLC") interest in the owner (with, in either case, covenants
by the partnership or LLC in favor of the Company). If a partnership or LLC
interest is pledged, then the Company may be in a position to make decisions
with respect to the operations of the property in the event of a default on the
loan.

As of December 31, 2000, the Company had one mezzanine investment with a
carrying value of $3.9 million. The investment is a preferred limited
partnership interest in the owner of The Allwood Brighton Office Center in
Clifton, Passaic County, New Jersey. This investment is entitled to an annual
return of 11% per annum and a $20,000 return of capital per annum, plus an
accrual of an additional 3% per annum, payable on the redemption date for this
investment or earlier to the extent of available net cash flow from the
property. Such redemption date is August 1, 2002, subject to certain
acceleration and extension options. With respect to this investment, "available
net cash flow" means cash flow after the payment of operating expenses, tenant
improvements, mortgage payments, the 11% annual return on this investment, the
$20,000 return of capital per annum and agreed upon reserves. In addition to
such fixed returns, the Company will be entitled to receive (1) 20% of
"available net cash flow" after payment of the 3% accrual described above and
(2) 20% of the "residual." With respect to this investment, "residual" means net
proceeds from the disposition or refinancing of the property less the remaining
balance of the senior mortgage, less the principal amount of this investment and
any unpaid or accrued interest thereon, less any capital contributions made by
the property owner, these contributions not to exceed $300,000. In the case of a
refinancing, an independent appraisal will be used to determine the disposition
proceeds.

The senior mortgage loan on the property is in an original principal amount of
$9.6 million and bears interest at a fixed rate of 7.85% per annum, which rate
can be reset by the mortgagee on August 1, 2002. In the event the property owner
accepts a rate reset, the senior loan will be extended for an additional five
years. If the property owner does not accept a rate reset, the loan will mature
on August 1, 2002. The senior mortgage amortizes over a 25-year period, was
originated on July 16, 1997 and prepayment was prohibited until July 16, 1999.
No prepayments have been made. A yield maintenance premium will be due in the
case where a prepayment is made after July 16, 1999 and more than 120 days
before maturity.

The property consists of three suburban office buildings totaling 164,036 square
feet of net rentable area. The first building contains four floors, 52,445
rentable square feet and is 100% occupied by five tenants. The second building
contains four floors, 52,591 rentable square feet and is 100% occupied by 14
tenants. The third building contains two floors, 59,000 rentable square feet and
is occupied 100% by one tenant. The effective rent for all three buildings as of
March 2001 was $17.47 per square foot.

The two four story buildings were built in 1986. Each building lobby has a
four-story atrium featuring circular interior stairwells and rooftop skylights.
Two elevators in each building provide access from the lobby. The third building
was constructed in the 1950's and was completely renovated in 1992. There are
currently no plans to further renovate or improve the property.

The third building is 100% leased to a national retailer, pursuant to a lease
that expires on September 30, 2008 and has an annual rent of $1,037,810. The
same retailer also occupies 17,560 square feet in the first building under a
separate lease that expires on December 31, 2005 and has an annual rent of
$298,520. The same retailer also occupies 10,442 square feet in the second
building under a third lease that expires on December 31, 2005 and has an annual
rent of $184,372. The businesses carried on by the other tenants include an
employment agency, a trade association, a construction company and a publishing
company. The retailer is the only tenant occupying more than 10% of the rentable
square footage of the property.


                                       9




<PAGE>



The following table details the schedule of lease expirations for the next five
years:

             TABLE 1.5 - Lease Expirations for Mezzanine Investment

<TABLE>
<CAPTION>
                                                              % of Gross
                    Square Footage          Annual Rent       Annual Rent
          Year         Expiring               Expiring          Expiring
         ----------------------------------------------------------------
<S>                        <C>               <C>                    <C>
          2001             7,144 SF          $ 119,820              4.18%
          2002            16,882 SF          $ 296,940             10.36%
          2003            38,838 SF          $ 656,415             22.91%
          2004                -- SF          $      --                --
          2005            39,672 SF          $ 739,632             25.82%
</TABLE>

As of December 31, 2000, the borrower was current on all obligations to the
Company under the terms of this mezzanine investment.

Other Eligible Investments

The Company may invest in real property, including under-performing real
property and development and rehabilitation projects. Under-performing real
property and development and rehabilitation projects can be risky investments
because they generally do not generate sufficient cash flow to provide a current
cash return on the investment after meeting operating expenses and debt service.
The Company, however, will seek opportunities to purchase such real property at
attractive prices. The Company's general goal with respect to each real property
will be to purchase it at a favorably low price and to reposition or convert the
use of the property if required to improve its cash flow by proper management.

The Company may also invest in companies that have substantial holdings of Real
Estate Investments. In the case of an investment in a taxable corporation, the
investment generally may represent neither (1) more than 5%, measured by fair
market value, of the total assets of the Company nor (2) more than 10% of the
voting securities of the taxable corporation.

As of December 31, 2000, the Company had made no investments in real property,
development or rehabilitation projects, foreign real estate or real estate
companies.

The Company may also make investments in U.S. Government securities (including
U.S. Treasury securities and securities issued by agencies or instrumentalities
of the U.S. Government), asset-backed securities including, but not limited to,
securities backed by consumer receivables, business receivables, corporate
obligations, insurance premiums, etc.), mortgage-backed securities (agency and
non-agency), corporate debt securities, commercial paper, money market
instruments, non-contingent interest bearing deposits in banks chartered by or
within the U.S. and money market mutual funds.

As of December 31, 2000 and 1999, the Company had sold short U.S. Treasury
securities with a face amount of $27.8 million and $25.3 million as part of the
Company's strategy of hedging the Company's portfolio against interest rate
changes.

TAXATION OF THE COMPANY

The Company has elected to be taxed as a REIT under sections 856 through 860 of
the Code (the "Code" means the Internal Revenue Code of 1986, as amended)
commencing with its short taxable year ending on December 31, 1998. The Company
currently expects that it will operate in a manner that will permit the Company
to qualify as a REIT, which depends on its ability to meet various requirements
imposed by the code, including income and asset tests, distribution levels, and
stock ownership diversity. Treatment as a REIT will permit the Company to deduct
dividend distributions to its stockholders for federal income tax purposes,
thus, effectively eliminating the "double taxation" that generally results when
a corporation earns income and distributes that income to its stockholders.


                                       10




<PAGE>



There can be no assurance, however, that the Company will qualify as a REIT in
any particular taxable year, given the highly complex nature of the rules
governing REITs, the ongoing importance of factual determinations and the
possibility of future changes in the circumstances of the Company including the
proposed liquidation. The Company may be subject to state and local taxes in
certain jurisdictions.

If the Company fails to qualify for taxation as a REIT in any taxable year, and
the relief provisions do not apply, the Company may be subject to tax (including
any applicable alternative minimum tax) on its taxable income at regular
corporate rates. The Company might be required to borrow funds or liquidate
certain investments in order to pay the applicable tax. Distributions to the
Company's stockholders in any year in which the Company fails to qualify may not
be deductible by the Company nor will they be required to be made. In such
event, to the extent of the Company's current and accumulated earnings and
profits, all distributions to stockholders will be taxable as ordinary income
and, subject to certain limitations of the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, the Company also will be disqualified from
taxation as a REIT for the four taxable years following the year during which
the Company ceased to qualify as a REIT. It is not possible to state whether in
all circumstances the Company would be entitled to statutory relief.

INVESTMENT ACTIVITY

Acquisitions and Dispositions

During 2000, the Company acquired 11 classes of CMBS in open market transactions
for $61.1 million. The Company disposed of 13 classes of CMBS, in open market
transactions for approximately $93.5 million. The sale of these securities
resulted in realized losses of $2.2 million.

During 1999, the Company acquired 6 classes of CMBS in open market transactions
for $50.9 million. The Company disposed of 5 classes of CMBS, all of which had
been acquired in 1998, in open market transactions for approximately $29.0
million. The sale of these securities resulted in realized losses of $5.9
million. Concurrent with the sale of the CMBS, the Company closed related hedge
(short) positions in government securities, resulting in offsetting realized
gain of $2.5 million.

In 1999, the Company disposed of its investment in a commercial mortgage loan in
an open market transaction for $11.9 million. The Company realized a loss of
$1.0 million on the disposition.

The proceeds from the sales of CMBS and the commercial loan were used by the
Company to reduce its borrowings under repurchase agreements. The following
chart shows the outstanding principal amount of borrowings by the Company under
repurchase agreements, and shareholders' equity of the Company as of the end of
the last eight fiscal quarters:

               TABLE 1.6 - Borrowings under Repurchase Agreements

<TABLE>
<CAPTION>
                           Borrowings under
                        Repurchase Agreements     Stockholders' Equity
              Date              ($MM)                    ($MM)
             ---------------------------------------------------------
<S>                                <C>                      <C>
              3/31/99             $58.7                    $40.6
              6/30/99              71.7                     41.1
              9/30/99              32.2                     42.0
             12/31/99              64.7                     40.6
              3/31/00              55.9                     39.2
              6/30/00              30.8                     38.6
              9/30/00              32.4                     38.3
             12/31/00              14.1                     38.0
</TABLE>


                                       11




<PAGE>



ITEM 2. PROPERTIES

The Company owns no real property. The Company utilizes office space of the
Manager at 335 Madison Avenue, New York, NY 10017 as its executive office.

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
        MATTERS

The Common Stock of the Company has been trading on the New York Stock Exchange
since its initial offering on June 2, 1998 under the symbol "CLR". As of March
15, 2001, the closing price for the Company's common stock, as reported on the
New York Stock Exchange was $7.80 and the Company had 4,073,393 shares of Common
Stock outstanding, which were held by 36 holders of record and approximately
1,600 beneficial owners.

The following table sets forth the high, low and closing share price as reported
on the New York Stock Exchange and the cash distributions declared per share of
Common Stock.

               TABLE 5.1 - Share Price and Distributions Declared

<TABLE>
<CAPTION>
                                            (Price per Share)
                                 ----------------------------------
                                                                         Cash Distributions
                  Period          High         Low         Close         Declared per Share
        -----------------------------------------------------------------------------------
<S>                              <C>          <C>          <C>                 <C>
        First quarter 1999       $6.56        $4.38        $5.75               $0.20
        Second quarter 1999       7.38         5.81         6.75                0.20
        Third quarter 1999        7.63         6.38         7.25                0.20
        Fourth quarter 1999       8.00         6.56         7.75                0.20
        First quarter 2000        7.81         4.75         5.75                0.20
        Second quarter 2000       6.38         4.00         5.38                0.20
        Third quarter 2000        6.19         5.25         5.69                0.20
        Fourth quarter 2000       7.38         5.13         7.25                0.20
</TABLE>


                                       12




<PAGE>



ITEM 6. SELECTED FINANCIAL DATA

The following table presents selected consolidated financial data of the Company
and its subsidiaries for the periods indicated. Additional financial information
is set forth in the audited financial statements and notes thereto and in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included herein.

<TABLE>
<CAPTION>
                                                                                              For the period June 2,
                                                                                                1998 (commencement
                                                    For the Year Ended    For the Year Ended    of operations) to
                  OPERATIONS DATA                    December 31, 2000     December 31, 1999    December 31, 1998
                                                    ----------------------------------------------------------------
<S>                                                     <C>                   <C>                       <C>
Income
      Interest income from securities - trading         $  9,919,817          $ 10,817,837              $ 12,580,589
      Other investment income                                603,378             1,307,694                   919,876
                                                    ----------------------------------------------------------------
                                                          10,523,195            12,125,531                13,500,465
                                                    ----------------------------------------------------------------
Expense
      Interest                                             4,384,284             6,046,282                 8,571,422
      Other expenses                                       1,631,306             1,341,739                 1,683,411
                                                    ----------------------------------------------------------------
                                                           6,015,590             7,388,021                10,254,833
                                                    ----------------------------------------------------------------

Other operating gains (losses)                            (1,678,779)            1,295,162               (51,969,592)
                                                    ----------------------------------------------------------------

Net income (loss)                                       $  2,828,826          $  6,032,672              ($48,723,960)
                                                    ================================================================

Net income (loss) per share (basic and diluted)         $       0.70          $       1.33                    ($9.93)
                                                    ================================================================

Distributions per share                                 $       0.80          $       0.80              $       0.74
                                                    ================================================================
</TABLE>

<TABLE>
<CAPTION>
SELECTED BALANCE SHEET DATA                          December 31, 2000     December 31, 1999    December 31, 1998
                                                    ----------------------------------------------------------------
<S>                                                     <C>                   <C>                       <C>
Total assets                                            $ 81,925,996          $132,070,051              $148,022,878
Total liabilities                                         43,982,631            91,475,252               108,106,054
Stockholders' equity                                      37,943,365            40,594,799                39,916,824
</TABLE>

The 2000 results of operations reflect realized and unrealized losses from
securities-trading totaling $1,678,779. The 1999 results of operations reflect
realized and unrealized gains from securities-trading totaling $2,997,828 offset
by a realized loss of $952,666 from the sale of the commercial mortgage loan and
loss on other investments of $750,000. The 1998 results of operations reflect
realized and unrealized losses from securities-trading totaling $49,469,592, and
the loss on other investments of $2,500,000.


                                       13




<PAGE>



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The Company was organized in February 1998 to invest in commercial
mortgage-backed securities (primarily subordinate securities), commercial
mortgage loans, mezzanine investments, equity investments, and other real estate
related investments. Substantially all of the $94.7 million of net proceeds
received from the sale of 5,000,000 shares of its Class A Common Stock in June
1998 together with the net proceeds of other financing arrangements were used to
acquire the Company's original portfolio of investments.

The following discussion of the Company's financial condition, results of
operations, and capital resources and liquidity should be read in conjunction
with the Company's consolidated financial statements and related notes.

MARKET CONDITIONS:

The year 2000 was a relatively stable year for the Company, as spreads on
subordinated classes of CMBS widened slightly. The price of a fixed income
security (such as a CMBS) or a commercial loan is often determined by adding an
interest rate spread to a benchmark interest rate, such as the U.S. Treasury
rate. As the spread on a security tightens (or decreases), the price or value of
the security rises.

While spreads on the subordinate classes of CMBS widened slightly during the
year, interest rates decreased. The ten-year U.S Treasury rate dropped
approximately 130 basis points in 2000. In the same way that a widening
(increasing) spread for CMBS causes their value to fall, increasing interest
rates also causes their value to decline. In order to offset this potential loss
in CMBS and commercial loan value due to increasing interest rates, the Company
"sells short" U.S. Treasury securities that increase in value as interest rates
rise. During the year ended December 31, 2000, the Company's short positions in
U.S. Treasury securities effectively offset the decline in value of the
Company's CMBS positions due to the increase in interest rates.

In the beginning of the fourth quarter of 2000, spreads in the high yield
corporate fixed income market widened significantly. This widening of spreads in
the high yield corporate market, may lead to a decline in the value of the
Company's assets.

The year 1999 was a relatively stable year for the Company, compared to 1998,
which was a difficult year. While spreads on the subordinate classes of CMBS
tightened a little during the year, interest rates increased. The ten-year U.S
Treasury rate rose approximately 180 basis points in 1999. During the year ended
December 31, 1999, the Company's short positions in U.S. Treasury securities
effectively offset the decline in value of the Company's CMBS positions due to
the increase in interest rates.

RESULTS OF OPERATIONS

General:

Net income (loss) for the years ended December 31, 2000 and 1999 and for the
period June 2, 1998 (commencement of operations) to December 31, 1998 amounted
to $2.8 million or $0.70 per share, $6.0 million or $1.33 per share and ($48.7
million) or ($9.93) per share, respectively. The income for the year ended
December 31, 2000 consisted primarily of income from investments of $10.5
million and gains on CMBS of $1.5 million. This was offset by losses from the
short positions in government securities of $3.2 million, and interest expense
of $4.4 million. The income for the year ended December 31, 1999 consisted
primarily of income from investments of $12.1 million and gains from the short
positions in government securities of $5.4 million. This was offset by losses on
CMBS of $2.4 million, loss on the sale of the commercial mortgage loan of $1.0
million and interest expense of $6.0 million. The net loss for the period June
2, 1998 (commencement of operations) to December 31, 1998 was attributable
primarily to realized and unrealized losses on CMBS of $36.9 million, loss from
the short positions in government securities of $12.6 million and interest
expense of $8.6 million. This was offset by income from investments of $13.5
million.


                                       14




<PAGE>



The results of operations during the years ended December 31, 2000 and 1999 and
for the period June 2, 1998 (commencement of operations) to December 31, 1998
are not necessarily indicative of the results that may be expected for future
periods.

Investment Income:

For the years ended December 31, 2000 and 1999 and for the period June 2, 1998
(commencement of operations) to December 31, 1998, the Company earned income, as
follows:

                          TABLE 7.1 - Investment Income
<TABLE>
<CAPTION>
                                                                                      Income Earned
                                                              ------------------------------------------------------------
                                                                                                           For the period
                                                               For the Year ended  For the Year ended     June 2, 1998 to
                                                                   December 31,       December 31,          December 31,
                  Investment                                           2000               1999                 1998
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>                    <C>                  <C>
CMBS                                                               $ 8,142,284            $ 8,813,736          $ 8,894,931
Deposits with brokers as collateral for securities sold short        1,777,533              2,004,101            3,685,658
Commercial mortgage loan                                                    --                702,699              560,452
Mezzanine investment                                                   486,662                540,812              316,903
Cash and cash equivalents                                              116,716                 64,183               42,521
                                                              ------------------------------------------------------------
TOTAL                                                              $10,523,195            $12,125,531          $13,500,465
                                                              ============================================================
</TABLE>

Interest Expense:

For the years ended December 31, 2000 and 1999 and for the period June 2, 1998
(commencement of operations) to December 31, 1998, the Company incurred interest
expense from repurchase agreements and government securities sold short, as
follows:

                          TABLE 7.2 - Interest Expense

<TABLE>
<CAPTION>
                                                                        Interest Expense
                                                                        ----------------
                                                                                              For The Period June 2,
                                                                                              1998 (commencement of
                                              For The Year Ended       For The Year Ended    operations) to December
                                              December 31, 2000        December 31, 1999             31, 1998
                                           -------------------------------------------------------------------------
<S>                                               <C>                         <C>                         <C>
Repurchase agreements                             $2,725,370                  $3,356,791                  $4,383,251
Government securities sold short                   1,658,914                   2,689,491                   4,188,171
                                           -------------------------------------------------------------------------
                                                  $4,384,284                  $6,046,282                  $8,571,422
                                           =========================================================================
</TABLE>

As of December 31, 2000 and 1999, the Company had entered into repurchase
agreements in the amount of $14,100,000 and $64,691,000, respectively. The
weighted average interest rates were 7.40% and 6.98%, respectively, and are
based on a variable rate, one-month LIBOR plus a weighted average spread of
0.84% and 0.60%, respectively.

As of December 31, 2000, the Company had the following open short positions in
U.S. Treasury securities: $2,263,000 (face) of U.S. Treasury 5.25%, 02/15/2029
and $25,516,000 (face) of U.S. Treasury 5.50%, 08/15/2009. As of December 31,
1999, the Company had the following open short positions in U.S. Treasury
securities: $291,000 (face) of U.S. Treasury 5.25%, 02/15/2029, $21,151,000
(face) of U.S. Treasury 6.00% 08/15/2009 and $3,881,000 of U.S. Treasury 6.50%
11/15/2026.


                                       15




<PAGE>



Other Expenses:

In 2000 and 1999, other expenses consisted primarily of miscellaneous general
and administrative expenses. In 1998, other expenses consisted primarily of due
diligence costs of $548,284 incurred relating to transactions that were
ultimately abandoned and miscellaneous general and administrative expenses.

In accordance with the terms of the Management Agreement, $536,297, $575,928 and
$495,596 in base management fees were paid for the years ended December 31, 2000
and 1999 and for the period June 2, 1998 (commencement of operations) to
December 31, 1998, respectively. The Company has not accrued for or paid any
incentive compensation to the Manager since inception.

During 1999 and 1998, the Company recorded impairment losses on other
investments of $750,000 and $2,500,000, respectively.

CHANGES IN FINANCIAL CONDITION

General: Total assets as of December 31, 2000 and 1999 amounted to $81.9 million
and $132.1 million, respectively. These amounts were comprised primarily of
$48.6 million and $100.9 million of CMBS and $28.0 million and $25.2 million of
deposits with brokers as collateral for securities sold short, respectively.

Total liabilities of the Company as of December 31, 2000 and 1999 amounted to
$44.0 million and $91.5 million, respectively. These amounts were comprised
primarily of repurchase agreements in the amount of $14.1 million and $64.7
million and government securities sold short in the amount of $28.2 million and
$24.5 million, respectively.

CAPITAL RESOURCES AND LIQUIDITY:

Liquidity is a measurement of the Company's ability to meet potential cash
requirements, including ongoing commitments to repay borrowings, investments,
loan acquisition and lending activities, make distributions to shareholders in
amounts adequate to maintain its REIT status and for other general business
purposes. The Company's primary sources of funds for liquidity consist of
repurchase agreements and maturities and principal payments on securities and
loans, and proceeds from sales thereof.

In 2000, the Company sold 13 classes of CMBS for $93.5 million and purchased 11
classes of CMBS for $61.1 million. It used the net proceeds to reduce its
exposure to short term repurchase agreement financing on the subordinate classes
of CMBS in its portfolio.

In 1999, the Company sold 5 classes of CMBS for $29.0 million and the commercial
mortgage loan for $11.9 million and purchased 6 classes for $47.2 million. It
used the proceeds to reduce its exposure to short term repurchase agreement
financing on the subordinate classes of CMBS in its portfolio.

In 1998, the tightening of credit markets and the widening of yield spreads on
CMBS in the third and fourth quarters adversely affected the liquidity position
of the Company. While the Company met all obligations under its financing
agreements, it was required to post additional collateral in order to meet
increased margin requirements from its lenders. In addition, in October and
November 1998, the Company sold 14 classes of CMBS for $105.3 million in order
to improve its liquidity.


                                       16




<PAGE>



The proceeds from the sales of CMBS were used by the Company to reduce its
borrowings under repurchase agreements. The following chart shows the
outstanding principal amount of borrowings by the Company under repurchase
agreements:

               TABLE 7.3 - Borrowings under Repurchase Agreements

<TABLE>
<CAPTION>
                                    Borrowings under
                                  Repurchase Agreements
                       Date               ($MM)
                  -------------------------------------
<S>                                      <C>
                     6/30/98             $147.7
                     9/30/98              159.9
                     12/31/98              58.9
                     3/31/99               58.7
                     6/30/99               71.7
                     9/30/99               32.2
                     12/31/99              64.7
                     3/31/00               55.9
                     6/30/00               30.8
                     9/30/00               32.4
                     12/31/00              14.1
</TABLE>

The weighted average maturity of the repurchase agreements at December 31, 2000
was 29 days. All of the Company's repurchase agreements are with Bear Stearns.

The Company's operating activities generated cash flows of $55.9 million and
used cash flows of $11.5 million during the years ended December 31, 2000 and
1999, respectively. In 2000, the cash flow was generated primarily from net
proceeds from sale and principal payments of securities-trading. In 1999, the
cash flow used was primarily for net purchases of securities - trading. The
Company's operating activities used cash flows $127.9 million during the period
June 2, 1998 to December 31. The cash flow used was primarily for net purchases
of securities - trading and deposits with brokers as collateral for short sales.

The Company's investing activities generated cash flows of $0.1 million for the
year ended December 31, 2000 from principal payments received on the mezzanine
investment. The Company's investing activities generated cash flows of $12.0
million for the year ended December 31, 1999 primarily from the sale of and
principal payments on the commercial mortgage loan. The Company's investing
activities used cash flows totaling $16.8 million during the period June 2, 1998
to December 31, 1998 to purchase the commercial mortgage loan and mezzanine
investment.

The Company's financing activities used $56.4 million during the year ended
December 31, 2000 and consisted primarily of repayments of borrowings under
repurchase agreements of $50.6 million, dividends paid of $3.3 million and
purchase of treasury stock of $2.5 million. The Company's financing activities
provided $0.1 million during the year ended December 31, 1999 and consisted
primarily of borrowings under repurchase agreements of $5.8 million offset by
dividends paid of $3.3 million and purchase of treasury stock of $2.3 million.
The Company's financing activities provided $145.3 million during the period
June 2, 1998 to December 31, 1998 and consisted primarily of proceeds from the
issuance of common stock of $94.7 million and borrowings under repurchase
agreements of $58.9 million.

The Manager regularly evaluates investment opportunities on behalf of the
Company. In the event that the Manager identifies an investment opportunity
consistent with the Company's investment objectives, the Company may seek
sources of additional capital, including various third-party borrowings or the
issuance of preferred equity. The Company may also elect to increase its
borrowings under repurchase agreements.

The Company can avoid corporate income taxation on its earnings by distributing
annually to its stockholders an amount equal to its taxable income. It is
possible that the Company may experience timing differences between the actual
receipt of income and the inclusion of that income in the calculation of taxable
income. In the event that the cash generated by the Company's investments is
insufficient to fund the distributions to stockholders that are required to


                                       17




<PAGE>



maintain the Company status as a REIT, the Company may access cash reserves or
seek sources of additional capital in order to fund the distributions.

The Company has elected mark-to-market valuation treatment for its investment
portfolio under Internal Revenue Code Section 475. Under this election the
Company must treat all unrealized trading gains and losses as realized for
income tax purposes as well as treating all trading transactions as operating
gains and losses. In prior years, the operations of the Company resulted in a
net operating loss for income tax purposes. This net operating loss is included
in the Company's calculation of "REIT taxable income", which significantly
reduces the Company's dividend requirements for REIT distribution requirement
purposes.

On October 12, 2000, the Company's Board of Directors unanimously voted to
recommend that a plan of liquidation and dissolution be submitted to its
stockholders. After reviewing the Company's strategic alternatives, the Board
concluded that the liquidation of the Company was the best available alternative
for maximizing stockholder value and, accordingly, was in the best interest of
the Company and its stockholders. On March 6, 2001, the Company's Board of
Directors approved a specific plan of liquidation and dissolution and determined
to submit the plan to the Company's stockholders for their consideration. In
addition, on March 8, 2001, the Company entered into a liquidation agreement
pursuant to which, subject to the approval of the plan of liquidation and
dissolution by the Company's stockholders, (i) the Company's existing management
agreement with Clarion Capital, LLC would be amended to provide that Clarion
Capital, LLC, the existing manager of the Company's assets, will manage the
liquidation of the Company and (ii) the Company would sell to Clarion Capital,
LLC for $250,000 the Company's 10% membership interest in Clarion Capital, LLC
and the Company's option to purchase the remaining 90% membership interest in
Clarion Capital, LLC. The liquidation agreement also extends the exercise period
for the Company's option to purchase the remaining 90% membership interest in
Clarion Capital from March 31, 2000 to November 30, 2001 so that the Company
will retain the ability to exercise this option if the plan of liquidation and
dissolution is not approved by the Company's stockholders and, as a result, this
option is not sold to Clarion Capital, LLC.

The Company is not soliciting the vote of any of its stockholders with respect
to the plan of liquidation and dissolution pursuant to this Annual Report on
Form 10-K. The Company intends to provide to stockholders as soon as reasonably
practicable a definitive proxy statement relating to an annual meeting of
stockholders at which, among other things, the plan of liquidation and
dissolution will be considered.

Except as discussed herein, management is not aware of any other trends, events,
commitments or uncertainties that may have a significant effect on liquidity.

FORWARD-LOOKING STATEMENTS:

Certain statements contained herein are not, and certain statements contained in
future filings by the Company with the SEC, in the Company's press releases or
in the Company's other public or shareholder communications may not be, based on
historical facts and are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
which are based on various assumptions (some of which are beyond the Company's
control), may be identified by reference to a future period or periods, or by
the use of forward-looking terminology, such as "may," "will," "believe,"
"expect," "anticipate," "continue," or similar terms or variations on those
terms, or the negative of those terms. Actual results could differ materially
from those set forth in forward-looking statements due to a variety of factors,
including, but not limited to, those related to the economic environment,
particularly in the market areas in which the Company operates, competitive
products and pricing, fiscal and monetary policies of the U.S. Government,
changes in prevailing interest rates, acquisitions and the integration of
acquired businesses, credit risk management, asset/liability management, the
financial and securities markets and the availability of and costs associated
with sources of liquidity. The Company does not undertake, and specifically
disclaims any obligation, to publicly release the result of any revisions, which
may be made to any forward-looking statements to reflect the occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.


                                       18




<PAGE>



ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the exposure to loss resulting from changes in interest rates,
changes in spreads on CMBS, foreign currency exchange rates, commodity prices
and equity prices. The primary market risks to which the investments of the
Company are exposed are interest rate risk and CMBS spread risk, which are
highly sensitive to many factors, including market financing levels, market
supply and demand, governmental monetary and tax policies, domestic and
international economic and political considerations and other factors beyond the
control of the Company.

Changes in the general level of interest rates can affect the net interest
income of the Company. The following table demonstrates the estimated effect
that changes in interest rates would have on the operating performance of the
Company and the value of the Company's investments in CMBS and short positions
in government securities. All changes in income and value are measured as
percentage changes from the projected income and portfolio value if no change in
interest rates were to occur.

The Company's analysis of risks is based on management's experience, estimates
and assumptions. These analyses rely on models of financial information, which
utilize estimates of fair value and interest rate sensitivity. Actual economic
conditions or implementation of investment decisions by the Manager may produce
results that differ significantly from the estimates and assumptions used in the
Company's models and the projected results shown in the following tables and in
this report.

TABLE 7.4 - Percentage Change in Expected Income and Portfolio Value at December
31, 2000 and 1999, from Changes in Interest Rates

<TABLE>
<CAPTION>
                                                    2000 Change                  1999 Change in
                                   2000 Change in   in Portfolio   1999 Change      Portfolio
       Change in Interest Rates        Income*        Value**       in Income*       Value**
     ------------------------------------------------------------------------------------------
<S>                                     <C>             <C>           <C>              <C>
      -250 Basis Points                 30.8%           5.1%          25.8%            2.9%
      -200 Basis Points                 20.6            3.5           22.4             2.5
      -150 Basis Points                 12.8            2.3           18.0             2.0
      -100 Basis Points                  7.1            1.3           12.8             1.4
      -50 Basis Points                   2.9            0.6            6.8             0.7
      No change                          0.0            0.0            0.0             0.0
      +50 Basis Points                  -1.9           -0.4           -7.0            -0.7
      +100 Basis Points                 -2.9           -0.7          -14.7            -1.5
      +150 Basis Points                 -3.2           -0.9          -23.0            -2.4
      +200 Basis Points                 -3.1           -1.0          -31.7            -3.2
      +250 Basis Points                 -2.4           -1.0          -41.0            -4.1
</TABLE>

*Income includes expected interest income from CMBS, amortization of market
discount on CMBS, net interest income on short positions in government
securities and mark to market adjustments to CMBS and government securities from
changes in interest rates.
**Portfolio value includes fair value estimate of CMBS and net short position in
government securities.

The Company is further exposed to interest rate risk through its short term
financing through repurchase agreements at rates that are based on 30-day LIBOR.
The repurchase agreements into which the Company has entered are for terms of
less than, or equal to 30 days. Changes in interest rates may increase the
Company's cost of financing its investments. The following table demonstrates
the estimated effect that changes in interest rates would have on the interest
expense of the Company, based on borrowings outstanding at December 31, 2000 and
1999:


                                       19




<PAGE>



             TABLE 7.5 - Percentage Change in Interest Expense under
                  Repurchase Agreements from Changes in LIBOR

<TABLE>
<CAPTION>
                                 2000 Change in        1999 Change in
             Change in LIBOR    Interest Expense      Interest Expense
      ----------------------------------------------------------------
<S>                                      <C>                  <C>
       -250 Basis Points                -33.8%               -35.8%
       -200 Basis Points                -27.0                -28.7
       -150 Basis Points                -20.3                -21.5
       -100 Basis Points                -13.5                -14.3
       -50 Basis Points                  -6.8                 -7.2
       No change in LIBOR                 0.0                  0.0
       +50 Basis Points                   6.8                  7.2
       +100 Basis Points                 13.5                 14.3
       +150 Basis Points                 20.3                 21.5
       +200 Basis Points                 27.0                 28.7
       +250 Basis Points                 33.8                 35.8
</TABLE>

The investments of the Company are also exposed to spread risk. The price of a
fixed income security is generally determined by adding an interest rate spread
to a benchmark interest rate, such as the U.S. Treasury rate. As the spread on a
security widens (or increases), the price (or value) of the security falls. As
spreads on CMBS widen, the fair value of the Company's portfolio falls. Spread
widening in the market for CMBS can occur as a result of market concerns over
the stability of the commercial real estate market, excess supply of CMBS, or
general credit concerns in other markets. The following table demonstrates the
estimated effect that changes in CMBS spreads would have on the value of the
Company's CMBS portfolio at December 31, 2000 and 1999:

             TABLE 7.6 - Percentage Change in CMBS Portfolio Value
                          from Changes in CMBS Spreads

<TABLE>
<CAPTION>
                                    December 31, 2000  December 31, 1999
                                     Change in CMBS      Change in CMBS
           Change in CMBS Spreads    Portfolio Value    Portfolio Value
       -----------------------------------------------------------------
<S>                                       <C>                 <C>
       -250 Basis Points                  5.1%                8.6%
       -200 Basis Points                  3.5                 6.9
       -150 Basis Points                  2.3                 5.2
       -100 Basis Points                  1.3                 3.4
       -50 Basis Points                   0.6                 1.7
       No change in CMBS Spreads          0.0                 0.0
       +50 Basis Points                  -0.4                -1.7
       +100 Basis Points                 -0.7                -3.4
       +150 Basis Points                 -0.9                -5.1
       +200 Basis Points                 -1.0                -6.7
       +250 Basis Points                 -1.0                -8.4
</TABLE>

The Company enters into contracts to sell securities that it does not own at the
time of the sale, at a specified price at a specified time (short sales). The
Company utilizes these contracts as a means of mitigating ("hedging") the
potential financial statement impact of changes in the fair value of its
portfolio of CMBS due to changes in interest rates. As the value of the
Company's CMBS declines (increases) with increases (decreases) in interest
rates, the value of the contract increases (decreases). There can be no
guarantee, however, that the change in value of the contract will completely
offset the change in value of the fixed-rate interest earning asset. These
contracts involve the short sale of U.S.


                                       20




<PAGE>



Treasury securities. Risks in these contracts arise from the possible inability
of counterparties to meet the terms of their contracts and from movements in
securities values and interest rates. If the market value of the securities
involved in the short sale increases, the Company may be required to meet a
"margin call".

In the future the Company may utilize alternative methods of hedging such as
interest swaps or futures contracts. There is no guarantee that these methods
will be successful in hedging the value of the Company's portfolio and in
addition these methods may increase the cost of hedging.

In February 2001, the Company entered into a Treasury yield lock as an
alternative means of hedging the interest rate risk in the CMBS portfolio.

At December 31, 2000 and 1999, the Company had open contracts to sell U.S.
Treasury securities with face amounts totaling $27.8 million $25.3 million,
respectively. Although the Company generally does not settle these contracts at
expiration, but instead rolls them over into new contracts, if the Company had
settled its open contracts at December 31, 2000, the Company would have been
required to pay the counterparty $295,627 and if the Company had settled its
open contracts at December 31, 1999, the counterparty would have been required
to pay the Company and $198,347.


                                       21




<PAGE>



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements of the Company and the related notes, together with the
Independent Auditors' Report thereon are set forth on pages F-1 through F-13 of
this Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

Not applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by Item 10 as to the directors and executive officers
of the Company is incorporated herein by reference to the definitive Proxy
Statement to be filed pursuant to Regulation 14A relating to our 2001 annual
meeting of stockholders under the headings "Election of Directors" and
"Management of the Company."

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated herein by reference to the
definitive Proxy Statement to be filed pursuant to Regulation 14A relating to
our 2001 annual meeting of stockholders under the headings "Executive
Compensation."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 12 is incorporated herein by reference to the
definitive Proxy Statement to be filed pursuant to Regulation 14A relating to
our 2001 annual meeting of stockholders under the headings "Security Ownership
of Certain Beneficial Owners and Management."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 is incorporated herein by reference to the
definitive Proxy Statement to be filed pursuant to Regulation 14A relating to
our 2001 annual meeting of stockholders under the headings "Certain
Relationships and Related Transactions."


                                       22




<PAGE>



                                     Part IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

Exhibits
NONE

(a)   Reports on Form 8-K filed during the quarter ended December 31, 2000

      (1)   Form 8-K filed on October 12, 2000, announcing the board of
            directors recommendation that a plan of liquidation and dissolution
            be submitted to shareholders for approval.


                                       23




<PAGE>



                        CLARION COMMERCIAL HOLDINGS, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditors' Report.................................................F-1

Consolidated Financial Statements:

Consolidated Statements of Financial Condition at
December 31, 2000 and 1999...................................................F-2

Consolidated Statements of Operations for the years ended
December 31, 2000 and 1999 and for the period June 2, 1998
(commencement of operations) to December 31, 1998............................F-3

Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 2000 and 1999 and for the period
June 2, 1998 (commencement of operations) to December 31, 1998...............F-4

Consolidated Statements of Cash Flows for the years ended
December 31, 2000 and 1999 and for the period June 2, 1998
(commencement of operations) to December 31, 1998............................F-5

Notes to Consolidated Financial Statements...................................F-6

      All schedules have been omitted because either the required information is
      not applicable or the information is shown in the consolidated financial
      statements or notes thereto.


                                      F-1




<PAGE>



                          Independent Auditors' Report

To the Board of Directors and Stockholders of
Clarion Commercial Holdings, Inc.
New York, New York

We have audited the accompanying consolidated statements of financial condition
of Clarion Commercial Holdings, Inc. and Subsidiaries (together, the "Company")
as of December 31, 2000 and 1999, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the years ended
December 31, 2000 and 1999 and for the period June 2, 1998 (commencement of
operations) to December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principals 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Clarion Commercial Holdings, Inc.
and Subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for the years ended December 31, 2000 and 1999
and for the period June 2, 1998 (commencement of operations) to December 31,
1998 in conformity with accounting principles generally accepted in the United
States of America.

As discussed in Note 1, the Company's Board of Directors has voted to submit a
plan of liquidation to stockholders. If approved, the Company will adopt the
liquidation basis of accounting.


DELOITTE & TOUCHE LLP

New York, New York
March 20, 2001


                                      F-1




<PAGE>



               CLARION COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                                                 December 31,      December 31,
                                                                                      2000            1999
                                                                                -------------------------------
                            ASSETS
<S>                                                                             <C>               <C>
Cash and cash equivalents                                                       $     733,253     $   1,143,182
Securities - trading, at fair value                                                48,605,957       100,893,785
Other investments                                                                   3,918,651         4,106,250
Deposits with brokers as collateral for securities sold short                      28,023,910        25,191,059
Accrued interest receivable and other assets                                          644,225           735,775
                                                                                -------------------------------

      Total assets                                                              $  81,925,996     $ 132,070,051
                                                                                ===============================

                        LIABILITIES
Repurchase agreements                                                           $  14,100,000     $  64,691,000
Government securities sold short                                                   28,225,294        24,518,159
Dividends payable                                                                     812,873           839,356
Treasury stock payable                                                                     --           184,123
Other liabilities                                                                     844,464         1,242,614
                                                                                -------------------------------

      Total liabilities                                                            43,982,631        91,475,252
                                                                                -------------------------------

                  STOCKHOLDERS' EQUITY
Preferred Stock, par value $.01 per share, 25,000,000 shares
    Authorized; no shares issued                                                           --                --
Class A Common Stock, par value $.001 per share, 74,000,000 shares
    Authorized; 4,064,367 and 4,173,380 shares issued and outstanding
    On December 31, 2000 and 1999, respectively                                         4,064             4,173
Class B Common Stock, par value $.001 per share, 1,000,000 shares
    Authorized; 175,000 shares  issued and outstanding on December 31, 1999;
    Converted to Class A shares January 1, 2000                                            --               175
Additional paid-in capital                                                         88,078,116        90,307,988
Net loss and distributions                                                        (50,138,815)      (49,717,537)
                                                                                -------------------------------

Total stockholders' equity                                                         37,943,365        40,594,799
                                                                                -------------------------------

      Total liabilities and stockholders' equity                                $  81,925,996     $ 132,070,051
                                                                                ===============================
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-2




<PAGE>



               CLARION COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                   For the Period
                                                                                                     June 2, 1998
                                                           For the Year       For the Year        (commencement of
                                                              Ended              Ended             operations) to
                                                       December 31, 2000   December 31, 1999      December 31, 1998
                                                      -------------------------------------------------------------
<S>                                                         <C>                 <C>                    <C>
Income:
    Interest income from securities - trading               $  9,919,817        $ 10,817,837           $ 12,580,589
    Interest income from commercial mortgage loan                     --             702,699                560,452
    Income from other investments                                486,662             540,812                316,903
    Interest income from cash and cash equivalents               116,716              64,183                 42,521
                                                      -------------------------------------------------------------

       Total income                                           10,523,195          12,125,531             13,500,465
                                                      -------------------------------------------------------------

Expenses:
    Interest                                                   4,384,284           6,046,282              8,571,422
    Management fee                                               536,297             575,928                495,596
    Other expenses                                             1,095,009             765,811              1,187,815
                                                      -------------------------------------------------------------

       Total expenses                                          6,015,590           7,388,021             10,254,833
                                                      -------------------------------------------------------------

Other operating gains and losses:
    Gain/(loss)  from securities-trading                      (1,678,779)          2,997,828            (49,469,592)
    Loss on commercial mortgage loan receivable                       --            (952,666)                    --
    Loss on other investments                                         --            (750,000)            (2,500,000)
                                                      -------------------------------------------------------------

       Total other operating gains (losses)                   (1,678,779)          1,295,162            (51,969,592)
                                                      -------------------------------------------------------------

Net Income (loss)                                           $  2,828,826        $  6,032,672           $(48,723,960)
                                                      =============================================================

Net Income (loss)per share:
    Basic                                                   $       0.70        $       1.33           $      (9.93)
                                                      =============================================================

    Diluted                                                 $       0.70        $       1.33           $      (9.93)
                                                      =============================================================

Weighted average shares
    Basic                                                      4,067,812           4,520,004              4,905,778
                                                      =============================================================

    Diluted                                                    4,067,812           4,520,004              4,905,778
                                                      =============================================================
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-3




<PAGE>



               CLARION COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                      Common Stock             Additional
                                                      ------------              Paid-in         Net Loss and
                                               Class A           Class B        Capital         Distributions        Total
                                               -------           -------        -------         -------------        -----
<S>                                         <C>              <C>              <C>              <C>              <C>
Balance at June 2, 1998 (commencement of
 operations)                                $          1     $         --     $     14,999     $         --     $     15,000

Issuance of common stock - Class A                 5,000               --       94,682,515               --       94,687,515
Issuance of common stock - Class B                    --              175        3,499,825               --        3,500,000

Class A common stock dividend declared                --               --               --       (3,475,991)      (3,475,991)
Class B common stock dividend declared                --               --               --         (103,250)        (103,250)

Net loss                                              --               --               --      (48,723,960)     (48,723,960)

Common stock repurchase                               --               --       (5,982,490)              --       (5,982,490)
                                            --------------------------------------------------------------------------------

Balance at December 31, 1998                       5,001              175       92,214,849      (52,303,201)      39,916,824

Class A common stock dividend declared                --               --               --       (3,447,008)      (3,447,008)

Net income                                            --               --               --        6,032,672        6,032,672

Common stock repurchase                             (832)              --       (1,949,357)              --       (1,950,189)

Issuance of common stock - Class A                     4               --           42,496               --           42,500
                                            --------------------------------------------------------------------------------

Balance at December 31, 1999                       4,173              175       90,307,988      (49,717,537)      40,594,799

Common stock conversion                              175             (175)              --               --               --

Class A common stock dividend declared                --               --               --       (3,250,104)      (3,250,104)

Net income                                            --               --               --        2,828,826        2,828,826

Common stock repurchase                             (296)              --       (2,321,860)              --       (2,322,156)

Issuance of common stock - Class A                    12               --           91,988               --           92,000
                                            --------------------------------------------------------------------------------

Balance at December 31, 2000                $      4,064     $         --     $ 88,078,116     $(50,138,815)    $ 37,943,365
                                            ================================================================================
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-4




<PAGE>



                CLARION COMMERCIAL HOLDINGS, INC. & SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                                    For the Period
                                                                                                                     June 2, 1998
                                                                              For the Year        For the Year       (commencement
                                                                                  Ended              Ended         of operations) to
                                                                               December 31,       December 31,       December 31,
                                                                                   2000                1999              1998
                                                                              ------------------------------------------------------
<S>                                                                           <C>                <C>                <C>
Cash flows from operating activities:
     Net income (loss)                                                        $   2,828,826      $   6,032,672      $ (48,723,960)
Adjustments to reconcile net income (loss) to net cash provided (used) by
   Operating activities:
     Accretion and amortization, net                                               (624,719)          (580,936)          (276,391)
     Issuance of shares for fees and compensation                                    92,000             42,500                 --
     Net (decrease) increase in unrealized loss on securities-trading            (3,695,090)        (3,672,396)        18,937,803
     Change in unrealized (gain) loss on government securities sold short         3,091,493         (2,867,417)         1,821,042
     Loss on other investments                                                           --            750,000          2,500,000
     Loss on commercial mortgage receivable                                              --            952,666                 --
     Decrease (increase) in accrued interest receivable & other assets               91,550          1,354,116         (2,089,891)
     (Decrease) increase in other liabilities                                      (398,150)        (1,093,546)         2,336,160
     Purchase of securities-trading                                             (50,993,555)       (50,941,888)      (222,588,765)
     Sale and principal payments of securities-trading                          107,735,454         35,033,223        123,218,096
     Decrease (increase) in deposits with broker as collateral for
       securities sold short                                                     (2,832,851)        21,638,982        (46,830,041)
     (Decrease) increase in government securities sold short                        615,642        (18,193,119)        43,757,652
                                                                              ---------------------------------------------------
Net cash provided (used) by operating activities                                 55,910,600        (11,545,143)      (127,938,295)
                                                                              ---------------------------------------------------

Cash flows from investing activities:
     Investment in commercial loan receivable                                            --                 --        (12,971,754)
     Principal payments received on mezzanine investment                             53,334                 --                 --
     Principal payments received on commercial mortgage loan                             --            152,282                 --
     Proceeds from sale of commercial mortgage loan receivable                           --         11,844,276                 --
     Investment in other assets                                                          --                 --         (3,856,250)
                                                                              ---------------------------------------------------
Net cash provided (used) by investing activities                                     53,334         11,996,558        (16,828,004)
                                                                              ---------------------------------------------------

Cash flows from financing activities:
     Repayments under reverse repurchase agreements, net                        (50,591,000)         5,767,000         58,924,000
     Dividends paid                                                              (3,276,587)        (3,297,000)        (2,889,893)
     Repurchases of common stock                                                 (2,506,276)        (2,343,917)        (5,404,639)
     Proceeds from issuance of common stock, net of offering costs                       --                 --         94,687,515
                                                                              ---------------------------------------------------
Net cash provided (used) by financing activities                                (56,373,863)           126,083        145,316,983
                                                                              ---------------------------------------------------

Net increase (decrease) in cash and cash equivalents                               (409,929)           577,498            550,684
     Cash and cash equivalents at beginning of period                             1,143,182            565,684             15,000
                                                                              ---------------------------------------------------
     Cash and cash equivalents at end of period                               $     733,253      $   1,143,182      $     565,684
                                                                              ===================================================

Supplemental information:
     Interest paid                                                            $   4,886,010      $   6,742,427      $   7,141,976
                                                                              ===================================================
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-5




<PAGE>



                CLARION COMMERCIAL HOLDINGS, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Organization and Basis of Presentation

The consolidated financial statements include the accounts of Clarion Commercial
Holdings, Inc. ("Clarion") and its consolidated subsidiaries (together with
Clarion, the "Company"). Clarion directly owns two subsidiaries, CCHI General,
Inc. ("General Partner") and CLARCOMM Limited, Inc. ("Limited Partner"). General
Partner and Limited Partner own 1% and 99% respectively of CLARCOMM Holdings,
L.P. ("Operating Partnership"). All intercompany transactions and balances are
eliminated in consolidation.

Clarion was incorporated in Maryland in February 1998 and commenced its
operations on June 2, 1998. The Company is a specialty finance company organized
to invest in commercial mortgage-backed securities (primarily subordinate
securities), commercial mortgage loans, mezzanine investments, equity
investments and other real estate related investments. The Company is organized
and managed as a single business segment.

On October 12, 2000, the Company's Board of Directors unanimously voted to
recommend that a plan of liquidation and dissolution be submitted to its
stockholders. After reviewing the Company's strategic alternatives, the Board
concluded that the liquidation of the Company was the best available alternative
for maximizing stockholder value and, accordingly, was in the best interest of
the Company and its stockholders. On March 6, 2001, the Company's Board of
Directors approved a specific plan of liquidation and dissolution and determined
to submit the plan to the Company's stockholders for their consideration. In
addition, on March 8, 2001, the Company entered into a liquidation agreement
pursuant to which, subject to the approval of the plan of liquidation and
dissolution by the Company's stockholders, (i) the Company's existing management
agreement with Clarion Capital, LLC would be amended to provide that Clarion
Capital, LLC, the existing manager of the Company's assets, will manage the
liquidation of the Company and (ii) the Company would sell to Clarion Capital,
LLC for $250,000 the Company's 10% membership interest in Clarion Capital, LLC
and the Company's option to purchase the remaining 90% membership interest in
Clarion Capital, LLC. The liquidation agreement also extends the exercise period
for the Company's option to purchase the remaining 90% membership interest in
Clarion Capital from March 31, 2000 to November 30, 2001 so that the Company
will retain the ability to exercise this option if the plan of liquidation and
dissolution is not approved by the Company's stockholders and, as a result, this
option is not sold to Clarion Capital, LLC.

If the plan of liquidation is approved by stockholders, the Company will adopt
the liquidation basis of accounting. Because most of the Company's investments
are currently carried at their estimated fair values, management believes that,
if adopted, the liquidation basis of accounting will not have a material effect
on the Company's financial statements. However, due to changes in market
conditions, the timing of sales, and other factors, the amounts ultimately
realized upon liquidation of the Company's investments may differ, perhaps
materially, from the carrying amounts as of December 31, 2000.

Note 2: Significant Accounting Policies

In preparing the consolidated financial statements, management is required 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 consolidated statement of financial condition and the reported amounts of
revenues and expenses for the period covered. Actual results could differ from
those estimates and assumptions. Significant estimates in the financial
statements include the valuation of the Company's investments in mortgage-backed
securities and other investments.


                                      F-6




<PAGE>



A summary of the Company's significant accounting policies follows:

SECURITIES - TRADING

At the date of acquisition, the Company elected to designate its government
securities and commercial mortgage-backed securities ("CMBS") as trading assets.
Such securities are carried at their estimated fair value, with the net
unrealized gains or losses included in earnings. For a description of the
methodology used in determining fair value of the Company's CMBS investments,
refer to Note 3. Interest income is recognized as it becomes receivable, and
includes amortization of premiums and accretion of discounts, computed using the
effective yield method, after considering estimated prepayments and credit
losses. Actual credit loss and prepayment experience is reviewed periodically
and effective yields adjusted if necessary.

RISK MANAGEMENT

The Company enters into contracts to sell securities that it does not own at the
time of the sale, at a specified price at a specified time (short sales). The
Company utilizes these contracts as a means of mitigating ("hedging") the
potential financial statement impact of changes in the fair value of its
portfolio of CMBS due to changes in interest rates. These contracts involve the
sale of U.S. Treasury securities borrowed from a broker. The broker retains the
proceeds from the sale until the Company replaces the borrowed securities. Risks
in these contracts arise from the possible inability of counterparties to meet
the terms of their contracts and from movements in securities values and
interest rates; the Company does not anticipate nonperformance by any
counterparty. If the market value of the securities involved in the short sale
increases, the Company may be required to meet a "margin call". The Company
accounts for its liability to return the borrowed securities under short sales
contracts at their market values, with unrealized gains or losses recorded in
earnings as part of the gain (loss) on securities-trading. Income earned on the
proceeds on deposit with brokers is included in interest income from securities
- trading and interest due under the short sales is included in interest
expense.

During the first quarter of 2001, the Company implemented a hedging strategy
based on the use of Treasury yield locks. A Treasury yield lock is a contract to
sell short a specific Treasury and buy it back on a specified date sometime in
the future. These instruments will be recorded at fair value, with unrealized
gains or losses recorded in earnings as part of the gain (loss) on
securities-trading.

COMMERCIAL MORTGAGE LOAN

The Company's investment in a commercial mortgage loan was carried at amortized
cost until March 1999 when the loan was deemed "held for sale" and marked to the
lower of cost or market. Interest income was recognized as it became receivable.
Prior to the loan being deemed "held for sale", the Company periodically
evaluated the collectibility of both interest and principal on the loan to
determine whether the loan was impaired. A loan is considered to be impaired
when, based on current information and events, it is probable that the Company
will be unable to collect all amounts due according to the existing contractual
terms. If a loan is determined to be impaired, a loss accrual is recorded
through income, determined by discounting the expected future cash flows at the
loan's effective interest rate or, for practical purposes, from the estimated
fair value of the collateral. The loan was sold in 1999 (See Note 4).

OTHER INVESTMENTS

The Company's 10% interest in Clarion Capital, LLC (the "Manager") and the
preferred interest in a limited partnership are accounted for at cost, with
income from distributions recognized as distributions are declared. The Company
periodically reviews these investments for other-than-temporary impairment. Any
such impairment is recognized in income by reducing the investment to its
estimated fair value.

COMPREHENSIVE INCOME

SFAS No. 130, "Reporting Comprehensive Income" defines comprehensive income as
the change in equity of a business enterprise during a period from transactions
and other events and circumstances, excluding those resulting


                                      F-7




<PAGE>



from investments by and distributions to owners. The Company had no items of
other comprehensive income during 2000 or 1999, so its net income (loss) was the
same as its comprehensive income (loss).

NEW ACCOUNTING PRONOUNCEMENT

Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended, ("SFAS 133") establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires that the Company recognize all derivatives as either assets or
liabilities in the statement of financial condition and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as a hedge of the exposure to changes in the fair value
of a recognized asset or liability or a hedge exposure to variable cash flows of
a forecasted transaction. The accounting for changes in the fair value of a
derivative (e.g. through earnings or outside earnings, through comprehensive
income) depends on the intended use of the derivative and the resulting
designation.

The Company is required to implement SFAS 133 on January 1, 2001. Management
believes that implementation of SFAS 133 will have not have a significant impact
on the Company's financial statements.

NET INCOME (LOSS) PER SHARE

Net income (loss) per share is computed in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share", and is
calculated on the basis of the weighted average number of common shares
outstanding during the period plus the additional dilutive effect of common
stock equivalents. The dilutive effect of outstanding stock options is
calculated using the treasury stock method.

Diluted net income (loss) per share for all periods was the same as basic net
income (loss) per share, because all outstanding stock options were
antidilutive.

DIVIDENDS

The Company distributed $0.80 per share during the year ended December 31, 2000.
A portion of these distributions is a return of capital for income tax purposes.

The Company distributed $0.80 per share during the year ended December 31, 1999.
No portion of these distributions was deemed to be either a return of capital or
a capital gain for income tax purposes.

The Company distributed $0.59 per share during the period June 2, 1998 to
December 31, 1998. These distributions were deemed to be a return of capital by
the Company to its shareholders.

INCOME TAXES

The Company has elected to be taxed as a Real Estate Investment Trust ("REIT")
and complies with the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), with respect thereto. Accordingly, the Company will not be
subjected to federal income tax to the extent of its distributions to
stockholders and as long as certain asset, income and stock ownership tests are
met. The Company may be subject to state and local taxes in certain
jurisdictions.

The Company has elected mark-to-market valuation treatment for its investment
portfolio under Code Section 475. Under this election, the Company must treat
all unrealized trading gains and losses as realized for income tax purposes as
well as treating all trading transactions as operating gains and losses. In
prior years, the operations of the Company resulted in a net operating loss for
income tax purposes. This net operating loss is included in the Company's
calculation of "REIT taxable income", which significantly reduces the Company's
dividend requirements for REIT distribution requirement purposes.


                                      F-8




<PAGE>



Note 3: Securities - Trading and Short Sales

The Company's securities - trading consist of CMBS with an estimated fair market
value of $48,605,957 and $100,893,785 and an amortized cost of $60,176,275 and
$116,159,193 at December 31, 2000 and 1999, respectively, resulting in an
unrealized loss of $11,570,317 and $15,265,407 at those dates, respectively.
Certain of the Company's CMBS are pledged as collateral for borrowings under
repurchase agreements (See Note 8).

The aggregate estimated fair value by underlying credit rating of the Company's
CMBS at December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                     December 31, 2000                        December 31, 1999
                                     -----------------                        -----------------
      Security Rating    Estimated Fair Value     % of Total       Estimated Fair Value     % of Total
      -------------------------------------------------------------------------------------------------
      <S>                    <C>                     <C>               <C>                        <C>
      AAA                    $         --                              $ 24,993,295               24.8%
      BBB                      16,078,336             33.1%              37,538,391               37.2%
      BB                       20,461,704             42.1%              17,547,932               17.4%
      B                         7,156,176             14.7%              14,365,173               14.2%
      B-                        1,859,459              3.8%               2,461,145                2.4%
      NR                        3,050,282              6.3%               3,987,849                4.0%
                             -------------------------------------------------------------------------
                             $ 48,605,957            100.0%            $100,893,785              100.0%
                             =========================================================================
</TABLE>

As of December 31, 2000 and 1999, the mortgage loans underlying the CMBS
interests held by the Company were secured by properties of the types and in the
states identified below:

<TABLE>
<CAPTION>
                                  December 31, 2000
                                  -----------------
       Property Type      Percentage (1)          State          Percentage (1)
     --------------------------------------------------------------------------
<S>                            <C>            <C>                     <C>
          Retail               54.1%                CA                28.6%
        Multifamily            12.1                 MO                12.3
          Office               11.7                 NY                 6.3
           Hotel                9.9                 NJ                 6.1
        Industrial              4.7           All others (2)          46.7
           Other                7.5
</TABLE>

<TABLE>
<CAPTION>
                                   December 31, 1999
                                   -----------------
       Property Type      Percentage (1)          State          Percentage (1)
     --------------------------------------------------------------------------
<S>                            <C>            <C>                     <C>
          Retail               32.5%                CA                21.9%
        Multifamily            22.3                 NY                13.5
           Hotel               19.6                 TX                10.6
          Office               18.8                 NJ                 7.2
        Industrial              3.7                 MO                 5.8
           Other                3.1           All others (2)          41.0
</TABLE>

(1)   Based on a percentage of the total unpaid principal balance of the
      underlying loans.
(2)   No other state comprises more than 5% of the total.

The weighted average unpaid principal balance of loans underlying the CMBS
investments of the Company that are more than 60 days delinquent was 0.18% and
0.09% of the unpaid principal balance of the collateral as December 31, 2000 and
1999, respectively.

The fair value of the Company's portfolio of CMBS is generally estimated by
management based on market prices provided by certain dealers who make a market
in these financial instruments. The market for the Company's CMBS


                                      F-9




<PAGE>



periodically suffers from a lack of liquidity, accordingly, the fair values
reported reflect estimates and may not necessarily be indicative of the amounts
the Company could realize in a current market exchange.

At December 31, 2000 and 1999, the un-leveraged, un-hedged, weighted average
yield to maturity of the Company's CMBS portfolio was 12.69% and 10.56%,
respectively. If losses on loans underlying the Company's CMBS investments
exceed the Company's original loss estimates, the Company may be required to
reduce the projected yields it uses to estimate interest income. The Company
currently believes that its loss estimates and yields are appropriate.

The yield to maturity on the Company's CMBS interests depends on, among other
things, the rate and timing of principal payments, the pass-through rate and
interest rate fluctuations. The subordinated CMBS interests owned by the Company
provide credit support to the more senior interests of the related
securitization. Cash flow from the mortgages underlying the CMBS interests
generally is allocated first to the senior interests, with the most senior
interest having a priority entitlement to cash flow. Remaining cash flow is
allocated generally among the other CMBS interests in order of their relative
seniority. To the extent that there are defaults and unrecoverable losses on the
underlying mortgages, resulting in reduced cash flows, the most subordinate CMBS
interest will bear this loss first. To the extent there are losses in excess of
the most subordinated interest's stated entitlement to principal and interest,
then the remaining CMBS interests will bear such losses in order of their
relative subordination. There is, therefore no assurance that the yield to
maturity discussed above will be achieved.

At December 31, 2000 and 1999, the Company had open contracts to sell U.S.
Treasury securities with face amounts totaling $27.8 million and $25.3 million
and a fair value of $28.2 million and $24.5 million, respectively. Although the
Company generally does not settle these contracts at expiration, but instead
rolls them over into new contracts, if the Company had settled its open
contracts at December 31, 2000, the Company would have been required to pay the
counterparty $295,627, if the Company had settled its open contracts at December
31, 1999, the counterparty would have been required to pay the Company $198,347.

The unrealized gain (loss) on these contracts for the years ended December 31,
2000 and 1999 and for the period June 2, 1998 (commencement of operations) to
December 31, 1998 was ($3,091,493), $2,867,415 and ($1,821,042), respectively,
which is included in gain (loss) from securities-trading in the statement of
operations. During the years ended December 31, 2000 and 1999 and the period
June 2, 1998 to December 31, 1998, the Company recorded realized gains (losses)
of ($70,933), $2,532,581 and ($10,774,778) from settled contracts, respectively.
The Company earned interest of $1,777,633, $2,004,101 and $3,685,658 on the
short sales proceeds held by brokers and incurred interest expense of
$1,658,914, $2,689,491 and $4,188,171 on short sale contracts for the years
ended December 31, 2000 and 1999 and for the period June 2, 1998 to December 31,
1998, respectively.

The composition of the portfolio of securities shown above should not be
considered indicative of the composition of the portfolio that might be expected
in the future.

Note 4: Commercial Mortgage Loan

The commercial mortgage loan was deemed "held for sale" in March of 1999 and
therefore the Company recorded a provision to adjust the loan to market value as
of March 31, 1999 and again at June 30, 1999. The provisions reduced the
carrying value of the loan by $925,000 at March 31, 1999 and by an additional
$575,633 at June 30, 1999. Subsequently in 1999, the Company disposed of the
loan for proceeds of $11,844,276, which was $547,967 in excess of its carrying
value at that time. The Company therefore realized a net loss of $952,666 on the
provisions and disposition in 1999. The investment was a first mortgage loan
secured by The OMNI Hotel in Newport News, Virginia.

Note 5: Common Stock

Clarion common stock was sold through several transactions as follows:


                                      F-10




<PAGE>



Clarion was initially capitalized with the sale of 750 shares of Class A Common
Stock, par value $0.001 per share (the "Class A Common Stock") on February 18,
1998, for a total of $15,000. Clarion received commitments on March 11, 1998 for
the purchase, in private placements, of 1,000,000 shares of Class A Common Stock
at $20 per share for a total of $20,000,000. The sale of these shares was
consummated at the time of the closing of Clarion's initial public offering on
June 2, 1998 (the "IPO").

In the IPO, Clarion issued 4,000,000 shares of Class A Common Stock at a price
of $20 per share and received proceeds of $76,025,000, net of underwriting
discounts and commissions. Offering costs in connection with the IPO amounting
to approximately $1,337,485 have been charged against the proceeds of the IPO.
Concurrent with the IPO, Clarion issued 175,000 shares of Class B common stock,
par value $0.001 per share (the "Class B Common Stock") in exchange for a 10%
interest in the Manager and an option to purchase the remaining 90% interest (or
all of the assets of) the Manager for 90% of fair market value. The option may
be exercised between January 2, 2000 and March 31, 2001 only with the approval
of the Independent Directors, as defined in the Company's prospectus.

On June 30, 1998, the Board of Directors of Clarion authorized a program to
repurchase up to 400,000 shares of Class A Common Stock (the "Stock Repurchase
Program"). Pursuant to the Stock Repurchase Program, purchases of Class A Common
Stock were made at the sole discretion of management in the open market or in
privately negotiated transactions until the earlier to occur of (i) the date on
which the Company acquired, in the aggregate, 400,000 shares of Class A Common
Stock, or (ii) June 30, 1999. On September 8, 1998, the Board of Directors
authorized management to repurchase an additional 400,000 shares prior to
September 30, 1999, at a price not to exceed $13.60. On November 17, 1999, the
Board of Directors authorized management to repurchase an additional 400,000
shares and extended the program to September 30, 2000, at a price not to exceed
$8.75. Through December 31, 2000, the Company had repurchased a total of
1,128,200 shares in the open market at a cost of $10,254,825. The Company has
not repurchased any shares since January 7, 2000. In accordance with Maryland
law, all repurchased shares of common stock are retired.

Note 6: Transactions with Affiliates

Clarion has entered into a Management Agreement (the "Management Agreement")
with the Manager, under which the Manager manages the Company's day-to-day
operations, subject to the direction and oversight of Clarion's Board of
Directors. The Company pays the Manager an annual base management fee equal to
1% of the Company's average stockholders' equity.

The Company will also pay the Manager, as incentive compensation, an amount
equal to 25% of the Adjusted Net Income of the Company, before incentive
compensation, in excess of the amount that would produce an annualized return on
equity equal to 2.5% over the Ten-Year U.S. Treasury.

In accordance with the terms of the Management Agreement, the Company paid
$536,297, $575,928 and $495,596 in base management fees for the years ended
December 31, 2000 and 1999 and for the period June 2, 1998 (commencement of
operations) to December 31, 1998, respectively. The Company has not accrued for,
or paid, the Manager any incentive compensation since inception.

During 1998, the Company determined that its investment in the Manager was
impaired and, accordingly, reduced the carrying amount of its investment in the
Manager to its estimated fair value, $1,000,000. During 1999, the Company
further reduced the carrying amount of its investment to $250,000.

Note 7: Stock Incentive Plan

Clarion has adopted a stock incentive plan (the "1998 Stock Incentive Plan")
that provides for the grant of both non-qualified stock options, incentive stock
options that meet the requirements of Section 422 of the Code, stock awards,
deferred stock awards, dividend equivalents or other awards. Stock incentive
awards may be granted to the directors, officers, consultants and key employees
of Clarion, the Manager or affiliates of the Manager. Subject to anti-dilution


                                      F-11




<PAGE>



provisions for stock splits, stock dividends and similar events, the 1998 Stock
Incentive Plan authorizes the grant of awards in the aggregate of up to 590,900
shares of Class A Common Stock.

The exercise price for any stock option granted under the 1998 Stock Incentive
Plan may not be less than 100% of the fair market value of the shares of Class A
Common Stock at the time the option is granted. Each option must terminate no
more than ten years from the date it is granted.

On June 2, 1998, pursuant to the 1998 Stock Incentive Plan, options to purchase
350,000 shares of Class A Common Stock were granted. 178,250 options were
granted to certain officers and directors of the Company, and 171,750 options
were granted to certain officers and employees of the Manager and its affiliates
who are not officers and directors of the Company. The exercise price of these
options is $20 per share. The remaining contractual life of each option is
approximately eight years as of December 31, 2000. One third of the options
vested on June 30, 1998, one third on June 30, 1999 and the remaining options
vested on June 30, 2000. No options were exercised or expired through December
31, 2000.

The Company considers its officers and directors to be employees for the purpose
of accounting for these option grants. The Company adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" for stock
issued to employees. Accordingly, no compensation cost for the estimated fair
value of the 178,250 options ($0.75 per option grant, or a total of $133,210)
issued to employees under the 1998 Stock Incentive Plan has been recorded,
consistent with the provisions of SFAS No. 123, as of the grant date. For the
Company's pro forma net earnings, the compensation cost will be amortized over
the vesting period of the options. The Company's 2000 and 1999 net income (loss)
per share would have been changed to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
               ------------------------------------------------------------------------------------------
                                         December 31, 2000                    December 31, 1999
                                         -----------------                    -----------------
                                    As reported        Pro forma        As reported        Pro forma
               ------------------------------------------------------------------------------------------
<S>                                     <C>               <C>               <C>               <C>
                     Net income         $ 2,828,826       $ 2,806,624       $ 6,032,672       $ 5,999,370
               Income per share         $      0.70       $      0.69       $      1.33       $      1.33
               ------------------------------------------------------------------------------------------
</TABLE>

For the 171,750 options issued to non-employees under the 1998 Stock Option
Plan, compensation cost is accrued based on the estimated fair value of the
options issued, and amortized over the vesting period. Because vesting of the
options is contingent upon the recipient continuing to provide services to the
Company to the vesting date, the Company estimates the fair value of the
non-employee options at each period end up to the vesting date, and adjusts
expensed amounts accordingly. The 57,250 options that vested on June 30, 1998
had an estimated fair value at that date of $0.10 per option grant, or a total
of $5,725. The remaining 114,500 non-employee options, which vested in 1999 and
2000, were deemed to have nominal value as of December 31, 2000 and 1999.

The fair value of each option grant is estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
grants in 1998: dividend yield of 12% at June 2, 1998 and 15.6% at June 30,
1998, expected volatility of 25%, risk-free interest rate of 5.79% at June 2,
1998 and 5.63% at June 30, 1998, and expected lives of ten years.

On January 2, 2001, 1,026 shares of Class A Common Stock, with a value of
$7,500, were issued to the three independent members of the Board of Directors
as partial compensation for their services during 2000. In addition, on January
2, 2001, 2,030 shares of Class A Common Stock, with a value of $14,718, were
issued to certain officers of the Company and 5,970 shares of Class A Common
Stock, with a value of $43,282 were issued to certain officers and employees of
the Manager who are not officers and directors of the Company for their services
during 2000.

During the year ended December 31, 2000, the Company issued 4,287 shares of
Class A Common Stock, with a value of $30,000, to the three independent members
of the Board of Directors as partial compensation for their services. In
addition, on January 2, 2000, 3,250 shares of Class A Common Stock, with a value
of $25,188, were issued to certain officers of the Company and 4,750 shares of
Class A Common Stock, with a value of $36,812 were issued to certain officers
and employees of the Manager who are not officers and directors of the Company
for their services during 1999.


                                      F-12




<PAGE>



During the year ended December 31, 1999, the Company issued 4,530 shares of
Class A Common Stock, with a value of $42,500, to the three independent members
of the Board of Directors as partial compensation for their services. These
shares were issued at a cost that approximated their fair value at the time of
issuance.

Note 8: Repurchase Agreements

The Company has entered into repurchase agreements with Bear Stearns to finance
a portion of its investments. As of December 31, 2000 and 1999, the Company had
entered into repurchase agreements in the amounts of $14,100,000 and
$64,691,000, respectively. The weighted average maturity of the agreements as of
December 31, 2000 and 1999 were 29.0 days and 19.4 days, respectively, with no
agreement having a maturity greater than 29 days and 28 days, respectively. The
weighted average interest rate of the agreements as of December 31, 2000 and
1999, was 7.40% and 6.98%, respectively and is a variable rate based on
one-month LIBOR plus a weighted average spread of 0.84% and 0.60%, respectively.
At the maturity of each repurchase agreement, the agreement is reset to reflect
any changes in the 30-day LIBOR rate. The repurchase agreements are
collateralized by certain of the Company's CMBS investments, with an aggregate
carrying value of approximately $28.0 million at December 31, 2000.

Note 9: Fair Value of Financial Instruments

As discussed above, the Company's portfolio of CMBS securities and its
liabilities under short sales contracts are carried at estimated fair value.
Company management believes that the fair value of its deposits with brokers as
collateral for securities sold short, cash and cash equivalents, and repurchase
agreements approximates their carrying values, due to the short-term nature of
the instruments or the fact that their terms approximate current market terms.


                                      F-13




<PAGE>



Note 10: Summarized Quarterly Results (Unaudited)

The following is a summarized presentation of quarterly results of operations:

<TABLE>
<CAPTION>
                                                      Three                        Three Months    Three Months
                                                  Months Ended     Three Months        Ended           Ended
                                                    March 31,       Ended June     September 30,   December 31,
                                                      1999           30, 1999           1999           1999
                                                  --------------------------------------------------------------
<S>                                               <C>              <C>              <C>             <C>
 Income:
   Interest income from
    securities - trading                          $ 2,715,042      $ 2,978,661      $ 2,855,674     $ 2,268,460
   Income from commercial
    mortgage loan                                     235,240          236,810          230,649              --
   Income from other investments                      133,683          134,937          136,185         136,007
   Interest income from cash and
    cash equivalents                                   13,374           14,701           28,961           7,147
                                                  --------------------------------------------------------------

 Total income                                       3,097,339        3,365,109        3,251,469       2,411,614
                                                  --------------------------------------------------------------

 Expenses:
   Interest                                         1,588,128        1,818,148        1,700,119         939,887
   Management fee                                     144,892          150,570          144,329         136,137
   Other expenses                                     177,943          216,344          139,939         231,585
                                                  --------------------------------------------------------------

 Total expenses                                     1,910,963        2,185,062        1,984,387       1,307,609
                                                  --------------------------------------------------------------

 Other operating gains and losses:
   Gain (loss) from securities-trading              1,519,984        1,306,807          210,004         (38,967)
   Gain (loss) from commercial loan (1)              (925,000)        (575,633)         549,467          (1,500)
   Loss on other investments (2)                            -                -                -        (750,000)
                                                  --------------------------------------------------------------

 Total other operating gains (losses)                 594,984          731,174          759,471        (790,467)
                                                  --------------------------------------------------------------

 Net Income                                       $ 1,781,360      $ 1,911,221      $ 2,026,553     $   313,538
                                                  ==============================================================
     Net Income per share:
       Basic                                            $0.39            $0.42            $0.45           $0.07
                                                 ===============================================================

       Diluted                                          $0.39            $0.42            $0.45           $0.07
                                                 ===============================================================

       Weighted average shares
       Basic                                        4,620,069        4,548,694        4,497,649       4,438,720
                                                 ===============================================================

       Diluted                                      4,620,069        4,548,694        4,497,649       4,438,720
                                                 ===============================================================

<CAPTION>
                                                                                   Three Months      Three Months
                                                  Three Months    Three Months         Ended            Ended
                                                  Ended March      Ended June        September       December 31,
                                                    31, 2000        30, 2000         30, 2000            2000
                                                  --------------------------------------------------------------
<S>                                                <C>             <C>              <C>              <C>
 Income:
   Interest income from
    securities - trading                           $ 2,806,800     $ 2,340,470      $ 2,513,841      $ 2,258,706
   Income from commercial
    mortgage loan                                           --              --               --               --
   Income from other investments                       134,403          90,898          130,470          130,891
   Interest income from cash and
    cash equivalents                                     7,334          71,945           21,490           15,947
                                                  --------------------------------------------------------------

 Total income                                        2,948,537       2,503,313        2,665,801        2,405,544
                                                  --------------------------------------------------------------

 Expenses:
   Interest                                          1,327,413       1,032,235        1,089,642          934,994
   Management fee                                      128,864         127,617          134,772          145,044
   Other expenses                                      166,461         389,822          221,319          317,407
                                                  --------------------------------------------------------------

 Total expenses                                      1,622,738       1,549,674        1,445,733        1,397,445
                                                  --------------------------------------------------------------

 Other operating gains and losses:
   Gain (loss) from securities-trading                 364,164        (759,666)        (689,543)        (593,734)
   Gain (loss) from commercial loan (1)                     --              --               --               --
   Loss on other investments (2)                            --              --               --               --
                                                  --------------------------------------------------------------

 Total other operating gains (losses)                  364,164        (759,666)        (689,543)        (593,734)
                                                  --------------------------------------------------------------

 Net Income                                        $ 1,689,963     $   193,973      $   530,525      $   414,365
                                                  ==============================================================
     Net Income per share:
       Basic                                             $0.41           $0.05            $0.13            $0.10
                                                  ==============================================================

       Diluted                                           $0.41           $0.05            $0.13            $0.10
                                                  ==============================================================

       Weighted average shares
       Basic                                         4,081,872       4,061,968        4,063,142        4,064,354
                                                  ==============================================================

       Diluted                                       4,081,872       4,061,968        4,063,142        4,064,354
                                                  ==============================================================
</TABLE>

(1)   The commercial mortgage loan was deemed to be held for sale in the first
      quarter of 1999, and its carrying value reduced to estimated fair value.
      An additional reduction was recorded in the second quarter of 1999. The
      loan was sold in the third quarter of 1999 for an amount in excess of its
      then carrying value.

(2)   The Company wrote down its investment in the Manager to its estimated fair
      value..


                                      F-14




<PAGE>



                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                  CLARION COMMERCIAL HOLDINGS, INC.


                                          /s/ FREDRICK D. ARENSTEIN
                                          --------------------------------------
                                  By:     Fredrick D. Arenstein
                                          Treasurer and Chief Accounting Officer

                                  Dated:  March 29, 2001

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons in the
capacities and on the date indicated.

SIGNATURE                  TITLE                                  DATE
---------                  -----                                  ----

/s/ DANIEL S. HEFLIN       Chief Executive Officer and Director   March 29, 2001
Daniel S. Heflin           (principal executive officer)


/s/ FRANK L. SULLIVAN, JR. Chairman of the Board and              March 29, 2001
Frank L. Sullivan, Jr.     Director


/s/ STEPHEN C. ASHEROFF    Director                               March 29, 2001
Stephen C. Asheroff


/s/ STEVEN N. FAYNE        Director                               March 29, 2001
Steven N. Fayne


/s/ HAROLD E. ROSEN        Director                               March 29, 2001
Harold E. Rosen