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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                               ------------------

                                    FORM 10-K
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                                ------------------

For the fiscal year ended December 31, 2002       Commission file number 1-10360

                                 CRIIMI MAE INC.
             (Exact name of registrant as specified in its charter)

Maryland                                                    52-1622022
(State or other jurisdiction of                          (I.R.S. Employer
Incorporation or organization)                          Identification No.)

                              11200 Rockville Pike
                            Rockville, Maryland 20852
                                 (301) 816-2300
               (Address, including zip code, and telephone number,
       including area code, of registrant's principal executive offices)

                               ------------------

           Securities Registered Pursuant to Section 12(b) of the Act:

                                                    Name of each exchange on
Title of each class                                      which registered
-------------------                               ------------------------------
Common Stock                                      New York Stock Exchange, Inc.
Series B Cumulative Convertible                   New York Stock Exchange, Inc.
  Preferred Stock
Series F Redeemable Cumulative Dividend           New York Stock Exchange, Inc.
  Preferred Stock
Series G Redeemable Cumulative Dividend           New York Stock Exchange, Inc.
  Preferred Stock

           Securities registered pursuant to Section 12(g) of the Act:
                                      None
                               ------------------

     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 registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference in Part III of this Form 10K or any amendment to this
Form 10K. [ ]


     Indicate by check mark whether the  registrant  has filed all documents and
reports  required to be filed by Section 12, 13 or 15(d) of the  Securities  and
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes [X] No [ ]


     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]


     The aggregate  market value (based upon the last reported sale price on the
New York  Stock  Exchange  on June 28,  2002) of the  shares of CRIIMI  MAE Inc.
common stock held by non-affiliates was approximately $97,381,769. (For purposes
of calculating the previous amount only, all directors and executive officers of
the registrant are assumed to be affiliates.)

     As of March 25,  2003,  15,162,685  shares of CRIIMI MAE Inc.  common stock
with a par value of $0.01 were outstanding.

<PAGE>

                       Documents Incorporated By Reference
The information required by Part III (Items 10, 11, 12 and 13) is incorporated
by reference to the Registrant's definitive proxy statement to be filed pursuant
to Regulation 14A relating to the Registrant's 2003 annual meeting of
shareholders.

================================================================================


<PAGE>




                                 CRIIMI MAE INC.

                        2002 ANNUAL REPORT ON FORM 10-K

                               TABLE OF CONTENTS



                                                                         Page

                                    PART I

Item 1.      Business  ...................................................  1
Item 2.      Properties....................................................19
Item 3.      Legal Proceedings.............................................19
Item 4.      Submission of Matters to a Vote of Security Holders...........19

                                    PART II

Item 5.      Market for the Registrant's Common Stock and
              Related Shareholder Matters..................................20
Item 6.      Selected Financial Data.......................................22
Item 7.      Management's Discussion and Analysis of Financial Condition
              and Results of Operations....................................24
Item 7A.     Quantitative and Qualitative Disclosures About Market Risk....57
Item 8.      Financial Statements and Supplementary Data...................58
Item 9.      Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure.....................................58

                                   PART III

Item 10.     Directors and Executive Officers of the Registrant............60
Item 11.     Executive Compensation........................................60
Item 12.     Security Ownership of Certain Beneficial Owners and
              Management and Related Shareholders Matters..................60
Item 13.     Certain Relationships and Related Transactions................60
Item 14.     Controls and Procedures.......................................60

                                  PART IV

Item 15.     Exhibits, Financial Statement Schedules, and Reports on
              Form 8-K.....................................................61

Signatures    .............................................................74

Certifications.............................................................76


<PAGE>1

                                   PART I

ITEM 1.  BUSINESS

FORWARD-LOOKING STATEMENTS. When used in this Annual Report on Form 10-K, in
future filings with the Securities and Exchange Commission (the SEC or the
Commission), in our press releases or in our other public or shareholder
communications, the words "believe," "anticipate," "expect," "contemplate,"
"may," "will" and similar expressions are intended to identify forward-looking
statements. Statements looking forward in time are included in this Annual
Report on Form 10-K pursuant to the "safe harbor" provision of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties, which could cause actual results to differ materially,
including, but not limited to the risk factors contained or referenced under the
headings "Business," "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" set forth below. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. We undertake no obligation to publicly revise
these forward-looking statements to reflect events or circumstances occurring
after the date hereof or to reflect the occurrence of anticipated or
unanticipated events.

Business and Experience

     CRIIMI MAE Inc.  (together with its consolidated  subsidiaries,  unless the
context otherwise indicates,  We or CRIIMI MAE) is a commercial mortgage company
structured as a self-administered real estate investment trust (or REIT).

     We currently own, and manage,  primarily through our servicing  subsidiary,
CRIIMI  MAE  Services  Limited  Partnership  (CMSLP or CRIIMI MAE  Services),  a
significant portfolio of commercial mortgage-related assets.

     We have  focused  primarily  on  non-investment  grade (rated below BBB- or
unrated)  commercial  mortgage-backed  securities  (subordinated  CMBS).  As the
holder of the most  subordinate  tranches,  we are  exposed to a higher  risk of
losses, but we also have the potential for enhanced returns.

     Our core  holdings  are  subordinated  CMBS  backed by pools of  commercial
mortgage loans on hotel,  multifamily,  retail and other commercial real estate.
We  also  own  directly  and  indirectly   government-insured   mortgage  backed
securities and a limited number of high-yield  mezzanine  commercial real estate
mortgage loans (mezzanine  loans). We also are a trader in investment grade CMBS
and residential mortgage-backed securities.

     Based on our prior and current activities,  we have significant  experience
in the following areas:

o        Subordinated CMBS Acquisitions. We were a leading purchaser of
         subordinated CMBS from 1996 to 1998, acquiring an aggregate face amount
         during that time of approximately $2.4 billion. In connection with our
         CMBS acquisitions, we engaged in extensive underwriting procedures
         designed to assess the adequacy of the real property collateral for the
         underlying mortgage loans and the creditworthiness of the related
         borrowers.

o        Resecuritizations. We completed two of the commercial real estate
         industry's first resecuritizations of subordinated CMBS in 1996 and
         1998. These transactions had a combined face value of $449 million and
         $1.8 billion, respectively.

o        Loan Originations and Securitizations. Prior to 1999, we had originated
         more than $900 million in aggregate principal amount of commercial real
         estate mortgage loans. In 1998, we securitized approximately $496
         million of commercial mortgage loans originated or acquired by us.

o        Mortgage Servicing. Through our servicing subsidiary, CRIIMI MAE
         Services, we are responsible for certain commercial mortgage servicing
         functions for a $19.8 billion commercial mortgage loan portfolio and
         for special servicing functions for $17.4 billion of the commercial
         mortgage loans underlying our subordinated CMBS.

<PAGE>2

Recapitalization Overview

     On January 23, 2003,  we completed a  recapitalization  of the secured debt
incurred upon our emergence from Chapter 11 in April 2001 (the Exit Debt).  This
recapitalization  was funded with  approximately  $344  million of newly  issued
common equity and secured debt and a portion of our available cash and liquid
assets.

     The recapitalization includes:

o        BREF Equity & Secured Debt. - CRIIMI MAE issued approximately $44
         million in common equity and secured subordinated debt to Brascan Real
         Estate Finance Fund I L.P. (BREF), a private asset management fund
         established by Brascan Corporation and a New York-based management
         team.

o        Bear Stearns Secured Financing. - CRIIMI MAE received $300 million in
         secured financing in the form of a repurchase transaction from a unit
         of Bear, Stearns & Co., Inc. (Bear Stearns).

o        New Leadership. - Additions to management, including Barry S. Blattman
         as Chairman of the Board, Chief Executive Officer and  President.
         Mr. Blattman has more than 15 years of experience in commercial real
         estate finance, which included overseeing the real estate debt group at
         Merrill Lynch from 1996 to 2001.

     The recapitalization  increases our financial flexibility primarily through
the  elimination of the requirement to use virtually all of our net cash flow to
pay down principal on the Exit Debt.  This,  along with the  elimination of REIT
distribution  requirements  due to our net operating  losses (NOLs), provides us
with additional liquidity for mortgage-related  investments and acquisitions and
other corporate  purposes.  We presently intend to use  substantially all of our
net cash flow for acquisitions and investments,  hedging  activities and general
working capital purposes.

Goals and Strategy

     Our  goal is to  re-establish  CRIIMI  MAE as a  leader  in the  commercial
mortgage  industry.  Our strategy is to capitalize on our core strengths in real
estate and mortgage finance and our underwriting and special servicing expertise
to structure and make mortgage-related  investments and acquisitions designed to
maximize the value of our current and future assets,  support liquidity and earn
attractive  returns.  Part of this  strategy is to continue to capitalize on our
special  servicing  expertise in connection  with workouts and  dispositions  of
mortgage loans  underlying our existing  subordinated  CMBS in order to minimize
losses with respect to our current subordinated CMBS.

     Our four strategic priorities are:

o        Maximize Existing Asset Values. - We plan to maximize the value of our
         existing subordinated CMBS portfolio by accelerating workouts or
         dispositions of commercial mortgage loans in special servicing.

o        Pursue Acquisitions and Investments. - We plan to develop and execute
         mortgage-related acquisition and investment strategies relating
         primarily to CMBS and commercial mortgage loans that capitalize on our
         real estate and mortgage finance, underwriting, loan management and
         special servicing experience, and our access to performance information
         on mortgages and real estate markets throughout the country derived
         from our special servicing responsibilities.

o        Refine and Develop Our Team. - We will ensure that CRIIMI MAE has
         personnel with the requisite expertise to maximize asset values and
         develop and execute acquisition and investment strategies.

o        Earn Attractive Returns. - We seek to earn attractive returns through
         the prudent investment of our capital and net cashflows.



<PAGE>3


January 2003 Recapitalization

     Under the 2003  recapitalization,  BREF  acquired  1,212,617  shares of our
newly issued common stock, or approximately  8% of our outstanding  common stock
after  giving  effect  to  the  share  acquisition,  at  $11.50  per  share,  or
approximately $13.9 million.  BREF also received seven-year warrants to purchase
up to  336,835  additional  shares  of  common  stock at $11.50  per  share.  In
addition,  BREF purchased $30 million of our newly issued subordinated debt (the
BREF Debt) and,  at our  option,  BREF will  purchase  up to an  additional  $10
million of subordinated debt prior to January 23, 2004. The BREF Debt matures on
January  23,  2006 and bears  interest at an annual rate of 15%. If we decide to
sell the  additional  $10  million of  subordinated  debt to BREF,  it will bear
interest  at an annual  rate of 20% and mature on January  23,  2006.  We have a
right to defer  two-thirds  of the  interest  on the BREF  Debt (and half on the
additional  $10  million,  if sold to BREF)  during  its term.  The BREF Debt is
secured  by first  liens on the  equity  interests  of two of our  subsidiaries.
Although  this  effectively  provides  BREF with an indirect  lien on all of our
subordinated  CMBS that are held by three of our other lower-tier  subsidiaries,
Bear  Stearns has first liens on the equity  interests of these three lower tier
subsidiaries and on certain of the subordinated  CMBS held by one of these lower
tier subsidiaries.  Pursuant to an intercreditor agreement between BREF and Bear
Stearns,  our obligations under the BREF Debt are  contractually  subordinate to
the prior payment in full of our  obligations  under the $300 million in secured
financing provided by Bear Stearns.  Such intercreditor  agreement also provides
for  contractual  restrictions  on BREF's  ability to realize  upon its indirect
interest in the Bear Stearns first lien collateral.

     Bear Stearns  provided  $300 million in secured  financing in the form of a
repurchase  transaction (the Bear Stearns Debt) under the 2003 recapitalization.
The Bear  Stearns  Debt  matures  in 2006,  bears  interest  at a rate  equal to
one-month  LIBOR plus 3% and  requires  quarterly  principal  payments  of $1.25
million. The principal payments will increase to $1.875 million per quarter if a
collateralized debt obligation  transaction (or CDO) is not completed by January
23, 2004. The interest rate will increase by 1%, to one-month  LIBOR plus 4%, if
Bear Stearns  structures a CDO that meets  certain  rating  requirements  and we
decline  to close.  The Bear  Stearns  Debt is secured  by first  direct  and/or
indirect  liens on all of our  subordinated  CMBS.  The indirect first liens are
first  liens on the  equity  interests  of three of our  subsidiaries  that hold
certain  subordinated  CMBS. A reduction in the value of this  collateral  could
require us to provide  additional  collateral  or fund  margin  calls.  Although
CRIIMI  MAE Inc.  is not a primary  obligor  of the Bear  Stearns  Debt,  it has
guaranteed all obligations  under the debt. See also "BUSINESS - Certain Risks -
Borrowing and  Refinancing  Risks" for a discussion of risks related to the Bear
Stearns Debt.

The Reorganization Plan

     On October 5, 1998,  CRIIMI  MAE Inc.  (unconsolidated)  and two  operating
subsidiaries,  CRIIMI MAE  Management,  Inc.  and CRIIMI MAE  Holdings II, L.P.,
filed for  relief  under  Chapter 11 of the U.S.  Bankruptcy  Code in the United
States  Bankruptcy  Court for the District of Maryland,  Southern  Division,  in
Greenbelt,  Maryland.  On November 22, 2000, the United States  Bankruptcy Court
for the  District of Maryland  entered an order  confirming  our  reorganization
plan, and we emerged from Chapter 11 on April 17, 2001.

     Our  reorganization  plan  provided  for the  payment in full of all of our
allowed  claims  primarily  through  the  Chapter 11  reorganization  (including
proceeds  from  certain  asset sales)  totaling  $847  million.  Included in the
Chapter 11 reorganization was approximately $262.4 million in Exit Debt provided
by affiliates of Merrill Lynch  Mortgage  Capital,  Inc. (or Merrill  Lynch) and
German American  Capital  Corporation (or GACC) through a variable-rate  secured
financing facility (the Exit Variable-Rate Secured Borrowing),  in the form of a
repurchase  transaction,  and approximately $166.8 million in Exit Debt provided
through  two  series of senior  secured  notes  issued to some of our  unsecured
creditors.  All rights and  obligations of Merrill Lynch and GACC under the Exit
Variable-Rate  Secured Borrowing operative agreements were subsequently assigned
to ORIX Capital Markets,  LLC. The Exit Debt was directly or indirectly  secured
by substantially all of our assets, and virtually all of our cash flows relating
to existing assets were used to satisfy principal,  interest and fee obligations
under  the  Exit  Debt  and to pay our  general  and  administrative  and  other
operating  expenses.  The terms of the Exit Debt  significantly  restricted  the
amount  of  cash  dividends  that  could  be  paid to  shareholders.  Under  our
reorganization  plan, the holders of our equity  retained their shares of stock.
See "MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS"  and Note 7 to  Notes to  Consolidated  Financial  Statements  for a
further discussion of the Exit Debt. All Exit Debt was paid off in

<PAGE>4

connection with the January 2003  recapitalization.

Other

     We were  incorporated  in  Delaware  in 1989  under  the name  CRI  Insured
Mortgage  Association,  Inc.  In July 1993,  CRI  Insured  Mortgage  Association
changed its name to CRIIMI MAE Inc.  and  reincorporated  in  Maryland.  In June
1995, certain mortgage businesses  affiliated with C.R.I., Inc. were merged into
CRIIMI MAE Inc. (the Merger).  We are not a government  sponsored  entity or in
any way  affiliated  with the United  States  government  or any  United  States
government agency.

The CMBS Market

     Historically,  traditional lenders,  including commercial banks,  insurance
companies  and  savings and loans have been the  primary  holders of  commercial
mortgages.  The real  estate  market of the late 1980s and early  1990s  created
business and  regulatory  pressure to reduce the real estate  assets held on the
books of these institutions. As a result, there has been significant movement of
commercial  real estate debt from  private  institutional  holders to the public
markets.  According to Commercial  Mortgage  Alert,  CMBS  issuances in the U.S.
totaled  approximately  $66.4 billion in 2002,  $74.3 billion in 2001, and $48.9
billion in 2000.

     CMBS are  generally  created  by  pooling  commercial  mortgage  loans  and
directing  the cash  flow  from  such  mortgage  loans to  various  tranches  of
securities.   The  tranches   consist  of   investment   grade  (AAA  to  BBB-),
non-investment grade (BB+ to CCC) and unrated securities.  The first step in the
process of creating CMBS is loan  origination.  Loan  origination  occurs when a
financial  institution  lends money to a borrower to  refinance or to purchase a
commercial  real  estate  property,  and secures the loan with a mortgage on the
property  that the borrower  owns or purchases.  Commercial  mortgage  loans are
typically   non-recourse   to  the   borrower.   A  pool  of  these   commercial
mortgage-backed  loans is then accumulated,  often by a large commercial bank or
other financial institution.  One or more rating agencies then analyze the loans
and the underlying real estate to determine  their credit quality.  The mortgage
loans are then deposited into an entity that is not subject to taxation, often a
real estate mortgage  investment conduit (or REMIC). The investment vehicle then
issues securities backed by the commercial mortgage loans, or CMBS.

     The CMBS are divided into  tranches,  which are afforded  certain  priority
rights to the cash flow from the underlying  mortgage loans.  Interest  payments
typically  flow first to the most senior  tranche  until it receives  all of its
accrued  interest  and  then to the  junior  tranches  in  order  of  seniority.
Principal  payments  typically  flow to the  most  senior  tranche  until  it is
retired.  Tranches  are then retired in order of  seniority,  based on available
principal.  Losses,  if any, are generally  first applied  against the principal
balance  of the  lowest  rated or unrated  tranche.  Losses are then  applied in
reverse order of  seniority.  Each tranche is assigned a credit rating by one or
more rating agencies based on the agencies'  assessment of the likelihood of the
tranche  receiving its stated  payment of  principal.  The CMBS are then sold to
investors  through either a public offering or a private  placement.  CRIIMI MAE
has primarily focused on acquiring or retaining non-investment grade and unrated
tranches,  issued by mortgage  conduits,  where we believed our market knowledge
and real estate expertise allowed us to earn attractive risk-adjusted returns.

     At the time of a  securitization,  one or more  entities  are  appointed as
"servicers" for the pool of mortgage  loans,  and are responsible for performing
servicing duties which include collecting payments (master or direct servicing),
monitoring  performance  (loan  management)  and working out or  foreclosing  on
defaulted loans (special servicing).  Each servicer typically receives a fee and
other financial incentives based on the type and extent of servicing duties.

Business Segments

     Management assesses our performance and allocates resources  principally on
the basis of two lines of business: portfolio investment and mortgage servicing.
These two lines of business,  or operating  segments,  are managed separately as
they provide different sources and types of revenues.

<PAGE>5

Portfolio Investment

     Portfolio  investment  primarily includes (i) acquiring  subordinated CMBS,
(ii)  securitizing  pools of  mortgage  loans  and pools of CMBS,  (iii)  direct
investments  in government  insured  securities and entities that own government
insured securities and mezzanine loans and (iv) securities  trading  activities.
Our income from this segment is primarily generated from these assets.

     CMBS Acquisitions

     As of December 31, 2002, our $1.2 billion portfolio of assets included $862
million  of  CMBS  (representing  approximately  69% of our  total  consolidated
assets).  As of December 31, 2002, our CMBS had the following  ratings (based on
fair value) reflected as a percentage of total CMBS:

         Rating                             % of CMBS
         ------                             ---------
         A+, BBB+ or BBB                     38% (a)
         BB+, BB or BB-                      39%
         B+, B, B- or CCC                    21%
         Unrated                              2%

     (a) Represents  investment grade securities  reflected on our balance sheet
as a result of CBO-2, our second resecuritization transaction.

     See   "BUSINESS-Portfolio   Investment-Resecuritizations"   and  "BUSINESS-
Portfolio Investment's  Assets-CMBS and Other MBS" for further discussion of our
CMBS. We did not acquire any  subordinated  CMBS in 2002, 2001 or 2000. Prior to
the  fall  of  1998,  we  generally  acquired  subordinated  CMBS  in  privately
negotiated  transactions,  which  allowed  us  to  perform  due  diligence  on a
substantial  portion of the mortgage loans underlying the  subordinated  CMBS as
well as the  underlying  real estate  prior to  consummating  the  purchase.  In
connection with our  subordinated  CMBS  acquisitions,  we targeted  diversified
mortgage  loan pools with a mix of  property  types,  geographic  locations  and
borrowers.   We  financed  a  substantial   portion  of  our  subordinated  CMBS
acquisitions  with  short-term,  variable-rate  debt  secured  by  the  acquired
subordinated  CMBS.  As  discussed  below in  "Resecuritizations,"  our business
strategy was to periodically  refinance a substantial portion of our short term,
variable-rate debt through a resecuritization of our subordinated CMBS primarily
to attain a better  matching  of the  maturities  of our assets and  liabilities
through the refinancing of such  short-term,  variable-rate,  recourse debt with
long-term, fixed-rate, non-recourse debt.

     The  liquidity  of the  subordinated  CMBS  market  has  historically  been
limited.  Additionally,  during adverse market conditions, the liquidity of such
market has been severely limited.  For this reason,  among others,  management's
estimate of the value of our subordinated CMBS could vary significantly from the
value that could be realized in a current  transaction  between a willing  buyer
and a willing seller in other than a forced sale or liquidation.

     Resecuritizations

     We  initially  funded  a  substantial  portion  of  our  subordinated  CMBS
acquisitions  with short-term,  variable-rate  secured debt. To further mitigate
our exposure to interest rate risk,  our business  strategy was to  periodically
refinance a significant portion of this short-term,  variable-rate recourse debt
with fixed-rate,  non-recourse  debt having maturities that matched those of our
mortgage assets securing such debt, also known as match-funded debt. We effected
such  refinancing  by  pooling  subordinated  CMBS,  once a  sufficient  pool of
subordinated CMBS had been accumulated, and issuing newly created CMBS backed by
the pooled  subordinated  CMBS. The CMBS issued in such  resecuritizations  were
fixed-rate  obligations  with  maturities  that  matched the  maturities  of the
subordinated CMBS backing the new CMBS. These  resecuritizations  also increased
the amount of borrowings  available to us due to the increased  collateral value
of the new CMBS  relative  to the pooled  subordinated  CMBS.  The  increase  in
collateral value was principally attributable to the seasoning of the underlying
mortgage loans and the diversification that occurred when such subordinated CMBS
were pooled.  We generally used the cash proceeds from the investment grade CMBS
that were sold in the  resecuritization  to reduce the amount of our short-term,
variable-rate  debt. We then used the net excess  borrowing  capacity created by
the resecuritization to obtain new short-term,  variable-rate secured borrowings
which were used with additional new short-term, variable-rate secured borrowings
typically  provided by the  subordinated  CMBS  seller and, to a lesser  extent,
cash, to purchase additional  subordinated

<PAGE>6

CMBS.  Although our  resecuritizations  mitigated  our exposure to interest
rate  risk  through   match-funding,   our  short-term,   variable-rate  secured
borrowings  increased from December 31, 1996 to December 31, 1998 as a result of
our continued acquisitions of subordinated CMBS during that period.

     In December 1996, we completed our first  resecuritization  of subordinated
CMBS,  CRIIMI MAE Trust I Series 1996-C1 (CBO-1),  with a combined face value of
approximately $449 million involving 35 individual securities  collateralized by
12 mortgage  securitization  pools.  In CBO-1 we sold,  in a private  placement,
securities  with a face amount of $142  million and retained  securities  with a
face amount of approximately  $307 million.  As a result of CBO-1, we refinanced
approximately $142 million of short-term,  variable-rate,  secured recourse debt
with  fixed-rate,  non-recourse,   match-funded  debt.  CBO-1  generated  excess
borrowing  capacity  of  approximately  $22 million  primarily  as a result of a
higher overall  weighted  average credit rating for the new CMBS, as compared to
the weighted average credit rating on the related CMBS collateral.

     In May 1998, we completed our second resecuritization of subordinated CMBS,
CRIIMI MAE Commercial  Mortgage Trust Series  1998-C1  (CBO-2),  with a combined
face value of  approximately  $1.8 billion  involving 75  individual  securities
collateralized  by 19 mortgage  securitization  pools and three of the  retained
securities from CBO-1. In CBO-2,  we eventually  sold, in private  transactions,
securities with an aggregate face amount of $673 million and retained securities
with a face amount of  approximately  $1.1 billion.  CBO-2  generated net excess
borrowing  capacity of  approximately  $160  million  primarily as a result of a
higher overall  weighted  average credit rating for the new CMBS, as compared to
the weighted average credit rating on the related CMBS collateral.

     As of December 31, 2002, our total debt was  approximately  $922.0 million,
of which approximately 59% was fixed-rate,  match-funded,  non-recourse debt and
approximately   41%  was   variable-rate   or  fixed-rate   debt  that  was  not
match-funded.  See "MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF  OPERATIONS"  and Notes 5, 7 and 19 to the Notes to  Consolidated
Financial Statements for further information regarding our resecuritizations and
variable-rate secured borrowings.

     Loan Originations and Securitizations

     Previously,  we originated mortgage loans principally through mortgage loan
conduit  programs with major financial  institutions  for the primary purpose of
pooling such loans for securitization.  We viewed a securitization as a means of
extracting  the maximum value from the mortgage loans  originated.  A portion of
the mortgage loans  originated was financed through the sale of investment grade
CMBS to third parties in  connection  with the  securitization.  We received net
cash  flow on the  retained  CMBS not sold to third  parties  after  payment  of
amounts  due to  secured  creditors  who  had  provided  acquisition  financing.
Additionally, we received origination and servicing fees related to the mortgage
loan conduit programs.

     In June 1998, we securitized  approximately  $496 million of the commercial
mortgage  loans  originated  or acquired by us through a mortgage  loan  conduit
program with Citicorp  Real Estate,  Inc.  and,  through  CRIIMI MAE CMBS Corp.,
issued Commercial Mortgage Loan Trust Certificates,  Series 1998-1 (CMO-IV).  In
CMO-IV,  we sold $397 million face amount of fixed-rate,  investment grade CMBS.
We originally  intended to sell all of the investment  grade tranches of CMO-IV;
however,  two  investment  grade  tranches were not sold until 1999. We had call
rights,  or the  right  to  repurchase  the sold  CMBS  once  their  outstanding
aggregate  principal  balances were reduced to certain specified levels, on each
of the issued CMBS and  therefore did not  surrender  control of the CMBS,  thus
requiring  the  transaction  to be accounted  for as a financing of the mortgage
loans  collateralizing the investment grade CMBS sold in the securitization.  We
sold our  remaining  interest  in CMO-IV in  November  2000.  See  "MANAGEMENT'S
DISCUSSION    AND   ANALYSIS   OF   FINANCIAL    CONDITION    AND   RESULTS   OF
OPERATIONS-Financial  Condition,  Liquidity and Capital Resources" and Note 5 to
the  Notes to  Consolidated  Financial  Statements  for  additional  information
regarding  this  securitization,  the sale of our interest in CMO-IV and certain
financial and accounting effects of such sale.

     Underwriting Procedures

     Since we generally acquired CMBS through privately negotiated  transactions
and originated  commercial mortgage loans, we were able to perform extensive due
diligence on a majority of the  mortgage  loans as well as the  underlying  real
estate prior to consummating  any purchase or origination.  We underwrote  every
loan  we  originated

<PAGE>7

and  re-underwrote  a  substantial  portion  of the  loans  underlying  the
subordinated CMBS we acquired.  Furthermore,  our credit committee,  composed of
members of senior  management,  reviewed  originated loans and subordinated CMBS
acquisitions.

     Our  underwriting  guidelines  were  designed to assess the adequacy of the
real property as collateral  for the loan and the  borrower's  creditworthiness.
The underwriting  process  entailed a full  independent  review of the operating
records, appraisals, environmental studies, market studies and architectural and
engineering  reports,  as well as  site  visits  to  properties  representing  a
majority of the CMBS  portfolio.  We then tested the  historical  and  projected
financial  performance  of the  properties  to determine  their  resiliency to a
market downturn and applied varying  capitalization  rates to assess  collateral
value.  To assess the  borrower's  creditworthiness,  we reviewed the borrower's
financial statements, credit history, bank references and managerial experience.
We  purchased  subordinated  CMBS when  satisfactory  arrangements  existed that
enabled us to closely monitor the underlying mortgage loans and provided us with
appropriate workout and foreclosure rights.

Portfolio Investment's Assets

     CMBS and Other MBS

     As of December 31,  2002,  we owned,  for  purposes of  generally  accepted
accounting principles (GAAP), CMBS rated from A+ to CCC and unrated with a total
fair value amount of approximately $862 million (representing  approximately 69%
of our total consolidated  assets), an aggregate amortized cost of approximately
$761 million,  and an aggregate face amount of approximately  $1.5 billion.  The
CMBS  represent   investments  in  CBO-1,  CBO-2  and  Nomura  Asset  Securities
Corporation Series 1998-D6 (Nomura).  See "MANAGEMENT'S  DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" for a discussion of our CMBS.

     In addition to the CMBS discussed  above,  as of December 31, 2002 we owned
$5.2 million of other mortgage backed  securities (or Other MBS), which are held
for  trading  purposes.  See also  "Risk of Loss of REIT  Status  and  Other Tax
Matters".

     Insured Mortgage Securities

     As of December 31, 2002, we had $275.3 million at fair value  (representing
approximately  22% of our total  consolidated  assets)  and  $273.7  million  at
amortized  cost  invested in insured  mortgage  securities,  consisting  of GNMA
mortgage-backed securities and FHA-insured certificates,  as well as Freddie Mac
participation  certificates  that  are  collateralized  by GNMA  mortgage-backed
securities.  As of December 31, 2002, 88% of our investment in insured  mortgage
securities were GNMA  mortgage-backed  securities  (including  certificates that
collateralize  Freddie Mac participation  certificates) and approximately 12% of
our investment in insured mortgage securities were FHA-insured certificates. See
Note 6 to the Notes to Consolidated Financial Statements for further discussion.

     Equity Investments

     As of December 31, 2002, we had  approximately  $6.2 million in investments
accounted  for under the equity  method of  accounting.  Included  in our equity
investments  as of December 31, 2002 are (a) the general  partnership  interests
(2.9% to 4.9%  ownership  interests)  in American  Insured  Mortgage  Investors,
American Insured Mortgage  Investors-Series  85, L.P., American Insured Mortgage
Investors  L.P.-Series 86 and American Insured Mortgage Investors L.P.-Series 88
(collectively,  the AIM Limited  Partnerships),  owned by CRIIMI, Inc., a wholly
owned  subsidiary of CRIIMI MAE, and (b) a 20% limited  partnership  interest in
the advisor to the AIM Limited  Partnerships.  The AIM Limited  Partnerships are
four publicly traded limited  partnerships  that hold insured mortgage loans and
insured mortgage securities.

     Real Estate Owned

     As of December 31, 2002, we had  approximately  $8.8 million of real estate
being held for  investment.  This real estate  consists of a shopping  center in
Orlando,   Florida.  See  "Other  Income"  and  "Summary  of  Other

<PAGE>8

Assets" in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" for a further discussion of this real estate.

Mortgage Servicing

     We conduct our mortgage loan servicing  operations  through CMSLP.  In July
2001,  we  began  accounting  for  CMSLP  on  a  consolidated  basis  due  to  a
reorganization  which resulted in the partnership  interests of CMSLP being held
by two of our wholly owned taxable REIT  subsidiaries  (or TRSs).  Prior to July
2001,  we accounted  for CMSLP under the equity method as we did not control the
voting  common  stock  of  the  general   partner  of  CMSLP.   CMSLP's  assets,
liabilities,   revenues  and  expenses  are  labeled  as   "servicing"   on  our
consolidated financial statements.

     In February 2002,  CMSLP sold all of its rights and  obligations  under its
CMBS master and primary servicing contracts primarily because the contracts were
not  profitable,  given the  relatively  small volume of master and primary CMBS
servicing that CMSLP was performing.  In connection with this restructuring,  34
employee  positions  were  eliminated.  Restructuring  charges of  approximately
$189,000 and $438,000 were recorded during the years ended December 31, 2002 and
2001,  respectively,  to account for employee  severance  costs,  noncancellable
lease  costs,  and other  costs  related to the  restructuring.  CMSLP  received
approximately  $12.4 million in cash, which included  reimbursement of advances.
This sale resulted in a gain of approximately $4.9 million during the year ended
December 31, 2002. See Note 9 to Notes to the Consolidated  Financial Statements
for a further discussion of this sale of servicing rights.

     As of December 31, 2002 and 2001,  CMSLP was performing  certain  servicing
functions on commercial  mortgage  loans with  aggregate  principal  balances of
$19.8  billion  and  $20.8  billion,  respectively,  which  included  commercial
mortgage loans underlying CRIIMI MAE's CMBS with aggregate principal balances of
$17.4  billion and $20.4  billion,  respectively.  CMSLP's  principal  servicing
activities  are described  below.  For a summary and discussion of the financial
results  of CMSLP,  see  "MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL
CONDITION AND RESULTS OF OPERATIONS".

     Special Servicing

     A special  servicer  typically  provides  asset  management  and resolution
services with respect to nonperforming or underperforming loans within a pool of
mortgage loans. When acquiring  subordinated CMBS, we typically required that we
retain the right to appoint the special servicer for the related mortgage pools.
When serving as special servicer of mortgage loans in a CMBS pool, CMSLP has the
authority to deal directly with any borrower that fails to perform under certain
terms of its  mortgage  loan,  including  the failure to make  payments,  and to
manage any loan workouts and foreclosures.  As special servicer, CMSLP earns fee
income on  services  provided in  connection  with any loan  servicing  function
transferred to it from the master  servicer.  We believe that because we own the
first loss unrated or lowest rated bond of all but two CMBS transactions,  CMSLP
has an incentive to quickly resolve any loan workouts.  As of December 31, 2002,
CMSLP was designated as the special servicer for approximately  3,600 commercial
mortgage loans,  representing  an aggregate  principal  amount of  approximately
$19.2 billion,  which included  approximately $17 billion of commercial mortgage
loans underlying CRIIMI MAE's CMBS. See "CMBS and Other MBS" above and Note 5 to
the Notes to Consolidated Financial Statements regarding mortgage loans included
in the special servicing portfolio.

     As of December 31, 2002,  CMSLP had a special  servicer rating of "average"
from S&P and "CSS2+" from Fitch.

     Loan Management

     In certain  cases,  CMSLP acts as loan  manager  and  monitors  the ongoing
performance   of  properties   securing  the  mortgage   loans   underlying  our
subordinated  CMBS  portfolio  by  continuously  reviewing  the  property  level
operating data and through regular site inspections.  For approximately  half of
these  loans,  CMSLP  performs  these  duties on a  contractual  basis;  for the
remaining loans, as part of its routine asset monitoring process, it reviews the
analyses performed by other servicers. This allows CMSLP to identify and resolve
potential  issues that could result in losses.  As of December  31, 2002,  CMSLP
served as contractual loan manager for approximately  1,500

<PAGE>9

commercial  mortgage loans  representing an aggregate  principal  amount of
approximately  $7.1 billion.  As of December 31, 2002,  CMSLP reviewed  analyses
performed by other servicers for 2,200 commercial  mortgage loans,  representing
an aggregate principal amount of $12.7 billion.

     Master Servicing

     A master servicer typically provides  administrative and reporting services
to  the  trustee  with  respect  to a  particular  issuance  of  CMBS  or  other
securitized  pools of mortgages.  Mortgage loans  underlying  securitized  pools
generally  are  serviced  by a number of primary  servicers.  Under most  master
servicing arrangements,  the primary servicers retain primary responsibility for
administering the mortgage loans and the master servicer acts as an intermediary
in overseeing the work of the primary  servicers,  monitoring  their  compliance
with the  standards  of the issuer of the  related  CMBS and  consolidating  the
servicers'  respective  periodic  accounting  reports  for  transmission  to the
trustee.  As master  servicer,  CMSLP was  usually  paid a fee and earned  float
income on the deposits held. As discussed  above,  in February 2002,  CMSLP sold
all  rights  and  obligations  under  its  CMBS  master  and  primary  servicing
contracts.  CMSLP  remains a master  servicer  on 63  non-CMBS  mortgage  loans,
including mortgage loans underlying our insured mortgage securities and mortgage
loans owned by the American Insured  Mortgage  Investors  limited  partnerships,
with an aggregate principal amount of $134.3 million.

     Direct (or Primary) Servicing

     Direct (or primary)  servicers  typically perform certain functions for the
master  servicer.  CMSLP  collected  loan  payments  directly  from the borrower
(including tax and insurance  escrows and replacement  reserves) for those loans
which it direct serviced.  The loan payments are remitted to the master servicer
for the loan (which may be the same entity as the direct servicer), usually on a
fixed date each  month.  The direct  servicer  is usually  paid a fee to perform
these  services,  and is eligible to earn float income on the deposits  held. As
discussed above, in February 2002,  CMSLP sold all rights and obligations  under
its CMBS master and direct servicing contracts.  CMSLP remains a direct servicer
on 23  non-CMBS  mortgage  loans  with an  aggregate  principal  amount of $76.9
million, some of which are included in the master servicing amounts above.

Certain Risk Factors

     In addition to the risk factors set forth below, please see those set forth
in "MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF
OPERATIONS."

     Substantial Indebtedness; Leverage

     We are highly  leveraged.  As of December 31, 2002, our total  consolidated
indebtedness was $922 million (of which $376 million was recourse debt), and our
shareholders'  equity was  approximately  $292 million.  As of January 31, 2003,
after  giving  effect  to our  recently  completed  recapitalization,  our total
consolidated indebtedness was approximately $876 million (of which approximately
$330  million was  recourse  debt).  The January  31, 2003  indebtedness  amount
excludes amounts deposited with the indenture trustee on January 23, 2003 to pay
all  principal  and  interest  on our  outstanding  Series A and Series B Senior
Secured Notes on the March 10, 2003 redemption date. This redemption required 45
days prior notice.  For GAAP purposes,  these notes were not  considered  repaid
until the March 10, 2003  redemption  date.  See  "MANAGEMENT'S  DISCUSSION  AND
ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS"  and Note 7 to Notes
to the Consolidated Financial Statements.  From the time we emerged from Chapter
11 in April 2001 through  January  2003,  virtually  all cash flows  relating to
existing  assets were used to satisfy  principal,  interest and fee  obligations
under  the  Exit  Debt  and to pay our  general  and  administrative  and  other
operating  expenses.  Our payment  obligations  under the Bear  Stearns and BREF
Debt,  although  substantial in amount,  are significantly less than those under
the Exit Debt.

     Our ability to meet our debt service obligations will depend on a number of
factors, including management's ability to maintain cash flow (which is impacted
by, among other things, the credit performance of underlying  mortgage loans and
changes in interest rates and spreads) and to generate  capital  internally from
operating and investing  activities and expected reductions in REIT distribution
requirements to shareholders  due to net operating  losses for tax purposes,  in
each case  consistent  with the terms and conditions of the operative  documents
evidencing  the Bear  Stearns  and BREF  Debt.  There can be no  assurance  that
targeted levels of cash flow

<PAGE>10

will  actually  be  achieved,   that   reductions   in  REIT   distribution
requirements  will be  realized,  or that,  if  required,  new  capital  will be
available  to us. Our ability to  maintain or increase  cash flow and access new
capital will depend upon, among other things,  interest rates (including hedging
costs and margin calls), prevailing economic conditions,  restrictions under the
operative  documents  evidencing  the Bear  Stearns  and BREF  Debt,  and  other
factors,  many of which  are  beyond  our  control.  Our cash  flow will also be
negatively  affected  by  realized  losses,   interest  payment  shortfalls  and
appraisal  reduction amounts on properties  related to mortgages  underlying our
subordinated  CMBS. We expect losses on our CMBS to increase in 2003,  resulting
in decreased CMBS cash flows as compared to 2002. Our cash flows are also likely
to decrease as a result of any  prepayments  of mortgage  loans  underlying  our
insured  mortgage  securities  and any  prepayments of mortgages held by the AIM
Limited  Partnerships.  Prepayments  of these  mortgage  loans  will  result  in
reductions in the respective  mortgage bases. As a result, the net cash flows to
us are likely to decrease  over time.  Our net cash flows will also decrease due
to the failure to close the CDO  transaction  prior to January 23, 2004 or if we
refinance  the Bear  Stearns  Debt with debt  which has a higher  interest  rate
and/or  greater  amortization  requirements.  Cash  flows are also  likely to be
affected  if we incur  further  debt to  acquire  additional  CMBS or for  other
corporate purposes.

     Our high level of debt  limits our  ability to obtain  additional  capital,
reduces income  available for other  activities,  restricts our ability to react
quickly to changes in our  business,  limits our ability to hedge our assets and
liabilities,  and makes us more vulnerable to economic downturns.  The terms and
conditions of the operative documents  evidencing the Bear Stearns and BREF Debt
impose operating and financial restrictions on us.

     Our ability to resume the acquisition of subordinated  CMBS, as well as our
securitization  programs (if we determine to do so) depends, among other things,
on our ability to engage in such  activities  under the terms and  conditions of
the operative  debt  documents,  our internally  generated  cash flows,  and our
ability to access additional capital.  Factors which could affect our ability to
access additional capital include, among other things, the cost and availability
of such capital, changes in interest rates and interest rate spreads, changes in
the  commercial  mortgage  industry and the commercial  real estate market,  the
effects of terrorism,  general economic  conditions,  perceptions in the capital
markets  of our  business,  restrictions  under the  operative  debt  documents,
results of our operations, and our financial leverage,  financial condition, and
business prospects. There can be no assurance that we will be able to resume any
of our prior activities or obtain additional  capital,  or that the terms of any
such capital will be favorable to us.

     Borrowing and Refinancing Risks

     The Bear Stearns and BREF Debt mature in January 2006. As a result, we must
either refinance or retire the remaining  principal balances of each of the Bear
Stearns and BREF Debt at their maturity in 2006.  There can be no assurance that
we will be able to  refinance  each of the Bear Stearns and BREF Debt at all, or
upon terms that are comparable to the terms under these deals. In particular, we
may not be able to refinance  each of the Bear Stearns and BREF Debt at the same
interest rates and maturity,  with the same  collateral and margin  requirements
and  limitations  upon our business.  If we cannot  refinance or extend the Bear
Stearns and BREF Debt upon their expected maturities, we may be required to sell
our CMBS that serve as collateral for the Bear Stearns and BREF debt.  There can
be no assurance  that we will be able to sell our CMBS at all, or at prices that
are advantageous to us.

     Substantially  all of our  borrowings,  including the Bear Stearns and BREF
Debt,  are,  and are  expected to continue to be, in the form of  collateralized
borrowings.  The Bear Stearns  Debt is  collateralized  by first  direct  and/or
indirect  (in  connection  with an affiliate  reorganization  discussed in "RISK
FACTORS--Taxable  Mortgage  Pool  Risks"  and Note 7 to  Notes  to  Consolidated
Financial Statements) liens on all of our subordinated CMBS, and is subject to a
number of terms,  conditions and  restrictions  including,  without  limitation,
scheduled  principal and interest  payments,  and  restrictions and requirements
with respect to the collection and application of funds. If the outstanding loan
amount under the Bear Stearns Debt exceeds 85% of the aggregate  market value of
the collateral  securing the Bear Stearns Debt, as determined by Bear Stearns in
its sole good faith  discretion,  then Bear  Stearns  can require us to transfer
cash, cash equivalents or securities so that the outstanding loan amount will be
less  than or  equal to 80% of the  aggregate  market  value  of the  collateral
(including any additional collateral provided).  Failure to meet any margin call
could result in an event of default  which would enable Bear Stearns to exercise
various rights and remedies  including  acceleration of the maturity date of the
Bear  Stearns  Debt  and the sale of the  collateral.  In order to meet a margin
call,  we may be  required to sell  assets at prices  lower than their  carrying
value

<PAGE>11

     which could result in losses. See "BUSINESS--January 2003 Recapitalization"
and "MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."

     A substantial portion of our borrowings in the future, if CMBS acquisitions
are resumed,  may be, in the form of  collateralized,  short-term  floating-rate
secured borrowings. The amount borrowed under such agreements is typically based
on the market value of the CMBS  pledged to secure  specific  borrowings.  Under
adverse market conditions,  the value of pledged CMBS would decline, and lenders
could  initiate  margin  calls  (in  which  case we  could be  required  to post
additional  collateral or to reduce the amount  borrowed to restore the ratio of
the amount of the borrowing to the value of the collateral).  We may be required
to sell assets to reduce the amount borrowed. If these sales were made at prices
lower than the carrying value of the assets, we would experience losses.

     A default under our collateralized borrowings could result in a liquidation
of the collateral.  If we are forced to liquidate CMBS that qualify as qualified
real estate assets (under the REIT  Provisions of the Internal  Revenue Code) to
repay  borrowings,  there can be no  assurance  that we will be able to maintain
compliance with the REIT Provisions of the Internal Revenue Code regarding asset
and source of income requirements.  The liquidation of CMBS could also result in
the loss of our Investment Company Act exclusion. See "Investment Company Act."

     In  connection  with the Bear  Stearns  Debt,  we engaged Bear Stearns with
respect  to the  proposed  structuring  of a CDO  transaction  in which we would
contribute  substantially  all of our  subordinated  CMBS to a  special  purpose
entity that would issue debt securities,  the interest and principal payments on
which would be payable from the interest and principal  payments received on the
subordinated CMBS collateral.  Under the terms of the Bear Stearns Debt, if Bear
Stearns  is able  to  structure  the CDO  transaction  to  meet  certain  rating
requirements but we decline to close the CDO transaction, then the interest rate
on the Bear  Stearns  Debt  would  increase  by 100 basis  points,  or 1%,  from
one-month LIBOR plus 3.00% to one-month  LIBOR plus 4.00%,  and we would have to
pay Bear Stearns $2 million. In addition,  the quarterly principal  amortization
will increase from $1.25  million to $1.875  million.  There can be no assurance
that a CDO  transaction  will be entered into and, if entered into, that it will
be  advantageous  to  us.  A CDO  transaction  may  increase  the  cost  of  our
borrowings,  require increased amortization payments and cash sweeps and fail to
provide us with sufficient funds to retire the entire amount  outstanding of the
Bear Stearns and BREF Debt, all of which may significantly reduce our cash flow,
increase  the risk of defaults  on the  underlying  CMBS and  further  limit our
financial flexibility.

     Limited Protection from Hedging Transactions

     To minimize the risk of rising  interest  rates on our  variable-rate  debt
(and to comply with the terms of the Bear Stearns  Debt),  we hedge a portion of
our  variable-rate  debt.  As of December  31,  2002,  approximately  82% of our
variable rate debt was hedged with  interest rate caps (or caps) that  partially
limit the adverse  effects of  potential  rising  interest  rates.  Caps provide
protection to us to the extent interest rates,  based on a readily  determinable
interest rate index,  increase above the stated interest rate cap, in which case
we will  receive  payments  based on the  difference  between  the index and the
stated  interest  rate cap. When these  interest rate caps expire,  we will have
increased  interest  rate  risk  unless  we are able to enter  into  replacement
hedges. As of December 31, 2002, we had the following interest rate caps:


<TABLE>
<CAPTION>
Notional Amount           Effective Date        Maturity Date          Cap            Index
---------------           --------------        --------------         ----           -----
<S>                       <C>                   <C>                    <C>            <C>
$   175,000,000           May 1, 2002           November 3, 2003       3.25%          1 month LIBOR
$   170,000,000           April 2, 2001         April 2, 2003          5.25%          1 month LIBOR

</TABLE>

     Upon expiration of the current caps, there can be no assurance that we will
be able to obtain  replacement  hedges on  satisfactory  terms or to  adequately
protect against rising interest rates on our variable rate debt.

     We are  exposed  to  credit  loss in the  event of  non-performance  by the
counterparties to the interest rate caps should interest rates exceed the stated
interest  rate  cap.  However,  we do  not  anticipate  non-performance  by  the
counterparties. The counterparties have long-term debt ratings of A+ or above by
S&P and A1 or above by Moody's. Although our caps are not exchange-traded, there
are a  number  of  financial  institutions  which  enter  into  these  types  of
transactions as part of their day-to-day activities.

<PAGE>12

     During 2002,  2001 and 2000, we did not hedge against  interest rate risks,
including  increases  in interest  rate spreads and  increases in U.S.  Treasury
rates, which adversely affect the value of our CMBS. Moreover,  hedging involves
risk and typically  involves  transaction  and other costs.  Such costs increase
dramatically  as the period covered by the hedge increases and during periods of
rising and volatile  interest rates. In 2003, it is likely we will hedge against
interest rate risks which adversely affect the value of our CMBS.

     Risks of Owning Subordinated CMBS

     As an owner of the most subordinate  tranches of CMBS, we will be the first
to bear any loss and will absorb 100% of the losses on the  underlying  mortgage
loan  collateral  until  cumulative  losses exceed the  principal  amount of our
subordinated  CMBS.  We will  also be the last to  receive  cash  flow  from the
underlying  mortgage loans.  Interest payments  typically flow first to the most
senior  tranche  until it receives  all of its accrued  interest and then to the
junior tranches in order of seniority.  Principal payments typically flow to the
most senior  tranche until it is retired.  Tranches are then retired in order of
seniority based on available  principal.  When delinquencies and defaults occur,
cash flows  otherwise  due to us may not be advanced  to the extent  required to
meet scheduled principal and interest payments, resulting in interest shortfalls
to our subordinated CMBS.

     The value of our  subordinated  CMBS can change due to a number of economic
factors.  These  factors  include  changes in the value of the  underlying  real
estate,  fluctuations in U.S.  Treasury rates, and changes in the spread between
our  subordinated  CMBS  and  the  U.S.  Treasury   securities  with  comparable
maturities.  For  instance,  changes  in the credit  quality  of the  properties
securing the underlying mortgage loans can result in interest payment shortfalls
to the extent there are mortgage payment delinquencies,  and principal losses to
the extent that there are payment defaults and the amounts of such principal and
interest  shortfalls  are not fully  recovered.  These  losses  may  result in a
permanent  decline in the value of our CMBS and may change our anticipated yield
to maturity if the losses are in excess of those previously estimated.  CMBS are
priced at a spread above the current U.S. Treasury security (such as the 10 year
U.S.  Treasury  Note)  with a  maturity  that most  closely  matches  the CMBS's
weighted  average  life.  The value of CMBS can be  affected  by changes in U.S.
Treasury  rates, as well as changes in the spread between such CMBS and the U.S.
Treasury security with a comparable maturity. Generally, increases and decreases
in both U.S.  Treasury rates or spreads will result in temporary  changes in the
value of our  subordinated  CMBS assuming that we have the ability and intent to
hold our CMBS investments until maturity. However, such temporary changes in the
value of our  subordinated  CMBS become  permanent  changes realized through our
income  statement  when we no longer  intend or fail to have the ability to hold
such  subordinated  CMBS to maturity or the expected  credit  losses  related to
those CMBS are greater or occur sooner than originally anticipated.  Our revised
overall cumulative actual and expected loss estimate of $503 million through the
life of our CMBS  represents our estimate of total  principal  writedowns to our
CMBS due to realized losses related to underlying mortgage loans and is included
in   the   calculation   of   our   current   weighted    average    anticipated
yield-to-maturity.  If  defaults  and  loss  severities  on the  mortgage  loans
underlying  our CMBS  continue  to  increase  and/or the timing of losses  occur
sooner than  anticipated,  our revised  overall  expected  loss estimate of $503
million may be exceeded.  There can be no assurance that our revised estimate of
expected  losses will not be exceeded as a result of  additional  or  continuing
adverse  events or  circumstances,  such as a  continuing  economic  slowdown or
recession.  See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS  OF  OPERATIONS  -  Results  of  Operations  for 2002  compared  to 2001
(Impairment  on  CMBS);   Results  of  Operations  for  2001  compared  to  2000
(Impairment on CMBS), and Financial  Condition,  Liquidity and Capital Resources
(Summary of CMBS)" and Note 5 to Notes to Consolidated Financial Statements.

     We have  historically  been  unable  to  obtain  financing  at the  time of
acquisition  of our  subordinated  CMBS that matches the maturity of the related
investments, resulting in a need to obtain short-term variable rate debt secured
by the acquired CMBS. If we resume the acquisition of subordinated  CMBS and use
short-term  variable  rate debt to finance the  acquisition,  the  inability  to
refinance this short-term variable rate debt with long-term fixed-rate debt or a
decline in the value of the CMBS collateral  securing such  short-term  variable
rate debt could result in a situation in which we are required to sell assets or
provide additional collateral,  which could have, and has had, an adverse effect
on us and our  financial  position  and  results of  operations.  Our ability to
borrow amounts in the future may be impacted by, among other things,  the credit
performance of the commercial  mortgage loans underlying our  subordinated  CMBS
and other factors  affecting our subordinated  CMBS, and restrictions  under the
operative documents evidencing the Bear Stearns and BREF Debt.


<PAGE>13


     Failure to Manage Mismatch Between Long-Term Assets and Short-Term Funding

     Our operating results will depend in large part on differences  between the
income from our CMBS and our borrowing  costs.  If we resume the  acquisition of
subordinated  CMBS,  we  may  finance  a  significant   portion  of  these  CMBS
acquisitions  with  borrowings  having  adjustable  interest rates (or borrowing
rates) that reset while the rates on fixed rate CMBS stay constant.  If interest
rates rise,  borrowing  rates (and  borrowing  costs) are  expected to rise more
quickly  than  coupon  rates (and  investment  income)  on our CMBS.  This would
decrease  both our net  income,  potentially  resulting  in a net loss,  and the
mark-to-market  value of our net assets,  and would be expected to decrease  the
market  price of our common  stock and to slow  future  acquisitions  of assets.
Although  we intend to invest  primarily  in  fixed-rate  CMBS,  we also may own
adjustable  rate  CMBS.  The  coupon  rates of  adjustable  rate  CMBS  normally
fluctuate with reference to specific rate indices.  We may fund these adjustable
rate  CMBS with  borrowings  having  borrowing  rates  which  reset  monthly  or
quarterly.  To the extent that there is a  difference  between (i) the  interest
rate index used to determine the coupon rate of the adjustable  rate CMBS (asset
index) and (ii) the interest rate index used to determine the borrowing rate for
the related financing (borrowing index), we will be exposed to the "basis" rate.
Typically,  if the  borrowing  index  rises more than the asset  index,  our net
income  would  decrease,  all other  things being  constant.  Additionally,  our
adjustable rate CMBS may be subject to periodic rate adjustment  limitations and
periodic and lifetime  rate caps which limit the amount that the coupon rate can
change  during any given  period.  No assurance can be given as to the amount or
timing of changes in interest rates or their effect on our CMBS, their valuation
or income derived therefrom.  During periods of changing interest rates,  coupon
rate and  borrowing  rate  mismatches  could  negatively  impact our net income,
distributions and the market price of our common stock.

     Limited Liquidity of Subordinated CMBS Market

     There is no active  secondary  trading market for  subordinated  CMBS. This
limited  liquidity  results in  uncertainty in the valuation of our portfolio of
subordinated  CMBS. The liquidity of such market has historically  been limited,
and during adverse market conditions has been severely  limited.  Future adverse
market  conditions  would likely  adversely impact the value of our subordinated
CMBS and amounts we could  realize if we were  required to sell all or a portion
of our subordinated CMBS.

     Possible Effects of Terrorist  Attacks,  Economic Slowdown and/or Recession
on Losses and Defaults

     The economic slowdown, recession,  terrorist attacks and threats of further
terrorist  attacks have  contributed  to loan  defaults,  and may  contribute to
further defaults on mortgage loans underlying our  subordinated  CMBS.  Mortgage
loan  defaults  have  resulted in  increased  losses,  and may result in further
losses  on our  subordinated  CMBS.  These  factors may continue to  negatively
impact the values of the  commercial  real estate  securing the mortgage  loans,
weakening  collateral  coverage and increasing  the  possibility of defaults and
losses,  and the demand for the commercial  real estate  securing the underlying
mortgage loans. See Note 5 to the Notes to Consolidated Financial Statements and
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" for information regarding the performance of the underlying mortgage
loans.

     Risks of Loss of REIT Status and Other Tax Matters

     REIT Status.  We have  elected to qualify as a REIT for tax purposes  under
sections  856-860 of the Internal  Revenue Code. We are required to meet income,
asset,  ownership and distribution tests to maintain our REIT status for federal
and state tax purposes.  We believe that we have satisfied the REIT requirements
for all years through,  and including 2002,  although there can be no assurance.
There can also be no assurance that we will maintain our REIT status for 2003 or
subsequent  years.  If we fail to maintain our REIT status for any taxable year,
we will be taxed as a regular domestic  corporation subject to federal and state
income tax in the year of disqualification  and for at least the four subsequent
years.  Depending on the amount of any such federal and state income tax, we may
have  insufficient  funds to pay any such tax and also may be  unable  to comply
with our obligations under the operative  documents  evidencing the Bear Stearns
and BREF Debt.

     Net Operating Loss for Tax Purposes/Trader Election.  Beginning in 2000, we
began  trading  in both  short and  longer  duration  fixed  income  securities,
including  non-investment  grade and investment  grade CMBS and

<PAGE>14

investment grade  residential  mortgage-backed  securities (such securities
traded and all other securities of the type described  constituting the "Trading
Assets" to the extent  owned by us or any  qualified  REIT  subsidiary,  meaning
generally any wholly owned  subsidiary  that is not a taxable REIT  subsidiary).
Such Trading  Assets are  classified as  Subordinated  CMBS and Other MBS on our
balance  sheet.  We  seek  maximum  total  return  through  short-term  trading,
consistent  with prudent  investment  management.  Returns from such  activities
include interest and capital appreciation/depreciation resulting from changes in
interest rates and spreads, if any, and other arbitrage opportunities.

     As a result of our  election  in 2000 to be taxed as a trader  for  federal
income tax  purposes,  we  recognized a  mark-to-market  tax loss on our Trading
Assets on January 1, 2000 of approximately $478 million (the January 2000 Loss).
Such loss is expected to be  recognized  evenly for tax purposes over four years
beginning  with the year 2000 (i.e.,  approximately  $120 million per year).  We
expect such loss to be  ordinary,  which  would allow us to offset our  ordinary
income.  Additionally,  as a result of our trader  election,  we are required to
mark-to-market  our  Trading  Assets on a tax basis at the end of each tax year.
Any  increase or decrease in the value of the Trading  Assets as a result of the
year-end  mark-to-market  requirement will generally result in either a tax gain
(if an increase in value) or a tax loss (if a decrease in value). Such tax gains
or losses,  as well as any  realized  gains or losses  from the  disposition  of
Trading  Assets  during each year,  are also  expected  to be ordinary  gains or
losses.  Assets  transferred  to a REIT  subsidiary,  CBO  REIT,  as part of our
Chapter 11 reorganization (and subsequently  transferred by CBO REIT to CBO REIT
II as  part  of our  recent  recapitalization)  are  no  longer  required  to be
marked-to-market  on a tax basis since CBO REIT was not, and CBO REIT II is not,
a trader in securities for tax purposes. As a result, the mark-to-market of such
assets ceased as of April 17, 2001.

     Since gains and losses  associated with trading  activities are expected to
be ordinary,  any gains will  generally  increase  taxable income and any losses
will  generally  decrease  taxable  income.  Since the REIT rules  require us to
distribute  90% of our taxable  income to our  shareholders,  any  increases  in
taxable income from trading  activities will generally  result in an increase in
REIT distribution  requirements and any decreases in taxable income from trading
activities will generally result in a decrease in REIT distribution requirements
(or, if taxable  income is reduced to zero  because of a net  operating  loss or
loss carry forward, eliminate REIT distribution requirements).

     Gains and losses from the mark-to-market requirement (including the January
2000 Loss) are  unrealized.  This creates a mismatch  between REIT  distribution
requirements  and cash  flow  since  the  REIT  distribution  requirements  will
generally  fluctuate due to the  mark-to-market  adjustments,  but the cash flow
from our Trading  Assets will not  fluctuate  as a result of the  mark-to-market
adjustments.

     We generated a net operating loss for tax purposes of  approximately  $83.6
million and $90.6  million  during the years ended  December  31, 2002 and 2001,
respectively.  As such, our taxable income was reduced to zero and, accordingly,
our REIT  distribution  requirement  was  eliminated  for 2002 and  2001.  As of
December 31, 2002,  our  accumulated  and unused net operating loss (or NOL) was
$223.8  million.  Any accumulated  and unused net operating  losses,  subject to
certain  limitations,  generally  may be carried  forward  for up to 20 years to
offset taxable income until fully utilized. Accumulated and unused net operating
losses  cannot be  carried  back  because we are a REIT.  If a Trading  Asset is
marked down  because of an increase in interest  rates,  rather than from credit
losses,  such  mark-to-market  losses may be recovered over time through taxable
income.  Any  recovered  mark-to-market  losses will  generally be recognized as
taxable income,  although there is expected to be no  corresponding  increase in
cash flow.

     There can be no assurance that our position with respect to our election as
a trader in securities  will not be challenged by the Internal  Revenue  Service
(or IRS) and, if challenged, will be defended successfully by us. As such, there
is a risk that the January 2000 Loss will be limited or disallowed, resulting in
higher  tax basis  income  and a  corresponding  increase  in REIT  distribution
requirements.  It is possible  that the amount of any  under-distribution  for a
taxable  year could be  corrected  with a  "deficiency  dividend"  as defined in
Section 860 of the Internal Revenue Code,  however,  interest may also be due to
the IRS on the amount of this under-distribution.

     If we are required to make taxable income distributions to our shareholders
to satisfy required REIT  distributions,  all or a substantial  portion of these
distributions, if any, may be in the form of non-cash dividends. There can be no
assurance  that such  non-cash  dividends  would  satisfy the REIT  distribution
requirements  and, as

<PAGE>15

such,  we could  lose our REIT  status  or may not be able to  satisfy  our
obligations under the operative  documents  evidencing the Bear Stearns and BREF
Debt.

     Our future use of NOLs for tax purposes could be  substantially  limited in
the event of an "ownership  change" as defined under Section 382 of the Internal
Revenue  Code.  As a result of these  limitations  imposed by Section 382 of the
Internal Revenue Code, in the event of an ownership  change,  our ability to use
our NOL  carryforwards in future years may be limited and, to the extent the NOL
carryforwards  cannot be fully  utilized  under  these  limitations  within  the
carryforward   periods,   the  NOL  carry  forwards  would  expire   unutilized.
Accordingly,  after any ownership change,  our ability to use our NOLs to reduce
or offset taxable income would be  substantially  limited or not available under
Section 382. In general,  a company reaches the "ownership  change" threshold if
the "5% shareholders" increase their aggregate ownership interest in the company
over a  three-year  testing  period  by more  than  50  percentage  points.  The
ownership  interest is measured in terms of total market value of the  company's
capital stock.

     We do not believe the BREF  investment  in our common  stock and warrant to
purchase  common stock has created an  "ownership  change" under Section 382. In
addition,  we are not aware of any other  acquisition  of shares of our  capital
stock that has created an "ownership change" under Section 382. Currently, we do
not know of any potential  acquisition  of shares of our capital stock that will
create an "ownership  change" under Section 382 of the Internal Revenue Code. We
have adopted a  shareholder  rights plan and amended our charter to minimize the
chance of an ownership  change within the meaning of Section 382 of the Internal
Revenue Code;  however there can be no assurance  that an ownership  change will
not occur.

     If an "ownership  change" occurs under Section 382 of the Internal  Revenue
Code, our  prospective  use of our  accumulated and unused NOL and the remaining
January 2000 Loss of a combined total amount of approximately  $343.4 million as
of  December  31,  2002 will be  limited.  If we had lost our ability to use our
accumulated  NOL as of January  1,  2002,  our  taxable  income  would have been
approximately  $36.0 million for the year ended December 31, 2002. This increase
in taxable  income would have created a requirement  to  distribute  90% of this
income  to our  shareholders  in order to  maintain  REIT  status,  and would be
subject to corporate  income tax to the extent we do not distribute  100% of our
taxable income to shareholders.  If we were unable to distribute at least 90% of
our taxable  income to  shareholders,  we would have been  subject to  corporate
Federal and state income taxes of up to approximately $14.7 million for the year
ended December 31, 2002.

     Changes  in Tax Laws.  Our  activities,  structure  and  operations  may be
adversely  affected by changes in the tax laws  applicable to REITs and "traders
in securities" for tax purposes.

     Effect of Rate Compression on Market Price of Stock

     Our actual earnings  performance as well as the market's  perception of our
ability to  achieve  earnings  growth may affect the market  price of our common
stock.  In our case, the level of earnings (or losses)  depends to a significant
extent upon the width and direction of the spread between the net yield received
on our  income-earning  assets  (principally,  the long term,  fixed-rate assets
comprising  our CMBS  portfolio)  and our  variable-rate  cost of borrowing.  In
periods of narrowing  or  compressing  spreads,  the  resulting  pressure on our
earnings  may  adversely  affect the market  value of our common  stock.  Spread
compression  can occur in high or low interest rate  environments  and typically
results when the net yield on long term assets adjusts less  frequently than the
current rate on debt used to finance their purchase.  For example, if we rely on
short term,  variable-rate  debt to finance the purchase of long term fixed-rate
CMBS, we may experience rate compression and a resulting  diminution of earnings
if the interest  rate on the debt  increases  while the coupon and yield measure
for the financed CMBS remain constant. In such an event, the market price of our
common  stock may  decline to reflect  the actual or  perceived  decrease in our
value resulting from the spread compression.

     Shape of the Yield Curve Adversely Affects Income

     The relationship  between  short-term and long-term interest rates is often
referred to as the "yield  curve."  Ordinarily,  short-term  interest  rates are
lower  than  long-term  interest  rates.  If  short-term   interest  rates  rise
disproportionately  relative to long-term  interest  rates (a  flattening of the
yield curve),  our borrowing  costs,  to the extent they are based on short-term
interest rates, may increase more rapidly than the interest income earned on our

<PAGE>16

assets.  Because  borrowings will likely bear interest at short-term rates (such
as LIBOR) and CMBS will likely bear interest at medium-term  to long-term  rates
(such  as  those  calculated  based  on the  ten-year  U.S.  Treasury  rate),  a
flattening of the yield curve will tend to decrease our net income, assuming our
short-term  borrowing  rates  bear a  strong  relationship  to  short-term  U.S.
Treasury rates. Additionally, to the extent cash flows from long-term assets are
reinvested in other  long-term  assets,  the spread  between the coupon rates of
long-term assets and short-term borrowing rates may decline and also may tend to
decrease the net income and  mark-to-market  value of our net assets. It is also
possible  that  short-term  interest  rates may  adjust  relative  to  long-term
interest  rates such that the level of  short-term  rates  exceeds  the level of
long-term rates (a yield curve inversion). In this case, as well as in a flat or
slightly positively sloped yield curve environment, borrowing costs could exceed
the interest income and operating losses would be incurred.

     Results of Operations Adversely Affected by Factors Beyond Our Control

     Our results of  operations  can be adversely  affected by various  factors,
many of which are beyond our control,  and will depend on,  among other  things,
the level of net interest income generated by, and the market value of, our CMBS
portfolio. Our net interest income and results of operations will vary primarily
as a result of  fluctuations  in interest  rates,  CMBS  pricing,  and borrowing
costs.  Our results of  operations  also will depend upon our ability to protect
against  the  adverse  effects  of such  fluctuations  as well as credit  risks.
Interest rates, credit risks,  borrowing costs and credit losses depend upon the
nature and terms of the CMBS and the  performance of the underlying  collateral,
conditions in financial  markets,  the fiscal and monetary  policies of the U.S.
government,   effects  of  terrorism,   international   economic  and  financial
conditions and  competition,  none of which can be predicted with any certainty.
Because  changes in interest rates may  significantly  affect our CMBS and other
assets,  our operating  results will depend,  in large part, upon our ability to
manage our interest  rate and credit risks  effectively  while  maintaining  our
status as a REIT. See  "BUSINESS-Risk  Factors-Limited  Protection  from Hedging
Transactions" for further discussion.

     There  can  be  no  assurance  that  we  will  resume   subordinated   CMBS
acquisitions  and/or  securitizations.  Our ability to resume any one or more of
such  activities  will be  based,  in large  part,  upon our  ability  to access
capital,  prevailing industry  conditions and the general business climate,  and
our  ability to do so in light of  restrictions  under the  operative  documents
evidencing  the Bear  Stearns and BREF Debt.  Although the Bear Stearns and BREF
Debt  documents  permit  the  foregoing  activities,  these  activities  must be
effected within certain specified  limitations and  restrictions.  All decisions
concerning  resumption  of  business  activities  will be made by our  Board  of
Directors,  as  determined  to be in  our  best  interests  and  subject  to the
constraints  referenced  in the  preceding  sentence.  Although  there can be no
assurance  that  the  resumption  of any one or more of  these  activities  will
improve  our  results  of  operations,   failure  to  resume  subordinated  CMBS
acquisitions  and/or  securitizations  could  adversely  impact  our  results of
operations.

     Competition

     If we resume the  acquisition of  subordinated  CMBS, we would compete with
mortgage REITs,  specialty finance  companies,  banks,  hedge funds,  investment
banking firms, other lenders,  and other entities purchasing  subordinated CMBS.
Many of these competitors may have greater access to capital and other resources
(or the ability to obtain capital at a lower cost) and may have other advantages
over us.  Although  subject to a three year non-competition  agreement with us,
BREF and its controlled  affiliates are permitted to sponsor  collateral bond or
loan obligations  (CBOs) and to acquire  subordinated CMBS for inclusion in such
CBOs. As a result, BREF could compete with us.

     There  can be no  assurance  that we would be able to obtain  financing  at
borrowing rates below the asset yields of our subordinated  CMBS. In such event,
we could  incur  losses  or could be forced to  further  reduce  the size of our
subordinated  CMBS portfolio.  We would face competition for financing  sources,
which could limit the availability of, and affect the cost of, funds to us.

     Investment Company Act

     Under the Investment Company Act of 1940, as amended, an investment company
is required to register with the Securities and Exchange Commission (SEC) and is
subject to extensive restrictive and potentially adverse

<PAGE>17

regulation relating to, among other things, operating methods,  management,
capital  structure,  dividends and  transactions  with affiliates.  However,  as
described  below,  companies  primarily  engaged in the  business  of  acquiring
mortgages and other liens on and interests in real estate (Qualifying Interests)
are excluded from the requirements of the Investment Company Act.

     To qualify  for the  Investment  Company  Act  exclusion,  we,  among other
things,  must maintain at least 55% of our assets in Qualifying  Interests  (the
55%  Requirement)  and are  also  required  to  maintain  an  additional  25% in
Qualifying  Interests  or other real  estate-related  assets  (Other Real Estate
Interests and such requirement,  the 25% Requirement).  According to current SEC
staff interpretations,  we believe that all of our  government-insured  mortgage
securities constitute Qualifying Interests. In accordance with current SEC staff
interpretations,  we believe that all of our subordinated  CMBS constitute Other
Real Estate Interests and that certain of our subordinated  CMBS also constitute
Qualifying Interests.  On certain of our subordinated CMBS, we, along with other
rights,  have the  unilateral  right to direct  foreclosure  with respect to the
underlying mortgage loans. Based on such rights and our economic interest in the
underlying  mortgage  loans,  we  believe  that the  related  subordinated  CMBS
constitute  Qualifying  Interests.  As of December 31, 2002,  we believe that we
were in compliance with both the 55% Requirement and the 25% Requirement.

     If the SEC or its staff were to take a different  position  with respect to
whether such subordinated CMBS constitute Qualifying Interests,  we could, among
other things,  be required  either (i) to change the manner in which we conduct
our operations to avoid being  required to register as an investment  company or
(ii) to register as an investment company, either of which could have a material
adverse  effect on us. If we were  required  to  change  the  manner in which we
conduct our business,  we would likely have to dispose of a significant  portion
of our  subordinated  CMBS or acquire  significant  additional  assets  that are
Qualifying  Interests.  Alternatively,  if we were  required  to  register as an
investment  company,  we expect that our operating expenses would  significantly
increase and that we would have to significantly reduce our indebtedness,  which
could also require us to sell a significant portion of our assets. No assurances
can  be  given  that  any  such  dispositions  or  acquisitions  of  assets,  or
deleveraging,  could be  accomplished  on favorable  terms, or at all. There are
restrictions  under  certain  of the  operative  documents  evidencing  the Bear
Stearns and BREF Debt which could limit possible actions we may take in response
to any need to modify our  business  plan in order to register as an  investment
company or avoid the need to register.  Certain  dispositions or acquisitions of
assets could require  approval or consent of certain  holders of this Debt.  Any
such results could have a material adverse effect on us.

     Further, if we were deemed an unregistered  investment company, we could be
subject to  monetary  penalties  and  injunctive  relief.  We would be unable to
enforce  contracts  with third  parties and third  parties  could seek to obtain
rescission  of  transactions  undertaken  during  the  period we were  deemed an
unregistered   investment  company,  unless  the  court  found  that  under  the
circumstances,  enforcement  (or  denial  of  rescission)  would  produce a more
equitable result than  nonenforcement  (or grant of rescission) and would not be
inconsistent with the Investment Company Act.

     Phantom Income May Result in Tax Liability

     Our  investment  in  subordinated  CMBS and certain other types of mortgage
related assets may cause us, under certain  circumstances,  to recognize taxable
income in excess of our economic  income  (phantom  income) and to experience an
offsetting  excess of economic income over our taxable income in later years. As
a  result,  our  shareholders,  from  time to  time,  may be  required  to treat
distributions  that  economically  represent  a return  of  capital  as  taxable
dividends for federal income tax purposes. Such distributions would be offset in
later years by distributions  representing economic income that would be treated
as returns of capital  for  federal  income  tax  purposes.  Accordingly,  if we
recognize phantom income, our shareholders may be required to pay federal income
tax with  respect to such  income on an  accelerated  basis  (i.e.,  before such
income is realized by  shareholders in an economic  sense).  Taking into account
the time value of money,  such an acceleration of federal income tax liabilities
would cause shareholders to receive an after-tax rate of return on an investment
in our  stock  that  would  be less  than the  after-tax  rate of  return  on an
investment  with an  identical  before-tax  rate of return that did not generate
phantom  income.  As the  ratio  of our  phantom  income  to  our  total  income
increases,  the after-tax rate of return received by a shareholder  paying taxes
on such distributions will decrease.


<PAGE>18

     Taxable Mortgage Pool Risks

     An entity  that  constitutes  a "taxable  mortgage  pool" as defined in the
Internal  Revenue Code (TMP) is treated as a separate  corporate  level taxpayer
for federal  income tax purposes.  In general,  for an entity to be treated as a
TMP (i)  substantially  all of the assets must consist of debt obligations and a
majority of those debt  obligations  must consist of mortgages,  (ii) the entity
must  have  more than one class of debt  securities  outstanding  with  separate
maturities,  and  (iii)  the  payments  on  the  debt  securities  must  bear  a
relationship  to the payments  received from the  mortgages.  As of December 31,
2002, we owned all of the equity  interests in two trusts that  constitute  TMPs
(individually  a Trust and  together  the  Trusts).  The Trusts  were  formed in
connection  with  our  CBO-1  and  CBO-2  resecuritization   transactions.   See
"BUSINESS-Resecuritizations"  and Note 5 to the Notes to Consolidated  Financial
Statements for  descriptions  of CBO-1 and CBO-2.  The statutory  provisions and
regulations  governing  the tax  treatment  of TMPs (the TMP  Rules)  provide an
exemption  for TMPs that  constitute  "qualified  REIT  subsidiaries"  (that is,
entities  whose equity  interests are wholly owned by a REIT or a qualified REIT
subsidiary).  As a result of this exemption and the fact that as of December 31,
2002 we owned all of the equity interests in each of the Trusts,  as of December
31, 2002 the Trusts were not required to pay a separate  corporate  level tax on
income they derive from their underlying mortgage assets.

     As of December 31, 2002,  we also owned  certain  securities  structured as
bonds issued by the Trusts (the Bonds). As of December 31, 2002,  certain of the
Bonds owned by us served as collateral  (the Pledged Bonds) for certain  secured
debt. If a creditor were to seize or sell the Pledged Bonds (unless seized by or
sold to a REIT or a qualified REIT subsidiary) and the Pledged Bonds were deemed
to constitute equity interests (rather than debt) in the Trusts, then the Trusts
would no longer  qualify  for the  exemption  under the TMP Rules  provided  for
qualified  REIT  subsidiaries.  The  Trusts  would  then  be  required  to pay a
corporate  level  federal  income  tax.  As a result,  available  funds from the
underlying  mortgage assets that would  ordinarily be used by the Trusts to make
payments  on  certain  securities  issued by the  Trusts  (including  the equity
interests and the Pledged Bonds) would instead be applied to tax payments. Since
the equity interests and Bonds owned by us are the most subordinated  securities
and, therefore, would absorb payment shortfalls first, the loss of the exemption
under the TMP Rules could have a material  adverse  effect on their  value,  the
payments received thereon and the value of our stock.

     In  addition to causing the loss of the  exemption  under the TMP Rules,  a
seizure or sale of the Pledged  Bonds and a  characterization  of them as equity
for tax  purposes  could  also  jeopardize  our REIT  status if the value of the
remaining  ownership  interests  in any Trust held by us (i)  exceeded 5% of the
total  value of our  assets or (ii)  constituted  more  than 10% of the  Trust's
voting  interests.  Although it is possible  that the election by the TMPs to be
treated as taxable REIT subsidiaries  could prevent the loss of our REIT status,
there can be no assurance  that a valid  election could be made given the timing
of a seizure or sale of the Pledged Bonds.

     On the  effective  date of our recent  January  2003  recapitalization,  we
effected an affiliate  reorganization  principally to indirectly secure the Bear
Stearns  Debt  with the  equity  interests  in the  Trusts.  As a result  of the
affiliate  reorganization,  our REIT  subsidiary (CBO REIT II), owns the Pledged
Bonds and indirectly owns all of the equity interests in the Trusts (through its
ownership of two qualified REIT subsidiaries  which hold the equity interests in
the Trusts). We believe that the TMP risks set forth above remain applicable, as
of the effective date of our recent January 2003 recapitalization,  with respect
to CBO  REIT  II;  provided,  however,  that  the  risks  referenced  in the two
immediately  preceding  paragraphs should only apply if a creditor were to seize
or sell collateral which constituted or represented only a portion of the equity
interests in a Trust.

Employees

     As of March 1, 2003,  we had 107  employees,  72 of which are  employed  by
CMSLP and 35 of which are employed by CRIIMI MAE  Management,  Inc.,  one of our
wholly owned subsidiaries.

Executive Officers

     The  following  table  sets  forth  information  concerning  our  executive
officers as of March 1, 2003:

<PAGE>19

<TABLE>
<CAPTION>
Name                                        Age                  Position
----                                        ---                  --------
<S>                                         <C>                  <C>
Barry S. Blattman                           40                   Chairman of the Board, Chief Executive
                                                                   Officer and President

David B. Iannarone                          42                   Executive Vice President and Chief Operating
                                                                   Officer

Cynthia O. Azzara                           43                   Senior Vice President,
                                                                   Chief Financial Officer and
                                                                   Treasurer

Craig Lieberman                             41                   Senior Vice President and Chief Portfolio Risk
                                                                   Officer

Brian L. Hanson                             41                   Senior Vice President

</TABLE>

     Barry S.  Blattman  has served as  Chairman of the Board,  Chief  Executive
Officer and President since January 23, 2003.

     David B. Iannarone has served as Chief Operating  Officer since January 23,
2003, as Executive Vice President  since December 2000, as Senior Vice President
and General  Counsel from March 1998 to December 2000 and as Vice  President and
General Counsel from July 1996 to March 1998.

     Cynthia O. Azzara has served as Chief Financial  Officer since 1994, Senior
Vice President since 1995 and Treasurer since 1997.

     Craig  Lieberman has served as Senior Vice  President  and Chief  Portfolio
Risk Officer since February 4, 2003.

     Brian L. Hanson has served as Senior Vice President since March 1998 and as
Group Vice President from March 1996 to March 1998.

Internet Website

     Our  internet  website  can  be  found  at  www.criimimaeinc.com.  We  make
available,  free of charge  on or  through  our  website,  access to our  annual
reports on Form 10-K,  quarterly  reports on Form 10-Q,  current reports on Form
8-K and  amendments to those reports filed pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 as soon as reasonably practicable after such
material is filed with, or furnished to, the SEC.

ITEM 2.  PROPERTIES

     We  lease  our  corporate  offices  at  11200  Rockville  Pike,  Rockville,
Maryland.  As of December 31, 2002,  these offices occupy  approximately  67,600
square feet. As of March 1, 2003, approximately 1,100 square feet of this office
space was sublet to third parties and an  additional  29,600 square feet of this
office space was available to sublet to third parties.

ITEM 3.  LEGAL PROCEEDINGS

     In the course of our normal business activities,  various lawsuits,  claims
and proceedings  have been or may be instituted or asserted against us. Although
there can be no assurance,  based on currently  available facts, we believe that
the disposition of matters pending or asserted will not have a material  adverse
effect  on  our  consolidated  financial  position,  results  of  operations  or
liquidity. See Note 16 of Notes to Consolidated Financial Statements.

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

     We did not submit  any  matters to a vote of  security  holders  during the
fourth quarter of 2002.


<PAGE>20


                                PART II


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

Market Data

     Our common stock is listed on the New York Stock Exchange (symbol: CMM). On
October 17, 2001, we implemented a one-for-ten reverse stock split designed,  in
part, to satisfy the New York Stock Exchange  market price listing  requirement.
All share and per share  information in this Annual Report on Form 10-K has been
retroactively  adjusted to reflect the reverse  stock split.  Share  information
adjustments  include,  without  limitation,  adjustments to the number of common
shares  issued and  outstanding,  issued as dividends on and upon  conversion of
shares of preferred stock and issuable under outstanding options.

     As of March 1, 2003,  we had  approximately  3,100 holders of record of our
common  stock.  The  following  table sets forth the high and low closing  sales
prices for our common stock during the periods indicated.

<TABLE>
<CAPTION>
                                        2002                                2001
                           --------------------------------    -------------------------------
                                     Sales Price                       Sales Price
                           --------------------------------    -------------------------------
<S>                        <C>                                 <C>
Quarter Ended                  High               Low              High              Low
----------------------     -------------     --------------    --------------    -------------
March 31                          $4.19              $3.49             $9.00            $6.90
June 30                            7.39               3.45              7.90             5.70
September 30                       8.87               6.15              7.00             3.90
December 31                       10.43               7.69              4.25             2.53

</TABLE>

Dividends

     No cash dividends were paid to common shareholders during 2002 or 2001. See
"BUSINESS  - Certain  Risk  Factors - Risk of Loss of REIT  Status and Other Tax
Matters" for a brief  discussion  of the  elimination  of our REIT  distribution
requirements for 2002 and 2001 due to our net operating loss.

     Under the  operative  documents  evidencing  the BREF Debt and Bear Stearns
Debt, we are permitted to pay cash dividends to  shareholders  after the payment
of required principal and interest on that debt.

     Dividends  for the four quarters of 2001 and the first quarter of 2002 were
paid to preferred shareholders in the form of shares of common stock, except for
a cash  dividend  paid to the  holder  of our  Series E  Cumulative  Convertible
Preferred Stock as discussed below. See Notes 11 and 12 to Notes to Consolidated
Financial Statements.

     On March 21, 2002,  we redeemed in cash all 173,000  outstanding  shares of
our Series E Cumulative  Convertible  Preferred  Stock at the stated  redemption
price of $106 per share plus accrued and unpaid dividends  through and including
the date of  redemption.  The total  redemption  price was  approximately  $18.7
million ($396,000 of which represented accrued and unpaid dividends).

     On May 16, 2002,  September  10, 2002 and  December 30, 2002,  the Board of
Directors  decided to defer the payment of  dividends on our Series B Cumulative
Convertible  Preferred Stock, Series F Redeemable  Cumulative Dividend Preferred
Stock  and  Series G  Redeemable  Cumulative  Dividend  Preferred  Stock for the
second, third and fourth quarters of 2002,  respectively.  On March 4, 2003, the
Board of Directors  declared a cash  dividend for the second  quarter of 2002 on
our Series B, Series F and Series G Preferred Stock payable on March 31, 2003 to
shareholders of record on March 17, 2003.


<PAGE>21

Recent Sale of Unregistered Securities

     Under the recently completed January 2003  recapitalization,  BREF acquired
1,212,617  shares of our newly issued common stock, or  approximately  8% of our
outstanding common stock after giving effect to the share acquisition, at $11.50
per  share,  or  approximately  $13.9  million.  BREF also  received  seven-year
warrants  to  purchase  up to  336,835  additional  shares of common  stock at a
purchase  price  of  $11.50  per  share.  In  connection  with  the  sale,  BREF
represented that it was an "accredited  investor" within the meaning of Rule 501
under the  Securities  Act and that it had no intent to distribute the purchased
securities.  Exemption  from  registration  under the Securities Act was claimed
under Rule 506 of Regulation D.

     The information required by Part II, Item 5 relating to Equity Compensation
Plans is incorporated  herein by reference to our definitive  proxy statement to
be filed  pursuant to  Regulation  14A  relating  to our 2003 annual  meeting of
stockholders.

Other Shareholder Matters

     For adjustments to the conversion  price for the Series B Preferred  Stock,
see Note 12 to Notes to Consolidated Financial Statements.


<PAGE>22


ITEM 6.  SELECTED FINANCIAL DATA

Selected Consolidated Financial Data

Accounting Under Accounting Principles Generally Accepted in the United States

<TABLE>
<CAPTION>
                                                                 For the years ended December 31,
                                                 2002           2001          2000           1999           1998
                                               ----------    -----------   -----------    -----------    ------------
                                                             (in thousands, except per share amounts)
<S>                                            <C>           <C>           <C>            <C>            <C>
Consolidated Income Statement Data:
        Interest income                         $124,460       $134,376      $195,252       $222,323      $  207,307
        Interest and related expense              92,642         97,788       139,366        151,337         136,268
                                               ----------    -----------   -----------    -----------    ------------
             Net interest margin                  31,818         36,588        55,885         70,986          71,039
                                               ----------    -----------   -----------    -----------    ------------

        Servicing operations, net                   (42)          (585)             -              -               -
        Impairment on CMBS                      (70,226)       (34,655)     (143,478)              -               -
        Reorganization items                           -        (1,813)      (68,572)      (178,900)         (9,857)
        Net (loss) income before cumulative
             effect of accounting changes       (46,359)       (17,937)     (148,584)      (126,529)          42,369
        Dividends accrued or paid on
           preferred shares                      (8,123)        (8,146)       (6,912)        (5,840)         (6,998)
        Net (loss) income to common
           shareholders                         (64,248)       (24,223)     (155,495)      (132,369)          35,371
        Net (loss) income per diluted share
           after cumulative effect of
             accounting changes                 $ (4.69)        $(2.18)      $(25.02)       $(24.51)          $ 7.48

Financial Data:
        Cash flows provided by (used in):
           Operating activities                  $56,512       $ 53,476      $(6,818)       $ 26,064        $ 48,861
           Investing activities                   87,198         52,737       113,351        130,693       (894,647)
           Financing activities                (131,758)      (195,484)      (53,474)      (125,073)         865,504

                                                                        As of December 31,
                                                 2002           2001          2000           1999           1998
                                               ----------    -----------   -----------    -----------    ------------
                                                                          (in thousands)
<CAPTION>
<S>                                            <C>           <C>           <C>            <C>             <C>
Consolidated Balance Sheet Data:
        Mortgage Assets:
             CMBS and Other MBS                 $867,228       $832,682      $856,846     $1,179,363      $1,274,186
             Insured mortgage securities         275,340        343,091       385,751        394,857         488,095
             Investment in originated loans            -              -             -        470,205         499,076

        Servicing assets                          26,357         24,766             -              -               -
        Total assets                           1,241,085      1,315,004     1,557,840      2,293,661       2,437,918
        Debt:
             Total recourse debt                 375,952        407,637       558,585        925,704       1,125,036
             Total nonrecourse debt              546,039        616,715       645,170      1,056,646         960,686
        Total liabilities                        949,424      1,053,959     1,289,582      2,074,313       2,130,041
        Shareholders' equity                     291,661        261,045       268,258        219,349         307,877

</TABLE>

     There  were no cash  dividends  declared  per  common  share for any of the
periods  presented.  See  "MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL
CONDITION  AND RESULTS OF  OPERATIONS"  for a discussion of the  accounting  for
CMSLP and a discussion  of our Chapter 11  reorganization,  both of which affect
the  comparability of the periods  presented  above.

<PAGE>23

     The selected consolidated  statement of income data presented above for the
years ended  December 31,  2002,  2001 and 2000,  and the selected  consolidated
balance sheet data as of December 31, 2002 and 2001,  were derived from, and are
qualified by,  reference to our  consolidated  financial  statements,  which are
included elsewhere in this Annual Report on Form 10-K. The selected consolidated
statement of income data for the years ended December 31, 1999 and 1998, and the
selected consolidated balance sheet data as of December 31, 2000, 1999 and 1998,
were  derived  from audited  financial  statements  not included as part of this
Annual  Report on Form 10-K.  This data should be read in  conjunction  with the
consolidated financial statements and the related notes.

Tax Basis Accounting

<TABLE>
<CAPTION>
                                                                        For the year ended December 31,
                                                        2002            2001            2000           1999          1998
                                                    -------------   -------------    -----------    -----------   -----------
                                                                                 (in thousands)
<S>                                                 <C>             <C>              <C>            <C>           <C>
Interest income                                        $ 181,462       $ 187,079       $246,576       $278,450      $248,598
Interest and related expense                             120,789         129,186        171,282        186,766       161,860
                                                    -------------   -------------    -----------    -----------   -----------

Net interest margin                                       60,673          57,893         75,294         91,684        86,738

Other, net                                               (9,701)         (5,099)        (6,253)        (7,516)       (2,176)
Net capital (losses) gains                                 (460)             224            572          3,276         1,746
Credit losses                                           (14,480)         (4,370)        (1,287)          (621)             -
January 2000 Loss recognized                           (119,542)       (119,542)      (119,600)              -             -
Mark-to-market loss on trading assets as of 04/17/01          -          (8,573)              -              -             -
Mark-to-market (loss) gain on trading assets                (60)           (135)         49,933              -             -
Dividends accrued or paid on preferred shares            (8,123)         (8,145)        (6,912)        (5,840)       (6,998)
Dividends not deductible due to net operating loss         8,123           8,145          6,912              -             -
Reorganization items                                           -        (10,159)       (35,604)       (12,950)       (4,819)
Emergence loan origination fee                                 -           (937)              -              -             -
Loss on warehouse obligation                                   -               -              -       (36,328)             -
Realized loss on reverse repurchase obligation                 -               -              -              -       (4,503)
Write-off of capitalized origination costs                     -               -              -              -       (3,284)
Loss on sale of trading assets                                 -               -       (12,607)              -             -

                                                    -------------   -------------    -----------    -----------   -----------
(Net operating loss)/taxable income                     (83,570)        (90,698)       (49,552)         31,705        66,704
Accumulated net operating loss, January 1              (140,250)        (49,552)              -              -             -
Remaining January 2000 Loss                            (119,485)       (239,027)      (358,569)              -             -
                                                    -------------   -------------    -----------    -----------   -----------
Accumulated and unused net operating loss and
    remaining January 2000 Loss                       $(343,305)      $(379,277)     $(409,121)     $        -     $       -
                                                    =============   =============    ===========    ===========   ===========
</TABLE>

<PAGE>24


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

Introduction

     The  following  discussion  and analysis  contains  statements  that may be
considered  forward-looking.  These  statements  contain  a number  of risks and
uncertainties as discussed here and in Item 1 of this Form 10-K that could cause
actual results to differ materially.

     All  information  set  forth in this  Annual  Report  on Form 10-K has been
retroactively  adjusted to reflect a one-for-ten reverse stock split implemented
on October 17, 2001.

Results of Operations

2002 compared to 2001

     Financial  statement  net loss to common  shareholders  for the years ended
December   31,  2002  and  2001  was  $(64.2)   million  and  $(24.2)   million,
respectively. The significant change in the 2002 results from 2001 was primarily
the  result  of  $70.2  million  of  impairment   charges   related  to  certain
subordinated  CMBS that were  recognized  during  2002  compared  to  impairment
charges of $34.7 million that were recognized during 2001.

         2002 results include:

o        approximately $70.2 of impairment charges related to certain
         subordinated CMBS;
o        an approximate $9.8 million non-cash charge to write-off goodwill upon
         the adoption of Statement of Financial Accounting Standards (or SFAS)
         No. 142;
o        approximately $4.9 million from the gain on the sale by CMSLP of master
         and direct servicing rights; and
o        approximately $1.0 million reflected as an additional dividend on
         preferred stock in connection with the redemption of the Series E
         Preferred Stock (representing the difference between the aggregate
         liquidation value and the redemption price).

     2001 results include:

o        approximately $34.7 million of impairment charges related to certain
         subordinated CMBS;
o        approximately $1.9 million of net revenue due to the effect of changes
         in accounting principles, primarily a change in accounting for
         servicing revenue;
o        an aggregate of approximately $5.7 million of expenses relating to the
         Chapter 11 reorganization; and
o        approximately $2.8 million of amortization that was recorded during
         the year ended December 31, 2001 on the goodwill written-off on
         January 1, 2002.

     The following  table  provides a summary of the components of pro forma net
loss to common shareholders and a reconciliation of pro forma net loss to common
shareholders  to GAAP  net  loss to  common  shareholders  for the  years  ended
December 31, 2002 and 2001.  The intent of this table is to provide a summary of
the recurring results from operations and to isolate the non-recurring items due
to the  large  number  of  non-recurring  items  included  in  the  consolidated
statements of income in accordance with GAAP.


<PAGE>25

<TABLE>
<CAPTION>
                                                                             Years ended December 31,
                                                                            2002                   2001
                                                                            ----                   ----
<S>                                                                         <C>                    <C>
Net interest margin                                                      $31,818,273             $36,587,984
General and administrative expenses                                      (10,728,457)            (10,951,420)
Depreciation and amortization                                             (1,095,861)               (929,013)
Servicing operations, net (excluding one-time items discussed above)         (41,936)             (2,864,600) (a)
Impairment on CMBS                                                       (70,225,506)            (34,654,930)
Recapitalization expenses                                                 (1,048,559)                     --
Hedging expense                                                           (1,101,746)             (1,073,392)
Income tax (expense) benefit                                                (460,288)                336,439
Other, net                                                                 1,608,739               4,588,526
Dividends accrued or paid on preferred shares                             (7,084,791)             (8,145,481)
                                                                      ---------------         ---------------
Pro forma net loss to common shareholders                                (58,360,132)            (17,105,887)

Adjustments to GAAP net loss:
   Servicing gain on sale of servicing rights                              4,864,274                      --
   Servicing gain on sales of investment-grade CMBS                          241,160                      --
   Servicing restructuring expenses                                         (188,614)               (437,723)
   Cumulative effect of accounting changes                                (9,766,502)              1,860,120
   Additional Series E Preferred Stock dividends                          (1,038,000)                     --
   Amortization of goodwill and intangible assets written-off                     --              (2,789,472)
   Reorganization items                                                           --              (1,813,220)
   Emergence financing origination fee                                            --              (3,936,616)
                                                                     ----------------           ------------

GAAP net loss to common shareholders                                  $  (64,247,814)          $ (24,222,798)
                                                                     ================          ==============

</TABLE>

(a) Included in equity in earnings  (losses) from investments  through June
30, 2001.

     Interest Income - Subordinated CMBS

     Interest  income from  subordinated  CMBS decreased by  approximately  $4.9
million,  or 4.7%, to $100.6  million  during 2002 as compared to $105.5 million
during 2001. This overall decrease in interest income was principally the result
of a  reduction  in the  amortized  cost of the  subordinated  CMBS  during 2002
primarily as a result of the aggregate $65.8 million of impairment  charges that
were  recognized  during the fourth quarter of 2001 through the third quarter of
2002 due to changes in the loss  estimates  related  to the  subordinated  CMBS.
These  impairment   charges   represent  7.7%  of  the  amortized  cost  of  the
subordinated  CMBS as of December 31, 2001 before the fourth quarter  impairment
charge was recorded. The reduction in the interest income generally corresponded
with  the  reduction  in the  amortized  cost of the  subordinated  CMBS and the
changes in the average yield-to-maturity, as discussed below.

     Accounting  principles  generally  accepted in the United States,  or GAAP,
require that interest  income earned on  subordinated  CMBS be recorded based on
the effective interest method using the anticipated yield over the expected life
of the subordinated  CMBS. Based upon assumptions as to the timing and amount of
future  credit  losses and other  certain  items  estimated  by  management,  as
discussed  below,  the weighted average  anticipated  unleveraged  yield for our
subordinated CMBS for financial statement purposes was approximately 12.4% as of
January 1, 2002 and 2001,  approximately 12.5% as of July 1, 2002, approximately
12.0% as of October 1, 2002 and approximately 11.6% as of January 1, 2003. These
yields were determined based on the anticipated  yield over the expected life of
our subordinated CMBS, which considers,  among other things,  anticipated losses
and any other  than  temporary  impairment.  The  effective  interest  method of
recognizing  interest income on subordinated CMBS results in income  recognition
that differs from cash received. For the years ended December 31, 2002 and 2001,
the amount of income  recognized in excess of cash received due to the effective
interest  rate  method  was  approximately  $11.4  million  and  $10.2  million,
respectively.

     Interest Income - Insured Mortgage Securities

     Interest income from insured mortgage securities decreased by approximately
$5.0  million,  or 17%, to $23.8 million  during 2002 from $28.9 million  during
2001.  This  decrease  was  principally  due to the  prepayment  of 25 mortgages
underlying the insured mortgage  securities,  representing  approximately 21% of
the total insured

<PAGE>26

mortgage  portfolio  from December 31, 2001 through  December 31, 2002. The
increase in prepayment activity  corresponds with the low mortgage interest rate
environment  and the  expiration of prepayment  lock-out  periods on many of the
insured mortgages.  These prepayments result in corresponding  reductions in the
outstanding    principal    balances    of    the    collateralized     mortgage
obligations-insured mortgage securities and the related interest expense.

     Interest Expense

     Interest expense of approximately  $92.6 million for 2002 was approximately
$5.1 million lower than the interest expense of approximately  $97.8 million for
2001. The decrease is  attributable  to a lower average debt balance during 2002
($975 million)  compared to 2001 ($1.1  billion),  partially  offset by a higher
average  effective  interest rate on total debt  outstanding  during 2002 (9.5%)
compared  to  2001  (8.9%).  Interest  expense  on the  collateralized  mortgage
obligations-insured   mortgage  securities   decreased   following   significant
prepayments  of  mortgages  underlying  the  insured  mortgage  securities.  The
decrease in interest expense on the collateralized mortgage  obligations-insured
mortgage  securities  was  partially  offset by  approximately  $2.8  million of
additional  discount  amortization  expenses during 2002,  which are included in
interest expense.  These additional  amortization expenses are the result of the
mortgages  prepaying  faster  than  previously   anticipated  which,  under  the
effective  interest  method  of  recognizing   interest  expense,   required  an
adjustment to cumulative interest expense. In addition,  we adjusted our assumed
prepayment  speed  for the  amortization  of the  deferred  financing  costs and
discount.

     The overall weighted average  effective  interest rate on the Exit Debt was
10.4% during the year ended December 31, 2002. The weighted average coupon (pay)
rate on the  Exit  Debt was 8.0%  during  2002.  The  overall  weighted  average
effective interest rate on the Exit Debt was 11.1% for the period April 17, 2001
to December 31, 2001. The weighted average coupon rate on the Exit Debt was 8.9%
for the period April 17 to December 31, 2001.  The difference in the Exit Debt's
weighted average  effective  interest rate and the weighted average coupon (pay)
rate  primarily  related to the  accrual  of  estimated  extension  fees and the
accrued interest related to the 7% per annum, accreting interest on the Series B
Senior  Secured  Notes,  both of which  are  included  in the  weighted  average
effective interest rate, but not included in the weighted average pay rate.

     General and Administrative Expenses

     General and administrative  expenses decreased by approximately $223,000 to
$10.7 million during 2002 as compared to $11.0 million during 2001 primarily due
to a  decrease  in legal  fees in  2002,  partially  offset  by an  increase  in
employment costs and higher directors and officers liability  insurance premiums
in 2002.

     Depreciation and Amortization

     Depreciation  and amortization  decreased by approximately  $2.6 million to
$1.1 million  during 2002 as compared to $3.7 million  during 2001. The decrease
is primarily  attributable to the adoption of SFAS No. 142,  "Goodwill and Other
Intangible Assets," on January 1, 2002. The adoption of SFAS No. 142 reduced our
annual  amortization   expense  by  approximately  $2.8  million.   See  further
discussion of SFAS No. 142 in "Cumulative Effect of Adoption of SFAS 142" below.

     Mortgage Servicing/Equity in Earnings (Losses) from Investments

     In July 2001, we began accounting for CMSLP on a consolidated  basis due to
a reorganization which resulted in the partnership interests of CMSLP being held
by two of our wholly owned taxable REIT  subsidiaries  (or TRSs).  Prior to July
2001,  we accounted  for CMSLP under the equity method as we did not control the
voting  common  stock  of  the  general   partner  of  CMSLP.   CMSLP's  assets,
liabilities,   revenues  and  expenses  are  labeled  as   "servicing"   on  our
consolidated financial statements.

     The  following is a summary of the  consolidated  results of  operations of
CMSLP:


<PAGE>27

<TABLE>
<CAPTION>
                                                                 Year ended December 31,
                      Description                               2002                 2001
                      -----------                       -------------------- -------------------
                      <S>                               <C>                  <C>
CMSLP's results of operations (reflected in
consolidated income statements
effective July 1, 2001):
  Servicing revenue                                         $ 10,985,770        $  6,683,886
  Servicing general and administrative expenses               (8,854,569)         (5,570,162)
  Servicing amortization, depreciation and impairment         (2,173,137)         (1,699,186)
  Servicing restructuring expenses                              (188,614)           (437,723)
  Servicing gain on sale of servicing rights                   4,864,274 (1)               -
  Servicing gain on sale of investment-grade CMBS                241,160                   -
                                                         -------------------- -------------------
GAAP net income (loss) from CMSLP                           $  4,874,884        $ (1,023,185)
                                                         ==================== ===================

</TABLE>

(1) See also the discussion in "Income Tax (Expense) Benefit" below.

     The net income from CMSLP of $4.9  million for the year ended  December 31,
2002 compares to the aggregate of the net equity in losses from CMSLP/CRIIMI MAE
Services,  Inc. (or CMSI) of $(2.3) million for the year ended December 30, 2001
(as summarized  below) and the net loss from CMSLP of $(1.0) million for the six
months ended  December 31, 2001.  CMSLP's net income of $4.9 million during 2002
includes a $4.9 million  gain from the sale of servicing  rights and $189,000 of
restructuring  expenses.  CMSLP's total revenue decreased by approximately  $1.5
million to  approximately  $11.0  million  during 2002 compared to $12.5 million
during 2001 (includes  full year 2001  results).  This decrease is primarily the
result of the sale of servicing rights which reduced  mortgage  servicing income
and interest income earned on the escrow  balances,  partially  offset by higher
revenue from special servicing.  General and  administrative  expenses were $8.9
million and $11.9 million  (includes  full year 2001  results)  during the years
ended  December  31, 2002 and 2001,  respectively.  The  decrease in general and
administrative  expenses was primarily attributable to the staff reductions that
occurred in the fourth  quarter of 2001 and the first quarter of 2002  following
CMSLP's  sale of its CMBS master and direct  servicing  contracts,  as discussed
below.

     During 2002,  amortization,  depreciation and impairment was  approximately
$2.2  million as  compared to $3.4  million  (includes  full year 2001  results)
during 2001. This $1.2 million  decrease was primarily the result of the sale of
servicing rights in February 2002, which reduced amortization expense, and lower
impairment  on CMBS held by CMSLP during 2002 as compared to 2001.  The decrease
was partially  offset by impairment  that was recorded on CMSLP's  investment in
AIM Limited Partnerships'  subadvisory  contracts.  During 2002, the AIM Limited
Partnerships  experienced a significant  amount of  prepayments of their insured
mortgages.  These  prepayments  reduced  CMSLP's cash flows from its subadvisory
contracts with the AIM Limited  Partnerships.  As a result,  in accordance  with
SFAS No.  142,  "Goodwill  and  Other  Intangible  Assets,"  and  SFAS No.  144,
"Accounting  for the Impairment or Disposal of Long-Lived  Assets," we evaluated
CMSLP's  investment in the subadvisory  contracts for impairment.  Our estimated
future  undiscounted  cash flows from this  investment were projected to be less
than the book value of the  investment as of December 31, 2002. As a result,  we
believed that CMSLP's  investment in the  subadvisory  contracts was impaired at
December  31,  2002.  We  estimated  the fair  value of the  investment  using a
discounted cash flow methodology.  We wrote down the value of CMSLP's investment
in the subadvisory  contracts with the AIM Limited  Partnerships and recorded an
impairment charge of approximately $340,000 as of December 31, 2002.

     In February 2002,  CMSLP sold all of its rights and  obligations  under its
CMBS master and direct servicing  contracts primarily because the contracts were
not  profitable,  given the  relatively  small  volume of master and direct CMBS
servicing that CMSLP was performing.  In connection with this restructuring,  34
employee  positions were  eliminated.  A restructuring  charge of  approximately
$438,000 was recorded  during the fourth quarter of 2001 to account for employee
severance  costs,  non-cancellable  lease costs,  and other costs related to the
restructuring.   During  2002,   additional   net   restructuring   expenses  of
approximately  $189,000  were  recorded  primarily to account for vacant  office
space that is taking  longer to  sublease  than  originally  anticipated.  CMSLP
received  approximately  $12.4 million in cash, which included  reimbursement of
servicing advances, in connection with this sale.

     Total  equity in (losses)  earnings  from  investments  for the years ended
December  31,  2002 and  2001  includes  our net  equity  from  the AIM  Limited
Partnerships  (which are four publicly  traded  limited  partnerships  that

<PAGE>28

hold  insured   mortgages  and  whose   general   partner  is  one  of  our
subsidiaries)  and the net equity from our 20% limited  partnership  interest in
the adviser to the AIM Limited  Partnerships during these periods,  and includes
net equity from CMSLP/CMSI for the six months ended June 30, 2001 (since CMSLP's
operations are consolidated  effective July 1, 2001). In addition,  as discussed
below, the 2002 results include an impairment charge on our equity investment in
the advisor to the AIM Limited  Partnerships.  On a comparative  basis,  the net
equity from the AIM Limited Partnerships  decreased primarily due to a reduction
in the AIM Limited Partnerships' mortgage assets.

     As  previously  discussed,   during  2002,  the  AIM  Limited  Partnerships
experienced  a significant  amount of  prepayments  of their insured  mortgages.
These prepayments reduced cash flows on our 20% investment in the advisor to the
AIM Limited Partnerships.  As a result, in accordance with SFAS No. 142 and SFAS
No. 144, the advisor to the AIM Limited Partnerships evaluated its investment in
the advisory  contracts for impairment.  The estimated future  undiscounted cash
flows from this  investment were projected to be less than the book value of the
investment as of December 31, 2002. As a result,  the advisor  believed that its
investment  in the advisory  contracts  was  impaired at December 31, 2002.  The
advisor  estimated the fair value of its investment using a discounted cash flow
methodology.  The advisor wrote down the value of its investment in the advisory
contracts to the AIM Limited  Partnerships and recorded an impairment charge. We
recorded our portion of the impairment charge,  totaling approximately $460,000,
as of  December  31,  2002.  This  impairment  charge is  included  in Equity in
(losses) earnings from investments in our Consolidated Statement of Income. This
investment is included in our Portfolio Investment segment.

     The  following  is a  summary  of our  equity  in  (losses)  earnings  from
investments:

<TABLE>
<CAPTION>
                                                                      Year ended December 31,
                          Description                                 2002               2001
                          -----------                           ----------------  ------------------
<S>                                                             <C>               <C>
Equity in (Losses) Earnings from Investments (as presented
on income statements):
  AIM Limited Partnerships - net equity in earnings             $  418,531         $   647,096
  Impairment on investment in AIM Limited Partnerships' advisor   (460,413)                 --
  CMSLP/CMSI - net equity in (losses) earnings                          --          (2,279,138)
                                                                ----------------  ---------------

Total Equity in (Losses) Earnings from Investments              $  (41,882)        $(1,632,042)
                                                                ================== ==============

</TABLE>

     Income Tax (Expense) Benefit

     During  2002,  we  recorded  a net  income  tax  expense  of  approximately
$460,000.  During  2001,  we  recorded  an income tax  benefit of  approximately
$336,000.  During  2002,  approximately  $1.0  million of income tax expense was
recognized  as a result of the income  taxes on the gain on the sale by CMSLP of
its CMBS master and direct  servicing  rights.  This tax expense of $1.0 million
was  partially  offset  by tax  refunds  that  were not  previously  accrued  of
approximately  $552,000 that were recognized during 2002. The income tax expense
was incurred by our TRSs that own the partnership interests in CMSLP. These TRSs
are  separately  taxable  entities  that  cannot  use  our  net  operating  loss
carryforward  to reduce their  taxable  income.  The income tax benefit that was
recognized  by our TRSs during  2001 was the result of the net loss  incurred by
CMSLP during the period July through December, 2001.

     Other Income

     Other income decreased by approximately $1.4 million to $2.6 million during
2002 from $4.0 million during 2001. This decrease was primarily  attributable to
lower interest income earned on reduced cash balances during 2002 as compared to
2001, partially offset by an increase in net income (before interest expense and
depreciation  expense) from a shopping center that we account for as real estate
owned, as discussed below. In addition, we recognized  approximately $71,000 and
$44,000 in  realized  gains  related to our trading of Other MBS during 2002 and
2001, respectively.

     In October  2001,  one of our wholly owned  subsidiaries  acquired  certain
partnership  interests in a partnership that was the obligor on a mezzanine loan
payable  to us in  exchange  for  curing a default  on the first  mortgage  loan
through a cash payment of approximately  $276,000.  This partnership and another
of our wholly owned  subsidiaries  own 100% of the partnership  interests in the
partnership  which is the obligor on the first

<PAGE>29

mortgage loan.  The first mortgage loan is secured by a shopping  center in
Orlando,  Florida.  As a  result  of  this  acquisition,  we  own  100%  of  the
partnership interests and are consolidating the partnership's  financial results
as of October 1, 2001. We account for these assets as real estate owned, and the
real estate is being held for  investment.  During the years ended  December 31,
2002 and 2001, we recognized a net loss of approximately  $773,000 and $266,000,
respectively,  from  the  operations  of the  shopping  center,  which  includes
approximately  $858,000  and  $213,000 of interest  expense,  respectively,  and
approximately  $149,000 and $26,000 of depreciation expense,  respectively.  The
remaining  net income  (expense)  of  approximately  $234,000  and  $(27,000) is
included in other income in the  consolidated  statements  of income  during the
years ended December 31, 2002 and 2001, respectively.  We hope to reposition and
stabilize  this asset to increase its value,  although there can be no assurance
we will be able to do so.

     Net Losses on Mortgage Security Dispositions

     Net losses on mortgage security  dispositions were  approximately  $995,000
during 2002 compared to approximately $42,000 during 2001. During 2002 and 2001,
there were 25 and nine loan prepayments,  respectively.  In addition,  losses of
approximately $163,000 were recognized during 2002 following the final financial
settlement  on the two mortgages  that were  assigned to the U.S.  Department of
Housing and Urban Development (or HUD) in 2001. The original losses on these two
mortgages that were assigned to HUD were recognized  during 2001. The net losses
in 2002 and 2001  were  primarily  due to the  write-off  of  unamortized  costs
associated  with the disposed  mortgages  at the  disposition  dates,  partially
offset by prepayment penalties,  if applicable.  For any period, gains or losses
on mortgage dispositions are based on the number,  carrying amounts and proceeds
of mortgages disposed of during the period.

     Impairment on CMBS

     Impairment  on CMBS  increased  by  approximately  $35.5  million  to $70.2
million during 2002 compared to $34.7 million  during 2001. The paragraphs  that
follow discuss the impairment  charges that were recorded  during 2002 and 2001.
The following  table  provides a summary of the changes in the overall  expected
loss estimates on  subordinated  CMBS from January 1, 2001 through  December 31,
2002:
<TABLE>
<CAPTION>
                        Overall        Impairment
                        Expected     Recorded During
($ in millions)      Loss Estimate    Quarter Ended                            Impaired CMBS
---------------      -------------    -------------                            -------------
<S>                  <C>              <C>                                      <C>
January 1, 2001            $298             $  -
September 30, 2001          307              3.9      Both bonds in CBO-1, and Nomura unrated bond
December 31, 2001           335             30.8      Both bonds in CBO-1, and BB- through unrated/issuer's equity
                                                      bonds in CBO-2
June 30, 2002               351              5.2      Nomura and CBO-2 unrated/issuer's equity bonds
September 30, 2002          448             29.9      All unrated/issuer's equity bonds, and the CCC bond and the B-
                                                      bond in CBO-2
December 31, 2002           503             35.1      All unrated/issuer's equity bonds, and the CCC bond and the B-
                                                      bond in CBO-2

</TABLE>

     Although  the total  amount of loans in special  servicing  only  increased
slightly  from $792  million  as of  December  31,  2001 to $811  million  as of
December 31, 2002,  the amount of estimated  total  mortgage  loan  defaults has
increased,  the projected  loss  severities  of the  underlying  mortgage  loans
currently or  anticipated  to be in special  servicing  have  increased  and the
timing  of  certain  projected  losses  is  anticipated  to  occur  sooner  than
previously  estimated,  all of which has  resulted in an increase in our overall
expected  loss  estimate  related to our  subordinated  CMBS  portfolio  to $503
million as of December 31, 2002 as detailed in the table above.  The revision to
the  overall  expected  loss  estimate  is  primarily  the  result of  increased
projected  loan  losses  due to lower  than  anticipated  appraisals  and  lower
internal  estimates  of values on real  estate  owned by  underlying  trusts and
properties  underlying  certain defaulted  mortgage loans,  which, when combined
with the updated loss severity experience and increased expectation of defaults,
has resulted in higher  projected  loss  severities  on mortgage  loans and real
estate owned by  underlying  trusts  currently or  anticipated  to be in special
servicing.  Primary  reasons for lower  appraisals and lower  estimates of value
resulting in higher projected loss severities on mortgage loans include the poor
performance  of  certain   properties  and  related   markets,   failed  workout
negotiations,  and extended time needed to liquidate  assets due, in large part,
to the continued softness in the economy,  the continued downturn in travel and,
in some cases,  over-supply of hotel properties,  and a shift in retail activity
in some  markets,  including  the  closing  of stores by  certain  national  and
regional retailers.  In addition,  two significant hotel portfolios  transferred
into special  servicing in early January 2003. The unpaid principal  balances of
these two hotel portfolios aggregate approximately $212.2 million. For a further
discussion of our  significant  hotel borrowing  relationships,  see "Summary of
CMBS."  Since we

<PAGE>30

determined  that there had been an adverse  change in expected  future cash
flows,  we believed some of our  subordinated  CMBS had been impaired under EITF
99-20 and SFAS No. 115,  "Accounting for Certain  Investments in Debt and Equity
Securities,"  as of  December  31,  2002.  As the fair  values  of the  impaired
subordinated CMBS aggregated approximately $5.2 million, $29.9 million and $35.1
million below the amortized  cost basis as of June 30, 2002,  September 30, 2002
and December 31, 2002, respectively, we recorded other than temporary impairment
charges  through the income  statement of these same amounts  during the second,
third and fourth quarters of 2002.

     During 2001, we revised our overall  expected loss estimate  related to our
subordinated CMBS portfolio as detailed in the table above. The revisions to the
overall  expected  loss  estimate  during 2001 were  primarily the result of the
continued  slowing  U.S.  economy and  recession  exacerbated  by the  terrorist
attacks on September 11, 2001 and  subsequent  threats of terrorism,  which were
principal causes of greater than previously anticipated monetary defaults on the
underlying  mortgage  loans  and lower  than  previously  anticipated  appraisal
amounts  on  properties   underlying  certain  defaulted  loans.  These  factors
increased the estimated  principal loss on the mortgage  loans. As we determined
that there had been an adverse change in expected future cash flows, we believed
some of our  subordinated  CMBS had been impaired  under EITF 99-20 and SFAS No.
115 as of September  30, 2001 and  December  31, 2001.  As the fair value of the
impaired  subordinated  CMBS was  approximately  $3.9 million and $30.8  million
below the  amortized  cost as of  September  30,  2001 and  December  31,  2001,
respectively,  we recorded other than temporary  impairment  charges through the
income  statement of these same amounts during the third and fourth  quarters of
2001.

     There can be no assurance that our revised  overall  expected loss estimate
of $503  million  will not be  exceeded  as a result of  additional  or existing
adverse events or circumstances.  Such events or circumstances  include, but are
not  limited  to,  the  receipt  of new or  updated  appraisals  at  lower  than
anticipated amounts,  legal proceedings (including bankruptcy filings) involving
borrowers, a continued weak economy or recession,  an act of war, a delay in the
disposition of specially serviced mortgage loans,  additional  defaults,  losses
occurring  sooner  than  anticipated  or an  unforeseen  reduction  in  expected
recoveries,  any of which could result in additional future credit losses and/or
further  impairment  to our  subordinated  CMBS,  the  effect of which  could be
materially adverse to us.

     Hedging Loss and Cumulative Effect of Adoption of FAS 133

     During 2002 and 2001, we recognized  hedging  expense  through  earnings of
approximately $1.1 million on our interest rate caps. In addition, we recognized
a $135,000  loss  through  earnings  during 2001 due to the adoption of SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities".

     In April 2002,  we purchased an interest  rate cap for  approximately  $1.6
million.  This interest  rate cap,  which was effective on May 1, 2002, is for a
notional amount of $175.0 million,  caps the one-month London Interbank  Offered
Rate, or LIBOR, at 3.25% and matures on November 3, 2003. The fair value of this
cap has decreased by approximately  $910,000 to  approximately  $4,000 since the
purchase date. This decrease is reflected in other  comprehensive  income and is
attributable  to a change in the  expectation of future interest rates since the
cap was  purchased in April 2002. As of December 31, 2002,  the one-month  LIBOR
rate was 1.38%.

     The fair value of the  interest  rate cap that was  effective in April 2001
and  matures  in April 2003 has become  worthless  due to a decline in  interest
rates  since  the cap was  purchased  for  $1.5  million.  This  cap is set at a
one-month  LIBOR rate of 5.25%.  As of December 30, 2002, this interest rate cap
was  undesignated.  As a result,  all  future  changes in the fair value will be
recognized through current earnings in the consolidated statements of income. As
of December 31, 2002, the fair value of this interest rate cap was $0.

     Recapitalization Expenses

     In  connection  with  our  January  2003   recapitalization,   we  incurred
approximately  $9.9 million of transaction costs (including  amounts incurred in
2003).  Included in this total is approximately $6.2 million of commitment fees,
and investment banking, legal and tax professional fees directly associated with
the Bear Stearns and BREF  transaction.  These costs will be  allocated  between
debt  and   equity.   Included  in  the  total   recapitalization   expenses  is
approximately  $1.0 million of investment  banking,  legal and tax  professional
fees were  incurred  prior to our  signing a letter of intent  with BREF in 2002
during our evaluation of strategic alternatives.  These amounts were expensed in
2002.  Included in the total costs of $9.8  million are $2.6 million of expenses
which will be recognized in 2003 related to severance and

<PAGE>31

related payments,  and accelerated  vesting of stock options for our former
Chairman, William B. Dockser, and former President, H. William Willoughby, whose
employment  contracts  were  terminated  on January 23, 2003. As of December 31,
2002, we have approximately $1.4 million of the aforementioned transaction costs
included in Other Assets on our  Consolidated  Balance  Sheet.  See  "Subsequent
Events" for a discussion of the total estimated cost of the transactions.

     Reorganization Items

     During 2001, we recorded reorganization items due to the Chapter 11 filings
of CRIIMI MAE Inc.,  CRIIMI MAE  Management,  Inc.,  and CRIIMI MAE Holdings II,
L.P. as follows:


         Reorganization Items
         --------------------
         Short-term interest income                         $ 2,491,311
         Professional fees                                   (3,870,185)
         Other                                                 (800,875)
         Net recovery (loss) on real estate owned (1)           366,529
                                                           -------------
         Total reorganization expense, net                 $ (1,813,220)
                                                           =============

        (1) We  recognized  impairment  on our  investment  in real estate
            owned in 2000. This asset was sold in July 2000.

     We did not recognize any reorganization expense in 2002.

     Emergence Financing Origination Fee

     In connection  with the emergence  from Chapter 11 in April 2001, we paid a
one-time,  emergence  financing  origination fee of  approximately  $3.9 million
related to the Exit Variable-Rate Secured Borrowing. This fee was required to be
expensed immediately under GAAP.

     Cumulative Effect of Adoption of SFAS 142

     In June of 2001, the Financial  Accounting  Standards Board issued SFAS No.
142. SFAS No. 142,  which among other  things,  prohibits  the  amortization  of
existing goodwill and certain types of other intangible assets and establishes a
new method of testing  goodwill for  impairment.  Under SFAS No. 142, the method
for testing  goodwill  for  impairment  occurs at the  reporting  unit level (as
defined in SFAS No. 142) and is  performed  using a fair value  based  approach.
SFAS No. 142 was effective for us on January 1, 2002. Effective upon adoption on
January 1, 2002, we wrote off this goodwill and recorded a resulting  impairment
charge of  approximately  $9.8 million for this change in accounting  principle.
The goodwill relates to the Portfolio  Investment  reporting unit (as defined in
Note 18 of the Notes to Consolidated  Financial  Statements).  The fair value of
the reporting unit was determined using a market  capitalization  approach,  and
the impairment was primarily a result of the  significant  decrease in the price
of our common  stock price since the Merger in 1995.  This change in  accounting
principle reduced our annual amortization expense by approximately $2.8 million.
The pro forma net income and pro forma earnings per share  disclosures in Note 3
of the Notes to  Consolidated  Financial  Statements  present our net income and
earnings  per share as if this  accounting  principle  had been applied to those
periods presented.

     Cumulative  Effect of Change in Accounting  Principle  Related to Servicing
Revenue

     As  discussed  below,  the  cumulative  effect of the change in  accounting
principle  of $2.0  million  related to  servicing  revenue is  reflected  as of
January 1, 2001 as an adjustment to net income and therefore is reflected in the
year ended December 31, 2001 net income.

     As of July 1, 2001,  CMSLP  changed its  accounting  policy  related to the
recognition of special servicing fee revenue. Special servicing fees are paid to
CMSLP when mortgage loans  collateralizing  our CMBS are in default.  Typically,
CMSLP is paid 25 basis points of the unpaid  principal  balance of the defaulted
mortgage  loans for as long as the loans  are in  default.  The fees are paid to
compensate the special  servicer for managing and resolving the defaulted  loan.
Historically, CMSLP had deferred special servicing fee revenue and recorded that
revenue into

<PAGE>32

earnings  using  the  method  consistent  with our  policy  of  recognizing
interest income over the life of our CMBS on the level yield basis. CMSLP is now
recording  these special  servicing  fees in earnings on a current  basis.  This
change was made to better  match  revenues  and  expenses  related to the actual
special servicing of the defaulted loans. The special servicing fees are paid on
a current  basis by the trusts  holding the  mortgage  loans and those  payments
directly reduce the cash flow paid on our CMBS. Therefore, the special servicing
fees paid are built into the GAAP yields we use to record interest income on our
CMBS.  CMSLP changed its  accounting  policy to recognize the special  servicing
fees in earnings on a current basis as we believe this policy better matches the
special servicing fees CMSLP earns with the direct costs expended for performing
its special servicing obligations.  The CMBS and special servicing contracts are
separate legal instruments or contracts.

     We were  required  to reflect  this  change in  accounting  principle  as a
cumulative  catch-up  as of January 1,  2001.  As of January 1, 2001,  CMSLP had
approximately  $2.0 million in deferred revenue related to the special servicing
fee revenue.  As a result, this amount was recorded in income and reflected as a
cumulative change in accounting  principle for the year ended December 31, 2001.
The results of  operations  for the year ended  December  31,  2001  reflect the
recognition of special  servicing fee revenue on a current basis.  As previously
discussed,  prior to July 1,  2001,  CMSLP was  accounted  for using the  equity
method and, as a result, the impact of the new accounting  principle (except for
the  cumulative  catch-up)  is  reflected  in equity in earnings  (losses)  from
investments  for the six months ended June 30, 2001 and on a consolidated  basis
for the six months ended  December  31,  2001.  The pro forma net income and pro
forma  earnings per share  disclosures  in Note 13 of the Notes to  Consolidated
Financial  Statements  present our net income and  earnings per share as if this
accounting  principle  had been applied to those periods  presented.  Net income
would have been $2.8 million less for the year ended  December 31, 2001 had this
new accounting principle not been adopted.

REIT Status/Net Operating Loss for Tax Purposes

     See  "BUSINESS  - Certain  Risk  Factors - Risk of Loss of REIT  Status and
Other Tax Matters" for a discussion of REIT status, net operating loss and other
tax matters.

     Net Operating Loss for Tax Purposes.  We generated a net operating loss for
tax purposes of approximately $83.6 million for the year ended December 31, 2002
compared to a net operating loss of approximately $90.6 million in 2001.

     As previously discussed,  as a result of our trader election in early 2000,
we recognized a mark-to-market tax loss of approximately $478 million on certain
trading  assets on January 1, 2000.  The  January  2000 loss is  expected  to be
recognized evenly over four years (2000,  2001, 2002, and 2003) for tax purposes
(i.e., approximately $120 million per year) beginning with the year 2000.

     A summary of our 2002 and 2001 net operating  losses for tax purposes is as
follows:

<TABLE>
<CAPTION>
  ($ in millions)                                                                       2002                  2001
  ---------------                                                                       ----                  ----
  <S>                                                                                   <C>                   <C>
  January 1, 2000 Loss                                                                 $478.2                $478.2
  LESS:   Amounts recognized in 2000                                                   (119.6)               (119.6)
  LESS:   Amounts recognized in 2001                                                   (119.5)               (119.5)
  LESS:   Amounts recognized in 2002                                                   (119.5)                   --
                                                                                       -------               -------
  Balance Remaining of January 1, 2000 Loss to be recognized in future periods         $119.6                $239.1
                                                                                       =======               =======

  Taxable Income for the year before recognition of January 1, 2000 Loss               $ 36.0                $ 29.0 (1)(2)
  LESS:   January 1, 2000 Loss recognized                                              (119.5)               (119.5)
  PLUS:  Mark-to-market unrealized loss on trading securities                            (0.1)                 (0.1)
                                                                                       -------               --------
  Net operating loss for the year ended December 31                                   $ (83.6)               $ (90.6)
                                                                                      =========              ========

  Accumulated net operating loss through January 1                                    $(140.2)               $ (49.6)
  Net operating loss created during the year ended December 31                          (83.6)                 (90.6)
  Net operating loss utilization                                                           --                     --
                                                                                      --------               --------
  Net operating loss carried forward for use in future periods                        $(223.8)               $(140.2)
                                                                                      ========               ========
</TABLE>


<PAGE>33


(1)      Taxable income for the year ended December 31, 2001 includes an
         approximate $8.6 million loss on certain trading securities in
         connection with the transfer of certain trading securities on April 17,
         2001 to CBO REIT following the reorganization effected to facilitate
         the collateral structure for the Exit Debt. Assets transferred to CBO
         REIT (and subsequently transferred to CBO REIT II in January 2003) are
         no longer required to be marked-to-market on a tax basis.
(2)      The taxable income for the year ended December 31, 2001 has been
         increased by $6.3 million to reflect the actual taxable income included
         on our 2001 income tax return, which was completed during 2002.

Results of Operations

2001 compared to 2000

     Financial  statement  net loss to common  shareholders  for the years ended
December  31,  2001  and  2000  was  $(24.2)   million  and  $(155.5)   million,
respectively. The significant change in the 2001 results from 2000 was primarily
the result of $34.7 million of accounting  impairment charges related to certain
subordinated  CMBS that were  recognized  during  2001  compared  to  impairment
charges of $143.5 million that were recognized  during 2000.  Additionally,  net
loss to common  shareholders  for the year  ended  December  31,  2001  includes
approximately  $1.9  million  of net  revenue  due to the  effect of  changes in
accounting principles and an aggregate of approximately $5.8 million of expenses
relating  to  the  Chapter  11   reorganization.   The  2000   results   include
approximately   $66.1   million  of   expenses   relating   to  the  Chapter  11
reorganization.

     The following  table  provides a summary of the components of pro forma net
loss to common shareholders and a reconciliation of pro forma net loss to common
shareholders  to GAAP  net  loss to  common  shareholders  for the  years  ended
December 31, 2001 and 2000.  The intent of this table is to provide a summary of
the recurring results from operations and to isolate the non-recurring items due
to the  large  number  of  non-recurring  items  included  in  the  consolidated
statements of income in accordance with GAAP.
<TABLE>
<CAPTION>
                                                                              Year ended December 31,
                                                                            2001                   2000
                                                                            ----                   ----
<S>                                                                         <C>                    <C>
Net interest margin                                                    $  36,587,984            $ 55,885,272
General and administrative expenses                                      (10,951,420)             (9,651,468)
Depreciation and amortization                                             (3,718,485)             (3,771,064)
Servicing operations, net (excluding one-time items discussed above)      (2,864,600) (a)            810,602 (a)
Impairment on CMBS                                                       (34,654,930)           (143,478,085)
Hedging expense                                                           (1,073,392)                     --
Income tax (expense) benefit                                                 336,439                      --
Other, net                                                                 4,588,526               5,384,689
Dividends accrued or paid on preferred shares                             (8,145,481)             (6,911,652)
                                                                      ---------------         ---------------
Pro forma net loss to common shareholders                                (19,895,359)           (101,731,706)

Adjustments to GAAP net loss:
   Servicing restructuring expenses                                         (437,723)                     --
   Cumulative effect of accounting changes                                 1,860,120                      --
   Gain on extinguishment of debt                                                 --              14,808,737
   Litigation expense                                                             --              (2,500,000)
   Reorganization items                                                   (1,813,220)            (66,072,460)
   Emergence financing origination fee                                    (3,936,616)                     --
                                                                      ---------------        ----------------
GAAP net loss to common shareholders                                   $ (24,222,798)         $ (155,495,429)
                                                                       ==============        ================

</TABLE>

(a) Included in equity in earnings (losses) from investments through June 30,
2001.

     Interest Income - Subordinated CMBS

     Interest income from  subordinated  CMBS decreased by  approximately  $31.5
million,  or 23%, to $105.5  million  during 2001 as compared to $137.1  million
during 2000.  This overall  decrease in interest income was primarily the result
of the sale of certain CMBS during 2000 as part of our Chapter 11 reorganization
plan,  partially  offset by a higher weighted average  yield-to-maturity  on the
CMBS. The weighted average  anticipated  unleveraged  yield for our subordinated
CMBS for financial  statement  purposes as of January 1, 2001 was  approximately
12.4%, as compared to the anticipated  weighted  average yield used to recognize
income from April 1, 2000 to December

<PAGE>34

31, 2000 of 11.1% and 10.1% from  January 1, 2000  through  March 31, 2000.
These yields were determined  based on the  anticipated  yield over the expected
life of the subordinated CMBS, which considers,  among other things, anticipated
losses and any other than temporary impairment. The effective interest method of
recognizing  interest income on subordinated CMBS results in income  recognition
that differs from cash received. For the years ended December 31, 2001 and 2000,
the amount of income  recognized in excess of cash received due to the effective
interest  rate  method  was  approximately  $10.2  million  and  $15.2  million,
respectively.

     Interest Income - Insured Mortgage Securities

     Interest income from insured mortgage securities decreased by approximately
$1.8 million or 6% to $28.9 million for 2001 from $30.7  million for 2000.  This
decrease was principally  due to the prepayment of nine mortgage  securities and
the assignment to HUD of two mortgage  securities during 2001. These prepayments
represented approximately 9% of the total insured mortgage portfolio.

     Interest Income - Originated Loans

     Interest income from originated  loans decreased to $0 for 2001 as compared
to $27.5 million for 2000.  Interest  income from  originated  loans was derived
from originated loans included in the CMO-IV securitization, a securitization of
$496 million face value of conduit  loans in June 1998.  The decrease was due to
the sale of our interest in CMO-IV in November 2000.

     Interest Expense

     Total interest expense  decreased by approximately  $41.6 million or 30% to
approximately $97.8 million for 2001 from approximately $139.4 million for 2000.
This decrease was primarily  attributable  to the sale of our interest in CMO-IV
and certain  CMBS  during 2000 and the  reduction  of the  related  debt.  These
decreases were partially offset by higher rates of interest incurred  subsequent
to April 17, 2001 on our Exit Debt and the amortization of the related extension
fees on the Exit Debt under the  effective  interest  method  beginning in April
2001,  as compared to the interest  rates  incurred  during 2000 on the recourse
debt existing prior to emergence from Chapter 11.

     The overall weighted average  effective  interest rate on the Exit Debt was
11.1% for the period April 17, 2001 to December 31, 2001.  The weighted  average
coupon rate on the Exit Debt was 8.9% for the period  April 17 to  December  31,
2001. The difference in the Exit Debt's weighted average effective interest rate
and weighted average coupon (pay) rate primarily  relates to the amortization of
estimated  extension fees and the accrued  interest related to the 7% per annum,
accreting  interest on the series B secured notes, both of which are included in
the weighted average  effective  interest rate, but not included in the weighted
average coupon (pay) rate.

     The weighted  average  effective and coupon  interest rates on the recourse
debt were 7.8% for the year ended December 31, 2000.

     General and Administrative Expenses

     General and administrative expenses increased by approximately $1.3 million
to $10.9 million in 2001 as compared to $9.7 million in 2000 primarily due to an
increase in professional fees, partially offset by lower employment costs due to
fewer employees and no CMO-IV mortgage servicing fees in 2001.

     Depreciation and Amortization

     Depreciation  and amortization  decreased by approximately  $53,000 to $3.7
million in 2001 as compared to $3.8 million in 2000.

     Mortgage Servicing/Equity in Income (Losses) from Investments

     Beginning  July 1, 2001, we began  accounting  for CMSLP on a  consolidated
basis due to a  reorganization  which resulted in the  partnership  interests of
CMSLP being held by two of our wholly owned taxable

<PAGE>35

REIT  subsidiaries  (or TRSs).  Prior to July 2001,  we accounted for CMSLP
under the equity  method as we did not  control the voting  common  stock of the
general partner of CMSLP. CMSLP's assets, liabilities, revenues and expenses are
labeled as "servicing" on our consolidated financial statements.

     The  following is a summary of the  consolidated  results of  operations of
CMSLP:
<TABLE>
<CAPTION>
                                                                 Year ended December 31,
                      Description                               2001                 2000
                      -----------                      -------------------- -------------------
<S>                                                    <C>                  <C>
CMSLP's results of operations (reflected in
consolidated inc income statements
effective July 1, 2001):

  Servicing revenue                                       $  6,683,886              N/A
  Servicing general and administrative expenses             (5,570,162)             N/A
  Servicing amortization, depreciation and impairment       (1,699,186)             N/A
  Servicing restructuring expenses                            (437,723)             N/A
                                                         -------------------- -------------------
GAAP net loss from CMSLP                                  $ (1,023,185)            $ --
                                                         ==================== ===================

</TABLE>

     The aggregate of the net equity in losses from CMSLP/CMSI of $(2.3) million
for the year ended December 30, 2001 (as summarized below) and the net loss from
CMSLP of $(1.0)  million for the six months ended  December 31, 2001 compares to
the net equity in earnings from  CMSLP/CMSI of $811,000.  CMSLP's total revenues
decreased by  approximately  $2.2 million to $12.5  million in 2001  compared to
$14.7 million in 2000,  primarily due to lower  interest  income and  assumption
fees  resulting  from low current  interest  rates and the  decrease in mortgage
loans serviced. General and administrative expenses were $11.9 million and $11.3
million in 2001 and 2000,  respectively.  The increase  was due  primarily to an
increase in information technology expenses. CMSLP's amortization,  depreciation
and impairment  increased by approximately  $0.5 million to $3.4 million in 2001
as compared to $2.9  million in 2000.  In  addition,  the 2001  results  include
restructuring expenses of $438,000 million related to CMSLP's sale of its rights
and obligations under its master and primary servicing contracts.

     Total  equity in earnings  (losses)  from  investments  for the years ended
December  31,  2001 and  2000  includes  our net  equity  from  the AIM  Limited
Partnerships and the net equity from our 20% limited partnership interest in the
adviser to the AIM Limited  Partnerships  during these periods,  and include net
equity from  CMSLP/CMSI  for the year ended December 31, 2000 and the six months
ended June 30, 2001 (since CMSLP's  operations were consolidated  effective July
1,  2001).  On a  comparative  basis,  the  net  equity  from  the  AIM  Limited
Partnerships  decreased  primarily  due  to  a  reduction  in  the  AIM  Limited
Partnerships  mortgage  assets.  The  following  is a summary  of our  equity in
earnings (losses) from investments:

<TABLE>
<CAPTION>
                                                               Year ended December 31,
                      Description                              2001               2000
                      -----------                        ----------------  -----------------
<S>                                                      <C>               <C>
Equity in (Losses) Earnings from Investments (as
presented on income statements):
  AIM Limited Partnerships - net equity in earnings       $  647,096         $  701,403
  CMSLP/CMSI - net equity in (losses) earnings            (2,279,138)           810,602
                                                         ----------------  -----------------
Total Equity in (Losses) Earnings from Investments       $(1,632,042)         1,512,005
                                                         ================  =================

</TABLE>

     Other Income

     Other income  decreased by  approximately  $175,000 to $4.0 million  during
2001 as compared to $4.2  million  during  2000.  This  decrease  was  primarily
attributable to lower interest rates earned on fewer temporary investments. Also
included in other income is approximately  $44,000 and $10,000 in realized gains
related to our trading of other MBS in 2001 and 2000, respectively.

     In October  2001,  one of our wholly owned  subsidiaries  acquired  certain
partnership  interests in a partnership that was the obligor on a mezzanine loan
payable  to us in  exchange  for  curing a default  on the first  mortgage  loan
through a cash payment of approximately  $276,000.  This partnership and another
of our wholly-owned  subsidiaries  own 100% of the partnership  interests in the
partnership  which is the obligor on the first

<PAGE>36

mortgage loan.  The first mortgage loan is secured by a shopping  center in
Orlando,  Florida.  As a  result  of  this  acquisition,  we  own  100%  of  the
partnership interests and are consolidating the partnership's  financial results
as of October 1, 2001. We account for these assets as real estate owned, and the
real estate is being held for  investment.  During the year ended  December  31,
2001, we recognized a net loss of approximately  $266,000 from the operations of
the shopping center, which includes  approximately  $213,000 of interest expense
and approximately  $26,000 of depreciation expense. The remaining net expense of
approximately $27,000 is included in other income in the consolidated statements
of income during the year ended December 31, 2001.

     Net (Losses) Gains on Mortgage Security and Originated Loan Dispositions

     During   2001,   net  losses  on  mortgage   security   dispositions   were
approximately  $(42,000) as a result of nine  prepayments and two assignments to
HUD of mortgage  securities.  There were no gains or losses on  originated  loan
dispositions in 2001 since our originated loans were sold in 2000.  During 2000,
net  gains  on  mortgage   security  and  originated  loan   dispositions   were
approximately  $524,000,  which was comprised of net gains on mortgage  security
dispositions  of  approximately  $280,000  and  net  gains  on  originated  loan
dispositions  of $244,000.  During 2000,  there were six prepayments of mortgage
securities and two  prepayments of originated  loans.  For any period,  gains or
losses on mortgage  dispositions  are based on the number,  carrying amounts and
proceeds of mortgages disposed of during the period.

     Impairment on CMBS

     Impairment  of CMBS  decreased  by  approximately  $108.8  million to $34.7
million during 2001 compared to $143.5 million during 2000.

     As of September  30, 2001,  we revised our overall  expected  loss estimate
related  to our  subordinated  CMBS from $298  million  to $307  million.  As of
December 31, 2001, we again revised our overall  expected loss estimate  related
to our subordinated  CMBS from $307 million to $335 million over the life of the
CMBS.  These  revisions  to loss  estimates  were  primarily  the  result of the
continued  slowing U.S.  economy and  recession,  exacerbated  by the  terrorist
attacks on September 11, 2001 and threats of subsequent  terrorism.  Principally
as a result  of these  adverse  factors,  the  underlying  mortgage  loans had a
greater than  previously  anticipated  number of monetary  defaults during 2001.
Additionally, appraisal amounts on properties underlying certain defaulted loans
were  significantly  lower than previously  anticipated,  thereby increasing the
estimated  principal loss on the commercial  loans.  As we determined that there
had been an adverse  change in expected  future cash flows,  we believed some of
our subordinated  CMBS had been impaired under EITF 99-20 and SFAS No. 115 as of
September 30, 2001 and December 31, 2001. As the fair value of the impaired CMBS
was approximately  $3.9 million and $30.8 million below the amortized cost as of
September 30, 2001 and December 31, 2001,  respectively,  we recorded other than
temporary  impairment charges through the income statement of these same amounts
during the third and fourth quarters of 2001.

     As of December  31, 2000,  we revised our overall  expected  loss  estimate
related to our subordinated CMBS portfolio from $225 million to $298 million. In
addition,  we expected  such  revised  losses to occur  sooner  than  originally
expected because of the slowing U.S.  economy.  This revised loss estimate was a
result of an  increase  in the  number  of loans  that  were  placed in  special
servicing due primarily to loan defaults.  As we had determined that the current
estimate  of  expected  credit  losses  exceeded  credit  losses  as  previously
projected,  we believed our  subordinated  CMBS had been impaired under SFAS No.
115.  As the fair  value of the  impaired  CMBS was  $143.5  million  below  the
amortized  cost  basis as of  December  31,  2000,  we  recorded  an other  than
temporary  impairment  charge  through the income  statement  of $143.5  million
during the fourth quarter of 2000.

     Hedging Loss and Cumulative Effect of Adoption of FAS 133

     During  2001,   we  recognized   hedging   expense   through   earnings  of
approximately  $1.1 million on our interest rate cap and a $135,000 loss through
earnings due to the adoption of SFAS No. 133.


<PAGE>37

     Litigation Expense

     During 2000, we recognized a $2.5 million  expense based on the  settlement
of the Capital  Company of America,  LLC Chapter 11 claim related to a letter of
intent in 1998 for the  purchase  of  subordinated  CMBS.  No such  expense  was
recorded during 2001.

     Reorganization Items

     During 2001 and 2000, we recorded  reorganization  items due to the Chapter
11 filings of CRIIMI MAE,  CRIIMI MAE  Management,  Inc. and CRIIMI MAE Holdings
II, L.P. as follows:
<TABLE>
<CAPTION>
Reorganization Items                                   2001                 2000
--------------------                             -----------------    ------------------
<S>                                              <C>                  <C>
Short-term interest income                         $ 2,491,311           $ 6,850,362
Professional fees                                   (3,870,185)           (9,317,772)
Employee Retention Program                                  --              (851,948)
Other                                                 (800,875)           (1,136,319)
Excise tax accrued                                          --              (495,000)
                                                ---------------       ---------------
    Subtotal                                        (2,179,749)           (4,950,677)
Impairment on CMBS regarding Reorganization (2)             --           (15,832,817)
Net recovery (loss) on real estate owned (1)           366,529              (924,283)
Net gain on sale of CMBS                                    --             1,481,029
Loss on originated loans                                    --           (45,845,712)
                                               ----------------       ----------------
Total reorganization expense, net                 $ (1,813,220)        $ (66,072,460)
                                               ================       ================

</TABLE>

(1)      We recognized impairment on an investment in real estate owned in 2000.
         This asset was sold in July 2000.

(2)      We recognized impairment on the CMBS subject to the sales of select
         CMBS in 2000.  The final bonds subject to the sales were sold in
         November 2000.

     Emergence Financing Origination Fee

     In connection  with our emergence  from Chapter 11 in April 2001, we paid a
one-time,  emergence  financing  origination fee of  approximately  $3.9 million
related to our Exit Variable-Rate Secured Borrowing. This fee was required to be
expensed immediately under GAAP.

     Cumulative  Effect of Change in Accounting  Principle  Related to Servicing
Revenue

     The cumulative effect of the change in accounting principle of $2.0 million
related to servicing revenue is reflected as of January 1, 2001 as an adjustment
to net income and therefore is reflected in the year ended December 31, 2001 net
income. See discussion of this change in accounting  principle in "2002 compared
to 2001".

REIT Status/Net Operating Loss for Tax Purposes

     See  "BUSINESS  - Certain  Risk  Factors - Risk of Loss of REIT  Status and
Other Tax Matters" for a discussion of our REIT status,  net operating  loss and
other tax matters.

     Net Operating Loss for Tax Purposes.  We generated a net operating loss for
tax purposes of  approximately  $(90.6)  million for the year ended December 31,
2001 compared to a net operating loss of approximately $(49.6) million in 2000.

     As previously discussed,  as a result of our trader election in early 2000,
we recognized a mark-to-market tax loss of approximately $478 million on certain
trading  assets on January 1, 2000.  The  January  2000 loss is  expected  to be
recognized evenly over four years (2000,  2001, 2002, and 2003) for tax purposes
(i.e., approximately $120 million per year) beginning with the year 2000.

     A summary of our 2001 and 2000 net operating  losses for tax purposes is as
follows:


<PAGE>38

<TABLE>
<CAPTION>
($ in millions)                                                               2001               2000
---------------                                                               ----               ----
<S>                                                                           <C>                <C>
January 1, 2000 Loss                                                        $  478.2           $ 478.2
LESS:   Amounts recognized in 2000                                            (119.6)           (119.6)
LESS:   Amounts recognized in 2001                                            (119.5)               --
                                                                            ---------          --------
Balance Remaining of January 1, 2000 Loss to be recognized in future
      periods                                                               $  239.1           $ 358.6
                                                                            =========          ========

Taxable Income for the year before recognition of January 1, 2000 Loss      $   29.0 (1)(2)    $  20.1
LESS:   January 1, 2000 Loss recognized                                       (119.5)           (119.6)
PLUS:  Mark-to-market unrealized (loss) gain on trading securities              (0.1)             49.9
                                                                           ----------          ---------
Net operating loss for the year ended December 31                           $  (90.6)          $ (49.6)
                                                                           ==========          =========

Accumulated net operating loss through January 1                            $  (49.6)          $    --
Net operating loss created during the year ended December 31                   (90.6)            (49.6)
Net operating loss utilization                                                    --                --
                                                                          -----------          ---------
Net operating loss carried forward for use in future periods                $ (140.2)          $ (49.6)
                                                                          ===========          =========
</TABLE>

(1)      Taxable income for the year ended December 31, 2001 includes an
         approximate $8.6 million loss on certain trading securities in
         connection with the transfer of certain trading securities on April 17,
         2001 to CBO REIT following the reorganization effected to facilitate
         the collateral structure for the Exit Debt. Assets transferred to CBO
         REIT (and subsequently transferred to CBO REIT II in January 2003) are
         no longer required to be marked-to-market on a tax basis.
(2)      The taxable income for the year ended December 31, 2001 has been
         increased by $6.3 million to reflect the actual taxable income included
         on our 2001 income tax return, which was completed during 2002.

Cash Flow

2002 compared to 2001

     Net cash provided by operating  activities  increased by approximately $3.0
million during 2002 as compared to 2001. The increase was primarily attributable
to net sales of other MBS during 2002 compared to net purchases during 2001. The
2002 results also reflect a decrease in restricted cash and accounts payable and
accrued expenses following the settlement of the First Union litigation in March
2002.  The 2001 decrease in  receivables  and other assets  reflects the January
2001  receipt of funds  withheld  related to our  interest  in CMO-IV.  The 2001
results also  reflect a decrease in  restricted  cash and  accounts  payable and
accrued  expenses  caused by cash  outflows  on the April 17,  2001  Chapter  11
effective  date,  including  approximately  $44.7  million  to pay  off  accrued
interest on debt incurred prior to the Chapter 11 filing, $3.9 million to pay an
emergence  financing  origination  fee related to a portion of the Exit Debt and
$7.4 million to pay accrued payables related to the Chapter 11 filing.

         Net cash provided by investing activities increased by approximately
$34.5 million to $87.2 million during 2002 compared to $52.7 million during
2001. The increase was primarily attributable to:

o        a $37.8 million increase in proceeds from mortgage security prepayments
         during 2002;
o        $8.8 million of proceeds from the sale by CMSLP of its servicing
         rights (excludes reimbursement of advances, which are included in
         operating cash flows) during 2002; partially offset by
o        net cash of $4.4 million that CMSLP invested in investment-grade CMBS
         during 2002; and
o        $6.8 million of cash reflected in 2001 as a result of the consolidation
         of CMSLP beginning in July 2001.

     Net cash used in  financing  activities  decreased by  approximately  $63.7
million to $131.8  million  during 2002 compared to $195.5  million during 2001.
The decrease in cash used is primarily attributable to:

o       a $119.8 million decrease in principal payments on our recourse and
        other non match funded debt,
        including the Exit Debt, during 2002; partially offset by
o       $18.7 million paid to redeem the Series E Preferred Stock; and
o       a $37.3 million increase in principal payments on the securitized
        mortgage debt obligations due primarily to higher mortgage security
        dispositions in 2002.

     The 2001 principal payments on recourse debt include  approximately  $127.2
million paid on the April 17,

<PAGE>39

2001 Chapter 11 effective date,  which was used to pay off a portion of the
aggregate principal relating to debt incurred prior to the Chapter 11 filing.

     In March 2002, we redeemed all 173,000  outstanding  shares of the Series E
Preferred  Stock at the stated  redemption  price of $106 per share plus accrued
and unpaid  dividends  through and including the date of  redemption.  The total
redemption  price was  approximately  $18.7 million  (approximately  $396,000 of
which represented  accrued and unpaid  dividends).  The approximate $1.0 million
difference  between the aggregate  liquidation value and the redemption price is
reflected as a dividend on preferred stock in the first quarter of 2002.

     The table  below,  which is not  presented  in  accordance  with  GAAP,  is
intended  to provide a summary of cash  available  for debt  service on recourse
debt,  dividends,  acquisitions and general working capital purposes. We believe
that  this  information  better  facilitates  an  evaluation  of our cash  flows
available for debt service on recourse debt, dividends, acquisitions and general
working capital purposes. We also believe the table is helpful in evaluating our
recurring  operating  performance and our ability to fund liquidity  internally.
The table below  eliminates  certain  items which have the effect of reducing or
increasing net loss before changes in accounting  principles and dividends,  but
have no impact on cash  available to us. These items are  attributable  in large
part to non-cash income statement items,  which are included in our Consolidated
Statement of Cash Flows, as well as GAAP net interest income or expense from our
non-recourse match funded debt associated with the investment grade CMBS and our
insured  mortgage  securities.  In  addition,  we  adjusted  income  provided by
operating  activities for cash distributions  (which are a return of investment)
received from the AIM Limited Partnerships,  our insured mortgage securities and
CMBS.  The cash flows  available for debt service on recourse  debt,  dividends,
acquisitions and general working capital purposes  presented below must first be
used to service our recourse debt. Due to our NOL  carryforward,  we are able to
retain our net cash  flows,  after debt  service,  for  payments  of  dividends,
acquisitions  and general  working  capital  purposes.  The  presentation of the
financial   measure   addressed  by  the  table  below  is  different  than  the
presentation  included in previous periods.  We have changed our presentation to
depict the  reconciliation  of this non-GAAP  financial  measure to the GAAP net
loss before accounting changes and preferred stock dividends. Although presented
differently, we believe that this reconciliation provides similar information to
that provided in previous periods.


<PAGE>40

<TABLE>
<CAPTION>
                                                         Quarter Ended         Year Ended
                                                         December 31,          December 31,
($ in millions)                                              2002                  2002
---------------                                          --------------        -------------
<S>                                                      <C>                   <C>
GAAP net loss before changes in accounting principles
   and preferred stock dividends                            $  (32.9)           $  (46.4)
Adjustments:
   Interest expense on recourse debt (1)                        10.2                41.3
   Net interest (income) expense from match-funded
     assets and liabilities                                      1.6                 1.3
   Depreciation and amortization                                 0.2                 1.1
   Impairment on CMBS                                           35.2                70.2
   Equity in (income) losses from investments                    0.4                 0.1
   Hedging expense                                               0.4                 1.1
   Net losses (gains) on mortgage security dispositions          0.4                 1.0
   Amortization of deferred compensation                           -                 0.1
   Adjustment of subordinated CMBS GAAP interest
     income to cash received                                    (0.2)              (4.0)
   Servicing operations, net (including servicing
     restructuring expenses)  (2)                                0.1                 0.2
   Gain on sales of servicing rights and
     investment-grade CMBS  (2)                                 (0.3)               (5.1)
                                                         --------------       --------------
Income provided by operating activities                         15.1                60.9

Cash distributions received from AIM Limited                     0.8                 3.0
    Partnerships
Net cash received from insured mortgage securities               0.8                 3.4
                                                         --------------       --------------
Cash flows available for debt service on recourse
    debt, dividends, acquisitions and general working
    capital purposes                                          $ 16.7              $ 67.3
                                                         ==============       ==============
Uses of cash:
   Principal payments on recourse and other debt             $  (8.6)            $ (36.3)
   Interest payments on recourse and other debt                 (9.9) (3)          (32.2)
   Dividend payments                                               -                (0.4) (4)
                                                         --------------       --------------
                                                             $ (18.5)            $ (68.9)
                                                         ==============       ==============

</TABLE>

(1)  This amount includes the accreting interest on the Series B Senior
     Secured Notes and the interest expense related to accrued extension fees.

(2)  The results of CMSLP are excluded since CMSLP's cash was not used to
     service our recourse debt or pay dividends. CMSLP retained its cash flows
     to fund its operations.

(3)  This amount includes the semi-annual interest payment on the Series B
     Senior Secured Notes.

(4)  This amount includes the cash dividends paid to the holder of the Series E
     Preferred Stock at the time of redemption of such shares. It does not
     include the $1.0 million difference between the aggregate liquidation value
     and the redemption price of the Series E Preferred Stock, which is
     reflected as a dividend on preferred stock in the Consolidated Statement of
     Income.

2001 compared to 2000

     Net cash provided by operating  activities increased by approximately $60.3
million to $53.5 million during 2001 compared to $(6.8) million during 2000. The
increase was primarily due to a decrease in restricted cash and cash equivalents
and a decrease in receivables and other assets,  partially  offset by a decrease
in payables and accrued expenses. Receivables decreased primarily as a result of
the receipt in January 2001 of funds withheld related to our interest in CMO-IV.
The  decrease  in  restricted  cash and cash  equivalents  and the  decrease  in
payables and accrued  expenses  were  primarily  caused by cash  outflows on the
April 17, 2001 Chapter 11 effective date, including  approximately $44.7 million
to payoff accrued interest on debt incurred prior to the Chapter 11 filing, $3.9
million to pay an emergence  financing  origination  fee related to a portion of
the Exit Debt and $7.4 million to pay accrued payables related to the Chapter 11
filing.

     Net cash provided by investing  activities decreased by approximately $60.6
million to $52.7 million during 2001 compared to $113.4 million during 2000. The
decrease was primarily attributable to:

o    net proceeds of $72.6 million received from the sale of CMBS during 2000 as
     part of our reorganization plan;

<PAGE>41

o    a $6.0 million decrease in proceeds from originated loan disposition as all
     of our originated loans were sold in 2000;
o    net proceeds of $3.5 million received from the sale of CMO IV in 2000 as
     part of our reorganization plan; partially offset by
o    a $22.7 million increase in the proceeds from insured mortgage securities
     prepayments during 2001; and
o    a $7.2 million decrease in principal payments from originated loans and
     insured mortgage securities following the sale of the originated loans
     during 2000 and prepayments of insured mortgage securities during 2001.

     Net cash used in financing  activities  increased by  approximately  $142.0
million to $195.5 million during 2001 compared to $53.5 million during 2000. The
increase in cash used in 2001 was primarily attributable to:

o    an outflow of cash of approximately $127.2 million on the April 17,
     2001 Chapter 11 effective date, which was used to payoff a portion of
     the aggregate principal relating to debt incurred prior to the Chapter
     11 filing; and
o    a $9.3 million increase in principal payments on the securitized
     mortgage debt obligations due primarily to higher mortgage security
     dispositions in 2001.

Financial Condition, Liquidity and Capital Resources

     Limited Summary of January 2003 Recapitalization

     On January 23,  2003,  we completed a  recapitalization  of all of the Exit
Debt,  which was funded with  approximately  $44 million from common  equity and
secured  subordinated  debt issuances to BREF, $300 million in secured financing
in the form of a repurchase  transaction  from Bear Stearns and a portion of our
available cash and liquid assets. This recapitalization  increases our financial
flexibility  and  provides  new  additions  to  management  including  Barry  S.
Blattman,  as  Chairman  of the  Board and Chief  Executive  Officer,  and Craig
Lieberman, as Senior Vice President and Chief Portfolio Risk Officer.

     Under this recently  completed  recapitalization,  BREF acquired  1,212,617
shares of our newly issued common stock, or  approximately 8% of our outstanding
common stock after giving effect to the share acquisition,  at $11.50 per share,
or  approximately  $13.9  million.  BREF also  received  seven year  warrants to
purchase up to 336,835  additional  shares of common  stock at $11.50 per share.
BREF also  purchased $30 million of the BREF Debt and, at our option,  BREF will
purchase up to an additional $10 million of  subordinated  debt prior to January
23,  2004.  The BREF Debt  matures on January 23, 2006 and bears  interest at an
annual  rate of 15%.  If we  decide  to  sell  the  additional  $10  million  of
subordinated  debt to BREF,  it will bear  interest at an annual rate of 20% and
also matures on January 23,  2006.  We have a right to defer  two-thirds  of the
interest  on the BREF Debt (and half on the  additional  $10  million if sold to
BREF)  during its term.  The BREF Debt is  secured by first  liens on the equity
interests of two of our  subsidiaries.  Although this effectively  provides BREF
with an indirect lien on all of our subordinated  CMBS that are held by three of
our other lower tier  subsidiaries,  Bear Stearns has a first lien on the equity
interests  of  these  three  lower  tier  subsidiaries  and  on  certain  of the
subordinated CMBS held by one of these lower tier subsidiaries.  Our obligations
under the BREF Debt are  contractually  subordinate to the prior payment in full
of our obligations under the $300 million in secured financing  provided by Bear
Stearns.  There are  contractual  restrictions on BREF's ability to realize upon
its indirect  interest in the Bear  Stearns  first lien  collateral.  We paid an
origination fee of 0.67% to BREF related to the BREF Debt. We are also obligated
to pay BREF a quarterly maintenance fee of $434,000 in connection with arranging
the Bear Stearns Debt.

     Under this recently completed recapitalization,  Bear Stearns provided $300
million in secured financing  in the form of a repurchase transaction (the Bear
Stearns Debt).  The Bear Stearns Debt matures in 2006,  bears interest at a rate
equal to one month LIBOR plus 3% and requires  quarterly  principal  payments of
$1.25  million.  The interest rate will increase to one month LIBOR plus 4% if a
CDO is not completed  within one year from the closing of the Bear Stearns Debt.
In  addition,  the  quarterly  principal  amortization  will  increase to $1.875
million if a CDO is not completed by January 23, 2004.  The Bear Stearns Debt is
secured by first direct and/or indirect liens on all of our  subordinated  CMBS.
The indirect first liens are first liens on the equity interests of three of our
subsidiaries  that

<PAGE>42

hold certain subordinated CMBS. A reduction in the value of this collateral
could require us to provide  additional  collateral or fund margin calls. If the
outstanding loan amount under the Bear Stearns Debt exceeds 85% of the aggregate
market value of the collateral  securing the Bear Stearns Debt, as determined by
Bear Stearns in its sole good faith discretion, then Bear Stearns can require us
to transfer cash, cash  equivalents or securities so that the  outstanding  loan
amount will be less than or equal to 80% of the  aggregate  market  value of the
collateral (including any additional  collateral provided).  Failure to meet any
margin call could result in an event of default  which would enable Bear Stearns
to exercise various rights and remedies  including  acceleration of the maturity
date of the Bear Stearns Debt and the sale of the collateral. In order to meet a
margin  call,  we may be  required  to sell  assets at prices  lower  than their
carrying value which could result in losses.  Although  CRIIMI MAE Inc. is not a
primary  obligor of the Bear Stearns Debt, it has guaranteed the debt. We paid a
commitment  fee of 0.5% to Bear  Stearns.  See also  "BUSINESS - Certain Risks -
Borrowing and Refinancing  Risks" for a discussion of a possible CDO transaction
and certain collateral requirements related to the Bear Stearns Debt.

     Our ability to meet our debt service obligations will depend on a number of
factors, including management's ability to maintain cash flow (which is impacted
by, among other things, the credit performance of the underlying  mortgage loans
and changes in interest  rates and spreads) and to generate  capital  internally
from  operating  and  investing  activities  and  expected  reductions  in  REIT
distribution  requirements to shareholders  due to net operating  losses for tax
purposes, in each case consistent with the terms and conditions of the operative
documents  evidencing the Bear Stearns and BREF Debt.  There can be no assurance
that targeted levels of cash flow will actually be achieved,  that reductions in
REIT  distribution  requirements  will be realized,  or that,  if required,  new
capital will be  available to us. Our ability to maintain or increase  cash flow
and access new capital  will depend upon,  among other  things,  interest  rates
(including  hedging costs and margin  calls),  prevailing  economic  conditions,
restrictions under the operative documents  evidencing the Bear Stearns and BREF
Debt,  and other  factors,  many of which are beyond our control.  Our cash flow
will also be negatively affected by realized losses, interest payment shortfalls
and appraisal  reduction amounts on properties  related to mortgages  underlying
our  subordinated  CMBS.  We  expect  losses  on our CMBS to  increase  in 2003,
resulting in decreased  CMBS cash flows as compared to 2002.  Our cash flows are
also  likely  to  decrease  as a result of any  prepayments  of  mortgage  loans
underlying our insured mortgage securities and any prepayments of mortgages held
by the AIM Limited Partnerships. Prepayments of these mortgage loans will result
in reductions in the respective  mortgage bases. As a result, the net cash flows
to us are likely to decrease  over time.  Our net cash flows will also  decrease
due to the failure to close the CDO transaction  prior to January 23, 2004 or if
we refinance  the Bear Stearns Debt with debt which has a higher  interest  rate
and/or  greater  amortization  requirements.  Cash  flows are also  likely to be
affected  if we incur  further  debt to  acquire  additional  CMBS or for  other
corporate purposes.  See "QUANTITATIVE AND QUALITATIVE  DISCLOSURES ABOUT MARKET
RISK." Our high level of debt limits our ability to obtain  additional  capital,
significantly  reduces  income  available  for other  activities,  restricts our
ability to react quickly to changes in our business, limits our ability to hedge
our assets and liabilities, and makes us more vulnerable to economic downturns.

     Our ability to make mortgage related investments and acquisitions  depends,
among other things,  on our ability to engage in such activities under the terms
and conditions of the operative debt  documents,  our internally  generated cash
flows, and our ability to access additional capital.  Factors which could affect
our ability to access additional  capital include,  among other things, the cost
and  availability of such capital,  the  availability  of investment  product at
attractive rates of return, changes in interest rates and interest rate spreads,
changes in the  commercial  mortgage  industry  and the  commercial  real estate
market, the effects of terrorism,  general economic  conditions,  perceptions in
the capital  markets of our  business,  restrictions  under the  operative  debt
documents,  results of our  operations,  and our financial  leverage,  financial
condition,  and business  prospects.  There can be no assurance  that we will be
able to resume any of our prior activities or obtain additional capital, or that
the terms of any such capital will be favorable to us.

     Limited Summary of Chapter 11 Reorganization Plan Including Exit Debt

     Our Chapter 11 reorganization  plan (effective April 2001) provided for the
payment  in full of all of our  allowed  claims  primarily  through  Chapter  11
recapitalization   financing  (including  proceeds  from  certain  asset  sales)
totaling $847 million.  The sales of select CMBS and the sale of our interest in
CMO-IV, a securitization transaction, generated proceeds of approximately $418.3
million toward the  recapitalization  financing,  of which approximately  $342.3
million was used to pay related  borrowings and approximately  $76.0 million was
used to help  fund our  reorganization  plan.  Included  in the  balance  of the
recapitalization  financing  was  approximately  $262.4  million  in  Exit  Debt
provided by affiliates of Merrill Lynch and GACC through the Exit  Variable-Rate
Secured Borrowing,  in the form of a repurchase  transaction,  and approximately
$166.8  million in Exit Debt provided  through two new series of senior  secured
notes issued to some of our unsecured creditors.  As of June 5, 2001, all rights
and obligations of Merrill Lynch and GACC under the Exit  Variable-Rate  Secured
Borrowing operative  agreements were assigned to ORIX Capital Markets,  LLC. All
Exit Debt,  described in further detail below,  was paid off in connection  with
the January 23, 2003 recapitalization.

<PAGE>43

     The   approximate   $262.4  million   (original   principal   amount)  Exit
Variable-Rate Secured Borrowing provided for (i) interest at a rate of one-month
LIBOR  plus  3.25%  payable  monthly,   (ii)  principal   repayment/amortization
obligations,  including,  without  limitation,  a  requirement  to pay  down  an
aggregate  $50 million in  principal  by April 16, 2003 (the failure to pay down
this  amount  would not have  constituted  an event of  default  but would  have
resulted  in the  continuation  or  reinstatement  of certain  restrictions  and
additional  restrictions),  (iii) extension fees of 1.5% of the unpaid principal
balance  payable  at the end of 24,  30, 36 and 42 months  after the  Chapter 11
effective  date and (iv)  maturity on April 16, 2005  assuming we exercised  our
options to extend the maturity date of the debt. The approximate  $166.8 million
fixed-rate  secured financing was effected through the issuance of two series of
secured notes under two separate indentures.  The Series A Senior Secured Notes,
representing an aggregate  original  principal amount of $105 million,  provided
for (i) interest at a rate of 11.75% per annum payable  monthly,  (ii) principal
repayment/amortization  obligations,  including, without limitation, a principal
payment  obligation  of $5 million due April 15, 2003 (the  failure to make this
payment would not have  constituted  an event of default but would have resulted
in a 200 basis  point  increase  in the  interest  rate on the unpaid  principal
amount if certain  miscellaneous  collateral was not sold or otherwise  disposed
of), (iii) extension fees of 1.5% of the unpaid principal balance payable at the
end of 48,  54 and 60  months  after  the  Chapter  11  effective  date and (iv)
maturity on April 15, 2006. The Series B Senior Secured Notes,  representing  an
aggregate original principal amount of approximately $61.8 million, provided for
(i) interest at a rate of 13% per annum payable  semi-annually  with  additional
interest  at the  rate of 7% per  annum  accreting  over  the  debt  term,  (ii)
extension fees of 1.5% of the unpaid principal balance payable at the end of 48,
54 and 60 months after the Chapter 11 effective date (with the payment 60 months
after the Bankruptcy effective date also including an amount based on the unpaid
principal  balance  66 months  after the  Bankruptcy  effective  date) and (iii)
maturity on April 15, 2007. The Exit Debt described  above was secured  directly
or  indirectly  by  substantially  all of our  assets.  There  were  restrictive
covenants,   including   financial   covenants  and  certain   restrictions  and
requirements with respect to cash accounts and the collection,  management,  use
and  application of funds in connection  with the Exit Debt. See Note 7 to Notes
to Consolidated  Financial Statements for additional  information  regarding the
Exit Debt.

     The  terms of the Exit Debt  significantly  restricted  the  amount of cash
dividends that could be paid to shareholders.  One restriction  provided that if
total realized losses and appraisal  reduction amounts on properties  related to
mortgage loans  underlying our  subordinated  CMBS, as determined under the Exit
Debt  operative  documents,  exceeded  certain  loss  thresholds,  then  we were
prohibited  from paying cash  dividends  or making other cash  distributions  or
payments to  shareholders,  except as required to maintain  REIT  status.  As of
December 31, 2001 and December 31, 2002,  total  realized  losses and  appraisal
reduction  amounts had exceeded the loss threshold  amounts under the applicable
Exit Debt operative documents. Exceeding such loss threshold amounts resulted in
restrictions  on the  acquisition  of  CMBS  rated  "B"  or  lower  or  unrated.
Additional  restrictions  included  restrictions on the use of proceeds from our
equity  investments  and specified cash flows from certain assets acquired after
the Chapter 11 effective date.

     Summary of Cash Position and Shareholders' Equity

     As of December 31, 2002,  our  restricted  and  unrestricted  cash and cash
equivalents  aggregated  approximately  $37.2  million,  including cash and cash
equivalents  of  approximately  $12.6 million held by CMSLP.  In addition to our
cash,  we had  additional  liquidity  at December  31, 2002  comprised of a $5.7
million  GNMA  mortgage-backed  security,  $5.2  million  in Other  MBS and $3.3
million  of  investment  grade CMBS  owned by CMSLP,  all of which are  included
elsewhere  in our  balance  sheet.  After  giving  effect  to the  January  2003
recapitalization,  the related  retirement of the Exit Debt, and operations thru
mid March 2003, our total liquidity was approximately $17.8 million at March 21,
2003.

     As of December 31, 2002 and 2001,  shareholders'  equity was  approximately
$291.7 million or $16.32 per diluted share and  approximately  $261.0 million or
$11.54 per diluted share, respectively. After giving effect to the redemption of
the Series E Preferred  Stock and the First Union  settlement  which occurred in
March 2002, our pro forma book value per diluted share would have been $14.18 as
of December 31, 2001.  These  diluted book value per share  amounts are based on
shareholders'  equity  presented in accordance with GAAP. These amounts include,
among other  things,  the net assets  related to our CMBS rated A+ through  BBB,
which we do not  actually  own,  but they are required by GAAP to be included on
our balance sheet (see "Summary of CMBS" below for a further discussion).

<PAGE>44

These CMBS are reflected at fair value and the related match-funded debt at
amortized  cost,  in each case in  accordance  with GAAP.  The  increase  in the
diluted book value per share is primarily attributable to an overall increase in
the total fair value of our CMBS and insured mortgage  securities  primarily due
to a decrease in long-term interest rates and tighter spreads on certain CMBS as
of December 31, 2002 compared to December 31, 2001,  partially offset by the net
loss to common  shareholders of  approximately  $64.2 million for the year ended
December 31, 2002.

     Summary of CMBS

     As of December 31, 2002, we owned,  in accordance with GAAP, CMBS (excludes
Other MBS) with an aggregate  face amount of  approximately  $1.5 billion  rated
from  A+ to  CCC  and  unrated.  Such  CMBS  had  an  aggregate  fair  value  of
approximately  $862  million  (representing   approximately  69%  of  our  total
consolidated  assets) and an  aggregate  amortized  cost of  approximately  $761
million. Such CMBS represent investments in securities issued in connection with
CRIIMI MAE Trust I Series  1996-C1 (or CBO-1),  CRIIMI MAE  Commercial  Mortgage
Trust Series 1998-C1 (or CBO-2) and Nomura Asset Securities  Corporation  Series
1998-D6 (or Nomura). The following is a summary of the ratings of our CMBS as of
December 31, 2002:

<TABLE>
<CAPTION>
         Rating                             Fair Value             % of CMBS
         ------                             ----------             ---------
         <S>                                <C>                    <C>
         A+, BBB+ or BBB (a)                    $326.5                38%
         BB+, BB or BB-                         $338.9                39%
         B+, B, B- or CCC                       $176.6                21%
         Unrated                                 $20.0                 2%

</TABLE>

(a)           Represents investment grade CMBS that we reflect as assets on our
              balance sheet as a result of CBO-2. As indicated in footnote 4 to
              the table below, GAAP requires both these assets (reflected as
              "CMBS pledged to Secure Securitized Mortgage Obligation-CMBS") and
              their related liabilities (reflected as "Collateralized bond
              obligations - CMBS") to be reflected on our balance sheet. All
              cash flows related to the investment grade CMBS are used to
              service the corresponding debt. As a result, we currently receive
              no cash flows from the investment grade CMBS.

     As of December 31, 2002,  the weighted  average  interest rate and the loss
adjusted weighted average life (based on face amount) of the investment grade
securities was 7.0% and 8.6 years,  respectively.  The weighted average interest
rate and the loss adjusted  weighted  average life (based on face amount) of
the BB+ through unrated CMBS securities,  sometimes  referred to as the retained
portfolio, were 5.3% and 10.5 years,  respectively.  The aggregate investment by
the rating of the CMBS is as follows:


<PAGE>45

<TABLE>
<CAPTION>
                                                                     Discount Rate
                                                                       or Range of
                               Weighted                              Discount Rates
                               Average        Loss       Fair Value      Used to
                  Face Amount Pass-Through  Adjusted       as of     Calculate Fair  Amortized Cost   Amortized Cost
                     as of      Rate as     Weighted      12/31/02        Value      as of 12/31/02   as of 12/31/01
                 12/31/02 (in     of       Average Life      (in      as of 12/31/02   (in millions)   (in millions)
Security Rating    millions)    12/31/02        (1)       millions)      (9) (10)           (5)             (6)
----------------------------------------------------------------------------------------------------------------------
<S>              <C>           <C>         <C>           <C>          <C>            <C>              <C>
Investment Grade Portfolio
A+ (4)            $   62.6         7.0%     4 years      $  66.0             5.1%     $   59.4            $   58.7

BBB+ (4)             150.6         7.0%    10 years        150.6             7.0%        132.3               131.1

BBB (4)              115.2         7.0%    10 years        109.9             7.7%         95.3                94.2

Retained Portfolio
BB+                  319.0         7.0%    11 years        259.4       9.8%-10.2%        223.0               219.0

BB                    70.9         7.0%    13 years         54.2            10.8%         46.8                46.0

BB-                   35.5         7.0%    14 years         25.3            11.6%         20.8                20.5

B+                    88.6         7.0%    14 years         50.4            14.9%         46.0                45.2

B                    177.2         7.0%    17 years         94.3      15.4%-15.7%         85.1                83.7

B- (2)               118.3         7.1%    24 years         28.1           16.0%-         28.1                48.1
                                                                       20.0%  (9)

CCC (2)               70.9         0.1%     2 years          3.8             (10)          3.8                13.1

Unrated/Issuer's
Equity (2) (3)       326.1         2.1%     1 year          20.0             (10)         20.0                62.8
                 ----------                             ---------                    ----------          ----------
Total (8)         $1,534.9         5.7%    10 years      $ 862.0 (8)                  $  760.6  (7)       $  822.4
                 ==========                             =========                    ==========          ==========

</TABLE>

(1)   The loss adjusted weighted average life represents the weighted average
      expected life of the CMBS based on our current estimate of future losses.
      As of December 31, 2002, the fair values of the B-, CCC and the
      unrated/issuer's equity in Nomura, CBO-1, and CBO-2 were derived solely
      from interest cash flow anticipated to be received since our current loss
      expectation assumes that the full principal amount of these securities
      will not be recovered. See also "Advance Limitations, Appraisal Reductions
      and Losses on CMBS" below.

(2)   As of December 31, 2002, the subordinated CMBS from CBO-1 and CBO-2 (with
      the exception of the CBO-2 issuer's equity which has no stated coupon
      rate) have stated coupon rates of 8.0% and 7.0%, respectively, while the
      weighted average net coupon rates of the CMBS underlying CBO-1 and CBO-2
      are approximately 8.3% and 6.7%, respectively (prior to the consideration
      of losses, prepayments and extensions on the underlying mortgage loans).
      The subordinated CMBS experience interest shortfalls when the weighted
      average net coupon rate on the underlying CMBS is less than the weighted
      average stated coupon payments on the subordinated CMBS. Such interest
      shortfalls will continue to accumulate until they (i) are repaid through
      excess interest and/or recoveries on the underlying CMBS or (ii) are
      realized as a loss of principal on the subordinated CMBS. Based on our
      overall expected loss estimate as of December 31, 2002, the CBO-2
      subordinated CMBS currently rated B- and CCC and the Nomura unrated CMBS
      are expected to incur approximately $55.4 million, $4.6 million, and $1.9
      million, respectively, of losses directly attributable to accumulated and
      unpaid interest shortfalls over their expected lives. Such anticipated
      losses and shortfalls have been taken into consideration in the
      calculations of fair market values and yields to maturity used to
      recognize interest income as of December 31, 2002.

(3)   The unrated subordinated CMBS from CBO-2 currently does not have a stated
      coupon rate since these securities are only entitled to the residual cash
      flow payments, if any, remaining after paying the securities with a higher
      payment priority. As a result, effective coupon rates on these securities
      are highly sensitive to the effective coupon rates and monthly cash flow
      payments received from the underlying CMBS that represent the collateral
      for CBO-2.

(4)   In connection with CBO-2, $62.6 million (originally A rated, currently A+
      rated) and $60.0 million (originally BBB rated, currently BBB+ rated) face
      amount of investment grade CMBS were sold with call options and $345
      million (originally A rated, currently A+ rated) face amount were sold
      without call options. Also in connection with CBO-2, in May 1998, we
      initially retained $90.6 million (originally BBB rated, currently BBB+
      rated) and $115.2 million (originally BBB- rated, currently BBB rated)
      face amount of CMBS, both with call options, with the intention to sell
      these CMBS at a later date. Such sale occurred March 5, 1999. Since we
      retained call options on certain sold CMBS (the A+, BBB+ and BBB bonds),
      we did not surrender control of these CMBS pursuant to the requirements of
      SFAS No. 125 and thus these CMBS are accounted for as a financing and not
      a sale. Since the transaction is recorded as a partial financing and a
      partial sale, we have retained these CMBS with call options and reflected
      them in our subordinated CMBS on the balance sheet to which we currently
      receive no economic benefit.

<PAGE>46

(5)   Amortized cost reflects impairment charges of approximately $70.2 million
      related to the unrated/issuer's equity bonds, the CCC bond and the B- bond
      in CBO-2, which were recognized during the year ended December 31, 2002.
      These impairment charges are in addition to the cumulative impairment
      charges of approximately $178.1 million that were recognized through
      December 31, 2001. The impairment charges are discussed in "Results of
      Operations."

(6)   Amortized cost reflects approximately $178.1 million of cumulative
      impairment charges related to certain CMBS (all CMBS except those rated A+
      and BBB+), which were recognized through December 31, 2001.

(7)   See "BUSINESS - Certain Risk Factors - Risk of Loss of REIT Status and
      Other Tax Matters" for information regarding the subordinated CMBS for
      tax purposes.

(8)   As of December 31, 2002, the aggregate fair values of the CBO-1, CBO-2 and
      Nomura bonds were approximately $19.3 million, $837.2 million and
      $5.5 million, respectively.

(9)   The discount rate is applied to gross scheduled cash flows as opposed to
      loss adjusted cash flows for purposes of calculating fair values.

(10)  As a result of the significant loss of principal on these CMBS, we have
      used a significantly high discount rate to determine a reasonable fair
      value of these CMBS. The weighted average yield-to-maturity of the CCC and
      unrated/issuer's equity is 5.8% and 8.6%, respectively.

     Determination of Fair Value of CMBS

     Our  determination  of fair values for our CMBS  portfolio  is a subjective
process.  The process  begins with the  compilation  and  evaluation  of pricing
information  (such as nominal  spreads to U.S.  Treasury  securities  or nominal
yields) that, in our view, is commensurate with the market's perception of value
and risk of  comparable  assets.  We use a variety of  sources  to compile  such
pricing information  including:  (i) recent offerings and/or secondary trades of
comparable  CMBS  (i.e.,  securities  comparable  to our CMBS or to the CMBS (or
collateral) underlying our CMBS issued in connection with CBO-1 and CBO-2), (ii)
communications  with dealers and active CMBS investors regarding the pricing and
valuation of comparable  securities,  (iii)  institutionally  available research
reports,   (iv)  analyses   prepared  by  the   nationally   recognized   rating
organizations  responsible  for  the  initial  rating  assessment  and  on-going
surveillance of such CMBS, and (v) other  qualitative and  quantitative  factors
that may impact  the value of the CMBS such as the  market's  perception  of the
issuers of the CMBS and the credit  fundamentals  of the  commercial  properties
securing  each pool of  commercial  mortgage  loans.  We make further fair value
adjustments  to such pricing  information,  which is then used to determine  the
fair value of our CMBS using a discounted  cash flow approach.  Expected  future
gross cash flows are  discounted at market yields for our rated CMBS,  depending
on the rating,  and at a fixed  discount rate for our  unrated/issuer's  equity.
Furthermore,  the fair  value for those  CMBS  incurring  principal  losses  and
interest  shortfalls  (i.e.,  CBO-2  B-and CCC bonds,  and our  unrated/issuer's
equity)   based  on  our  overall   expected  loss  estimate  are  valued  at  a
loss-adjusted  yield to maturity  that,  in our view, is  commensurate  with the
market's perception of value and risk of comparable  securities,  using the same
discounted cash flow approach.  Such  anticipated  principal losses and interest
shortfalls have been taken into  consideration in the calculation of fair market
values and yields to maturity used to recognize  interest  income as of December
31, 2002. In addition,  we considered the impact of our recent  recapitalization
and the value of competing offers in determining our year end fair values. Since
we calculated  the estimated  fair value of our CMBS as of December 31, 2002 and
2001, we have disclosed the range of discount  rates by rating  category used in
determining the fair values as of December 31, 2002 in the table above.

     The  liquidity  of the  subordinated  CMBS  market  has  historically  been
limited.  Additionally,  during adverse market conditions, the liquidity of such
market has been severely limited.  For this reason,  among others,  management's
estimate of the value of our subordinated CMBS could vary significantly from the
value that could be realized in a current  transaction  between a willing  buyer
and a willing seller in other than a forced sale or liquidation.

     Mortgage Loan Pool

     Through CMSLP, we perform servicing  functions on commercial mortgage loans
underlying  our CMBS totaling $17.4 billion and $19.3 billion as of December 31,
2002 and 2001, respectively. The mortgage loans underlying our subordinated CMBS
are  secured  by  properties  of  the  types  and in  the  geographic  locations
identified below:


<PAGE>47

<TABLE>
<CAPTION>
                      12/31/02          12/31/01                                         12/31/02          12/31/01
Property Type      Percentage(i)      Percentage(i)         Geographic Location(ii)   Percentage(i)      Percentage(i)
-------------      -------------      -------------         ----------------------    -------------      -------------
<S>                <C>                <C>
Retail.............      31%                30%             California..................    17%                16%
Multifamily........      28%                29%             Texas.......................    12%                13%
Hotel..............      15%                14%             Florida.....................     8%                 8%
Office.............      13%                13%             Pennsylvania................     5%                 5%
Other (iv).........      13%                14%             Georgia.....................     4%                 5%
                         ---          ---------             Other(iii)..................    54%                53%
    Total..........     100%               100%                                             ---        -----------
                        ====          =========                 Total...................   100%               100%
                                                                                           ====        ===========

</TABLE>

(i)      Based on a percentage of the total unpaid principal balance of the
         underlying loans.
(ii)     No significant concentration by region.
(iii)    No other individual state makes up more than 5% of the total.
(iv)     Our ownership interest in one of the 20 CMBS transactions
         underlying CBO-2 includes subordinated CMBS in which our exposure to
         losses arising from certain healthcare and senior housing mortgage
         loans is limited by other subordinated CMBS (referred to herein as the
         "Subordinated Healthcare/Senior-Housing CMBS"). These other
         subordinated CMBS are not owned by us and are subordinate to our CMBS
         in this transaction. As a result, our investment in such underlying
         CMBS will only be affected if interest shortfalls and/or realized
         losses on such healthcare and senior housing mortgage loans are in
         excess of the other subordinated CMBS not owned by us.

     Specially Serviced Mortgage Loans

     CMSLP performs  special  servicing on the loans underlying our subordinated
CMBS. A special  servicer  typically  provides  asset  management and resolution
services with respect to nonperforming or underperforming loans within a pool of
mortgage loans.  When serving as special servicer of a mortgage loan pool, CMSLP
has the  authority,  subject  to certain  restrictions  in the  applicable  CMBS
pooling and servicing  documents,  to deal directly with any borrower that fails
to perform under certain  terms of its mortgage  loan,  including the failure to
make  payments,  and to manage any loan  workouts and  foreclosures.  As special
servicer,  CMSLP earns fee income on services  provided in  connection  with any
loan servicing function  transferred to it from the master servicer.  We believe
that  because  we own over a  majority  of (and in almost all cases 100% of) the
first loss unrated or lowest rated bond of all but two of the CMBS  transactions
underlying our  subordinated  CMBS,  CMSLP has an incentive to  efficiently  and
effectively  resolve  any loan  workouts.  As of  December  31,  2002 and  2001,
specially  serviced  mortgage loans  included in the  commercial  mortgage loans
described above are as follows:

<TABLE>
<CAPTION>
                                                          12/31/02                    12/31/01
                                                          --------                    --------
<S>                                                       <C>                         <C>
Specially serviced loans due to monetary default (a)   $736.1 million            $701.7 million

Specially serviced loans due to covenant default/other   74.7 million              90.0 million
                                                       --------------           ----------------
Total specially serviced loans (b)                     $810.8 million            $791.7 million
                                                       ==============           ================
Percentage of total mortgage loans (b)                    4.7%                      4.1%
                                                       ==============           ================

</TABLE>

(a)           Includes $130.5 million and $94.5 million, respectively, of real
              estate owned by underlying trusts. See also the table below
              regarding property type concentrations for further information on
              real estate owned by underlying trusts.
(b)           As of February 28, 2003, total specially serviced loans were
              approximately $1.1 billion, or 6.3% of the total mortgage loans.
              See discussion below for additional information regarding
              specially serviced loans.

     The specially  serviced mortgage loans as of December 31, 2002 were secured
by properties of the types and located in the states identified below:


<PAGE>48
<TABLE>
<CAPTION>
Property Type      $ (in millions)    Percentage            Geographic Location     $ (in millions)    Percentage
-------------      ---------------    ----------            -------------------     ---------------    ----------
<S>                <C>                <C>                   <C>                     <C>                <C>
Hotel............   $  494.7  (1)         61%               Florida...............     $ 134.3             17%
Retail...........      200.8  (2)         25%               Oregon................        91.8             11%
Multifamily......       42.6               5%               Texas.................        86.6             11%
Healthcare.......       26.7               3%               California............        46.1              6%
Office...........       22.6               3%               Georgia ..............        42.1              5%
Industrial.......       13.7               2%               North Carolina........        28.9              3%
Other............        9.7               1%               Other.................       381.0             47%
                    ------------       ----------                                      --------         ---------
  Total..........   $  810.8             100%                 Total...............     $ 810.8            100%
                    ============       ==========                                      ========         =========

</TABLE>

(1)    Approximately $80.4 million of these loans in special servicing are real
       estate owned by underlying trusts.
(2)    Approximately $32.7 million of these loans in special servicing are real
       estate owned by underlying trusts.

     As reflected above, as of December 31, 2002,  approximately $494.7 million,
or 61%, of the  specially  serviced  mortgage  loans are secured by mortgages on
hotel properties. The hotel properties that secure the mortgage loans underlying
our subordinated CMBS are geographically  diverse,  with a mix of hotel property
types and franchise  affiliations.  The  following  table  summarizes  the hotel
mortgage loans underlying our subordinated CMBS as of December 31, 2002:

<TABLE>
<CAPTION>
                                     Total Outstanding      Percentage of          Amount in
                                     Principal Balance    Total Hotel Loans     Special Servicing
                                     -----------------    -----------------     -----------------
<S>                                  <C>                  <C>                   <C>
Full service hotels (2)               $ 1.4 billion              54%            $ 206.6 million
Limited service hotels (1)              1.2 billion              46%              288.1 million
                                      --------------            ----            ----------------
    Totals                            $ 2.6 billion             100%            $ 494.7 million
                                      =============             ====            ================

</TABLE>

(1)   Limited service hotels are generally hotels with room-only operations or
      hotels that offer a bedroom and bathroom, but limited other amenities, and
      are often in the budget or economy group.
(2)   Full service hotels are generally mid-price, upscale or luxury hotels with
      restaurant and lounge facilities and other amenities.

     Of the $494.7  million of hotel loans in special  servicing  as of December
31,  2002,  approximately  $295.2  million,  or 60%,  relate  to four  borrowing
relationships more fully described as follows:

o    Sixteen loans and eight real estate owned properties with scheduled
     principal balances totaling approximately $92.2 million spread across four
     CMBS transactions secured by hotel properties throughout the U.S.  As of
     December 31, 2002, our total exposure, including advances, on these loans
     is approximately $96.4 million.   In one of these CMBS transactions, which
     contains 10 loans with scheduled principal balances totaling $39.0 million,
     we hold only a 25% ownership interest in the non-rated class.  In the other
     three CMBS transactions, we hold a 100% ownership interest in the non-rated
     class.  Twenty-five loans were transferred into special servicing in
     December 2001 due to the bankruptcy filing of each special purpose
     borrowing entity and their parent company.  Since the bankruptcy filing, as
     part of a consensual plan, eight properties with scheduled principal
     balances totaling $26.3 million have become real estate owned by underlying
     trusts, one loan with a scheduled principal balance totaling $5.3 million
     has been paid in full and the remaining sixteen loans with scheduled
     principal balances totaling $65.9 million were granted maturity date
     extensions and have been returned to performing status, and are in the
     process of being transferred out of special servicing.

o    Twenty-seven loans with scheduled principal balances totaling approximately
     $138.1 million spread across three CMBS transactions secured by hotel
     properties in the west and Pacific northwest states.  As of December 31,
     2002, our total exposure, including advances, on these loans is
     approximately $160.4 million.  The borrower had filed for bankruptcy
     protection in October 2001.  The borrower has indicated that the properties
     have experienced reduced operating performance due to new competition, the
     economic recession, and reduced travel resulting from the September 11,
     2001 terrorist attacks.  We have entered into a consensual settlement
     agreement dated February 25, 2003 pursuant to which the loan terms will be
     amended and modified.  The parties are currently proceeding toward closing
     a comprehensive loan modification that should return the loans to
     performing status.

<PAGE>49

o    Five loans with scheduled principal balances totaling approximately $45.7
     million secured by hotel properties in Florida and Texas. As of December
     31, 2002, our total exposure, including advances, on these loans is
     approximately $50.7 million. The loans are past due for the July 2002 and
     all subsequent payments. The balance and paid-through date do not reflect
     the recent application in 2003 of approximately $3.5 million of insurance
     proceeds and of sporadic payments received from the borrower throughout the
     year. The borrower and lender have entered into negotiations concerning a
     consensual modification of the loan terms.

o    Nine loans with scheduled principal balances totaling approximately
     $19.2 million secured by limited service hotels in midwestern states.
     As of December 31, 2002, our total exposure, including advances, on
     these loans is approximately $20.9 million. The loans are past due for
     the April 2002 and all subsequent payments. The borrower cites reduced
     occupancy related to the recent downturn in travel as the cause for a
     drop in operating performance at the properties. CMSLP was attempting
     to negotiate a workout with the borrower, but the borrower filed for
     bankruptcy protection in February 2003.

     In addition to the borrowing  relationships  described above, subsequent to
December 31, 2002 there were the following two  additional  transfers to special
servicing  of large hotel  loans,  one for an imminent  payment  default and the
other for a non-monetary default. These defaults were considered in our December
31, 2002 loss assessment.

o    One loan with a scheduled principal balance totaling approximately
     $81.1 million secured by 13 extended stay hotels located throughout the
     country. This loan was transferred to special servicing in January
     2003 due to the borrower's request for forbearance and the resulting
     possibility of an imminent payment default. In its request, the
     borrower cited continuing reduced operating performance at its hotel
     properties, which it did not expect to improve in the foreseeable
     future. CMSLP entered into a short-term forbearance agreement with the
     borrower, and a consensual term sheet to restructure and modify the
     loan terms. We recently closed a loan modification agreement with the
     borrower that is expected to return the loan to performing status in
     the future.

o    One loan with a scheduled principal balance totaling
     approximately $131.1 million, secured by 93 limited service hotels
     located in 29 states. The loan was transferred to special servicing
     in January 2003. The loan is current for payments, but was
     transferred to special servicing due to the unauthorized leasing of
     some of the collateral properties by the borrower, and unapproved
     franchise changes by the borrower, among other reasons. We have entered
     into a Confidentiality and Pre-Negotiation Agreement in an attempt to
     reach a consensual resolution of this matter.

     For each of the borrowing  relationships described in the paragraphs above,
we believe  that we have  adequate  reserves for losses that we may incur in the
future.  There can be no assurance  that the losses  incurred in the future will
not exceed our current reserves (see discussion below regarding increase in loss
estimates).

     The  following  table  provides a summary  of the change in the  balance of
specially serviced loans from December 31, 2001 to December 31, 2002:

                                                                    (in
                                                                 millions)
                                                                -------------

     Specially Serviced Loans, December 31, 2001                   $ 791.7
          Transfers in due to monetary default                       372.8
          Transfers in due to covenant default and other              23.6
          Transfers out of special servicing                        (353.9)
          Loan amortization  (1)                                     (23.4)
                                                                -------------
     Specially Serviced Loans, December 31, 2002                   $ 810.8 (2)
                                                                =============


(1) Represents the reduction of the scheduled principal balances due to advances
made by the master servicers.
(2) Specially serviced loans total approximately $1.1 billion as of
February 28, 2003.

<PAGE>50
     For all loans in special servicing, CMSLP is pursuing remedies available to
it in order to maximize the recovery of the outstanding  debt. See Exhibit 99(o)
to this  Annual  Report on Form 10-K for a  detailed  listing  of all  specially
serviced loans underlying our subordinated CMBS as of December 31, 2002.

     Advance Limitations, Appraisal Reductions and Losses on CMBS

     We  experience  shortfalls  in expected  cash flow on our CMBS prior to the
recognition of a realized loss primarily due to servicing advance limitations to
the most subordinate  securities (only in certain  underlying CMBS transactions)
or appraisal  reductions.  The servicing advance  limitations  permit the master
servicer  (in  those  certain  underlying  CMBS  transactions)  to make only one
principal  and  interest  advance  with regard to a  delinquent  mortgage  loan.
Thereafter,  no future monthly  principal and interest  advances will be made by
the master servicer until the amount of the most subordinate CMBS current coupon
is eliminated.  This  restriction  is enforced until an appraisal  reduction has
been  determined  or the  loan  payments  are  brought  current.  The  appraisal
reduction  generally  requires the master  servicer to stop  advancing  interest
payments on the amount by which the sum of unpaid principal balance of the loan,
advances and other expenses exceeds 90% (in most cases) of the appraisal amount,
thus  reducing  our cash flows as the holder of the first loss unrated or lowest
rated bonds,  as if such  appraisal  reduction was a realized loss. For example,
assuming a weighted average coupon of 6%, a $1 million appraisal reduction would
reduce our net cash flows by $60,000 on an annual basis. An appraisal  reduction
may result in a higher or lower realized loss based on the ultimate  disposition
or work-out of the mortgage loan. Appraisal reductions for the CMBS transactions
in which we retain an ownership interest as reported by the underlying  trustees
or as calculated by CMSLP* were as follows:

<TABLE>
<CAPTION>
(in thousands)                                              CBO-1        CBO-2       Nomura        Total
--------------                                              -----        -----       ------        -----
<S>                                                         <C>          <C>         <C>           <C>
Year 2000                                                   $1,872    $18,871       $    --      $ 20,743
Year 2001                                                   15,599     31,962           874        48,435
Year 2002                                                    9,088     48,953        13,530        71,571
                                                           --------   --------      --------     ---------
Cumulative Appraisal Reductions through December 31, 2002  $26,559    $99,786       $14,404     $ 140,749
                                                           ========   ========      ========    ==========

</TABLE>

     * Not all  underlying  CMBS  transactions  require  the  calculation  of an
appraisal reduction;  however,  when CMSLP obtains a third-party  appraisal,  it
calculates one.

     As previously  discussed,  certain  bonds from the CBO-1,  CBO-2 and Nomura
transactions  are  expected  to  experience  principal  write-downs  over  their
expected lives. The following tables summarize the actual realized losses on our
CMBS through December 31, 2002 (including realized mortgage loan losses expected
to pass  through to our CMBS  during the next  month)  and the  expected  future
losses through the life of the CMBS:

<TABLE>
<CAPTION>
(in thousands)                                                 CBO 1         CBO 2        Nomura        Total
--------------                                                 -----         -----        ------        -----
<S>                                                            <C>           <C>          <C>           <C>
Year 1999 actual realized losses                               $  738        $   --       $   --       $   738
Year 2000 actual realized losses                                3,201         1,087           --         4,288
Year 2001 actual realized losses                                  545         8,397          238         9,180
Year 2002 actual realized losses                               11,554        25,113          563        37,230
                                                              -------       --------     --------      --------
Cumulative actual realized losses through December 31, 2002  $ 16,038       $34,597        $ 801       $51,436
                                                             ========       ========     ========      ========

Cumulative actual realized losses through December 31, 2002  $ 16,038       $34,597        $ 801       $51,436
Expected loss estimates for the year 2003                      54,410       136,771        6,438       197,619
Expected loss estimates for the years 2004                     17,771        89,783       20,016       127,570
Expected loss estimates for the years 2005                     11,887        37,545        4,452        53,884
Expected loss estimates for the years 2006-2008                 5,268        32,684       10,257        48,209
Expected loss estimates for the years 2009-2011                 3,543         5,904        3,206        12,653
Expected loss estimates for the remaining life of CMBS          2,865         7,557        1,364        11,786
                                                             --------      --------      ---------   ----------
Cumulative expected loss estimates (including cumulative
   actual realized losses) through life of CMBS              $111,782      $344,841      $46,534     $ 503,157
                                                             ========      ========      =========   ==========

</TABLE>

     We revised our overall  expected loss estimate  related to our subordinated
CMBS from $335  million as of December  31, 2001 to $351  million as of June 30,
2002 to $448 million as of September 30, 2002 to $503 million as of December 31,
2002, with such total losses  occurring or expected to occur through the life of
the  subordinated  CMBS.  These revisions to the overall  expected loss estimate
were  primarily  the result of increased  mortgage  loan  defaults and increased
projected  losses (and  assuming the related  timing of losses will occur sooner
than previously  estimated) due to lower than  anticipated  appraisals and lower
internal  estimates  of values on real  estate  owned by

<PAGE>51

underlying  trusts and properties  underlying  certain  defaulted  mortgage
loans,  which,  when  combined with the updated loss  severity  experience,  has
resulted in higher  projected loss  severities on loans and real estate owned by
underlying trusts currently or anticipated to be in special  servicing.  Primary
reasons for lower  appraisals and lower  estimates of value  resulting in higher
projected  loss  severities on mortgage  loans include the poor  performance  of
certain  properties  and  related  markets,  failed  workout  negotiations,  and
extended  time needed to liquidate  assets due, in large part,  to the continued
softness in the economy,  the  continued  downturn in travel and, in some cases,
over-supply of hotel properties, and a shift in retail activity in some markets,
including the closing of stores by certain national and regional  retailers.  In
addition,  as  previously  discussed,  two  significant  hotel  loan  portfolios
transferred  into  special  servicing  in January  2003.  The  unpaid  principal
balances  of these two hotel  loan  portfolios  aggregate  approximately  $212.2
million.  Our overall expected loss estimate of $503 million through the life of
our  subordinated  CMBS includes our estimate of total principal  write-downs to
our  subordinated  CMBS due to realized  losses  related to underlying  mortgage
loans,  and is  included in the  calculation  of the  current  weighted  average
anticipated  yield to maturity,  as discussed  below.  There can be no assurance
that our revised  overall  expected  loss  estimate of $503  million will not be
exceeded as a result of additional or existing adverse events or  circumstances.
Such events or circumstances include, but are not limited to, the receipt of new
or updated  appraisals  at lower than  anticipated  amounts,  legal  proceedings
(including bankruptcy filings) involving borrowers,  a continued weak economy or
recession,  an act of war,  a delay in the  disposition  of  specially  serviced
mortgage  loans,  additional  defaults,  or an unforeseen  reduction in expected
recoveries,  any of which could result in additional future credit losses and/or
further  impairment  to our  subordinated  CMBS,  the  effect of which  could be
materially adverse to us.

     At  September  30,  2001,  we revised our overall  expected  loss  estimate
related to our  subordinated  CMBS from $298  million to $307 million and, as of
December 31, 2001,  we further  revised our overall  expected loss estimate from
$307 million to $335  million,  with such total losses  occurring or expected to
occur over the life of the  subordinated  CMBS.  The revisions to loss estimates
during 2001 were primarily the result of the continued  slowing U.S. economy and
recession,  exacerbated  by the  terrorist  attacks on  September  11,  2001 and
threats of subsequent  terrorism.  As  previously  discussed,  principally  as a
result of these adverse  factors,  the  underlying  mortgage loans had a greater
than   previously   anticipated   number  of  monetary   defaults  during  2001.
Additionally, appraisal amounts on properties underlying certain defaulted loans
were  significantly  lower than previously  anticipated,  thereby increasing the
estimated principal loss on the commercial loans.

     See  "Impairment  on  CMBS"  for a  discussion  of the  impairment  charges
recognized during 2002, 2001 and 2000.

Yield to Maturity

     The following table summarizes  yield-to-maturity  information  relating to
our CMBS on an aggregate pool basis:

<TABLE>
<CAPTION>
                                                                                        Current
                                          Anticipated         Anticipated            Anticipated
                                           Yield-to-           Yield-to-              Yield-to-
                                           Maturity            Maturity               Maturity
         Pool                            as of 1/1/01 (1)   as of 1/1/02 (1)       as of 1/1/03 (1)
         ----                            ----------------   ----------------       ----------------
         <S>                             <C>                <C>                    <C>
        CBO-2 CMBS                           11.8% (2)         12.1% (2)              11.6% (2)

        CBO-1 CMBS                           21.0% (2)         14.3% (2)              11.6% (2)

        Nomura CMBS                          25.3% (2)         28.7% (2)               8.0% (2)
                                            ----------       ------------           --------------

        Weighted Average (3)                 12.4% (2)         12.4% (2)              11.6% (2)

</TABLE>

(1)  Represents the anticipated weighted average yield over the expected average
     life of the CMBS as of January 1, 2001, January 1, 2002, and January 1,
     2003 based on our estimate of the timing and amount of future credit
     losses.

(2)  As previously discussed, as of December 31, 2000, September 31, 2001,
     December 31, 2001, June 30, 2002, September 30, 2002 and December 31, 2002,
     we revised our overall expected loss estimate related to our subordinated
     CMBS to $298 million, $307 million, $335 million, $351 million, $448
     million and $503 million, respectively, which resulted in impairment
     recognition to certain subordinated CMBS. As a result of recognizing
     impairment, we revised the anticipated yields as of January 1, 2001,
     October 1, 2001, January 1, 2002, July 1, 2002, October 1, 2002 and
     January 1, 2003, which were or are, in the case of revised anticipated
     yields as of January 1, 2003, used to recognize

<PAGE>52

     interest income beginning on each of those dates. These anticipated revised
     yields took into account the lower cost basis due to the impairment
     recognized on the subordinated CMBS as of dates the losses were revised,
     and contemplated larger than previously anticipated losses that were
     generally expected to occur sooner than previously anticipated. The
     weighted average yield-to-maturity was 12.5% and 12.0% as of July 1, 2002
     and October 1, 2002, respectively.

(3)  GAAP requires that the income on subordinated CMBS be recorded based on the
     effective interest method using the anticipated yield over the expected
     life of these mortgage assets. This method can result in accounting income
     recognition which is greater than or less than cash received. For the years
     ended December 31, 2002, 2001 and 2000, the amount of income recognized in
     excess of cash received on all of the subordinated CMBS due to the
     effective interest rate method was approximately $11.4 million, $10.2
     million and $15.2 million, respectively.

     Sensitivity of Fair Value to Changes in the Discount Rate

     The  required  rate of  return  used to  determine  the  fair  value of our
subordinated  CMBS is comprised of many  variables,  such as a risk-free rate, a
liquidity  premium and a credit risk  premium.  These  variables are combined to
determine  a total rate that,  when used to  discount  the  subordinated  CMBS's
assumed stream of future cash flows, results in a net present value of such cash
flows.  The  determination  of such rate is dependent on many  quantitative  and
qualitative factors, such as, but not limited to, the market's perception of the
issuers of the subordinated  CMBS and the credit  fundamentals of the commercial
properties underlying each pool of commercial mortgage loans. If we assumed that
the  discount  rate used to  determine  the fair  value of our CMBS (A+  through
unrated bonds) increased by 100 basis points,  the increase in the discount rate
would have  resulted  in a  corresponding  decrease in the value of our CMBS (A+
through unrated bonds) by  approximately  $50.0 million (or 5.8%) as of December
31, 2002.  The 100 basis point increase in the discount rate would have resulted
in a corresponding  decrease in the value of our subordinated  CMBS (BB+ through
unrated bonds) by approximately $31.8 million (or 6.0%) as of December 31, 2002.

     This sensitivity is hypothetical  and should be used with caution.  Changes
in  fair  value  based  on  variations  in  assumptions   generally   cannot  be
extrapolated  because the relationship of the change in assumption to the change
in fair value may not be linear. Also, the effect of a variation in a particular
assumption  on the fair value of the  subordinated  CMBS is  calculated  without
changing any other assumption;  in reality,  changes in one factor may result in
changes in another (for example,  increases in market  interest rates may result
in lower  prepayments  and  increased  credit  losses),  which might  magnify or
counteract the sensitivities.

     Summary of Other Assets

     Portfolio Investment

     As of December 31, 2002 and 2001, our other assets  consisted  primarily of
insured  mortgage   securities,   equity  investments,   other   mortgage-backed
securities,  cash and cash equivalents (as previously discussed),  principal and
interest receivables and real estate owned.

     We had $275.3  million  and $343.1  million  (at fair  value)  invested  in
insured mortgage securities as of December 31, 2002 and 2001, respectively.  The
reduction in fair value is primarily  attributable  to the prepayment of insured
mortgages which had fair values of $71.9 million at December 31, 2001, partially
offset by the effect of lower  interest rates on the market value of the insured
mortgage  securities.  As of December 31, 2002, 88% of our investment in insured
mortgage securities were GNMA  mortgage-backed  securities and approximately 12%
were FHA-insured certificates.

     As of December  31, 2002 and 2001,  we had  approximately  $6.2 million and
$9.3 million, respectively, in investments accounted for under the equity method
of accounting.  Included in equity  investments are (a) the general  partnership
interests  (2.9% to 4.9% ownership  interests) in the AIM Limited  Partnerships,
and (b) a 20%  limited  partnership  interest  in the advisor to the AIM Limited
Partnerships.  The  decrease in these  investments  is  primarily  the result of
partner  distributions  declared by the AIM Limited Partnerships during 2002 due
to  loan  pay-offs  and  normal  cash  flow   distributions  and  impairment  of
approximately  $460,000 that we  recognized on our  investment in the advisor to
the  AIM  Limited   Partnerships   during  2002  (see  discussion  in  "Mortgage
Servicing/Equity in (Losses) Income from  Investments").  The carrying values of
our equity  investments are expected to continue to decline over time as the AIM
Limited  Partnerships'  asset bases  decrease and proceeds  are  distributed  to
partners.

<PAGE>53

     Our Other MBS include primarily  investment grade CMBS and investment grade
residential  mortgage-backed  securities.  As of December 31, 2002 and 2001, the
fair values of our other MBS were  approximately  $5.2 million and $8.5 million,
respectively.

     In October  2001,  one of our wholly owned  subsidiaries  acquired  certain
partnership  interests in a partnership that was the obligor on a mezzanine loan
payable  to us in  exchange  for  curing a default  on the first  mortgage  loan
through a cash payment of approximately  $276,000.  This partnership and another
of our wholly owned  subsidiaries  own 100% of the partnership  interests in the
partnership  which is the obligor on the first mortgage loan. The first mortgage
loan is secured by a shopping  center in Orlando,  Florida.  As a result of this
acquisition,  we own 100% of the partnership interests and are consolidating the
partnership's  financial  results as of October  1, 2001.  We account  for these
assets as real estate owned,  and the real estate is being held for  investment.
The mezzanine  loan payable is eliminated in  consolidation.  As of December 31,
2002 and 2001,  we had $8.8  million  and $8.6  million,  respectively,  in real
estate owned assets  included in other  assets ($8.4  million and $8.3  million,
respectively,  relating to the actual  building and land).  In addition,  we had
$7.2 million and $7.1 million of mortgage  payable (net of discount)  related to
the real  estate as of  December  31,  2002 and 2001,  respectively.  We hope to
reposition and stabilize this asset to increase its value, although there can be
no assurance we will be able to do so.

     As discussed previously, $9.8 million of our goodwill and intangible assets
related to the 1995 Merger were written-off on January 1, 2002 upon the adoption
of SFAS No. 142.

     Mortgage Servicing

     As of December  31,  2002,  CMSLP's  other  assets  consisted  primarily of
investments in liquid, investment grade CMBS, advances receivable, fixed assets,
investments in interest-only strips and investments in subadvisory contracts. As
of December  31, 2001,  CMSLP's  other  assets  consisted  primarily of advances
receivable,  investments in mortgage servicing rights, fixed assets, investments
in interest-only strips and investments in subadvisory contracts.  The servicing
other assets have decreased by approximately  $4.5 million from $18.3 million at
December  31,  2001 to $13.8  million at  December  31,  2002.  The  decrease is
primarily the result of:

o   a $4.1 million decrease in investments in mortgage servicing rights
    and a $1.9 million decrease in advances receivable following the sale
    of the CMBS servicing rights; and
o   a $872,000 decrease in AIM Limited Partnerships' subadvisory contracts
    due to the decreasing mortgage base being serviced for the AIM Limited
    Partnerships by CMSLP and the impairment that was recognized on
    CMSLP's investment in the subadvisory contracts (see discussion in
    "Mortgage Servicing/Equity in (Losses) Income from Investments");
    partially offset by
o   the purchase of liquid, investment grade CMBS during 2002, which have a
    fair value of approximately $3.3 million as of December 31, 2002.

     Summary of Liabilities

     Portfolio Investment

     As of December 31, 2002 and 2001, our  liabilities  consisted  primarily of
debt,  accrued interest and accrued  payables.  Total recourse debt decreased by
approximately  $31.5  million to $376.0  million as of  December  31,  2002 from
$407.6  million as of December  31, 2001 due to  principal  repayments  of $36.2
million during 2002,  partially offset by interest  accretion of $4.6 million on
the  Series B  Senior  Secured  Notes.  Total  non-recourse  debt  decreased  by
approximately  $70.7  million to $546.0  million as of  December  31,  2002 from
$616.7 million as of December 31, 2001. This decrease is primarily  attributable
to  significant   prepayments  of  mortgages  underlying  the  insured  mortgage
securities  during  2002,  which  resulted in a  corresponding  reduction in the
principal  balances of the securitized  mortgage  obligations.  Our payables and
accrued liabilities  increased by approximately  $729,000 to $26.7 million as of
December  31, 2002 from $25.9  million as of December  31, 2001  primarily  as a
result of a $4.3 million  increase in accrued interest and extension fees on the
Exit Debt and a $3.2 million  increase in dividends  payable due to the deferral
of the  second,  third  and  fourth  quarter  2002  preferred  stock  dividends,
partially offset by a $6.8 million decrease in payables following the settlement
of the litigation with First Union National Bank in March 2002.

<PAGE>54

     Mortgage Servicing

     As of December 31, 2002 and 2001, CMSLP's  liabilities  consisted primarily
of accounts  payable and accrued  expenses.  The  liabilities as of December 31,
2001 also included a payable for a line of credit that was used by CMSLP to fund
property  protection  advances as a master servicer.  The servicing  liabilities
decreased by approximately $2.9 million to $757,000 as of December 31, 2002 from
$3.7 million as of December 31,  2001.  The decrease is primarily  the result of
the  repayment  of the $1.7  million  line of  credit  for  property  protection
advances  following the sale of servicing rights in February 2002. The remaining
decrease is the result of reduced  normal  operations  following the sale of the
servicing rights and the resulting reduction in staff.

Subsequent Events

     As   previously   discussed   in   "Limited   Summary   of   January   2003
Recapitalization,"  BREF  acquired  1,212,617  shares of our newly issued common
stock, or approximately  8% of our outstanding  common stock after giving effect
to the share acquisition,  at $11.50 per share, or approximately  $13.9 million.
BREF also  received  seven year  warrants to  purchase up to 336,835  additional
shares of common  stock at $11.50 per share.  The fair value of the warrants was
calculated as approximately  $2.6 million.  The assumptions we used to value the
warrants are consistent  with the  assumptions  used to value our stock options.
The warrants will be accounted for as a component of equity. BREF also purchased
$30  million of the BREF Debt and, at our  option,  BREF will  purchase up to an
additional  $10 million of  subordinated  debt prior to January 23,  2004.  Bear
Stearns provided $300 million in secured financing  in the form of a repurchase
transaction.

     On the date of our recent  January  2003  recapitalization,  we effected an
affiliate reorganization  principally to indirectly secure the Bear Stearns Debt
with the  equity  interests  in CBO-1 and  CBO-2.  As a result of the  affiliate
reorganization,   our  REIT  subsidiary  (CBO  REIT  II),  owns  all  securities
previously pledged to secure the Exit Debt and indirectly owns all of the equity
interests in CBO-1 and CBO-2  (through its ownership of the two  qualified  REIT
subsidiaries which hold the equity interests in CBO-1 and CBO-2).

     In connection  with the  recapitalization,  we expect to recognize  certain
amounts in our  Consolidated  Statement  of Income  during the first  quarter of
2003. These amounts include the following:

o    On January 23, 2003 and in connection with the closing of the
     recapitalization, amounts were deposited with the indenture trustee to
     pay all principal and interest on our outstanding Series A and Series
     B Senior Secured Notes on the March 10, 2003 redemption date. This
     redemption required 45 days prior notice. These notes were not
     considered repaid for GAAP purposes until the March 10, 2003
     redemption date. The 45 day notice period resulted in additional
     interest expense during the period January 23, 2003 through March 10,
     2003 since the Bear Stearns and BREF Debt were outstanding and the
     senior secured notes were also outstanding. This additional interest
     expense related to the 45 day notice period, which will be recognized
     during the first quarter of 2003, totaled approximately $3.1 million.
o    Approximately $7.4 million will be recognized as a gain on
     extinguishment of debt, primarily due to the reversal of accrued
     extension fees on the Exit Debt.
o    Approximately $2.6 million of expenses will be recognized related to
     severance and related payments, and accelerated vesting of stock
     options for our former Chairman, William B. Dockser, and former President,
     H. William Willoughby, whose employment contracts were terminated on
     January 23, 2003.

     In addition to the income  statement  items  described  above,  transaction
costs  currently  estimated  to be  approximately  $6.2  million  related to the
recapitalization  will be included on the Consolidated Balance Sheet as of March
31,  2003.  Such costs will be  allocated  between  debt and  equity.  The costs
allocated to debt will be amortized using the effective interest method over the
lives of the related  debt.  The costs  allocated to equity will be reflected in
equity net of the proceeds from the issuance of the common stock.


<PAGE>55


Dividends/Other

     No cash dividends were paid to common  shareholders in 2002 or 2001. Unlike
the Exit Debt, which significantly  restricted the amount of cash dividends that
could  be paid,  the BREF and Bear  Stearns  Debt  permit  the  payment  of cash
dividends after the payment of required principal and interest on that debt.

     Other factors which could impact  dividends,  if any, include (i) the level
of  income  earned on  uninsured  mortgage  assets,  such as  subordinated  CMBS
(including,  but not limited to, the amount of original issue  discount  income,
interest shortfalls and losses on subordinated CMBS), (ii) net operating losses,
(iii) the fluctuating  yields on short-term,  variable-rate debt and the rate at
which our  LIBOR-based  debt is priced,  as well as the rate we pay on our other
borrowings  and  fluctuations  in  long-term  interest  rates,  (iv)  changes in
operating expenses, including hedging costs, (v) margin calls, (vi) the level of
income  earned  on  our  insured  mortgage  securities  depending  primarily  on
prepayments  and  defaults,  (vii) the rate at which cash  flows  from  mortgage
assets, mortgage dispositions, and, to the extent applicable, distributions from
our  subsidiaries  can be  reinvested,  (viii) cash  dividends paid on preferred
shares,  (ix) to the extent  applicable,  whether  our  taxable  mortgage  pools
continue to be exempt from corporate level taxes, (x) realized losses on certain
transactions,  and (xi) the timing and amounts of cash flows attributable to our
other lines of business - mortgage servicing and other fee income.

Taxable Mortgage Pool Risks

     See  "Business  -  Risk  Factors  -  Taxable  Mortgage  Pool  Risks"  for a
discussion of taxable mortgage pool risks.

Investment Company Act

     For a discussion of the Investment  Company Act and the risk to the Company
if it were required to register as an  Investment  Company,  see  "BUSINESS-Risk
Factors-Investment Company Act".

Critical Accounting Policies

     The  preparation of financial  statements in conformity  with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities,  the disclosure of contingent  assets and liabilities at
the date of the financial  statements,  and the reported amounts of revenues and
expenses during the reporting periods. We continually  evaluate the estimates we
use to prepare the consolidated financial statements, and update those estimates
as  necessary.  In  general,  management's  estimates  are  based on  historical
experience,  on information  from third party  professionals,  and other various
assumptions   that  are   believed  to  be   reasonable   under  the  facts  and
circumstances. Actual results could differ materially from those estimates.

     Our  significant  accounting  policies are  described in Note 3 to Notes to
Consolidated  Financial  Statements.  We believe  our most  critical  accounting
estimates (a critical accounting policy being one that is both very important to
the portrayal of our financial  condition and results of operations and requires
management's  most  difficult,  subjective  or complex  judgments)  include  the
determination  of fair  value  of our  subordinated  CMBS  and  interest  income
recognition related to our subordinated CMBS.

o    Fair Value of subordinated CMBS - Due to the limited liquidity of
     the subordinated CMBS market and the resulting lack of a secondary
     market, we estimate the values of our subordinated CMBS internally.
     These estimates require significant judgment regarding assumptions
     for defaults on the underlying commercial mortgage loan collateral,
     timing of loss realization and resultant loss severity and discount
     rates. Note 5 to Notes to Consolidated Financial Statements
     contains a detailed discussion of the methodology used to determine
     the fair value of our subordinated CMBS as well as a sensitivity
     analysis related to the fair value of these subordinated CMBS due
     to changes in assumptions related to losses on the underlying
     commercial mortgage loan collateral and discount rates.
o    Interest Income recognition related to subordinated CMBS - Interest
     income recognition under EITF No. 99-20 requires us to make estimates
     regarding expected prepayment speeds as well as expected

<PAGE>56

     losses on the underlying commercial mortgage loan collateral (which
     directly impact the cash flows on our subordinated CMBS in the form of
     interest shortfalls and loss of principal) and the impact these factors
     would have on future cash flow. Note 5 to Notes to Consolidated Financial
     Statements details the expected realized losses by year that we expect
     to incur related to our subordinated CMBS.  The cash flows we project to
     arrive at the effective interest rate to recognize interest income are
     adjusted for these expected losses.  The judgment regarding future
     expected credit losses is subjective as credit performance is particular
     to an individual deal's specific underlying commercial mortgage loan
     collateral.  In general, if we increase our expected losses or determine
     such losses will occur sooner than previously projected and the CMBS's
     fair value is below cost, then the CMBS will be considered impaired and
     adjusted to fair value with the impairment charge recorded through
     earnings.

Recent Accounting Pronouncements

     In  August  2001,  the  FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived  Assets." SFAS No. 144 supersedes  SFAS No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to Be  Disposed  Of," and the  accounting  and  reporting  provisions  of
Accounting   Principles   Board   Opinion   No.   30,   "Reporting   Results  of
Operations-Reporting  the Effects of  Disposal  of a Segment of a Business,  and
Extraordinary, Unusual and Infrequent Occurring Events and Transactions" for the
disposal  of segments of a business.  SFAS No. 144  established  accounting  and
reporting  standards  for the  impairment  or disposal of  long-lived  assets by
requiring those long-lived  assets be measured at the lower of carrying costs or
fair value less selling costs,  whether reported on continuing  operations or in
discontinued  operations.  The  provisions  of SFAS No.  144 are  effective  for
financial  statements issued for fiscal years beginning after December 15, 2001.
We  adopted  SFAS No.  144 on  January 1,  2002.  As  discussed  previously,  we
recognized approximately $801,000 of impairment in our Consolidated Statement of
Income during 2002 related to our Portfolio  Investment  segment's investment in
the advisor to the AIM Limited Partnerships and our Mortgage Servicing segment's
investment in the AIM Limited Partnerships subadvisory contracts.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No.  4,  44  and  64,   Amendment  of  FASB  Statement  No.  13,  and  Technical
Corrections,"  that, among other things,  rescinded SFAS No. 4, "Reporting Gains
and Losses from  Extinguishment of Debt." With the rescission of SFAS No. 4, the
early  extinguishment  of debt  generally  will no  longer be  classified  as an
extraordinary item for financial statement  presentation purposes. The provision
is  effective  for fiscal  years  beginning  after May 15,  2002,  with  earlier
application  related to the rescission of SFAS No. 4 encouraged.  We adopted the
provisions  related  to the  rescission  of SFAS No. 4 on  April 1,  2002.  As a
result, we have reclassified a $14.8 million gain on debt extinguishment in 2000
from an extraordinary item to an operating item. In addition, in 2003, we expect
to recognize a gain on  extinguishment  of debt as a result of the retirement of
the Exit Debt following the  recapitalization  in January 2003. The gain will be
classified as an operating item.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated  with Exit or Disposal  Activities,"  which replaces  Emerging Issues
Task  Force  Issue  No.  94-3,  "Liability   Recognition  for  Certain  Employee
Termination  Benefits  and Other  Costs to Exit an Activity  (including  Certain
Costs  Incurred in a  Restructuring)."  The new standard  requires  companies to
recognize  costs  associated  with  exit or  disposal  activities  when they are
incurred  rather than at the date of a commitment  to an exit or disposal  plan.
The  statement  is to be applied  prospectively  to exit or disposal  activities
initiated after December 31, 2002. We do not expect the adoption of SFAS No. 145
to have a material effect on our financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation  -  Transition  and   Disclosure,"   which  amended  SFAS  No.  123
"Accounting for Stock-Based Compensation." The new standard provides alternative
methods of transition  for a voluntary  change to the fair value based method of
accounting for stock-based employee  compensation.  Additionally,  the statement
amends  the  disclosure  requirements  of  SFAS  No.  123 to  require  prominent
disclosures in the annual and interim  financial  statements about the method of
accounting for stock-based  employee  compensation  and the effect of the method
used on reported results.  This statement is effective for financial  statements
for fiscal years ending after  December 15, 2002.  In  accordance  with SFAS No.
148,  we have  elected to  continue  to follow  the  intrinsic  value  method in
accounting for our stock-based employee compensation  arrangements as defined by
Accounting  Principles Board Opinion (APB)

<PAGE>57

No.  25,  "Accounting  for Stock  Issued to  Employees,"  and have made the
applicable disclosures in Note 14 to the consolidated financial statements.

     In January  2003,  the FASB  issued  FASB  Interpretation  (or FIN) No. 46,
"Consolidation of Variable Interest  Entities",  an interpretation of Accounting
Research  Bulletin  No.  51,  "Consolidated  Financial  Statements."  FIN No. 46
explains  how to  identify  variable  interest  entities  and how an  enterprise
assesses  its  interests  in a  variable  interest  entity to decide  whether to
consolidate that entity.  This Interpretation  requires existing  unconsolidated
variable interest entities to be consolidated by their primary  beneficiaries if
the entities do not effectively  disperse risks among parties involved.  FIN No.
46 is effective immediately for variable interest entities created after January
31, 2003, and to variable  interest  entities in which an enterprise  obtains an
interest after that date. The Interpretation applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable  interest  entities in
which an enterprise  holds a variable  interest that it acquired before February
1, 2003.  We do not expect the adoption of FIN No. 46 to have a material  effect
on our financial position or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our principal  market risk is exposure to changes in interest rates related
to the  U.S.  Treasury  market  as  well  as the  LIBOR  market.  We  will  have
fluctuations  in the amount of interest  expense paid on our variable  rate debt
primarily  due  to  changes  in  one-month   LIBOR.   We  will  also  experience
fluctuations  in the market value of our mortgage  assets  related to changes in
the yields of U.S. Treasury  securities as well as changes in the spread between
U.S.  Treasury  securities and the mortgage assets.  The combination of the risk
free rate (U.S.  Treasury  yields) and the related  spread is the discount  rate
used to determine the fair value of our mortgage assets. The U.S. Treasury yield
used to determine the fair value of our mortgage  assets is the current yield on
a U.S. Treasury which has the same weighted average life of the related mortgage
asset. As of December 31, 2002, the average U.S. Treasury rate used to price our
CMBS,  excluding  the CCC and  unrated/issuer's  equity CMBS,  had  decreased by
approximately  124 basis points and credit spreads had tightened on certain CMBS
compared to December 31,  2001.  The fair values of our B- and CCC CMBS in CBO-2
and our  unrated/issuer's  equity are determined  using a loss adjusted yield to
maturity,  which is commensurate with the market's  perception of value and risk
of comparable assets. As described, interest rates impact the fair values of our
CMBS, which affects our collateral coverage.  See "Item 1 - BUSINESS - Borrowing
and Refinancing Risks" for a discussion of our collateral coverage  requirements
under the Bear Stearns Debt.

     We have changed our method of presenting market risk disclosures from those
disclosures  presented in the December 31, 2001 Annual  Report on Form 10-K.  We
believe that the market risk disclosures presented below provide more meaningful
information to our  shareholders  in assessing the affect of changes in interest
rates on the values of our assets and the interest  expense on our variable rate
debt.

Insured Mortgage Securities

     As of December 31, 2002,  the  weighted  average life of the U.S.  Treasury
securities  that  were  used to  value  the  insured  mortgage  securities  were
significantly  shorter  than those used at December 31, 2001 due to lower market
interest  rates and other loan  attributes of the  underlying  insured  mortgage
securities,  which made the  likelihood  of the  mortgage  securities  prepaying
greater than the  previous  year.  If we assumed that the discount  rate used to
determine the fair values of our insured  mortgage  securities  increased by 100
basis points and 200 basis points,  the increase in the discount rate would have
resulted in a corresponding  decrease in the fair values of our insured mortgage
securities by approximately  $161,000 (or 0.1%) and  approximately  $319,000 (or
0.1%),  respectively,  as of December  31, 2002. A 100 basis point and 200 basis
point  increase in the  discount  rate would have  resulted  in a  corresponding
decrease in the fair values of our insured mortgage  securities by approximately
$15.3 million (or 4.5%) and approximately $29.4 million (or 8.6%), respectively,
as of December 31, 2001.

CMBS

     The required  rate of return used to determine  the fair values of our CMBS
is comprised of many variables,  such as a risk-free  rate, a liquidity  premium
and a credit risk  premium.  These  variables  are combined to determine a total
rate that, when used to discount the CMBS's assumed stream of future cash flows,
results in the fair value of such cash flows. The  determination of such rate is
dependent on many quantitative and qualitative factors, such as,

<PAGE>58

but not limited to, the market's  perception of the issuers of the CMBS and
the credit fundamentals of the commercial  properties underlying each underlying
pool of commercial mortgage loans.

     If we assumed that the discount  rate used to determine  the fair values of
our CMBS (A+ through unrated bonds)  increased by 100 basis points and 200 basis
points, the increase in the discount rate would have resulted in a corresponding
decrease  in  the  fair  values  of our  CMBS  (A+  through  unrated  bonds)  by
approximately  $50.0  million  (or 5.8%) and  approximately  $95.9  million  (or
11.1%),  respectively,  as of December 31, 2002. A 100 basis point and 200 basis
point  increase in the  discount  rate would have  resulted  in a  corresponding
decrease  in  the  fair  values  of our  CMBS  (A+  through  unrated  bonds)  by
approximately   $46.2   million   (or  5.6%)  and  $88.5   million  (or  10.7%),
respectively,  as of December  31,  2001.  A 100 basis point and 200 basis point
increase in the discount rate would have resulted in a corresponding decrease in
the value of our subordinated  CMBS (BB+ through unrated bonds) by approximately
$31.8 million (or 6.0%) and $60.9 (or 11.5%),  respectively,  as of December 31,
2002. A 100 basis point and 200 basis point  increase in the discount rate would
have resulted in a corresponding  decrease in the value of our subordinated CMBS
(BB+ through unrated bonds) by  approximately  $28.9 million (or 5.5%) and $55.3
million (or 10.5%), respectively, as of December 31, 2001.

     See  also  Note 5 of  Notes  to  Consolidated  Financial  Statements  for a
discussion  of other  factors  that could  affect  the fair  values of our CMBS,
including  changes in the timing  and/or  amount of credit  losses on underlying
mortgage loans,  the receipt of mortgage  payments earlier than projected due to
prepayments,  and delays in the receipt of monthly  cash flow  distributions  on
CMBS due to mortgage loan defaults and/or extensions in loan maturities.

Variable Rate Debt

     We have  interest  rate caps to  mitigate  the  adverse  effects  of rising
interest rates on the amount of interest expense payable under our variable rate
debt.  In April 2002, we purchased an interest rate cap. This interest rate cap,
which was effective on May 1, 2002, is for a notional  amount of $175.0 million,
caps LIBOR at 3.25%,  and matures on November 3, 2003. The cap was purchased for
approximately  $1.6 million.  Our caps provide protection to the extent interest
rates, based on a readily determinable  interest rate index (typically one-month
LIBOR),  increase  above the stated  interest  rate cap, in which case,  we will
receive  payments  based on the  difference  between the index and the caps. The
terms of the caps as well as the stated interest rates of the caps, which in all
cases are currently  above the current rate of the index,  will limit the amount
of protection that the caps offer.  The average  one-month LIBOR index was 1.77%
during the year ended  December  31, 2002,  which was a 10 basis point  decrease
from December 31, 2001.

     A 100 basis point  change in the  one-month  LIBOR index would have changed
our  interest   expense  on  our  Exit   Variable-Rate   Secured   Borrowing  by
approximately  $2.3 million and $1.8 million during the years ended December 31,
2002 and 2001, respectively. As of March 1, 2003, a 100 basis point change would
change our annual  interest  expense on the Bear Stearns  Debt by  approximately
$3.0 million.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The  financial  statements  and  supplementary  data are set  forth in this
Annual Report on Form 10-K commencing on page F-1.


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

     On June 5, 2002, the Board of Directors,  upon  recommendation of the Audit
Committee,  selected Ernst & Young LLP as our  independent  accountants  for our
consolidated  financial statements for the year ending on December 31, 2002. The
Board, upon the recommendation of the Audit Committee, dismissed Arthur Andersen
LLP on May 8, 2002, effective as of May 14, 2002, when Arthur Andersen completed
its audit of the  December  31,  2001  financial  statements  of the  CRIIMI MAE
Management Inc. Retirement Plan.

<PAGE>59

     Except  as noted  below,  Arthur  Andersen's  reports  on our  consolidated
financial  statements  for the years  ended  December  31, 2001 and 2000 did not
contain an adverse  opinion or  disclaimer  of  opinion,  nor were such  reports
qualified or modified as to uncertainty,  audit scope or accounting  principles.
Arthur Andersen's report on our consolidated  financial  statements for the year
ended  December  31, 2000  contained a  qualified  opinion  about our ability to
continue as a going  concern  because of our  voluntary  filing for relief under
Chapter 11 of the Bankruptcy Code on October 5, 1998. We emerged from Chapter 11
on April 17, 2001 and Arthur  Andersen's  subsequent  report on our consolidated
financial  statements  for the year ended December 31, 2001 did not contain such
qualifying  opinion.  Arthur  Andersen's  report on our  consolidated  financial
statements for the year ended  December 31, 2001  referenced a change in (1) our
method of accounting for derivatives and (2) the method of accounting related to
the recognition of special servicing fee revenue of CMSLP.

     During the years ended  December  31, 2001 and 2000 and through the date of
dismissal,  there were: (i) no disagreements  with Arthur Andersen on any matter
of  accounting  principle  or  practice,  financial  statements  disclosure,  or
auditing  scope  or  procedure  which,  if not  resolved  to  Arthur  Andersen's
satisfaction,  would have caused them to make reference to the subject matter in
connection with their report on our consolidated  financial  statements for such
years; and (ii) there were no reportable  events as defined in Item 304(a)(1)(v)
of Regulation S-K.

     We provided  Arthur  Andersen with a copy of the foregoing  disclosures and
Arthur Andersen  submitted a letter,  dated May 10, 2002,  stating its agreement
with such statements.  These disclosures and Arthur Andersen's letter were filed
with the SEC under Form 8-K on May 10, 2002.

     During  the  years  ended  December  31,  2001 and 2000 and the  subsequent
interim  period  through  June 5,  2002,  neither  we nor  anyone on our  behalf
consulted  Ernst & Young  LLP with  respect  to the  application  of  accounting
principles to a specified transaction, either completed or proposed; or the type
of  audit  opinion  that  might  be  rendered  on  our  consolidated   financial
statements,   or  any  other  matters  or  reportable  events  listed  in  Items
304(a)(2)(i) and (ii) of Regulation S-K.



<PAGE>60

                                    PART III

     The  information  required  by Part III (Item  10-Directors  and  Executive
Officers, Item 11-Executive Compensation,  Item 12-Security Ownership of Certain
Beneficial  Owners and Management and Item 13-Certain  Relationships and Related
Transactions)  is  incorporated  herein by  reference  to our  definitive  proxy
statement  to be filed  pursuant to  Regulation  14A relating to our 2003 annual
meeting of shareholders.


ITEM 14. CONTROLS AND PROCEDURES

     Within the 90 days prior to the filing date of this report,  we carried out
an  evaluation,  under  the  supervision  and  with  the  participation  of  our
management,  including our Chief Executive Officer and Chief Financial  Officer,
of the effectiveness of the design and operation of our disclosure  controls and
procedures  pursuant to  Securities  Exchange Act Rule 15d-15.  Our  management,
including the Chief  Executive  Officer and Chief  Financial  Officer,  does not
expect that our disclosure  controls and  procedures  will prevent all error and
all fraud.  A control  system,  no matter how well  conceived and operated,  can
provide only reasonable  assurance that the objectives of the control system are
met.  Further,  the design of a control  system must reflect the fact that there
are  resource  constraints,  and the  benefits  of controls  must be  considered
relative to their  costs.  Because of the  inherent  limitations  in all control
systems,  no  evaluation  of controls can provide  absolute  assurance  that all
control issues within the company have been detected. These inherent limitations
include the realities that judgments in decision-making  can be faulty, and that
breakdowns  can occur  because  of simple  error or  mistake.  The design of any
system of  controls  also is based in part upon  certain  assumptions  about the
likelihood of future events,  and there can be no assurance that any design will
succeed in achieving  its stated goals under all  potential  future  conditions.
Over time,  control may become inadequate  because of changes in conditions,  or
the degree of  compliance  with the  policies  or  procedures  may  deteriorate.
Because  of  the  inherent  limitations  in  a  cost-effective  control  system,
misstatements  due to error or fraud may occur  and not be  detected.  Our Chief
Executive  Officer and Chief  Financial  Officer  have  concluded,  based on our
evaluation  of our  disclosure  controls  and  procedures,  that our  disclosure
controls  and  procedures  under  Rule  13a-14(c)  and  Rule  15d-14(c)  of  the
Securities  Exchange Act of 1934 are  effective.  Subsequent to our  evaluation,
there were no  significant  changes in internal  controls or other  factors that
could  significantly  affect  these  internal  controls;  however,  we intend to
implement certain actions within the next quarter designed to improve our credit
loss estimation process, as discussed below.

     Although we believe our overall  credit  loss  estimate is  reasonable  and
correct,  based upon our recent  evaluation of our internal controls and written
observations and recommendations received from our independent auditors, we have
determined  to take  specific  actions to improve  our  credit  loss  estimation
process.  This process is important  to our CMBS income  recognition,  CMBS fair
value  determination  and CMBS  impairment  assessment.  Although  we have  made
progress in improving our credit loss estimation process, we and our independent
auditors believe that improvement is still needed in this process,  particularly
in connection with mortgage loan valuation and credit loss projection.  In order
to address these matters, we have already commenced re-underwriting all mortgage
loans  underlying  our CMBS and have  determined  to take a number of additional
actions  designed  to  improve  our credit  loss  estimation  process  including
(a) creating  a  new  underwriting  internal  valuation  group,   (b) developing
additional  policies and  procedures  to better  standardize  our  process,  and
(c) employing,  as  appropriate,  additional  resources  and  expertise  to  the
management of the loan loss estimation  process.  We intend to implement most of
these actions  prior to the end of the second  quarter of 2003. It is noted that
our independent auditors were not specifically engaged to evaluate or assess the
internal controls over our overall loss estimate.


<PAGE>61

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

         (a) List of documents filed as part of this report:

         1 and 2. Financial Statements and Financial Statement Schedules

Description                                                               Page
-----------                                                               ----

Report of Independent Public Accountants...................................F-1

Consolidated Balance Sheets as of December 31, 2002 and 2001...............F-2

Consolidated Statements of Income for the years ended
  December 31, 2002, 2001 and 2000.........................................F-3

Consolidated Statements of Changes in Shareholders' Equity and Comprehensive
Income for the years ended December 31, 2002, 2001 and 2000................F-4

Consolidated Statements of Cash Flows
  for the years ended December 31, 2002, 2001 and 2000.....................F-5

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


All other financial statements and financial statement schedules have been
omitted since the required information is included in the financial statements
or the notes thereto, or is not applicable or required.

     (a) 3. Exhibits  (listed  according to the number  assigned in the table in
Item 601 of Regulation S-K)

                  Exhibit  No.  2  -  Plan of Acquisition,  Reorganization,
                  Arrangement, Liquidation, or Succession.

                               a.       Articles of Dissolution of CBO REIT,
                                        Inc., filed with the Maryland State
                                        Department of Assessments and Taxation
                                        on January 23, 2003 (incorporated by
                                        reference to Exhibit 2.1 to Form 8-K
                                        filed with the Securities and Exchange
                                        Commission (or SEC) on January 30,
                                        2003).

                               b.       Third Amended Joint Plan of
                                        Reorganization as confirmed by the
                                        United States Bankruptcy Court for the
                                        District of Maryland, Greenbelt Division
                                        on November 22, 2000 (incorporated by
                                        reference to Exhibit 2.1 to Form 8-K
                                        filed with the SEC on December 28,
                                        2000).

                  Exhibit No. 3 - Articles of Incorporation and bylaws.

                              a.        Articles of Incorporation of CRIIMI
                                        Newco Member, Inc., filed with the
                                        Maryland State Department of Assessments
                                        and Taxation on January 10, 2003
                                        (incorporated by reference to Exhibit
                                        3.1 to Form 8-K filed with the SEC on
                                        January 30, 2003).

                             b.         Bylaws of CRIIMI Newco Member, Inc.,
                                        effective as of January 10, 2003
                                        (incorporated by reference to Exhibit
                                        3.2 to Form 8-K filed with the SEC on
                                        January 30, 2003).

                            c.          Certificate of Formation of CRIIMI
                                        Newco, LLC, filed with the Delaware
                                        Secretary of State on January 10, 2003
                                        (incorporated by reference to Exhibit
                                        3.3 to Form 8-K filed with the SEC on
                                        January 30, 2003).

<PAGE>62

                            d.          Limited Liability Company Agreement of
                                        CRIIMI Newco, LLC, dated as of January
                                        13, 2003 (incorporated by reference to
                                        Exhibit 10.6 to Form 8-K filed with the
                                        SEC on January 30, 2003).

                            e.          Management Agreement for CRIIMI Newco,
                                        LLC, dated as of January 13, 2003
                                        (incorporated by reference to Exhibit
                                        10.7 to Form 8-K filed with the SEC on
                                        January 30, 2003).

                            f.          Articles of Incorporation of CBO REIT
                                        II, Inc., filed with the Maryland State
                                        Department of Assessments and Taxation
                                        on January 13, 2003 (incorporated by
                                        reference to Exhibit 3.4 to Form 8-K
                                        filed with the SEC on January 30, 2003).

                            g.          Bylaws of CBO REIT II, Inc., effective
                                        as of January 13, 2003 (incorporated by
                                        reference to Exhibit 3.5 to Form 8-K
                                        filed with the SEC on January 30, 2003).

                            h.          Certificate of Amendment of Certificate
                                        of Incorporation of CRIIMI MAE CMBS
                                        Corp., filed with the Maryland State
                                        Department of Assessments and Taxation
                                        on January 23, 2003 (incorporated by
                                        reference to Exhibit 3.6 to Form 8-K
                                        filed with the SEC on January 30, 2003).

                            i.          Certificate of Amendment of Certificate
                                        of Incorporation of CRIIMI MAE QRS 1,
                                        Inc., filed the Maryland State
                                        Department of Assessments and Taxation
                                        on January 23, 2003 (incorporated by
                                        reference to Exhibit 3.7 to Form 8-K
                                        filed with the SEC on January 30, 2003).

                            j.          Registrant's Articles of Amendment,
                                        filed with the Maryland State Department
                                        of Assessments and Taxation on October
                                        12, 2001 (incorporated by reference to
                                        Exhibit 3.1 to the Company's Form S-8
                                        filed with the SEC on June 13, 2002).

                            k.          Registrant's Articles Supplementary for
                                        its Series H Junior Preferred Stock,
                                        filed with the Maryland State Department
                                        of Assessments and Taxation on January
                                        30, 2002 (incorporated by reference to
                                        Exhibit 3.2 to the Company's Form S-8
                                        filed with the SEC on June 13, 2002).

                            l.          Registrant's Articles of Amendment,
                                        filed with the Maryland State Department
                                        of Assessments and Taxation on May 15,
                                        2002 (incorporated by reference to
                                        Exhibit 3 to the Registrant's Current
                                        Report on Form 8-K filed with the SEC on
                                        May 16, 2002).

                            m.          Articles of Amendment and Restatement
                                        of CRIIMI MAE Inc., including Exhibit A,
                                        Exhibit B, Exhibit C and Exhibit D
                                        thereto pertaining to the preferences,
                                        conversion and other rights, voting
                                        powers, restrictions and limitations as
                                        to dividends, qualifications and terms
                                        and conditions of redemption of the
                                        Series B Cumulative Convertible
                                        Preferred Stock, Series E Cumulative
                                        Convertible Preferred Stock, the Series
                                        F Redeemable Cumulative Dividend
                                        Preferred Stock and the Series G
                                        Redeemable Cumulative Dividend Preferred
                                        Stock, respectively, filed with the
                                        Maryland State Department of Assessments
                                        and Taxation on April 17, 2001
                                        (incorporated by reference to Exhibit
                                        3.1 to Current Report on Form 8-K filed
                                        with the SEC on June 1, 2001).

<PAGE>63

                            n.          Articles of Amendment to Exhibit B of
                                        the Articles of Amendment and
                                        Restatement of CRIIMI MAE Inc. which
                                        pertains to the preferences, conversion
                                        and other rights, voting powers,
                                        restrictions and limitations as to
                                        dividends, qualifications and terms and
                                        conditions of redemption of the Series E
                                        Cumulative Convertible Preferred Stock
                                        (incorporated by reference to Exhibit 3
                                        to the Quarterly Report on Form 10-Q for
                                        the quarter ended September 30, 2001).

                            o.          Second Amended and Restated Bylaws of
                                        CRIIMI MAE Inc. (incorporated by
                                        reference to Exhibit 3.2 to Current
                                        Report on Form 8-K filed with the SEC on
                                        June 1, 2001).

                            p.          Articles of Incorporation of CBO REIT,
                                        Inc. filed with the Maryland State
                                        Department of Assessments and Taxation
                                        on April 11, 2001 (incorporated by
                                        reference to Exhibit 3.3 to Current
                                        Report on Form 8-K filed with the SEC on
                                        June 1, 2001).

                            q.          Bylaws of CBO REIT, Inc., effective as
                                        of April 17, 2001 (incorporated by
                                        reference to Exhibit 3.4 to Current
                                        Report on Form 8-K filed with the SEC
                                        on June 1, 2001).

                            r.          Certificate of Incorporation of CRIIMI
                                        MAE QRS 1, Inc. (incorporated by
                                        reference to Exhibit 3(p) to Annual
                                        Report on Form 10-K for 1996.)

                            s.          Bylaws of CRIIMI MAE QRS 1, Inc.
                                        (incorporated by reference to Exhibit
                                        3(q) to Annual Report on Form 10-K for
                                        1996).

                            t.          Certificate of Incorporation of CRIIMI
                                        MAE CMBS Corp (incorporated by reference
                                        to Exhibit 3(h) to Annual Report on Form
                                        10-K for 2001).

                            u.          Bylaws of CRIIMI MAE CMBS Corp
                                        (incorporated by reference to Exhibit
                                        3(i) to Annual Report on Form 10-K for
                                        2001).

                            v.          Articles of Incorporation of CRIIMI MAE
                                        Financial Corporation (incorporated by
                                        reference to Exhibit 3.1 to Form S-3
                                        Registration Statement filed with the
                                        Securities and Exchange Commission on
                                        September 12, 1995).

                            w.          By-laws of CRIIMI MAE Financial
                                        Corporation (incorporated by reference
                                        to Exhibit 3.2 to Form S-3 Registration
                                        Statement filed with the Securities and
                                        Exchange Commission on September 12,
                                        1995).

                            x.          Articles of Incorporation of CRIIMI MAE
                                        Financial Corporation II (incorporated
                                        by reference to Exhibit 3(q) to Annual
                                        Report on Form 10-K for 1995).

                            y.          Bylaws of CRIIMI MAE Financial
                                        Corporation II (incorporated by
                                        reference to Exhibit 3(r) to Annual
                                        Report on Form 10-K for 1995).

                            z.          Articles of Incorporation of CRIIMI MAE
                                        Financial Corporation III (incorporated
                                        by reference to Exhibit 3(s) to Annual
                                        Report on Form 10-K for 1995).

                            aa.         Bylaws of CRIIMI MAE Financial
                                        Corporation III (incorporated by
                                        reference to Exhibit 3(t) to Annual
                                        Report on Form 10-K for 1995).

<PAGE>64

                            bb.         Limited Partnership Agreement of CRIIMI
                                        MAE Services Limited Partnership
                                        effective as of June 1, 1995 between
                                        CRIIMI MAE Management, Inc. and CRIIMI
                                        MAE Services, Inc. (incorporated by
                                        reference to Exhibit 3(n) to Annual
                                        Report on Form 10-K for 1995).

                            cc.         First Amendment to the Limited
                                        Partnership Agreement of CRIIMI MAE
                                        Services Limited Partnership effective
                                        as of December 31, 1995 between CRIIMI
                                        MAE Management Inc. and CRIIMI MAE
                                        Services, Inc. (incorporated by
                                        reference to Exhibit 3(g) to Annual
                                        Report on Form 10-K for 1998).

                            dd.         Second Amendment to the Limited
                                        Partnership Agreement of CRIIMI MAE
                                        Services Limited Partnership effective
                                        as of January 2, 1997 between CRIIMI MAE
                                        Management Inc. and CRIIMI MAE Services,
                                        Inc. (incorporated by reference to
                                        Exhibit 3(h) to Annual Report on Form
                                        10-K for 1998).

                            ee.         Third Amendment to the Limited
                                        Partnership Agreement of CRIIMI MAE
                                        Services Limited Partnership effective
                                        as of December 31, 1997 between CRIIMI
                                        MAE Management Inc. and CRIIMI MAE
                                        Services, Inc. (incorporated by
                                        reference to Exhibit 3(i) to Annual
                                        Report on Form 10-K for 1998).

                            ff.         Fourth Amendment to Limited Partnership
                                        Agreement of CRIIMI MAE Services Limited
                                        Partnership effective as of March 9,
                                        2001 between CRIIMI MAE Services, Inc.,
                                        CRIIMI MAE Management, Inc. and CMSLP
                                        Holding Company, Inc. (incorporated by
                                        reference to Exhibit 3(t) to Annual
                                        Report on Form 10-K for 2001).

                            gg.         Articles of Merger merging CRI
                                        Acquisition, Inc., CRICO Mortgage
                                        Company, Inc. and CRI/AIM Management,
                                        Inc. into CRIIMI MAE Management, Inc.
                                        (incorporated by reference to Exhibit
                                        10(i) to Annual Report on Form 10-K for
                                        1995).

                            hh.         Agreement and Articles of Merger between
                                        CRIIMI MAE Inc. and CRI Insured Mortgage
                                        Association, Inc. as filed with the
                                        Office of the Secretary of the State of
                                        Delaware (incorporated by reference to
                                        Exhibit 3(f) to Quarterly Report on Form
                                        10-Q for the quarter ended June 30,
                                        1993).

                            ii.         Agreement and Articles of Merger between
                                        CRIIMI MAE Inc. and CRI Insured Mortgage
                                        Association, Inc. as filed with the
                                        State Department of Assessment and
                                        Taxation for the State of Maryland
                                        (incorporated by reference to Exhibit
                                        3(g) to Quarterly Report on Form 10-Q
                                        for the quarter ended June 30, 1993).


                  Exhibit No. 4 - Instruments defining the rights of security
                  holders, including indentures.


                            a.          Senior Subordinated Secured Note
                                        Agreement, dated as of January 14, 2003,
                                        and all exhibits and schedules thereto,
                                        by and between CRIIMI MAE Inc. and
                                        Brascan Real Estate Finance Fund I, L.P.
                                        (incorporated by reference to Exhibit
                                        4.1 to Form 8-K filed with the SEC on
                                        January 30, 2003).

<PAGE>65
                            b.          Intercreditor and Subordination
                                        Agreement, dated as of January 14, 2003,
                                        by and among Bear, Stearns International
                                        Limited and Brascan Real Estate
                                        Financial Investments LLC (incorporated
                                        by reference to Exhibit 4.2 to Form 8-K
                                        filed with the SEC on January 30, 2003).

                            c.          Warrant to Purchase Common Stock of
                                        CRIIMI MAE Inc., dated as of January
                                        23, 2003 (incorporated by reference to
                                        Exhibit 4.3 to Form 8-K filed with the
                                        SEC on January 30, 2003).

                            d.          Registration Rights Agreement, dated as
                                        of January 14, 2003, between CRIIMI MAE
                                        Inc. and Brascan Real Estate Finance
                                        Fund, L.P. (filed herewith).

                            e.          Rights Agreement, dated as of January
                                        23, 2002 between CRIIMI MAE Inc. and
                                        Registrar and Transfer Company, as
                                        Rights Agent (the "Rights Agreement").
                                        The Rights Agreement includes, as
                                        Exhibit A, the form of Articles
                                        Supplementary to the Articles of
                                        Incorporation of the Company setting
                                        forth the terms of the Series H
                                        Preferred Stock, as Exhibit B, the form
                                        of Rights Certificate and, as Exhibit C,
                                        the form of Summary of Rights to
                                        Purchase Preferred Shares (incorporated
                                        by reference to Exhibit 4 to Current
                                        Report on Form 8-K filed on January 25,
                                        2002).

                            f.          Amended and Restated First Amendment to
                                        Rights Agreement, dated as of June 10,
                                        2002 between CRIIMI MAE Inc. and
                                        Registrar and Transfer Company, as
                                        Rights Agent (incorporated by reference
                                        to Exhibit 4.1 to the Company's Form
                                        8-A/A filed with the SEC on June 13,
                                        2002).

                            g.          Second Amendment to Rights Agreement,
                                        dated as of November 14, 2002 between
                                        CRIIMI MAE Inc. and Registrar and
                                        Transfer Company, as Rights Agent
                                        (incorporated by reference to Exhibit
                                        4.2 to Form 8-A/A filed on November 15,
                                        2002).

                            h.          Third Amendment to Rights Agreement,
                                        dated as of January 3, 2003 between
                                        CRIIMI MAE Inc. and Registrar and
                                        Transfer Company, as Rights Agent
                                        (incorporated by reference to the
                                        Company's Form 8-A/A filed with the SEC
                                        on January 3, 2003).

                            i.          Indenture, dated as of April 17, 2001
                                        and all exhibits and schedules thereto,
                                        by and between CRIIMI MAE Inc. and Wells
                                        Fargo Bank Minnesota, National
                                        Association, as trustee relating to the
                                        Series A Notes (incorporated by
                                        reference to Exhibit T3C to Amendment
                                        No. 2 to Form T-3 relating to Series A
                                        Notes Indenture filed with the SEC on
                                        April 13, 2001).

                            j.          Indenture, dated as of April 17, 2001,
                                        and all exhibits and schedules thereto,
                                        by and between CRIIMI MAE Inc. and Wells
                                        Fargo Bank Minnesota, National
                                        Association, as trustees relating to the
                                        Series B Notes (incorporated by
                                        reference to Exhibit T3C to Amendment
                                        No. 2 to Form T-3 relating to Series B
                                        Notes Indenture filed with the SEC on
                                        April 13, 2001).

                            k.          Registrant's 2001 Stock Incentive Plan
                                        (incorporated by reference to Annex B to
                                        Definitive Proxy Statement filed with
                                        the SEC on August 16, 2001).

                            l.          Registrant's Second Amended and Restated
                                        Stock Option Plan for Key Employees
                                        (incorporated by reference herein to
                                        Exhibit G to Exhibit 99.6 to the
                                        Registrant's Current Report on Form 8-K
                                        filed with the SEC on September 22,
                                        2000).
<PAGE>66

                            m.          Dividend Reinvestment and Stock Purchase
                                        Plan between CRIIMI MAE Inc. and
                                        shareholders (incorporated by reference
                                        from the registration statement on Form
                                        S-3A filed December 9, 1997).

                            n.          Prospectus dated July 8, 1998 whereby
                                        CRIIMI MAE Inc. offers participation in
                                        its Dividend Reinvestment and Stock
                                        Purchase Plan (incorporated by reference
                                        from Form S-3 filed on July 9, 1998).

                  Exhibit No. 10 - Material contracts.

                            a.          Repurchase Agreement, dated as of
                                        January 14, 2003, and all exhibits and
                                        schedules, among Bear, Stearns
                                        International Limited, as Buyer, CRIIMI
                                        Newco, LLC, as a Seller, and CBO REIT
                                        II, Inc., as a Seller (incorporated by
                                        reference to Exhibit 10.1 to Form 8-K
                                        filed with the SEC on January 30, 2003).

                            b.          Company Pledge Agreement, dated as of
                                        January 14, 2003, by and between CRIIMI
                                        MAE Inc. and Brascan Real Estate Finance
                                        Fund I, L.P. (incorporated by reference
                                        to Exhibit 10.3 to Form 8-K filed with
                                        the SEC on January 30, 2003).

                            c.          Newco Member Pledge Agreement, dated as
                                        of January 14, 2003, by and between
                                        CRIIMI Newco Member, Inc. and Brascan
                                        Real Estate Finance Fund I, L.P.
                                        (incorporated by reference to Exhibit
                                        10.4 to Form 8-K filed with the SEC on
                                        January 30, 2003).

                            d.          Guarantee, dated as of January 14, 2003,
                                        by CRIIMI MAE Inc. in favor of Bear,
                                        Stearns International Limited
                                        (incorporated by reference to Exhibit
                                        10.5 to Form 8-K filed with the SEC on
                                        January 30, 2003).

                            e.          Engagement Letter, dated as of January
                                        14, 2003, by and between CRIIMI MAE Inc.
                                        and Bear, Stearns & Co. Inc.
                                        (incorporated by reference to Exhibit
                                        10.8 to Form 8-K filed with the SEC on
                                        January 30, 2003).

                            f.          Amendment to Employment Agreement of
                                        William B. Dockser, dated as of January
                                        14, 2003 (incorporated by reference to
                                        Exhibit 10.9 to Form 8-K filed with the
                                        SEC on January 30, 2003).

                            g.          Amendment to Employment Agreement of H.
                                        William Willoughby, dated as of January
                                        14, 2003 (incorporated by reference to
                                        Exhibit 10.10 to Form 8-K filed with the
                                        SEC on January 30, 2003).

                            h.          Investment Agreement dated as of
                                        November 14, 2002 between CRIIMI MAE
                                        Inc. and Brascan Real Estate Financial
                                        Investments LLC (incorporated by
                                        reference to Exhibit 10.2 to Form 8-K
                                        filed with the SEC on December 4, 2002).

                            i.          Amendment No. 1 to Investment Agreement
                                        dated as of December 2, 2002 to the
                                        Investment Agreement between CRIIMI MAE
                                        Inc. and Brascan Real Estate Financial
                                        Investments LLC (incorporated by
                                        reference to Exhibit 10.1 to Form 8-K
                                        filed with the SEC on December 4, 2002).

                            j.          Amendment No. 2 to Investment Agreement,
                                        dated as of January 13, 2003, by and
                                        between CRIIMI MAE Inc. and Brascan Real
                                        Estate Financial Investments LLC
                                        (incorporated by reference to Exhibit
                                        10.2 to Form 8-K filed with the SEC on
                                        January 30, 2003).

<PAGE>67
                            k.          Exhibit D (Form of Non-Competition
                                        Agreement) to the Investment Agreement
                                        dated as of November 14, 2002 between
                                        CRIIMI MAE Inc. and Brascan Real Estate
                                        Financial Investments LLC (incorporated
                                        by reference to Exhibit 10.5 to
                                        Quarterly Report on Form 10-Q for the
                                        quarter ended September 30, 2002).


                            l.          Agreement dated May 20, 2002 between
                                        CRIIMI MAE Inc. and Friedman, Billings,
                                        Ramsey & Co., Inc. (or FBR) to retain
                                        FBR as our financial advisor
                                        (incorporated by reference to Exhibit 10
                                        to Quarterly Report on Form 10-Q for the
                                        quarter ended June 30, 2002).

                            m.          Master Repurchase Agreement and Annex I
                                        to the Master Repurchase Agreement,
                                        including Schedule 1-A (CBO-2
                                        Securities), Schedule 1-B (CBO-1/Nomura
                                        Securities), Schedule 1-D (Loss
                                        Threshold Amount) and Disclosure
                                        Schedule thereto (incorporated by
                                        reference to Exhibit 10.1 to Current
                                        Report on Form 8-K filed on June 1,
                                        2001).

                            n.          Security and Pledge Agreement, dated as
                                        of April 17, 2001, made by CRIIMI MAE
                                        Inc. in favor of Merrill Lynch, Pierce,
                                        Fenner & Smith Incorporated, as
                                        collateral agent (incorporated by
                                        reference to Exhibit 10.3 to Current
                                        Report on Form 8-K filed on June 1,
                                        2001).

                            o.          Addendum to Security and Pledge
                                        Agreement, dated as of April 17, 2001,
                                        executed by CBO REIT, Inc. and accepted
                                        and agreed to by Merrill Lynch, Pierce,
                                        Fenner & Smith, Incorporated, as
                                        collateral agent (incorporated by
                                        reference to Exhibit 10.5 to Current
                                        Report on Form 8-K filed on August 14,
                                        2001).

                            p.          Security, Pledge and Collateral
                                        Assignment Agreement, dated as of April
                                        17, 2001, among the Company, CRIIMI MAE
                                        Management, Inc. and CM Mallers
                                        Building, Inc. in favor of Wells Fargo
                                        Bank Minnesota, National Association, as
                                        collateral agent (incorporated by
                                        reference to Exhibit 10.4 to Current
                                        Report on Form 8-K filed on August 14,
                                        2001).

                            q.          Foreclosure/Transfer Agreement, dated as
                                        of April 17, 2001, among CRIIMI MAE
                                        Inc., Merrill Lynch International,
                                        acting through its agent, Merrill Lynch,
                                        Pierce, Fenner & Smith Incorporated and
                                        Wells Fargo Bank Minnesota, National
                                        Association, acting as trustee under two
                                        Indentures relating to Series A Notes
                                        and Series B Notes (incorporated by
                                        reference to Exhibit 10.2 to Current
                                        Report on Form 8-K filed on June 1,
                                        2001).

                            r.          Intercreditor Agreement, dated as of
                                        April 17, 2001, among Merrill Lynch
                                        International, acting through its agent,
                                        Merrill Lynch, Pierce, Fenner & Smith
                                        Incorporated and Wells Fargo Bank
                                        Minnesota, National Association, acting
                                        as trustee under two indentures relating
                                        to the Series A Notes and Series B Notes
                                        (incorporated by reference to Exhibit
                                        4.1 to Current Report on Form 8-K filed
                                        with the SEC on June 1, 2001).

                             s.         Employment Agreement dated and effective
                                        as of June 29, 2001 between the Company
                                        and William B. Dockser (incorporated by
                                        reference to Exhibit 10.1 to Current
                                        Report on Form 8-K filed on July 10,
                                        2001).

<PAGE>68

                             t.         Employment Agreement dated and effective
                                        as of June 29, 2001 between the Company
                                        and H. William Willoughby (incorporated
                                        by reference to Exhibit 10.2 to Current
                                        Report on Form 8-K filed on July 10,
                                        2001).

                             u.         Employment Agreement, dated and
                                        effective as of July 25, 2001, between
                                        the Company and David B. Iannarone
                                        (incorporated by reference to Exhibit
                                        10.1 to Current Report on Form 8-K filed
                                        on August 14, 2001).

                             v.         Employment Agreement, dated and
                                        effective as of July 25, 2001, between
                                        the Company and Cynthia O. Azzara
                                        (incorporated by reference to Exhibit
                                        10.2 to Current Report on Form 8-K filed
                                        on August 14, 2001).

                             w.         Employment Agreement, dated and
                                        effective as of July 25, 2001, between
                                        the Company and Brian L. Hanson
                                        (incorporated by reference to Exhibit
                                        10.3 to Current Report on Form 8-K filed
                                        on August 14, 2001).

                             x.         CRIIMI MAE Management, Inc. Retirement
                                        Plan's Non-Standardized Adoption
                                        Agreement dated January 1, 2002 (filed
                                        herewith).

                             y.         Accudraft, Inc. Prototype Defined
                                        Contribution Retirement Plan (Basic Plan
                                        #01) for CRIIMI MAE Management, Inc.
                                        (filed herewith).

                             z.         Preferred Stock Exchange Agreement
                                        entered into July 26, 2000 by CRIIMI MAE
                                        Inc. and the holder of its Series D
                                        Cumulative Convertible Preferred Stock
                                        (incorporated by reference to Exhibit
                                        99.8 to Current Report on Form 8-K filed
                                        with the SEC on September 22, 2000).

                             aa.        Preferred Stock Exchange Agreement
                                        between CRIIMI MAE Inc. and MeesPierson
                                        Investments Inc. dated February 22, 2000
                                        (incorporated by reference to Exhibit
                                        99.1 to Current Report on Form 8-K filed
                                        with the SEC on April 10, 2000).

                             bb.        Terms Indenture Agreement dated May 8,
                                        1998 between CRIIMI MAE Commercial
                                        Mortgage Trust and the trustee
                                        (incorporated by reference to Exhibit
                                        10(s) to Annual Report on Form 10-K for
                                        2001).

                             cc.        Standard Indenture Provisions dated as
                                        of May 8, 1998 related to Terms
                                        Indenture Agreement dated May 8, 1998
                                        between CRIIMI MAE Commercial Mortgage
                                        Trust and the trustee (incorporated by
                                        reference to Exhibit 10(t) to Annual
                                        Report on Form 10-K for 2001).

                             dd.        Indenture Agreement dated December 20,
                                        1996 between CRIIMI MAE QRS 1, Inc. and
                                        the trustee (incorporated by reference
                                        from Exhibit 4(sss) to Annual Report on
                                        Form 10-K for 1996).

                             ee.        Form of Bond to CRIIMI MAE Trust 1
                                        Commercial Mortgage Bonds, Class A-1
                                        (incorporated by reference to Exhibit
                                        4(ttt) to Annual Report on Form 10-K for
                                        1996).

                             ff.        Form of Bond to CRIIMI MAE Trust 1
                                        Commercial Mortgage Bonds, Class A-2
                                        (incorporated by reference to Exhibit
                                        4(uuu) to Annual Report on Form 10-K for
                                        1996).

<PAGE>69

                             gg.        Form of Bond to CRIIMI MAE Trust 1
                                        Commercial Mortgage Bonds, Class B
                                        (incorporated by reference to Exhibit
                                        4(vvv) to Annual Report on Form 10-K for
                                        1996).

                             hh.        Form of Bond to CRIIMI MAE Trust 1
                                        Commercial Mortgage Bonds, Class C
                                        (incorporated by reference to Exhibit
                                        4(www) to Annual Report on Form 10-K for
                                        1996).

                             ii.        Form of Bond to CRIIMI MAE Trust 1
                                        Commercial Mortgage Bonds, Class D
                                        (incorporated by reference to Exhibit
                                        4(xxx) to Annual Report on Form 10-K for
                                        1996).

                             jj.        Form of Bond to CRIIMI MAE Trust 1
                                        Commercial Mortgage Bonds, Class E
                                        (incorporated by reference to Exhibit
                                        4(yyy) to Annual Report on Form 10-K for
                                        1996).

                             kk.        Form of Bond to CRIIMI MAE Trust 1
                                        Commercial Mortgage Bonds, Class F
                                        (incorporated by reference to Exhibit
                                        4(zzz) to Annual Report on Form 10-K for
                                        1996).

                             ll.        Form of Indenture between CRIIMI MAE
                                        Financial Corporation and the trustee
                                        (incorporated by reference to Exhibit
                                        4.1 to S-3 Registration Statement filed
                                        with the Securities and Exchange
                                        Commission on September 12, 1995).

                             mm.        Form of Bond (incorporated by reference
                                        to Exhibit 4.2 to S-3 Registration
                                        Statement filed with the Securities and
                                        Exchange Commission on September 12,
                                        1995).

                             nn.        Seven Percent Funding Note due September
                                        17, 2031 dated September 22, 1995
                                        between CRIIMI MAE Financial Corporation
                                        II and the Federal Home Loan Mortgage
                                        Corporation (incorporated by reference
                                        to Exhibit 4(bbb) to Annual Report on
                                        Form 10-K for 1995).

                             oo.        Funding Note Purchase and Security
                                        Agreement dated as of September 22, 1995
                                        among the Federal Home Loan Mortgage
                                        Corporation, CRIIMI MAE Inc. and CRIIMI
                                        MAE Financial Corporation II
                                        (incorporated by reference to Exhibit
                                        4(ccc) to Annual Report on Form 10-K for
                                        1995).

                             pp.        Assignment and Agreement dated as of
                                        September 22, 1995 between CRIIMI MAE
                                        Inc. and CRIIMI MAE Financial
                                        Corporation II (incorporated by
                                        reference to Exhibit 4(ddd) to Annual
                                        Report on Form 10-K for 1995).

                             qq.        Funding Note dated December 15, 1995
                                        between CRIIMI MAE Financial Corporation
                                        III and the Federal National Mortgage
                                        Association (incorporated by reference
                                        to Exhibit 4(lll) to Annual Report on
                                        Form 10-K for 1995).

                             rr.        Assignment and Agreement dated as of the
                                        15th day of December, 1995, by and
                                        between CRIIMI MAE Inc. and CRIIMI MAE
                                        Financial Corporation III (incorporated
                                        by reference from Exhibit 4(mmm) to
                                        Annual Report on Form 10-K for 1995).

                             ss.        Funding Note Issuance and Security
                                        Agreement dated as of December 15, 1995
                                        among Federal National Mortgage
                                        Association, CRIIMI MAE Inc.

<PAGE>70

                                        and CRIIMI MAE Financial Corporation III
                                        (incorporated by reference to Exhibit
                                        4(nnn) to Annual Report on Form 10-K for
                                        1995).

                             tt.        Administrative Services Agreement dated
                                        June 30, 1995 between CRIIMI MAE Inc.
                                        and C.R.I., Inc. (incorporated by
                                        reference to Exhibit 10(d) to Annual
                                        Report on Form 10-K for 1995).

                             uu.        Asset Purchase Agreement dated as of
                                        June 30, 1995 among CRICO Mortgage
                                        Company, Inc., CRIIMI MAE Services,
                                        Inc., William B. Dockser and H. William
                                        Willoughby (incorporated by reference to
                                        Exhibit 10(e) to Annual Report on Form
                                        10-K for 1995).

                             vv.        Asset Purchase Agreement dated as of
                                        June 30, 1995 among CRI/AIM Management,
                                        Inc., CRIIMI MAE Services, Inc., William
                                        B. Dockser and H. William Willoughby
                                        (incorporated by reference to Exhibit
                                        10(f) to Annual Report on Form 10-K for
                                        1995).

                             ww.        Sublease dated June 30, 1995 between
                                        C.R.I., Inc. and CRIIMI MAE Inc.
                                        (incorporated by reference to Exhibit
                                        10(h) to Annual Report on Form 10-K for
                                        1995).

                             xx.        Reimbursement Agreement dated as of June
                                        30, 1995 between CRIIMI MAE Management,
                                        Inc. and C.R.I., Inc. (incorporated by
                                        reference to Exhibit 10(j) to Annual
                                        Report on Form 10-K for 1995).

                             yy.        Certificate of Merger dated June 30,
                                        1995 merging CRICO Mortgage Company,
                                        Inc., CRI/AIM Management, Inc. and CRI
                                        Acquisition, Inc. into CRIIMI MAE
                                        Management, Inc. (incorporated by
                                        reference to Exhibit 10(k) to Annual
                                        Report on Form 10-K for 1995).

                             zz.        Asset Purchase Agreement dated as of
                                        June 30, 1995 among C.R.I., Inc., CRI
                                        Acquisition, Inc. and William B. Dockser
                                        and H. William Willoughby (incorporated
                                        by reference from Exhibit 10(l) to the
                                        Annual Report on Form 10-K for 1995).

                             aaa.       Allonge to Amended and Restated
                                        Promissory Note dated as of June 23,
                                        1995 between C.R.I., Inc. and CRI/AIM
                                        Management, Inc. (incorporated by
                                        reference to Exhibit 10(c) to Annual
                                        Report on Form 10-K for 1995).

                  Exhibit No. 16 - Letter re: change in certifying accountant

                             a.         Letter from Arthur Andersen LLP to the
                                        SEC dated May 10, 2002 (incorporated by
                                        reference to Exhibit 16 to Current
                                        Report on Form 8-K filed with the SEC on
                                        May 10, 2002).

                  Exhibit No. 18 - Letter re: change in accounting principles

                             a.         Letter from the Company's former
                                        independent public accountants, Arthur
                                        Andersen LLP, regarding the change in
                                        accounting policy related to the
                                        recognition of special servicing fee
                                        revenue by CRIIMI MAE Services Limited
                                        Partnership, a wholly owned subsidiary
                                        of the Company (incorporated by
                                        reference to Exhibit 18 to Quarterly
                                        Report on Form 10-Q for the quarter
                                        ended September 30, 2001).

<PAGE>71

                  Exhibit No. 21 - Subsidiaries of the Registrant.

                             a.         CRIIMI, Inc., incorporated in Maryland.

                             b.         CRIIMI MAE Financial Corporation,
                                        incorporated in Maryland.

                             c.         CRIIMI MAE Financial Corporation II,
                                        incorporated in Maryland.

                             d.         CRIIMI MAE Financial Corporation III,
                                        incorporated in Maryland.

                             e.         CRIIMI MAE Management, Inc.,
                                        incorporated in Maryland.

                             f.         CRIIMI MAE QRS 1, Inc., incorporated in
                                        Delaware.

                             g.         CRIIMI MAE Services Limited Partnership,
                                        formed in Maryland.

                             h.         CRIIMI MAE CMBS Corp., incorporated in
                                        Delaware.

                             i.         CBO REIT, Inc., incorporated in Maryland
                                        (dissolved January 23, 2003).

                             j.         CMSLP Management Company, Inc.,
                                        incorporated in Maryland.

                             k.         CMSLP Holding Company, Inc.,
                                        incorporated in Maryland.

                             l.         CBO REIT II, Inc., incorporated in
                                        Maryland.

                             m.         CRIIMI Newco Member, Inc., incorporated
                                        in Maryland.

                             n.         CRIIMI Newco, LLC, formed in Delaware.

                  Exhibit No. 22 - Consents of Experts and Counsel

                             a.         Consent of Ernst & Young LLP

                  Exhibit No. 99 - Additional Exhibits

                             a.         Stipulation and Consent Order selling
                                        certain commercial mortgage-backed
                                        securities to Lehman Ali Inc. free and
                                        clear of liens, claims and encumbrances
                                        entered April 19, 2000 (incorporated by
                                        reference from Exhibit 99(a) to the
                                        Quarterly Report on Form 10-Q for
                                        quarter ended March 31, 2000).

                             b.         Motion for Entry of an Order Amending
                                        Stipulation and Agreed Order Selling
                                        certain Commercial Mortgage-Backed
                                        Securities to German American Capital
                                        Corporation Free and Clear of Liens,
                                        Claims and Encumbrances entered August
                                        3, 2000 (incorporated by reference from
                                        Exhibit 99(d) to the Quarterly Report on
                                        Form 10-Q for quarter ended June 30,
                                        2000).

                             c.         Notice of Motion to Approve Stipulation
                                        and Consent Order Selling Certain
                                        Commercial Mortgage-Backed Securities to
                                        Lehman Ali, Inc. Free and Clear of
                                        Liens, Claims and Encumbrances entered
                                        March 21, 2000 (incorporated by
                                        reference from Exhibit 99(a) to the
                                        Quarterly Report on Form 10-Q for
                                        quarter ended September 30, 2000).


<PAGE>72

                             d.         Notice of Motion to Approve Stipulation
                                        and Consent Order Selling Certain
                                        Commercial Mortgage-Backed Securities to
                                        ORIX Real Estate Capital Markets, LLC
                                        Free and Clear of Liens, Claims and
                                        Encumbrances and Compromising and
                                        Settling Claims entered on September 21,
                                        2000 (incorporated by reference from
                                        Exhibit 99(b) to the Quarterly Report on
                                        Form 10-Q for the quarter ended
                                        September 30, 2000).

                             e.         Stipulation and Consent Order selling
                                        certain Commercial Mortgage-Backed
                                        Securities to ORIX Real Estate Capital
                                        Markets, LLC Free and Clear of Liens,
                                        Claims and Encumbrances and Compromising
                                        and Settling claims entered by the
                                        Bankruptcy Court on October 12, 2000
                                        (incorporated by reference from Exhibit
                                        99(g) to the Quarterly Report on Form
                                        10-Q for the quarter ended September 30,
                                        2000).

                             f.         Amendment to Agreed Proceeds in
                                        Connection with Stipulation and Consent
                                        Order selling certain Commercial
                                        Mortgage-Backed Securities to ORIX Real
                                        Estate Capital Markets, LLC Free and
                                        Clear of Liens, Claims and Encumbrances
                                        and Compromising and Settling Claims
                                        entered by the Bankruptcy Court on
                                        October 30, 2000 (incorporated by
                                        reference from Exhibit 99(h) to the
                                        Quarterly Report on Form 10-Q for the
                                        quarter ended September 30, 2000).

                             g.         Order confirming Third Amended Joint
                                        Plan of Reorganization entered by the
                                        United States Bankruptcy Court for the
                                        District of Maryland, Greenbelt on
                                        November 22, 2000 (the "Confirmation
                                        Order") (incorporated by reference from
                                        Exhibit 99.1 to Form 8-K filed with the
                                        Securities and Exchange Commission on
                                        December 28, 2000).

                             h.         Exhibit 11 in support of the
                                        Confirmation Order - CMBS Sale Portfolio
                                        Schedule filed with the Bankruptcy Court
                                        on November 15, 2000 (incorporated by
                                        reference to Exhibit 99.1 to Form 8-K
                                        filed with the Securities and Exchange
                                        Commission on January 22, 2001).

                             i.         Exhibit 13 in support of the
                                        Confirmation Order - Definition of
                                        Distribution Record filed with the
                                        Bankruptcy Court on November 15, 2000
                                        (incorporated by reference to Exhibit
                                        99.2 to Form 8-K filed with the
                                        Securities and Exchange Commission on
                                        January 22, 2001).

                             j.         Exhibit 14 in support of the
                                        Confirmation Order - Unaudited Pro Forma
                                        Consolidated Financial Statements and
                                        Projected Financial Information filed
                                        with the Bankruptcy Court on November
                                        15, 2000 (incorporated by reference to
                                        Exhibit 99.3 to Form 8-K filed with the
                                        Securities and Exchange Commission on
                                        January 22, 2001).

                             k.         Exhibit 17 in support of the
                                        Confirmation Order - Liquidation
                                        Analysis filed with the Bankruptcy Court
                                        on November 15, 2000 (incorporated by
                                        reference to Exhibit 99.4 to Form 8-K
                                        filed with the Securities and Exchange
                                        Commission on January 22, 2001).

                             l.         Letter to Securities and Exchange
                                        Commission from the Company dated March
                                        27, 2002 regarding the representations
                                        received from Arthur Andersen LLP in
                                        connection with its audit of the
                                        Company's December 31, 2001 consolidated
                                        financial statements (incorporated by
                                        reference to Exhibit 99(p) to Annual
                                        Report on Form 10-K for 2001).

<PAGE>73

                             m.         Settlement Agreement, dated as of
                                        February 6, 2002, between CRIIMI MAE
                                        Inc. and First Union National Bank
                                        (incorporated by reference to Exhibit
                                        99.1 to Current Report on Form 8-K filed
                                        with the SEC on February 13, 2002.)

                             n.         Order Approving Settlement and
                                        Compromise with First Union National
                                        Bank dated March 5, 2002 (incorporated
                                        by reference to Exhibit 99.1 to Current
                                        Report on Form 8-K filed with the SEC on
                                        March 22, 2002).

                             o.         Special Serviced Loan Report relating to
                                        specially serviced loans underlying the
                                        Company's CMBS as of December 31, 2002
                                        (filed herewith).

                             p.         Certification of Chief Executive Officer
                                        pursuant to Section 906 of the
                                        Sarbanes-Oxley Act (filed herewith).

                             q.         Certification of Chief Financial Officer
                                        pursuant to Section 906 of the
                                        Sarbanes-Oxley Act (filed herewith).

         (b) Reports on Form 8-K

                      Date                             Purpose

                  December 4, 2002              To report:  (1) Amendment No. 1
                                                to the Investment Agreement,
                                                executed by CRIIMI MAE Inc. and
                                                Brascan Real Estate Financial
                                                Investments LLC on December 2,
                                                2002, and (2) a corrected
                                                version of the previously filed
                                                Investment Agreement, dated as
                                                of November 14, 2002, by and
                                                between CRIIMI MAE Inc. and
                                                Brascan Real Estate Financial
                                                Investments LLC.

                  December 16, 2002             To report a press release dated
                                                December 12, 2002 announcing (1)
                                                the completion of due diligence
                                                by an affiliate of Brascan Real
                                                Estate Financial Partners LLC
                                                for the previously announced
                                                transactions to recapitalize and
                                                refinance CRIIMI MAE Inc. and
                                                (2) the signing of a commitment
                                                letter by Bear, Stearns & Co.,
                                                Inc. to provide CRIIMI MAE Inc.
                                                with a secured financing of up
                                                to $300 million in the form of a
                                                repurchase transaction.

                  December 19, 2002             To report a press release dated
                                                December 18, 2002 announcing the
                                                receipt of a proposal from ORIX
                                                Capital Markets, LLC on December
                                                11, 2002, to purchase up to 100%
                                                of the subordinated commercial
                                                mortgage-backed securities owned
                                                by CRIIMI MAE Inc. or 100% of
                                                CRIIMI MAE Inc.'s outstanding
                                                common stock.

         (c)      Exhibits

     The list of Exhibits  required by Item 601 of Regulation S-K is included in
Item (a)(3) above.


<PAGE>74



                            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.

                                         CRIIMI MAE INC.



March 28, 2003                           /s/Barry S. Blattman
------------------                       --------------------------------------
DATE                                     Barry S. Blattman
                                         Chairman of the Board, Chief Executive
                                         Officer and President



<PAGE>75

     KNOW ALL  PERSONS  BY THESE  PRESENTS,  that each  person  whose  signature
appears below constitutes and appoints Barry S. Blattman,  his attorney-in-fact,
each with the power of substitution  for him in any and all capacities,  to sign
any  amendments  to this  Annual  Report  on Form 10-K and to file the same with
exhibits  thereto  and  other  documents  in  connection  therewith,   with  the
Securities  and Exchange  Commission,  hereby  ratifying and confirming all that
each said attorney-in-fact, or his substitute or substitutes, may do or cause to
be done by virtue hereof.

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed by the following  persons on behalf of the Registrant and
in the capacities and on the dates indicated:


March 28, 2003                           /s/Barry S. Blattman
-----------------------                  --------------------------------------
DATE                                     Barry S. Blattman
                                         Chairman of the Board, Chief Executive
                                         Officer and President (Principal
                                         Executive Officer)


March 28, 2003                           /s/Cynthia O. Azzara
----------------------                   --------------------------------------
DATE                                     Cynthia O. Azzara
                                         Senior Vice President, Chief
                                         Financial Officer and Treasurer
                                         (Principal Accounting Officer)

March 26, 2003                           /s/John R. Cooper
----------------------                   --------------------------------------
DATE                                     John R. Cooper
                                         Director

March 26, 2003                           /s/William B. Dockser
----------------------                   --------------------------------------
DATE                                     William B. Dockser
                                         Director


----------------------                   --------------------------------------
DATE                                     Joshua B. Gillon
                                         Director


----------------------                   --------------------------------------
DATE                                     Mark R. Jarrell
                                         Director

March 26, 2003                           /s/Donald J. MacKinnon
----------------------                   --------------------------------------
DATE                                     Donald J. MacKinnon
                                         Director

March 26, 2003                           /s/Robert J. Merrick
----------------------                   --------------------------------------
DATE                                     Robert J. Merrick
                                         Director

March 26, 2003                           Robert E. Woods
----------------------                   --------------------------------------
DATE                                     Robert E. Woods
                                         Director

<PAGE>76


                                 CERTIFICATIONS

I, Barry S. Blattman, certify that:

1.       I have reviewed this annual report on Form 10-K of CRIIMI MAE Inc.;

2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:

                  a)       designed such disclosure controls and procedures to
                           ensure that material information relating to the
                           registrant, including its consolidated subsidiaries,
                           is made known to us by others within those entities,
                           particularly during the period in which this annual
                           report is being prepared;

                  b)       evaluated the effectiveness of the registrant's
                           disclosure controls and procedures as of a date
                           within 90 days prior to the filing date of this
                           annual report (the "Evaluation Date"); and

                  c)       presented in this annual report our conclusions about
                           the effectiveness of the disclosure controls and
                           procedures based on our evaluation as of the
                           Evaluation Date;

5.       The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent functions):

                  a)       all significant deficiencies in the design or
                           operation of internal controls which could adversely
                           affect the registrant's ability to record, process,
                           summarize and report financial data and have
                           identified for the registrant's auditors any material
                           weaknesses in internal controls; and

                  b)       any fraud, whether or not material, that involves
                           management or other employees who have a significant
                           role in the registrant's internal controls; and

6.       The registrant's other certifying officers and I have indicated in this
         annual report whether there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.



Date: March 28, 2003                    /s/Barry S. Blattman
      -----------------                 --------------------------------------
                                        Barry S. Blattman
                                        Chairman of the Board, Chief Executive
                                        Officer and President


<PAGE>77


                          CERTIFICATIONS

I, Cynthia O. Azzara, certify that:

1.       I have reviewed this annual report on Form 10-K of CRIIMI MAE Inc.;

2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:

                  a)       designed such disclosure controls and procedures to
                           ensure that material information relating to the
                           registrant, including its consolidated subsidiaries,
                           is made known to us by others within those entities,
                           particularly during the period in which this annual
                           report is being prepared;

                  b)       evaluated the effectiveness of the registrant's
                           disclosure controls and procedures as of a date
                           within 90 days prior to the filing date of this
                           annual report (the "Evaluation Date"); and

                  c)       presented in this annual report our conclusions about
                           the effectiveness of the disclosure controls and
                           procedures based on our evaluation as of the
                           Evaluation Date;

5.       The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent functions):

                  a)       all significant deficiencies in the design or
                           operation of internal controls which could adversely
                           affect the registrant's ability to record, process,
                           summarize and report financial data and have
                           identified for the registrant's auditors any material
                           weaknesses in internal controls; and

                  b)       any fraud, whether or not material, that involves
                           management or other employees who have a significant
                           role in the registrant's internal controls; and

6.       The registrant's other certifying officers and I have indicated in this
         annual report whether there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.



Date: March 28, 2003                        /s/Cynthia O. Azzara
      ------------------                    --------------------------------
                                            Cynthia O. Azzara
                                            Senior Vice President,
                                            Chief Financial Officer
                                            and Treasurer

<PAGE>F-1

                      REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
CRIIMI MAE Inc.


We have audited the accompanying consolidated balance sheet of CRIIMI MAE Inc.
and subsidiaries (CRIIMI MAE) as of December 31, 2002, and the related
consolidated statements of income, changes in stockholders' equity and
comprehensive income, and cash flows for the year then ended. These financial
statements are the responsibility of CRIIMI MAE's management. Our responsibility
is to express an opinion on these financial statements based on our audit. The
financial statements of CRIIMI MAE as of December 31, 2001, and for the years
ended December 31, 2001 and 2000, were audited by other auditors who have ceased
operations and whose report dated March 21, 2002, expressed an unqualified
opinion on those statements and included an explanatory paragraph that disclosed
the change in CRIIMI MAE's method of accounting for derivatives and CRIIMI MAE
Services Limited Partnership's, a wholly-owned subsidiary of CRIIM MAE, method
of accounting for special servicing fee revenue both of which are discussed in
Note 3 to these consolidated financial statements.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the 2002 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
CRIIMI MAE at December 31, 2002, and the consolidated results of its operations
and its cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.

As discussed in Note 3 to the consolidated financial statements, on January 1,
2002, CRIIMI MAE changed its method of accounting for goodwill and other
intangible assets.


Ernst & Young LLP
McLean, Virginia
March 26, 2003


<PAGE>F-2


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Shareholders of
  CRIIMI MAE Inc.:

     We have audited the accompanying  consolidated balance sheets of CRIIMI MAE
Inc. and its subsidiaries (CRIIMI MAE) as of December 31, 2001 and 2000, and the
related consolidated  statements of income,  changes in shareholders' equity and
comprehensive  income and cash flows for the years ended December 31, 2001, 2000
and 1999.  These  financial  statements are the  responsibility  of CRIIMI MAE'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.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the consolidated  financial position of CRIIMI MAE as
of December 31, 2001 and 2000, and the consolidated  results of their operations
and their cash flows for the years ended  December 31, 2001,  2000 and 1999,  in
conformity with accounting principles generally accepted in the United States.

     As discussed in Note 3 to the consolidated financial statements,  effective
January 1, 2001, CRIIMI MAE changed its method of accounting for derivatives. In
addition,  as  discussed  in Note 3 to the  consolidated  financial  statements,
effective  January  1,  2001,  CRIIMI  MAE  Services  Limited   Partnership,   a
wholly-owned  subsidiary of CRIIMI MAE, changed its method of accounting related
to the recognition of special servicing fee revenue.




Arthur Andersen, LLP
Vienna, Virginia
March 21, 2002






This is a copy of the audit report previously issued by Arthur Andersen LLP in
connection with our filing of our Annual Report on Form 10-K for the year ended
December 31, 2001. This audit report has not been reissued by Arthur Andersen
LLP in connection with this Annual Report on Form 10-K. See Exhibit 16(a) for
further discussion.

<PAGE>F-3

                            CRIIMI MAE INC.
                      CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                            December 31,          December 31,
                                                                                2002                  2001
                                                                         -------------------   -------------------
<S>                                                                      <C>                   <C>
Assets:
  Mortgage assets:
    Subordinated CMBS and Other MBS, at fair value                            $ 540,755,663         $ 536,204,992
    CMBS pledged to secure Securitized Mortgage
         Obligation - CMBS, at fair value                                       326,472,580           296,477,050
    Insured mortgage securities, at fair value                                  275,340,234           343,091,303
  Equity investments                                                              6,247,868             9,312,156
  Other assets                                                                   24,987,348            37,180,968
  Receivables                                                                    16,293,489            18,973,680
  Servicing other assets                                                         13,775,138            18,250,824
  Servicing cash and cash equivalents                                            12,582,053             6,515,424
  Restricted cash and cash equivalents                                            7,961,575            38,214,277
  Other cash and cash equivalents                                                16,669,295            10,783,449
                                                                         -------------------   -------------------
Total assets                                                                $ 1,241,085,243       $ 1,315,004,123
                                                                         ===================   ===================
Liabilities:
  Variable-rate secured borrowing                                           $   214,672,536       $   244,194,590
  Series A senior secured notes                                                  92,788,479            99,505,457
  Series B senior secured notes                                                  68,491,323            63,937,383
  Payables and accrued expenses                                                  26,675,724            25,946,959
  Mortgage payable                                                                7,214,189             7,109,252
  Servicing liabilities                                                             756,865             3,660,173
  Securitized mortgage obligations:
    Collateralized bond obligations-CMBS                                        285,844,933           283,047,470
    Collateralized mortgage obligations-
       insured mortgage securities                                              252,980,104           326,558,161
                                                                         -------------------   -------------------
Total liabilities                                                               949,424,153         1,053,959,445
                                                                         -------------------   -------------------
Shareholders' equity:
  Preferred stock, $0.01 par; 75,000,000
     shares authorized; 3,424,992 and 3,597,992 shares
     issued and outstanding, respectively                                            34,250                35,980
  Common stock, $0.01 par; 300,000,000 shares
     authorized; 13,945,068 and 12,937,341 shares
      issued and outstanding, respectively                                          139,451               129,373
  Accumulated other comprehensive income (loss):
    Unrealized gains (losses) on mortgage assets                                103,109,822            (6,060,398)
    Unrealized losses on interest rate caps                                        (987,765)             (383,200)
  Deferred compensation                                                             (19,521)                    -
  Additional paid-in capital                                                    619,197,711           632,887,967
  Accumulated deficit                                                          (429,812,858)         (365,565,044)
                                                                         -------------------   -------------------
Total shareholders' equity                                                      291,661,090           261,044,678
                                                                         -------------------   -------------------
Total liabilities and shareholders' equity                                  $ 1,241,085,243       $ 1,315,004,123
                                                                         ===================   ===================

</TABLE>

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

<PAGE>F-4

                          CRIIMI MAE INC.
                 CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                                                      For the years ended December 31,
                                                                              2002               2001                 2000
                                                                        ------------------  ----------------    -----------------
<S>                                                                     <C>                 <C>                 <C>
Interest income:
  Subordinated CMBS                                                         $ 100,614,091     $ 105,522,833        $ 137,072,372
  Insured mortgage securities                                                  23,845,841        28,852,719           30,668,228
  Originated loans                                                                      -                 -           27,511,041

                                                                        ------------------  ----------------    -----------------
  Total interest income                                                       124,459,932       134,375,552          195,251,641
                                                                        ------------------  ----------------    -----------------
Interest and related expenses:
  Variable-rate secured borrowing                                              14,928,105        14,648,215                    -
  Series A senior secured notes                                                11,638,828         8,780,576                    -
  Series B senior secured notes                                                13,904,086         9,224,817                    -
  Fixed-rate collateralized bond obligations-CMBS                              25,788,683        25,518,425           25,345,519
  Fixed-rate collateralized mortgage obligations - insured securities          25,394,390        27,097,730           30,211,712
  Fixed-rate collateralized mortgage obligations- originated loans                      -                 -           22,716,109
  Variable-rate secured borrowings-CMBS                                                 -         7,325,059           43,785,955
  Fixed-rate senior unsecured notes                                                     -         2,712,142            9,125,004
  Other interest expense                                                          987,567         2,480,604            8,182,070
                                                                        ------------------  ----------------    -----------------
  Total interest expense                                                       92,641,659        97,787,568          139,366,369
                                                                        ------------------  ----------------    -----------------
Net interest margin                                                            31,818,273        36,587,984           55,885,272
                                                                        ------------------  ----------------    -----------------
  General and administrative expenses                                         (10,728,457)      (10,951,420)          (9,651,468)
  Depreciation and amortization                                                (1,095,861)       (3,718,485)          (3,771,064)
  Servicing revenue                                                            10,985,770         6,683,886                    -
  Servicing general and administrative expenses                                (8,854,569)       (5,570,162)                   -
  Servicing amortization, depreciation, and impairment expenses                (2,173,137)       (1,699,186)                   -
  Servicing restructuring expenses                                               (188,614)         (437,723)                   -
  Servicing gain on sale of servicing rights                                    4,864,274                 -                    -
  Servicing gain on sale of investment-grade CMBS                                 241,160                 -                    -
  Income tax (expense) benefit                                                   (460,288)          336,439                    -
  Equity in (losses) earnings from investments                                    (41,882)       (1,632,042)           1,512,005
  Other income, net                                                             2,646,033         3,983,412            4,158,891
  Net (losses) gains on mortgage security and originated
    loan dispositions                                                            (995,412)          (41,982)             524,395
  Impairment on CMBS                                                          (70,225,506)      (34,654,930)        (143,478,085)
  Hedging expense                                                              (1,101,746)       (1,073,392)                   -
  Recapitalization expenses                                                    (1,048,559)                -                    -
  Litigation expense                                                                    -                 -           (2,500,000)
  Reorganization items                                                                  -        (1,813,220)         (66,072,460)
  Emergence financing origination fee                                                   -        (3,936,616)                   -
  Gain on debt extinguishment                                                           -                 -           14,808,737
                                                                        ------------------  ----------------    -----------------
                                                                              (78,176,794)      (54,525,421)        (204,469,049)
                                                                        ------------------  ----------------    -----------------
Net loss before cumulative effect of changes in accounting principles         (46,358,521)      (17,937,437)        (148,583,777)

Cumulative effect of adoption of SFAS 142                                      (9,766,502)                -                    -

Cumulative effect of change in accounting principle related
  to servicing revenue                                                                  -         1,995,262                    -

Cumulative effect of adoption of SFAS 133                                               -          (135,142)                   -
                                                                        ------------------  ----------------    -----------------
Net loss before dividends accrued or paid on preferred shares                 (56,125,023)      (16,077,317)        (148,583,777)

Dividends accrued or paid on preferred shares                                  (8,122,791)       (8,145,481)          (6,911,652)
                                                                        ------------------  ----------------    -----------------
Net loss to common shareholders                                             $ (64,247,814)    $ (24,222,798)      $ (155,495,429)
                                                                        ==================  ================    =================
Net loss to common shareholders per common share:
      Basic - before cumulative effect of changes in
        accounting principles                                                     $ (3.97)          $ (2.35)            $ (25.02)
                                                                        ==================  ================    =================
      Basic - after cumulative effect of changes in
        accounting principles                                                     $ (4.69)          $ (2.18)            $ (25.02)
                                                                        ==================  ================    =================
      Diluted - before cumulative effect of changes in
        accounting principles                                                     $ (3.97)          $ (2.35)            $ (25.02)
                                                                        ==================  ================    =================
      Diluted - after cumulative effect of changes in
        accounting principles                                                     $ (4.69)          $ (2.18)            $ (25.02)
                                                                        ==================  ================    =================
  Shares used in computing basic loss per share                                13,710,914        11,087,790            6,214,479
                                                                        ==================  ================    =================

</TABLE>

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

<PAGE>F-5

                               CRIIMI MAE INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND
                              COMPREHENSIVE INCOME
                  For the years ended December 31, 2002, 2001 and 2000
<TABLE>
<CAPTION>
                                                                                 Accumulated
                              Preferred    Common    Additional                      Other     Unearned   Total
                              Stock Par   Stock Par    Paid-in   Accumulated    Comprehensive   Stock  Shareholders'  Comprehensive
                                Value       Value     Capital      Deficit      Income (Loss)   Comp.    Equity       Income (Loss)
                              ---------- ---------- -----------  ------------   -------------   -----  -----------    -------------
<S>                           <C>        <C>        <C>          <C>            <C>             <C>    <C>            <C>
Balance at January 1, 2000    $ 26,471  $ 59,955   $575,118,863 $(148,434,915) $(207,421,788)   $  -  $219,348,586

   Net loss                          -         -              -  (148,583,777)            -           (148,583,777)   $(148,583,777)
    Other comprehensive income:
     Adjustment to unrealized
      losses on mortgage assets      -         -              -             -   204,402,109        -    204,402,109     204,402,109
                                                                                                                      -------------
    Comprehensive income                                                                                               $ 55,818,332
                                                                                                                      =============
   Dividends accrued or paid on
    preferred shares                 -         -              -    (6,911,652)            -        -    (6,911,652)
   Conversion of preferred
     shares into common shares  (2,638)    2,396            242             -             -        -             -
   Common shares issued              -         2          2,748             -             -        -         2,750
   Preferred shares issued      37,412         -     37,374,490   (37,411,902)            -        -             -
                              --------- --------  ------------- --------------  -----------    ------   -----------
Balance at December 31, 2000    61,245    62,353    612,496,343  (341,342,246)   (3,019,679)       -    268,258,016

   Net loss                          -         -              -   (16,077,317)            -        -    (16,077,317)  $ (16,077,317)
    Other comprehensive income:
     Adjustment to unrealized
      losses on mortgage assets      -         -              -             -    (3,040,719)       -     (3,040,719)     (3,040,719)
     Adjustment to unrealized loss
      on interest rate cap           -         -              -             -      (383,200)       -       (383,200)       (383,200)
                                                                                                                       -------------
    Comprehensive loss                                                                                                $ (19,501,236)
                                                                                                                      ==============

   Dividends accrued or paid on
    preferred shares                 -         -              -    (8,145,481)            -        -     (8,145,481)
   Common shares issued related
    to preferred stock dividends     -    30,334     20,405,150             -             -        -     20,435,484
   Conversion of preferred
    shares into common shares  (25,265)   36,695        (11,430)            -             -        -              -
   Common shares issued              -         2          1,458             -             -        -          1,460
   Common shares redeemed in
    reverse stock split in lieu
    of fractional shares             -       (11)        (3,554)            -             -        -         (3,565)
                              --------- --------  --------------  ------------  ------------  ------    -----------
Balance at December 31, 2001    35,980   129,373    632,887,967  (365,565,044)   (6,443,598)       -    261,044,678

   Net loss                          -         -              -   (56,125,023)            -        -    (56,125,023)  $ (56,125,023)
    Other comprehensive income:
     Adjustment to unrealized
      gains and losses on
      mortgage assets                -         -              -             -   109,170,220        -    109,170,220     109,170,220
     Adjustment to unrealized
      losses on interest rate caps   -         -              -             -      (604,565)       -       (604,565)       (604,565)
                                                                                                                       -------------
    Comprehensive income                                                                                               $ 52,440,632
                                                                                                                       =============
   Dividends accrued or paid on
    preferred shares                 -         -              -    (8,122,791)            -        -     (8,122,791)
   Common shares issued related
    to preferred stock dividends     -     9,664      3,435,128             -             -        -      3,444,792
   Common shares issued              -        89         43,341             -             -        -         43,430
   Restricted stock issued           -       325        129,350             -             - (129,675)             -
   Amortization of deferred
    compensation                     -         -              -             -             -  110,154        110,154
   Redemption of Series E
    Preferred Stock             (1,730)        -    (17,298,075)            -             -       -     (17,299,805)
                              --------  --------  ------------- -------------  ------------ --------   ------------
Balance at December 31, 2002  $ 34,250  $139,451  $ 619,197,711 $(429,812,858) $102,122,057 $(19,521)  $291,661,090
                              ========  ========  ============= =============  ============ ========   ============

</TABLE>

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


<PAGE>F-6

                         CRIIMI MAE INC.
              CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                     For the years ended December 31,
                                                                            2002              2001              2000
                                                                       ----------------  ---------------  -----------------
<S>                                                                    <C>               <C>              <C>
Cash flows from operating activities:
    Net loss before dividends accrued or paid on preferred shares        $ (56,125,023)   $ (16,077,317)    $ (148,583,777)
    Adjustments to reconcile net loss before dividends accrued or
     paid on preferred shares to net cash provided by (used in)
     operating activities:
      Gain on sales of servicing rights and investment-grade CMBS           (5,105,434)               -                  -
      Amortization of discount and deferred financing costs on debt          7,581,595        4,650,912          8,535,024
      Accrual of extension fees related to Exit Debt                         4,308,290        3,142,159                  -
      Depreciation and other amortization                                    1,095,861        3,718,485          3,771,064
      Discount amortization on mortgage assets, net                        (11,310,220)     (10,121,136)       (14,179,631)
      Net losses (gains) on mortgage security and originated
       loan dispositions                                                       995,412           41,982           (524,395)
      Equity in losses (income) from investments                                41,882        1,632,042         (1,512,005)
      Servicing amortization, depreciation and impairment                    2,173,137        1,699,186                  -
      Hedging expense                                                        1,101,746        1,208,534                  -
      Amortization of deferred compensation                                    110,154                -                  -
      Impairment on CMBS                                                    70,225,506       34,654,930        143,478,085
      Cumulative effect of adoption of SFAS 142                              9,766,502                -                  -
      Cumulative effect of change in accounting principle related to
          servicing revenue                                                          -       (1,995,262)                 -
      Changes in assets and liabilities:
         Decrease (increase) in restricted cash and cash equivalents        30,252,702       57,631,724        (57,809,377)
         Decrease (increase) in receivables and other assets                   247,903       25,044,068         (3,033,944)
         (Decrease) increase in payables and accrued expenses               (2,269,482)     (44,468,312)        21,408,572
         Decrease (increase) in servicing other assets                       3,036,686       (1,369,229)                 -
         (Decrease) increase in servicing liabilities                       (2,903,308)         449,580                  -
      Sales (purchases) of other MBS, net                                    3,288,094       (4,244,330)        (4,208,635)
      Change in reorganization items accrual                                         -       (1,755,193)          (471,568)
      Non-cash reorganization items                                                  -         (366,529)        46,313,051
                                                                       ----------------  ---------------  -----------------
      Net cash provided by (used in) operating activities                   56,512,003       53,476,294         (6,817,536)
                                                                       ----------------  ---------------  -----------------
Cash flows from investing activities:
    Proceeds from mortgage security prepayments                             73,070,231       35,235,975         12,572,549
    Distributions received from AIM Limited Partnerships                     3,022,406        2,759,382          2,661,871
    Receipt of principal payments from insured mortgage securities
     and originated loans                                                    3,823,603        4,308,118         11,498,572
    Cash received in excess of income recognized on Subordinated CMBS        2,919,904        3,591,841          4,536,108
    Proceeds from sale of servicing rights by CMSLP                          8,810,923                -                  -
    Purchases of investment-grade CMBS by CMSLP                            (10,108,652)               -                  -
    Sales of investment-grade CMBS by CMSLP                                  5,659,875                -                  -
    Cash reflected upon consolidation of CMSLP                                       -        6,841,907                  -
    Proceeds from originated loan dispositions                                       -                -          5,970,384
    Proceeds from sale of CMBS, net                                                  -                -         72,591,594
    Proceeds from sale of CMO IV, net                                                -                -          3,519,468
                                                                       ----------------  ---------------  -----------------
      Net cash provided by investing activities                             87,198,290       52,737,223        113,350,546
                                                                       ----------------  ---------------  -----------------
Cash flows from financing activities:
    Principal payments on securitized mortgage debt obligations            (76,727,913)     (39,386,850)       (30,136,067)
    Principal payments on Exit Debt                                        (36,239,032)     (23,740,992)                 -
    Principal payments on secured borrowings and other debt obligations       (100,392)    (132,353,015)       (23,337,476)
    Proceeds from the issuance of common stock                                  43,431                -                  -
    Redemption of Series E Preferred Stock, including accrued dividends    (18,733,912)               -                  -
    Common stock redeemed                                                            -           (3,565)                 -
                                                                       ----------------  ---------------  -----------------
      Net cash used in financing activities                               (131,757,818)    (195,484,422)       (53,473,543)
                                                                       ----------------  ---------------  -----------------
Net increase (decrease) in other cash and cash equivalents                  11,952,475      (89,270,905)        53,059,467

Cash and cash equivalents, beginning of period (1)                          17,298,873      106,569,778         53,510,311
                                                                       ----------------  ---------------  -----------------
Cash and cash equivalents, end of period (1)                              $ 29,251,348     $ 17,298,873      $ 106,569,778
                                                                       ================  ===============  =================

</TABLE>

(1) Comprised of Servicing cash and cash equivalents and Other cash and cash
equivalents.

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



<PAGE>F-7


                                 CRIIMI MAE INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       ORGANIZATION

General

     CRIIMI MAE Inc.  (together with its consolidated  subsidiaries,  unless the
context otherwise indicates,  We or CRIIMI MAE) is a commercial mortgage company
structured as a  self-administered  real estate  investment  trust (or REIT). We
currently own, and manage,  primarily through our servicing  subsidiary,  CRIIMI
MAE Services Limited  Partnership (CMSLP or CRIIMI MAE Services),  a significant
portfolio of commercial  mortgage-related  assets.  We have focused primarily on
non-investment  grade (rated below BBB- or unrated)  commercial  mortgage-backed
securities  (subordinated CMBS). As the holder of the most subordinate tranches,
we are exposed to a higher risk of losses,  but we also have the  potential  for
enhanced returns.

     Our core  holdings  are  subordinated  CMBS  backed by pools of  commercial
mortgage loans on hotel,  multifamily,  retail and other commercial real estate.
We  also  own  directly  and  indirectly   government-insured   mortgage  backed
securities and a limited number of high-yield  mezzanine  commercial real estate
mortgage loans (mezzanine  loans). We also are a trader in investment grade CMBS
and residential mortgage-backed securities.

January 2003 Recapitalization

     On January 23, 2003, we completed a recapitalization  of all of the secured
debt incurred upon our emergence  from Chapter 11  reorganization  in April 2001
(the Exit Debt). This recapitalization was funded with approximately $44 million
from common  equity and secured  subordinated  debt  issuances  to Brascan  Real
Estate Finance Fund I L.P.  (BREF),  a private asset management fund established
by Brascan  Corporation  and a management  team led by Barry S.  Blattman,  $300
million in secured financing in the form of a repurchase transaction from a unit
of Bear,  Stearns & Co., Inc. (Bear Stearns) and a portion of our available cash
and liquid assets. This recapitalization increases our financial flexibility and
provides new additions to management including Barry S. Blattman, as Chairman of
the Board, Chief Executive Officer and President.

     Under the 2003  recapitalization,  BREF  acquired  1,212,617  shares of our
newly issued common stock, or approximately  8% of our outstanding  common stock
after  giving  effect  to  the  share  acquisition,  at  $11.50  per  share,  or
approximately $13.9 million.  BREF also received seven-year warrants to purchase
up to  336,835  additional  shares  of  common  stock at $11.50  per  share.  In
addition,  BREF purchased $30 million of our newly issued subordinated debt (the
BREF Debt) and,  at our  option,  BREF will  purchase  up to an  additional  $10
million of subordinated debt prior to January 23, 2004. The BREF Debt matures on
January  23,  2006 and bears  interest at an annual rate of 15%. If we decide to
sell the  additional  $10  million of  subordinated  debt to BREF,  it will bear
interest  at an annual  rate of 20% and mature on January  23,  2006.  We have a
right to defer  two-thirds  of the  interest  on the BREF  Debt (and half on the
additional  $10  million,  if sold to BREF)  during  its term.  The BREF Debt is
secured  by first  liens on the  equity  interests  of two of our  subsidiaries.
Although  this  effectively  provides  BREF with an indirect  lien on all of our
subordinated  CMBS that are held by three of our other lower-tier  subsidiaries,
Bear  Stearns has first liens on the equity  interests of these three lower tier
subsidiaries and on certain of the subordinated  CMBS held by one of these lower
tier subsidiaries.  Pursuant to an intercreditor agreement between BREF and Bear
Stearns,  our obligations under the BREF Debt are  contractually  subordinate to
the prior payment in full of our  obligations  under the $300 million in secured
financing provided by Bear Stearns.  Such intercreditor  agreement also provides
for  contractual  restrictions  on BREF's  ability to realize  upon its indirect
interest in the Bear Stearns first lien collateral.

     Bear Stearns  provided  $300 million in secured  financing in the form of a
repurchase  transaction (the Bear Stearns Debt) under the 2003 recapitalization.
The Bear  Stearns  Debt  matures  in 2006,  bears  interest  at a rate  equal to
one-month  LIBOR plus 3% and  requires  quarterly  principal  payments  of $1.25
million. The principal payments will increase to $1.875 million per quarter if a
collateralized debt obligation  transaction (or CDO) is not completed

<PAGE>F-8

by January 23, 2004.  The interest  rate will  increase by 1%, to one-month
LIBOR  plus 4%, if Bear  Stearns  structures  a CDO that  meets  certain  rating
requirements  and we decline to close. The Bear Stearns Debt is secured by first
direct and/or indirect liens on all of our subordinated CMBS. The indirect first
liens are first liens on the equity interests of three of our subsidiaries  that
hold certain  subordinated  CMBS.  A reduction  in the value of this  collateral
could require us to provide additional collateral or fund margin calls. Although
CRIIMI  MAE Inc.  is not a primary  obligor  of the Bear  Stearns  Debt,  it has
guaranteed all obligations under the debt.

Risks

     Our business is subject to a number of risks and  uncertainties  including,
but not  limited  to: (1) risks  associated  with  substantial  indebtedness  or
leverage;  (2)  borrowing  and  refinancing  risks;  (3) risks  associated  with
potential  margin calls under the Bear Stearns Debt; (4) the limited  protection
provided by hedging  transactions;  (5)  inherent  risks in owning  subordinated
CMBS; (6) the limited liquidity of the subordinated CMBS market;  (7) continuing
adverse effects of terrorist attacks, threats of further terrorist attacks, acts
of war, the economic slowdown and/or recession and other matters on defaults and
losses related to the mortgages  underlying our CMBS  portfolio;  (8) failure to
manage the mismatch between long-term assets and short-term funding; (9) risk of
loss of REIT  status and other tax  matters;  (10) the effect of  interest  rate
compression on the market price of our stock; (11) the effect of the yield curve
on borrowing  costs;  (12) results of operations  adversely  affected by factors
beyond our  control;  (13)  competition;  (14) risk of  becoming  subject to the
requirements  of the Investment  Company Act of 1940; (15) the effect of phantom
(non-cash) income on total income; and (16) taxable mortgage pool risk.

The Reorganization Plan

     On October 5, 1998,  CRIIMI  MAE Inc.  (unconsolidated)  and two  operating
subsidiaries,  CRIIMI MAE  Management,  Inc.  and CRIIMI MAE  Holdings II, L.P.,
filed for  relief  under  Chapter 11 of the U.S.  Bankruptcy  Code in the United
States  Bankruptcy  Court for the District of Maryland,  Southern  Division,  in
Greenbelt,  Maryland.  On November 22, 2000, the United States  Bankruptcy Court
for the District of Maryland,  entered an order  confirming  our  reorganization
plan, and we emerged from Chapter 11 on April 17, 2001.

     Our  reorganization  plan  provided  for the  payment in full of all of our
allowed  claims  primarily  through  the  Chapter 11  reorganization  (including
proceeds  from  certain  asset sales)  totaling  $847  million.  Included in the
Chapter 11 reorganization was approximately $262.4 million in Exit Debt provided
by affiliates of Merrill Lynch  Mortgage  Capital,  Inc. (or Merrill  Lynch) and
German American  Capital  Corporation (or GACC) through a variable-rate  secured
financing facility (the Exit Variable-Rate Secured Borrowing),  in the form of a
repurchase  transaction,  and approximately $166.8 million in Exit Debt provided
through  two  series of senior  secured  notes  issued to some of our  unsecured
creditors.  All rights and  obligations of Merrill Lynch and GACC under the Exit
Variable-Rate  Secured Borrowing operative agreements were subsequently assigned
to ORIX Capital Markets,  LLC. The Exit Debt was directly or indirectly  secured
by substantially all of our assets, and virtually all of our cash flows relating
to existing assets were used to satisfy principal,  interest and fee obligations
under  the  Exit  Debt  and to pay our  general  and  administrative  and  other
operating  expenses.  The terms of the Exit Debt  significantly  restricted  the
amount of cash  dividends that could be paid to  shareholders.  See Note 7 for a
further  discussion  of the Exit Debt.  All Exit Debt was paid off in connection
with the January  2003  recapitalization.  Under our  reorganization  plan,  the
holders of our equity retained their shares of stock.

Other

     Prior to the  Chapter  11  filing,  our  primary  activities  included  (a)
acquiring  subordinated  CMBS,  (b)  originating  and  underwriting   commercial
mortgage  loans,  (c)  securitizing  pools  of  commercial  mortgage  loans  and
resecuritizing  pools of  subordinated  CMBS,  and (d) primarily  through CMSLP,
performing  servicing  functions  principally with respect to the mortgage loans
underlying our subordinated CMBS.

     We were  incorporated  in  Delaware  in 1989  under  the name  CRI  Insured
Mortgage  Association,  Inc.  In July 1993,  CRI  Insured  Mortgage  Association
changed its name to CRIIMI MAE Inc.  and  reincorporated  in  Maryland.  In June
1995, certain mortgage businesses  affiliated with C.R.I., Inc. were merged into
CRIIMI MAE Inc. (the Merger).  We are not a government  sponsored  entity or in
any way  affiliated  with the United  States  government  or any  United  States
government agency.

<PAGE>F-9

REIT Status/Net Operating Loss for Tax Purposes

     REIT Status.  We have  elected to qualify as a REIT for tax purposes  under
sections  856-860 of the Internal  Revenue Code. We are required to meet income,
asset,  ownership and distribution  tests to maintain our REIT status.  Although
there  can  be no  assurance,  we  believe  that  we  have  satisfied  the  REIT
requirements  for all years through,  and including  2002.  There can also be no
assurance that we will maintain our REIT status for 2003 or subsequent years. If
we fail to maintain our REIT status for any taxable  year, we will be taxed as a
regular domestic corporation subject to federal and state income tax in the year
of disqualification and for at least the four subsequent years. Depending on the
amount of any such federal and state income tax, we may have insufficient  funds
to pay any such tax and also may be unable to comply with our obligations  under
the operative documents evidencing the Bear Stearns and BREF Debt.

     We and two of our  subsidiaries  incorporated  in 2001  jointly  elected to
treat such two subsidiaries as taxable REIT subsidiaries (TRS) effective January
1, 2001. The TRSs allow us to earn  non-qualifying REIT income while maintaining
our REIT  status.  For tax and  other  reasons,  a  reorganization  of CMSLP was
effected  such  that the  partnership  interests  of CMSLP are held by these two
subsidiaries.

     Our 2002 and 2001 Net Operating Loss for Tax Purposes/Trader Election

     In 2000,  we began trading in both short and longer  duration  fixed income
securities,  including  non-investment  grade  and  investment  grade  CMBS  and
investment grade residential  mortgage-backed securities (such securities traded
and all other securities of the type described constituting the "Trading Assets"
to the extent owned by us or any qualified REIT  subsidiary,  meaning  generally
any wholly owned subsidiary that is not a taxable REIT subsidiary). Such Trading
Assets are classified as  Subordinated  CMBS and Other MBS on our balance sheet.
We seek maximum total return through short-term trading, consistent with prudent
investment management. Returns from such activities include interest and capital
appreciation/depreciation  resulting from changes in interest rates and spreads,
if any, and other arbitrage opportunities.

     Internal   Revenue  Service   Procedure   99-17  provides   securities  and
commodities traders with the ability to elect  mark-to-market  treatment for the
2000 tax year and all future tax years,  unless the election is revoked with the
consent of the Internal Revenue  Service.  On March 15, 2000, we elected for tax
purposes to be classified as a trader in securities effective January 1, 2000.

     As a result of our  election  in 2000 to be taxed as a trader  for  federal
income tax  purposes,  we  recognized a  mark-to-market  tax loss on our Trading
Assets on January 1, 2000 of approximately $478 million (the January 2000 Loss).
Such loss is expected to be  recognized  evenly for tax purposes over four years
beginning  with the year 2000 (i.e.,  approximately  $120 million per year).  We
expect such loss to be  ordinary,  which  would allow us to offset our  ordinary
income.  Additionally,  as a result of our trader  election,  we are required to
mark-to-market  our  Trading  Assets on a tax basis at the end of each tax year.
Any  increase or decrease in the value of the Trading  Assets as a result of the
year-end  mark-to-market  requirement will generally result in either a tax gain
(if an increase in value) or a tax loss (if a decrease in value). Such tax gains
or losses,  as well as any  realized  gains or losses  from the  disposition  of
Trading  Assets  during each year,  are also  expected  to be ordinary  gains or
losses.  Assets  transferred  to a REIT  subsidiary,  CBO  REIT,  as part of our
Chapter 11 reorganization (and subsequently  transferred by CBO REIT to CBO REIT
II as  part  of our  recent  recapitalization)  are  no  longer  required  to be
marked-to-market  on a tax basis since CBO REIT was not, and CBO REIT II is not,
a trader in securities for tax purposes. As a result, the mark-to-market of such
assets ceased as of April 17, 2001.

     Since gains and losses  associated with trading  activities are expected to
be ordinary,  any gains will  generally  increase  taxable income and any losses
will  generally  decrease  taxable  income.  Since the REIT rules  require us to
distribute  90% of our taxable  income to our  shareholders,  any  increases  in
taxable income from trading  activities will generally  result in an increase in
REIT distribution  requirements and any decreases in taxable income from trading
activities will generally result in a decrease in REIT distribution requirements
(or, if taxable  income is reduced to zero  because of a net  operating  loss or
loss carry forward, eliminate REIT distribution requirements).

<PAGE>F-10

     Gains and losses from the mark-to-market requirement (including the January
2000 Loss) are  unrealized.  This creates a mismatch  between REIT  distribution
requirements  and cash  flow  since  the  REIT  distribution  requirements  will
generally  fluctuate due to the  mark-to-market  adjustments,  but the cash flow
from our Trading  Assets will not  fluctuate  as a result of the  mark-to-market
adjustments.

     We generated a net operating loss for tax purposes of  approximately  $83.6
million and $90.6  million  during the years ended  December  31, 2002 and 2001,
respectively.  As such, our taxable income was reduced to zero and, accordingly,
our REIT  distribution  requirement  was  eliminated  for 2002 and  2001.  As of
December 31, 2002,  our  accumulated  and unused net operating loss (or NOL) was
$223.8  million.  Any accumulated  and unused net operating  losses,  subject to
certain  limitations,  generally  may be carried  forward  for up to 20 years to
offset taxable income until fully utilized. Accumulated and unused net operating
losses  cannot be  carried  back  because we are a REIT.  If a Trading  Asset is
marked down  because of an increase in interest  rates,  rather than from credit
losses,  such  mark-to-market  losses may be recovered over time through taxable
income.  Any  recovered  mark-to-market  losses will  generally be recognized as
taxable income,  although there is expected to be no  corresponding  increase in
cash flow.

     There can be no assurance that our position with respect to our election as
a trader in securities  will not be challenged by the Internal  Revenue  Service
(or IRS) and, if challenged, will be defended successfully by us. As such, there
is a risk that the January 2000 Loss will be limited or disallowed, resulting in
higher  tax basis  income  and a  corresponding  increase  in REIT  distribution
requirements.  It is possible  that the amount of any  under-distribution  for a
taxable  year could be  corrected  with a  "deficiency  dividend"  as defined in
Section 860 of the Internal Revenue Code,  however,  interest may also be due to
the IRS on the amount of this under-distribution.

     If we are required to make taxable income distributions to our shareholders
to satisfy required REIT  distributions,  all or a substantial  portion of these
distributions, if any, may be in the form of non-cash dividends. There can be no
assurance  that such  non-cash  dividends  would  satisfy the REIT  distribution
requirements  and, as such,  we could lose our REIT status or may not be able to
satisfy  our  obligations  under the  operative  documents  evidencing  the Bear
Stearns and BREF Debt.

     Our future use of NOLs for tax purposes could be  substantially  limited in
the event of an "ownership  change" as defined under Section 382 of the Internal
Revenue  Code.  As a result of these  limitations  imposed by Section 382 of the
Internal Revenue Code, in the event of an ownership  change,  our ability to use
our NOL  carryforwards in future years may be limited and, to the extent the NOL
carryforwards  cannot be fully  utilized  under  these  limitations  within  the
carryforward   periods,   the  NOL  carry  forwards  would  expire   unutilized.
Accordingly,  after any ownership change,  our ability to use our NOLs to reduce
or offset taxable income would be  substantially  limited or not available under
Section 382. In general,  a company reaches the "ownership  change" threshold if
the "5% shareholders" increase their aggregate ownership interest in the company
over a  three-year  testing  period  by more  than  50  percentage  points.  The
ownership  interest is measured in terms of total market value of the  company's
capital stock.

     We do not believe the BREF  investment  in our common  stock and warrant to
purchase  common stock has created an  "ownership  change" under Section 382. In
addition,  we are not aware of any other  acquisition  of shares of our  capital
stock that has created an "ownership change" under Section 382. Currently, we do
not know of any potential  acquisition  of shares of our capital stock that will
create an "ownership  change" under Section 382 of the Internal Revenue Code. We
have adopted a  shareholder  rights plan and amended our charter to minimize the
chance of an ownership  change within the meaning of Section 382 of the Internal
Revenue Code;  however there can be no assurance  that an ownership  change will
not occur.

     If an "ownership  change" occurs under Section 382 of the Internal  Revenue
Code, our  prospective  use of our  accumulated and unused NOL and the remaining
January 2000 Loss of a combined total amount of approximately  $343.4 million as
of  December  31,  2002 will be  limited.  If we had lost our ability to use our
accumulated  NOL as of January  1,  2002,  our  taxable  income  would have been
approximately  $36.0 million for the year ended December 31, 2002. This increase
in taxable  income would have created a requirement  to  distribute  90% of this
income  to our  shareholders  in order to  maintain  REIT  status,  and would be
subject to corporate  income tax to the extent we do not distribute  100% of our
taxable income to shareholders.  If we were unable to distribute at

<PAGE>F-11

least 90% of our taxable income to shareholders, we would have been subject
to corporate Federal and state income taxes of up to approximately $14.7 million
for the year ended December 31, 2002.

2.       INVESTMENT COMPANY ACT OF 1940

     Under the Investment Company Act of 1940, as amended, an investment company
is required to register with the Securities and Exchange Commission (SEC) and is
subject to extensive restrictive and potentially adverse regulation relating to,
among other things, operating methods, management,  capital structure, dividends
and  transactions  with  affiliates.  However,  as  described  below,  companies
primarily engaged in the business of acquiring  mortgages and other liens on and
interests  in  real  estate   (Qualifying   Interests)  are  excluded  from  the
requirements of the Investment Company Act.

     To qualify  for the  Investment  Company  Act  exclusion,  we,  among other
things,  must maintain at least 55% of our assets in Qualifying  Interests  (the
55%  Requirement)  and are  also  required  to  maintain  an  additional  25% in
Qualifying  Interests  or other real  estate-related  assets  (Other Real Estate
Interests and such requirement,  the 25% Requirement).  According to current SEC
staff interpretations,  we believe that all of our  government-insured  mortgage
securities constitute Qualifying Interests. In accordance with current SEC staff
interpretations,  we believe that all of our subordinated  CMBS constitute Other
Real Estate Interests and that certain of our subordinated  CMBS also constitute
Qualifying Interests.  On certain of our subordinated CMBS, we, along with other
rights,  have the  unilateral  right to direct  foreclosure  with respect to the
underlying mortgage loans. Based on such rights and our economic interest in the
underlying  mortgage  loans,  we  believe  that the  related  subordinated  CMBS
constitute  Qualifying  Interests.  As of December 31, 2002,  we believe that we
were in compliance with both the 55% Requirement and the 25% Requirement.

     If the SEC or its staff were to take a different  position  with respect to
whether such subordinated CMBS constitute Qualifying Interests,  we could, among
other things,  be required  either (i) to change the manner in which we conduct
our operations to avoid being  required to register as an investment  company or
(ii) to register as an investment company, either of which could have a material
adverse  effect on us. If we were  required  to  change  the  manner in which we
conduct our business,  we would likely have to dispose of a significant  portion
of our  subordinated  CMBS or acquire  significant  additional  assets  that are
Qualifying  Interests.  Alternatively,  if we were  required  to  register as an
investment  company,  we expect that our operating expenses would  significantly
increase and that we would have to significantly reduce our indebtedness,  which
could also require us to sell a significant portion of our assets. No assurances
can  be  given  that  any  such  dispositions  or  acquisitions  of  assets,  or
deleveraging,  could be  accomplished  on favorable  terms, or at all. There are
restrictions  under  certain  of the  operative  documents  evidencing  the Bear
Stearns and BREF Debt which could limit possible actions we may take in response
to any need to modify our  business  plan in order to register as an  investment
company or avoid the need to register.  Certain  dispositions or acquisitions of
assets could require  approval or consent of certain  holders of this Debt.  Any
such results could have a material adverse effect on us.

     Further, if we were deemed an unregistered  investment company, we could be
subject to  monetary  penalties  and  injunctive  relief.  We would be unable to
enforce  contracts  with third  parties and third  parties  could seek to obtain
rescission  of  transactions  undertaken  during  the  period we were  deemed an
unregistered   investment  company,  unless  the  court  found  that  under  the
circumstances,  enforcement  (or  denial  of  rescission)  would  produce a more
equitable result than  nonenforcement  (or grant of rescission) and would not be
inconsistent with the Investment Company Act.

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation and Minority Interests

     The  consolidated  financial  statements  reflect the  financial  position,
results of operations and cash flows of CRIIMI MAE and all of our majority-owned
and  controlled   subsidiaries  for  all  periods  presented.   All  significant
intercompany accounts and transactions have been eliminated in consolidation.

<PAGE>F-12

     Effective  July  2001,  we  acquired  voting  control  of CMSLP  and  began
accounting  for this  subsidiary  on a  consolidated  basis.  We had  previously
accounted  for CMSLP  under the  equity  method.  CMSLP's  assets,  liabilities,
revenues and expenses are labeled as "servicing"  on the Company's  consolidated
financial statements.

Method of Accounting

     Our consolidated  financial statements are prepared on the accrual basis of
accounting in accordance with accounting  principles  generally  accepted in the
United  States.  The  preparation  of financial  statements in  conformity  with
accounting   principles   generally  accepted  in  the  United  States  requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial  statements and the reported
amounts of revenues and expenses  during the reporting  period.  Actual  results
could differ from those estimates.

Reclassifications

     We have  reclassified  certain 2001 and 2000 amounts to conform to the 2002
presentation.

Other Cash and Cash Equivalents and Servicing Cash and Cash Equivalents

     Cash and cash equivalents consist of U.S. Government and agency securities,
certificates  of deposit,  time  deposits  and  commercial  paper with  original
maturities of three months or less.

Restricted Cash and Cash Equivalents

     Restricted  cash and cash  equivalents  consist  of cash,  certificates  of
deposit and interest  bearing  securities  maturing within three months from the
date of purchase  that are legally  restricted  pursuant to covenants  under the
post-emergence debt or, pursuant to various stipulation and consent orders which
provide for adequate  protection with certain of our creditors which  litigation
was not resolved prior to our emergence from Chapter 11.

Transfer of Financial Assets

     We  have  transferred   assets  (mortgages  and  mortgage   securities)  in
securitization  transactions where the transferred assets become the sole source
of repayment  for newly issued debt.  These  transfers of financial  assets were
accounted for in  accordance  with SFAS No. 125,  "Accounting  for Transfers and
Servicing of Financial Assets and  Extinguishment of Liabilities," as amended by
SFAS No. 140,  "Accounting  for Transfers and Servicing of Financial  Assets and
Extinguishments  of  Liabilities - a Replacement of FASB Statement No. 125." The
transfer is treated as a sale when both legal and control  rights to a financial
asset are transferred.  Transfers are assessed on an individual component basis.
In a  securitization,  the cost  basis of the  original  assets  transferred  is
allocated to each of the new financial  components  based upon the relative fair
value of the new financial  components.  For components  where sale treatment is
achieved,  a gain  or  loss  is  recognized  for  the  difference  between  that
component's  allocated  cost basis and fair  value.  For  components  where sale
treatment is not achieved,  an asset is recorded representing the allocated cost
basis of the new  financial  components  retained and the related  incurrence of
debt is also recorded. In transactions where none of the components are sold, we
recognize the incurrence of debt and the character of the collateralizing assets
remains unchanged.

Income Recognition and Carrying Basis

     Subordinated CMBS and Other Mortgage-Backed Securities

     Prior to April 1, 2001, we recognized  income from  subordinated CMBS using
the effective  interest method,  using the anticipated  yield over the projected
life of the investment.  Changes in anticipated yields were generally calculated
due to revisions in estimates of future credit losses,  actual losses  incurred,
revisions in estimates of future  prepayments and actual  prepayments  received.
Changes in anticipated yields resulting from prepayments were recognized through
a cumulative  catch-up  adjustment at the date of the change which reflected the
change in income of the security  from the date of purchase  through the date of
change in anticipated  yield. The new yield was then used for income recognition
for  the  remaining  life  of the  investment.  Changes  in  anticipated  yields
resulting  from

<PAGE>F-13

reduced  estimates of losses were recognized on a prospective  basis.  When
other than temporary  impairment was  recognized,  a new yield was calculated on
the CMBS  based on its new cost basis  (fair  value at date of  impairment)  and
expected  future cash flows.  This  revised  yield was  employed  prospectively.
Effective April 1, 2001, we adopted  Emerging Issues Task Force (EITF) Issue No.
99-20,  "Recognition of Interest Income and Impairment on Purchased and Retained
Beneficial  Interests in Securitized  Financial  Assets," to recognize income on
our  subordinated  CMBS. Under EITF 99-20, we calculate a revised yield based on
the current  amortized  cost of the investment and the revised future cash flows
when there has been a change in estimated  future cash flows from the cash flows
previously  projected  (due to credit losses  and/or  prepayment  speeds).  This
revised yield is applied prospectively to recognize interest income. We classify
our subordinated  CMBS as available for sale and carry them at fair market value
where  temporary   changes  in  fair  value  are  recorded  as  a  component  of
shareholders' equity.

     Interest   income  on  other   mortgage-backed   securities   consists   of
amortization   of  the  discount  or  premium  on   primarily   investment-grade
securities,  plus the stated investment interest payments received or accrued on
other mortgage-backed securities. The difference between the cost and the unpaid
principal  balance at the time of  purchase  is carried as a discount or premium
and amortized over the remaining  contractual  life of the investment  using the
effective  interest  method.  The effective  interest method provides a constant
yield of income over the term of the investment.

     Our other  mortgage-backed  securities  are  classified as  "available  for
sale." As a result,  we carry these  securities  at fair value where  changes in
fair value are recorded as a component of shareholders' equity. Upon the sale of
such securities, any gain or loss is recognized in the income statement.

     Insured Mortgage Securities

     Insured mortgage securities income consists of amortization of the discount
or premiums plus the stated mortgage interest payments received or accrued.  The
difference  between  the cost and the  unpaid  principal  balance at the time of
purchase is carried as a discount or premium and  amortized  over the  remaining
contractual  life of the  mortgage  using the  effective  interest  method.  The
effective  interest  method provides a constant yield of income over the term of
the mortgage.

     Our insured mortgage  securities are classified as "available for sale." As
a result,  we carry our insured mortgage  securities at fair value where changes
in fair value are recorded as a component of shareholders' equity.

     Our  consolidated  investment in insured  mortgage  securities  consists of
participation  certificates  evidencing a 100% undivided  beneficial interest in
government-insured  multifamily mortgages issued or sold pursuant to programs of
the Federal  Housing  Administration,  or FHA,  and  mortgage-backed  securities
guaranteed by the Government National Mortgage Association,  or GNMA. Payment of
principal  and  interest  on  FHA-insured  certificates  is  insured by the U.S.
Department of Housing and Urban Development,  or HUD, pursuant to Title 2 of the
National Housing Act. Payment of principal and interest on GNMA  mortgage-backed
securities is  guaranteed  by GNMA  pursuant to Title 3 of the National  Housing
Act.

     Equity Investments

     CRIIMI,  Inc.,  a  wholly  owned  subsidiary,   owns  all  of  the  general
partnership  interests in American Insured Mortgage Investors,  American Insured
Mortgage Investors - Series 85, L.P., American Insured Mortgage Investors L.P. -
Series  86  and  American   Insured   Mortgage   Investors   L.P.  -  Series  88
(collectively,  referred  to as the AIM Limited  Partnerships).  The AIM Limited
Partnerships own mortgage assets which are substantially  similar to our insured
mortgage  securities.  CRIIMI,  Inc.  receives  the general  partner's  share of
income, loss and distributions (which ranges from 2.9% to 4.9%) from each of the
AIM Limited Partnerships. In addition, CRIIMI MAE and CRIIMI MAE Management each
own 50% of the limited partnership that owns a 20% limited partnership  interest
in the  adviser to the AIM Limited  Partnerships.  We are  utilizing  the equity
method  of  accounting  (because  we do not  control  these  investees)  for our
investment  in the AIM Limited  Partnerships  and  advisory  partnership,  which
provides  for  recording  our share of net earnings or losses in the AIM Limited
Partnerships and advisory  partnership reduced by distributions from the limited
partnerships and adjusted for purchase accounting amortization.

<PAGE>F-14

     On July 1, 2001, we began accounting for our servicing  subsidiary,  CMSLP,
on a  consolidated  basis as opposed to  accounting  for CMSLP  under the equity
method.  This change in accounting  method was a result of a  reorganization  in
which the partnership interests in CMSLP are now held by two of our wholly-owned
and controlled  taxable REIT  subsidiaries.  Prior to July 1, 2001, we accounted
for CMSLP under the equity  method  since we did not  control the voting  common
stock of the general partner of CMSLP. CMSLP's assets, liabilities, revenues and
expenses are labeled as "servicing" on the consolidated financial statements.

Impairment

     Subordinated CMBS and Other Mortgage-Backed Securities

     We assess each subordinated  CMBS for other than temporary  impairment when
the fair market value of the asset declines below amortized cost and when one of
the  following  conditions  also exists:  (1) our revised  projected  cash flows
related to the subordinated CMBS and the subordinated  CMBS's current cost basis
result  in a  decrease  in the yield  compared  to what was  previously  used to
recognize  income,  or (2)  fair  value  has  been  below  amortized  cost for a
significant period of time and we conclude that we no longer have the ability or
intent to hold the  security  for the period  that fair value is  expected to be
below  amortized  cost through the period of time we expect the value to recover
to  amortized  cost.  This  decrease in yield would be primarily a result of the
credit quality of the security  declining and a  determination  that the current
estimate of expected  future credit losses  exceeds  credit losses as originally
projected  or that  expected  credit  losses will occur  sooner than  originally
projected.  The amount of  impairment  loss is  measured by  comparing  the fair
value, based on available market information and management's  estimates, of the
subordinated  CMBS to its  current  amortized  cost  basis;  the  difference  is
recognized as a loss in the income statement.  We assess current economic events
and conditions that impact the value of our subordinated CMBS and the underlying
real  estate in making  judgments  as to  whether  or not other  than  temporary
impairment has occurred.  Impairment  charges on subordinated  CMBS  aggregating
approximately  $70.2 million,  $34.7 million and $143.5 million were  recognized
during the years ended December 31, 2002, 2001 and 2000, respectively.  See Note
5 for further discussion of the impairment charges.

     We assess  each  other  mortgage-backed  security,  or MBS,  for other than
temporary  impairment when the fair market value of the security  declines below
the respective amortized cost and we conclude that we no longer have the ability
to hold the security through the market downturn.  The amount of impairment loss
is  measured by  comparing  the fair value of the  security to its current  cost
basis;  the difference is recognized as a loss in the income  statement.  We did
not recognize any impairment losses on our other MBS during 2002, 2001 and 2000.

     Insured Mortgage Securities

     We  assess  each  insured  mortgage   security  for  other  than  temporary
impairment when the fair market value of the asset declines below amortized cost
for a  significant  period of time and we  conclude  that we no longer  have the
ability  to hold the  security  through  the  market  downturn.  The  amount  of
impairment  loss is measured by comparing the fair value of an insured  mortgage
security to its current amortized cost basis, with the difference  recognized as
a loss in the income  statement.  We did not  recognize  any  impairment  on our
insured mortgage securities in 2002, 2001 and 2000.

     Equity Investments

     We recognize  impairment on our investments  accounted for under the equity
method if a decline in the market  value of the  investment  below its  carrying
basis is judged to be "other  than  temporary".  During  2002,  the AIM  Limited
Partnerships  experienced a significant  amount of  prepayments of their insured
mortgages.  These  prepayments  reduced cash flows on our 20%  investment in the
advisor to the AIM Limited  Partnerships.  As a result,  in accordance with SFAS
No. 142, "Goodwill and Other Intangible  Assets," and SFAS No. 144,  "Accounting
for the  Impairment  or Disposal of  Long-Lived  Assets," the advisor to the AIM
Limited  Partnerships  evaluated its  investment  in the advisory  contracts for
impairment.  The estimated future  undiscounted  cash flows from this investment
were  projected to be less than the book value of the  investment as of December
31, 2002. As a result,  the advisor believed that its investment in the advisory
contracts  was  impaired at December 31, 2002.  The advisor  estimated  the fair
value of its investment  using a discounted cash flow  methodology.  The advisor
wrote down the value of its  investment  in the  advisory  contracts  to the AIM
Limited  Partnerships and recorded an impairment

<PAGE>F-15

charge.  We  recorded  our  portion  of  the  impairment  charge,  totaling
approximately  $460,000,  as of December 31,  2002.  This  impairment  charge is
included in Equity in (losses)  earnings from  investments  in our  Consolidated
Statement of Income.  This  investment is included in our  Portfolio  Investment
segment. We did not recognize any impairment losses on our equity investments in
2001 and 2000.

Receivables

     Receivables  primarily  consist of interest and principal  receivables.  In
addition, prepayments in the insured mortgage securities portfolio, if any, that
have not yet been received are included in receivables.

Other Assets

     Other assets primarily  include deferred  financing costs,  deferred costs,
investment in mezzanine loans and real estate owned.

     The assets  acquired and costs incurred in connection  with the Merger were
recorded using the purchase method of accounting.  The amounts  allocated to the
assets acquired were based on management's  estimate of their fair values,  with
the excess of purchase price over fair value allocated to goodwill. The goodwill
and intangible  assets  acquired were amortized using the  straight-line  method
over 10 years. As discussed later in this footnote, we wrote-off $9.8 million of
goodwill and intangible assets related to these merger assets on January 1, 2002
upon the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets."

     Deferred  financing  costs  are  costs  incurred  in  connection  with  the
establishment of our financing  facilities and are amortized using the effective
interest  method  over the terms of the  borrowings.  Also  included in deferred
costs are  mortgage  selection  fees,  which  were paid in  connection  with the
insured mortgage securities.  These deferred costs are being amortized using the
effective  interest  method on a  specific  mortgage  basis from the date of the
acquisition  of the  related  mortgage  over  the  term  of the  mortgage.  Upon
disposition of a mortgage, the related unamortized fee is treated as part of the
mortgage  asset  carrying  value  in order  to  measure  the gain or loss on the
disposition.

     Property held for  investment is carried at cost and  depreciated  over its
estimated  useful  life and will be  evaluated  for  impairment  when  events or
changes in circumstances  indicate that the carrying amount of the asset may not
be  recoverable.  At such time, if the expected future  undiscounted  cash flows
from the property  are less than the cost basis,  the assets will be marked down
to fair value.  Costs  relating to development  and  improvement of property are
capitalized,  provided  that the resulting  carrying  value does not exceed fair
value. Costs relating to holding the assets are expensed.

Servicing Other Assets and Servicing Liabilities

     As  previously  discussed,  in  July  2001,  we  began  accounting  for our
servicing  subsidiary,  CMSLP, on a consolidated  basis as opposed to accounting
for CMSLP using the equity method. This change in accounting method was a result
of a reorganization in which the partnership  interests of CMSLP are now held by
two of our wholly-owned and controlled taxable REIT subsidiaries.  Prior to July
1, 2001, we accounted for CMSLP under the equity method since we did not control
the  voting  common  stock of the  general  partner  of CMSLP.  CMSLP's  assets,
liabilities,   revenues  and  expenses  are  labeled  as   "servicing"   on  the
consolidated financial statements.

     Components of Servicing Other Assets and Servicing Liabilities

     At December 31, 2002 and 2001,  the  following  comprised  servicing  other
assets and servicing liabilities:


<PAGE>F-16

<TABLE>
<CAPTION>
                                                                              2002            2001
                                                                              ----            ----
         <S>                                                              <C>                <C>
         Receivables and other assets                                   $  5,717,299     $  7,612,446
         Investment in interest-only certificates and CMBS                 5,374,209        2,395,576
         AIM Limited Partnerships' subadvisory contracts (1)               1,034,373        1,906,542
         Fixed assets, net                                                 1,617,569        2,239,927
         Acquired mortgage servicing rights                                   31,688        4,096,333
                                                                         ------------     -----------
         Total servicing other assets                                    $13,775,138      $18,250,824
                                                                         ============     ===========

         Accounts and notes payable                                      $   756,865      $ 3,660,173
                                                                         ============     ===========

</TABLE>

         (1)  During 2002, the AIM Limited Partnerships experienced a
              significant amount of prepayments of their insured mortgages.
              These prepayments reduced CMSLP's cash flows from our subadvisory
              contracts with the AIM Limited Partnerships. As a result, in
              accordance with SFAS No. 142 and SFAS No. 144, we evaluated
              CMSLP's investment in the subadvisory contracts for impairment.
              Our estimated future undiscounted cash flows from this investment
              were projected to be less than the book value of the investment as
              of December 31, 2002. As a result, we believed that CMSLP's
              investment in the subadvisory contracts was impaired at December
              31, 2002. We estimated the fair value of the investment using a
              discounted cash flow methodology. We wrote down the value of
              CMSLP's investment in the subadvisory contracts with the AIM
              Limited Partnerships and recorded an impairment charge of
              approximately $340,000 as of December 31, 2002. This impairment
              charge is included in Servicing amortization, depreciation and
              impairment in our Consolidated Statement of Income.

Servicing  Revenue,  Servicing  General and  Administrative  Expenses,  and
Servicing Amortization, Depreciation and Impairment

     Servicing  revenue  represents  revenue  earned by CMSLP,  which  primarily
consists of mortgage servicing fees,  assumption fees, other ancillary servicing
fees, interest income, and AIM Limited Partnerships' subadvisory fees. Servicing
general and administrative expenses represent CMSLP's general and administrative
expenses. Servicing amortization, depreciation and impairment expenses represent
CMSLP's  amortization  of  mortgage  servicing  rights,  impairment  on mortgage
servicing rights,  impairment on subadvisory  contracts (as discussed above) and
depreciation and amortization of fixed and other assets.

     Components  of  Servicing  Revenue,  Servicing  General and  Administrative
Expenses, and Servicing Amortization, Depreciation and Impairment

     For the years ended  December 31, 2002 and 2001,  the  following  comprised
servicing revenue and servicing expenses:
<TABLE>
<CAPTION>
                                                                           2002             2001  (1)
                                                                           ----             ----
         <S>                                                               <C>              <C>
         Mortgage servicing fees                                       $  5,462,814     $  3,570,603
         Assumption fees and other servicing income                       4,312,000        2,178,077
         Interest income                                                    694,445          834,664
         AIM Limited Partnerships' subadvisory fees                         516,511          302,713
                                                                       ------------     -------------
              Total servicing revenue (2)                              $ 10,985,770     $  6,886,057
                                                                       ============     ============

         Servicing general and administrative expenses                 $  8,854,569     $  5,882,889
                                                                       ============     ============

         Amortization of mortgage servicing rights                     $    690,091     $    734,258
         Depreciation and amortization of fixed and other assets          1,073,207          466,403
         Impairment on AIM Limited Partnerhips' subadvisory contracts       340,356                -
         Impairment on mortgage servicing rights and CMBS                    69,483          498,525
                                                                       ------------     -------------
            Total servicing amortization, depreciation and impairment  $  2,173,137     $  1,699,186
                                                                       ============     ============

</TABLE>

(1)      The 2001 amounts reflect CMSLP's results during the period July 1, 2001
         through December 31, 2001, since CMSLP was not accounted for on a
         consolidated basis until July 2001.
(2)      Excludes gain on sales of servicing rights and investment-grade CMBS,
         which were recognized in 2002.


<PAGE>F-17


Discounts and Deferred Financing Costs on Debt

     Discounts and deferred  financing  costs  incurred in  connection  with the
issuance of debt are  amortized  using the  effective  interest  method over the
projected term of the related debt,  which is based on management's  estimate of
prepayments  on the  underlying  collateral  and are  included as a component of
interest expense. In addition, as discussed in Note 7, there were extension fees
payable  under the terms of the Exit Debt. We had estimated the amounts of these
extension fees and were amortizing the fees using the effective  interest method
over the term of the related debt.  However,  these accrued  extension fees were
reversed into income in January 2003 (as they were no longer payable) due to the
repayment of the Exit Debt (see Note 19).

Interest Rate Protection Agreements

     We have  used  interest  rate  caps to hedge the  variability  in  interest
payments  associated  with our variable  rate debt.  During 1998,  the Financial
Accounting  Standards  Board,  or FASB,  issued  SFAS No. 133,  "Accounting  for
Derivative  Instruments  and Hedging  Activities." In June 1999, the FASB issued
SFAS   No.   137,   "Accounting   for   Derivative   Instruments   and   Hedging
Activities-Deferral  of the Effective  Date of FASB  Statement No. 133." In June
2000,  the  FASB  issued  SFAS  No.  138,  "Accounting  for  Certain  Derivative
Instruments and Certain Hedging  Activities,  an amendment of FASB Statement No.
133." We determined  that our interest rate caps are effective  cash flow hedges
under SFAS No. 133.  From January 1, 2001 through June 30, 2001,  in  accordance
with SFAS No.  133,  all  changes  in the fair value of the  interest  rate caps
related to intrinsic value were recorded in other  comprehensive  income and all
changes in fair value  related to time value were recorded  through  earnings as
those changes in fair value were considered ineffective. Beginning July 1, 2001,
we recorded all changes in fair value (both  intrinsic  and time value)  through
other comprehensive income in accordance with a FASB Derivatives  Implementation
Group  interpretation.  Amounts recorded in other  comprehensive  income will be
reclassified  into earnings in the period in which  earnings are affected by the
hedged cash flows,  which is monthly as the variable  rate debt's  interest rate
resets  monthly  to one month  LIBOR as does the  interest  rate  cap.  Upon the
termination  of  a  hedging  relationship,   the  amount  in  accumulated  other
comprehensive income will be amortized over the remaining life of the previously
hedged cash flows.  We adopted  SFAS No. 133 on January 1, 2001.  In  accordance
with the transition  provisions of SFAS No. 133, we recorded a cumulative effect
type  adjustment  of $(135,142)  in earnings to  recognize,  at fair value,  the
interest  rate caps  designated  as cash flow hedges as of January 1, 2001.  The
interest rate caps are carried at an aggregate  book value of $4,000 at December
31, 2002 and are included in Other Assets on the Consolidated Balance Sheet.

Shareholders' Equity

     On October 17, 2001,  we effected a one-for-ten  reverse  stock split.  All
share  and per  share  information  in  these  Notes to  Consolidated  Financial
Statements  and the  accompanying  Consolidated  Financial  Statements  has been
retroactively  adjusted to reflect the reverse  stock split.  Share  information
adjustments  include,  without  limitation,  adjustments to the number of common
shares  issued and  outstanding,  issued as dividends on and upon  conversion of
shares of preferred stock, and issuable under outstanding  options. See Notes 11
and 12 for further discussion.

Per Share Amounts

     Basic earnings per share amounts represent net income,  or loss,  available
to common shareholders divided by the weighted average common shares outstanding
during the year. The weighted average common shares outstanding  amounts include
the  weighted  average  amount of common  shares  payable  or paid to  preferred
shareholders  related to dividends  as of the  respective  dividend  declaration
dates.  Diluted  earnings  per share  amounts  represent  basic EPS adjusted for
dilutive common stock equivalents, which could include stock options and certain
series of convertible preferred stock. See Note 13 for a reconciliation of basic
earnings per share to diluted earnings per share.


<PAGE>F-18


Income Taxes

     We have  elected  to  qualify  as a REIT for tax  purposes  under  Sections
856-860 of the  Internal  Revenue  Code for the 2002 and 2001 tax years.  We are
required to meet income, asset, ownership and distribution tests to maintain our
REIT status for federal and state tax purposes. We will monitor and minimize the
levels of non-qualifying  income in order to meet REIT  qualification  criteria.
See Note 1 for additional discussion.

     During the years ended December 31, 2002 and 2001, no excess  inclusion was
distributed. During the year ended December 31, 2000, excess inclusion income of
$0.1474  per common  share was  distributed  with the Series G  Preferred  Stock
dividend.  Excess  inclusion income results from our prior  resecuritization  of
mortgage securities in our portfolio. A shareholder's  allocable share of excess
inclusion  represents the minimum  taxable income  reportable by the shareholder
for that year; it may not be offset by a net  operating  loss and may represent
unrelated  business taxable income for some  shareholders.  The excess inclusion
distributed in 2000 was generated in 1999.

     We account  for income  taxes under SFAS No.  109,  "Accounting  for Income
Taxes."  SFAS No.  109  requires  the  reporting  of  deferred  tax  assets  and
liabilities  using  rates  expected to be in effect in future tax years when the
book-to-tax  differences  reverse.  Additionally,  SFAS No. 109 requires  that a
valuation  allowance be established  for deferred tax assets if it is determined
that the realization of the asset is not "more likely than not."

     We and two of our  subsidiaries  incorporated  in 2001  jointly  elected to
treat such two subsidiaries as TRS effective January 1, 2001. These subsidiaries
allow us to earn  non-qualifying  REIT income while maintaining our REIT status.
The  partnership  interests  of  CMSLP  are held by  these  subsidiaries.  These
subsidiaries  are separately  taxable entities that cannot use our net operating
loss carry  forward to reduce their  taxable  income.  Thus,  we will  recognize
income tax expense to the extent these subsidiaries are subject to income taxes.

Consolidated Statements of Cash Flows

     Since the  consolidated  statements  of cash flows are  intended to reflect
only cash receipt and cash payment activity, the consolidated statements of cash
flows do not reflect  investing and financing  activities that affect recognized
assets and liabilities while not resulting in cash receipts or cash payments. On
April  17,  2001,  cash of  approximately  $127.2  million  was used to payoff a
portion  of the  aggregate  principal  relating  to debt  incurred  prior to the
Chapter 11 filing.  The aggregate  Exit Debt principal of  approximately  $429.2
million was incurred on April 17, 2001 to satisfy the remaining  principal  owed
on the debt incurred prior to the Chapter 11 filing.  The cash outflow of $127.2
million is included in principal  payments on secured  borrowings and other debt
obligations in the financing  activities section of the consolidated  statements
of cash flows.  The aggregate Exit Debt principal of $429.2 million  resulted in
no cash inflow and, accordingly, is not reflected in the consolidated statements
of cash flows.  Also on April 17, 2001, cash of approximately  $44.7 million was
used to payoff accrued interest on debt incurred prior to the Chapter 11 filing,
cash of  approximately  $3.9  million  was  used to pay an  emergence  financing
origination fee related to a portion of the Exit Debt, and cash of approximately
$7.4 million was used to pay accrued  payables related to the Chapter 11 filing.
This cash  activity is  reflected  in the  operating  activities  section of the
consolidated  statements  of cash flows within the net income line or the change
in payables and accrued expenses line.

     In 2000, based upon stipulation  agreements with certain of our lenders, we
reflected the receipt of interest on certain of our CMBS of $82.0 million, along
with the corresponding  pay down of interest payable of $50.2 million.  Net cash
flow of $32 million was used to pay down  approximately $19 million debt related
to  the  respective  variable  rate  financing   facilities  of  those  lenders.
Additionally, CMBS asset sales generated approximately $418 million in proceeds,
approximately  $342  million  of which was used to pay down  debt.  Only the net
proceeds were  remitted to us, and as such,  only the net proceeds are reflected
in the consolidated statements of cash flows.

     The following is the supplemental cash flow information:


<PAGE>F-19

<TABLE>
<CAPTION>
                                                                       2002                2001                 2000
                                                                       ----                ----                 ----
    <S>                                                                <C>                 <C>                  <C>
    Cash paid for interest                                        $  72,488,764       $ 124,468,367        $ 137,110,022
    Cash paid for income taxes                                          947,300              42,000            1,642,000
    Non-cash investing and financing activities:
         Restricted stock issued                                        129,675                  --                   --
         Preferred stock dividends paid in shares of common stock     3,444,792          20,443,229                   --
         Fair value of real estate assets acquired                           --           8,784,105                   --
         Fair value of real estate liabilities acquired                      --            (569,991)                  --
         Fair value of mortgage assumed                                      --          (7,130,638)                  --

</TABLE>

Comprehensive Income

     Comprehensive  income includes net earnings as currently  reported  (before
dividends accrued or paid on preferred shares) adjusted for other  comprehensive
income.  Other comprehensive  income consists of (a) changes in unrealized gains
and losses  related to our CMBS and other MBS and  insured  mortgage  securities
which were disposed of or impaired  during the period with the resulting gain or
loss reflected in net earnings (reclassification adjustments), (b) the change in
the unrealized gain or loss related to those  investments that were not disposed
of or impaired  during the period,  and (c) certain changes in the fair value of
the interest rate caps accounted for under SFAS No. 133. The table below details
other comprehensive income for the periods presented:
<TABLE>
<CAPTION>
                                                                       2002              2001             2000
                                                                       ----              ----             ----
<S>                                                                    <C>               <C>              <C>
Reclassification adjustment for losses from dispositions
    included in net income                                          $1,829,607        $ 350,066        $    282,723

Reclassification adjustment for impairment losses recognized on
    CMBS included in net income                                       (406,724)              --         180,177,910
Unrealized holding gains (losses) on mortgage securities
    arising during the period                                      107,747,337       (3,390,785)         23,941,476

Unrealized losses on interest rate caps                               (604,565)        (383,200)                 --
                                                                  -------------     ------------       -------------
Net adjustment to other comprehensive income                      $108,565,655      $(3,423,919)       $204,402,109
                                                                  =============     ============       =============

</TABLE>

Change in Accounting Principle related to Special Servicing Fee Revenue
Recognition

     As of July 1, 2001,  CMSLP  changed its  accounting  policy  related to the
recognition of special servicing fee revenue. Special servicing fees are paid to
CMSLP  when  mortgage  loans  collateralizing  CMBS  owned by CRIIMI  MAE are in
default.  Typically,  CMSLP  is paid 25 basis  points  of the  unpaid  principal
balance of the defaulted mortgage loans for as long as the loans are in default.
The fees are paid to compensate the special  servicer for managing and resolving
the  defaulted  loan.  Historically,  CMSLP had deferred  special  servicing fee
revenue and recorded that revenue into earnings using the method consistent with
our policy of recognizing interest income over the life of our CMBS on the level
yield basis.  CMSLP is now recording these special servicing fees in earnings on
a current  basis.  This  change in  accounting  policy was made to better  match
revenues and expenses  related to the actual special  servicing of the defaulted
loans.  The  special  servicing  fees are paid on a current  basis by the trusts
holding the mortgage loans and those payments directly reduce the cash flow paid
on our CMBS. Therefore,  the special servicing fees paid are built into the GAAP
yields we use to record  interest  income on our  CMBS.  CMSLP has  changed  its
accounting  policy to  recognize  the  special  servicing  fees in earnings on a
current basis as it believes this policy  better  matches the special  servicing
fees it earns with the direct costs  expended for special  servicing  the loans.
The CMBS and special  servicing  contracts  are separate  legal  instruments  or
contracts.

     We were  required  to reflect  this  change in  accounting  principle  as a
cumulative  catch-up  as of  January  1,  2001.  As of January 1, 2001 CMSLP had
approximately  $2.0 million in deferred revenue related to the special servicing
fee revenue. As a result, this amount was recorded into income and was reflected
as a cumulative  change in accounting  principle for the year ended December 31,
2001. The results of operations for the year ended December 31, 2001 reflect the
recognition of special  servicing fee revenue on a current basis.  As previously
discussed,  prior to July 1,  2001,  CMSLP was  accounted  for using the  equity
method and, as a result, the impact of the new accounting  principle (except for
the cumulative  catch-up) is reflected in equity in income from  investments for
the six  months  ended  June 30,  2001 and on a  consolidated  basis for the six
months ended December 31, 2001.

<PAGE>F-20


     The following table presents pro forma disclosures assuming that the change
in accounting for servicing fee revenue was adopted at the beginning of 2000:
<TABLE>
<CAPTION>
                                                                                      For the years ended December 31,
                                                                                          2001                 2000
                                                                                    ----------------     ----------------
<S>                                                                                 <C>                  <C>
Reported net loss to common shareholders                                              $(24,222,798)       $(155,495,429)
Add:  Net revenue deferred                                                                      --              379,138
Less:  Cumulative effect of change in accounting for servicing revenue                  (1,995,262)                  --
                                                                                    ----------------     ----------------
Adjusted net loss to common shareholders                                              $(26,218,060)       $(155,116,291)
                                                                                    ================     ================
Basic and diluted earnings per share:
     Reported basic and diluted earnings per share after cumulative effect of
      changes in accounting principles                                                      $(2.18)             $(25.02)
    Net revenue deferred                                                                        --                 0.06
    Cumulative effect of change in accounting for servicing revenue                          (0.18)                  --
                                                                                    ----------------     ----------------
    Adjusted basic and diluted earnings per share after cumulative effect of
      changes in accounting principles                                                      $(2.36)             $(24.96)
                                                                                    ================     ================

</TABLE>

Change in Accounting Principle due to Adoption of SFAS No. 142

     In June of 2001, the Financial  Accounting Standards Board (or FASB) issued
Statement of Financial  Accounting  Standards  (or SFAS) No. 142,  "Goodwill and
Other  Intangible  Assets."  SFAS No. 142,  among other  things,  prohibits  the
amortization of existing  goodwill and certain types of other intangible  assets
and establishes a new method of testing goodwill for impairment.  Under SFAS No.
142, the method for testing goodwill for impairment occurs at the reporting unit
level (as  defined in SFAS No.  142) and is  performed  using a fair value based
approach.  SFAS No.  142 was  effective  on  January  1,  2002.  The  transition
provisions of SFAS No. 142 required us to reclassify  $8.4 million of intangible
assets  related  to the  Merger to  goodwill.  When  combined  with the  current
goodwill  of $1.4  million,  this  resulted  in $9.8  million of goodwill on our
books.  Effective  upon  adoption on January 1, 2002, we wrote off this goodwill
and  recorded a  resulting  non-cash  impairment  charge of  approximately  $9.8
million for this change in  accounting  principle.  The goodwill  relates to the
Portfolio  Investment  segment  (as  defined in Note 18).  The fair value of the
segment was determined using a market capitalization approach and the impairment
was  primarily a result of the  significant  decrease in our common  stock price
since the merger in 1995. This change in accounting principle reduces our annual
amortization expense by approximately $2.8 million through June 2005.

     The following table presents pro forma  disclosures  assuming that SFAS No.
142 was adopted at the beginning of 2000:
<TABLE>
<CAPTION>
                                                                      For the years ended December 31,
                                                                 2002               2001                2000
                                                            ---------------    ---------------    ----------------
<S>                                                         <C>                <C>                <C>
Reported net loss to common shareholders                     $(64,247,814)      $(24,222,798)      $(155,495,429)
Add:  Goodwill amortization                                            --             399,468             399,468
Add:  Intangible assets amortization                                   --           2,390,004           2,390,004
Add:  Cumulative effect of adoption of SFAS No. 142             9,766,502                  --                  --
                                                            ---------------    ---------------    ----------------
Adjusted net loss to common shareholders                     $(54,481,312)      $(21,433,326)      $(152,705,957)
                                                            ===============    ===============    ================
Basic and diluted earnings per share:
     Reported basic and diluted earnings per share after
      cumulative effect of changes in accounting principles        $(4.69)            $(2.18)            $(25.02)
    Goodwill amortization                                              --               0.04                0.06
    Intangible assets amortization                                     --               0.21                0.39
    Cumulative effect of adoption of SFAS No. 142                    0.72                 --                  --
                                                            ---------------    ---------------    ----------------
    Adjusted basic and diluted earnings per share after
      cumulative effect of changes in accounting principles        $(3.97)            $(1.93)            $(24.57)
                                                            ===============    ===============    ================

</TABLE>


<PAGE>F-21


Accounting during Chapter 11 Proceedings

     Liabilities Subject to Chapter 11 Proceedings

     Liabilities which were subject to Chapter 11 proceedings,  including claims
that became  known after the Chapter 11 petition  date,  were  reported at their
expected  allowed claim amount in accordance  with SFAS No. 5,  "Accounting  for
Contingencies."  To the extent that the amounts of claims changed as a result of
actions in the Chapter 11 or other factors,  the recorded  amount of liabilities
subject to the Chapter 11 proceeding  was adjusted.  The gain or loss  resulting
from the entries to record the adjustment was recorded as a reorganization item.

     Reorganization Items

     Reorganization items were items of income and expense that were realized or
incurred because of the Chapter 11 reorganization.  These included, but were not
limited, to the following:

o short-term interest income that would not have been earned but for the Chapter
  11 proceedings;
o professional fees and similar types of expenditures directly relating to the
  Chapter 11 proceedings;
o employee retention program costs and severance payments; and
o loss accruals or realized gains or losses resulting from activities of the
  reorganization process such as the sale of certain assets, rejection of
  certain executory contracts and the write-off of debt issuance costs and debt
  discounts.

     During  the  years  ended   December   31,  2001  and  2000,   we  recorded
reorganization  items due to the  Chapter 11 filings of CRIIMI  MAE,  CRIIMI MAE
Management and CRIIMI MAE Holdings II as follows:
<TABLE>
<CAPTION>

 Reorganization Items                                       2001                  2000
 --------------------                                 ----------------     ------------------
 <S>                                                  <C>                  <C>
 Short-term interest income                              $ 2,491,311           $ 6,850,362
 Professional fees                                        (3,870,185)           (9,317,772)
 Employee Retention Program                                       --              (851,948)
 Other                                                      (800,875)           (1,136,319)
 Excise tax accrued                                               --              (495,000)
                                                       --------------        ---------------
     Subtotal                                             (2,179,749)           (4,950,677)
 Impairment on CMBS regarding reorganization (2)                  --           (15,832,817)
 Net recovery (loss) on real estate owned (1)                366,529              (924,283)
 Net gain on sale of CMBS                                         --             1,481,029
 Loss on originated loans                                         --           (45,845,712)
                                                       --------------        ---------------
 Total reorganization expense, net                      $ (1,813,220)        $ (66,072,460)
                                                       ==============        ==============

</TABLE>

(1) We recognized impairment on our investment in real estate owned in 2000.
    This asset was sold in July 2000.
(2) We recognized impairment on the CMBS subject to the sales of select CMBS in
    1999 and additional impairment on the remaining CMBS subject to the sales of
    select CMBS in 2000. The final bonds subject to the sales were sold in
    November 2000.


Recent Accounting Pronouncements

     In  August  2001,  the  FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived  Assets." SFAS No. 144 supersedes  SFAS No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to Be  Disposed  Of," and the  accounting  and  reporting  provisions  of
Accounting   Principles   Board   Opinion   No.   30,   "Reporting   Results  of
Operations-Reporting  the Effects of  Disposal  of a Segment of a Business,  and
Extraordinary, Unusual and Infrequent Occurring Events and Transactions" for the
disposal  of segments of a business.  SFAS No. 144  established  accounting  and
reporting  standards  for the  impairment  or disposal of  long-lived  assets by
requiring those long-lived  assets be measured at the lower of carrying costs or
fair value less selling costs,  whether reported on continuing  operations or in
discontinued  operations.  The  provisions  of SFAS No.  144 are  effective  for
financial  statements issued for fiscal years beginning after December 15, 2001.
We  adopted  SFAS No.  144 on  January 1,  2002.  As  discussed  previously,  we
recognized approximately $801,000 of impairment in our Consolidated Statement of
Income during 2002 related to our Portfolio  Investment segment's (as

<PAGE>F-22

defined  in  Note  18)  investment  in  the  advisor  to  the  AIM  Limited
Partnerships  and our  Mortgage  Servicing  segment's  (as  defined  in Note 18)
investment in AIM Limited Partnerships subadvisory contracts.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No.  4,  44  and  64,   Amendment  of  FASB  Statement  No.  13,  and  Technical
Corrections,"  that, among other things,  rescinded SFAS No. 4, "Reporting Gains
and Losses from  Extinguishment of Debt." With the rescission of SFAS No. 4, the
early  extinguishment  of debt  generally  will no  longer be  classified  as an
extraordinary item for financial statement  presentation purposes. The provision
is  effective  for fiscal  years  beginning  after May 15,  2002,  with  earlier
application  related to the rescission of SFAS No. 4 encouraged.  We adopted the
provisions  related  to the  rescission  of SFAS No. 4 on  April 1,  2002.  As a
result, we have reclassified a $14.8 million gain on debt extinguishment in 2000
from an extraordinary item to an operating item. In addition, in 2003, we expect
to recognize a gain on  extinguishment  of debt as a result of the retirement of
the Exit Debt  following the  recapitization  in January 2003.  The gain will be
classified as an operating item.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated  with Exit or Disposal  Activities,"  which replaces  Emerging Issues
Task  Force  Issue  No.  94-3,  "Liability   Recognition  for  Certain  Employee
Termination  Benefits  and Other  Costs to Exit an Activity  (including  Certain
Costs  Incurred in a  Restructuring)."  The new standard  requires  companies to
recognize  costs  associated  with  exit or  disposal  activities  when they are
incurred  rather than at the date of a commitment  to an exit or disposal  plan.
The  statement  is to be applied  prospectively  to exit or disposal  activities
initiated after December 31, 2002. We do not expect the adoption of SFAS No. 146
to have a material effect on our financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation  -  Transition  and   Disclosure,"   which  amended  SFAS  No.  123
"Accounting for Stock-Based Compensation." The new standard provides alternative
methods of transition  for a voluntary  change to the fair value based method of
accounting for stock-based employee  compensation.  Additionally,  the statement
amends  the  disclosure  requirements  of  SFAS  No.  123 to  require  prominent
disclosures in the annual and interim  financial  statements about the method of
accounting for stock-based  employee  compensation  and the effect of the method
used on reported results.  This statement is effective for financial  statements
for fiscal years ending after  December 15, 2002.  In  accordance  with SFAS No.
148,  we have  elected to  continue  to follow  the  intrinsic  value  method in
accounting for its stock-based employee  compensation  arrangement as defined by
Accounting  Principles Board Opinion (APB) No. 25,  "Accounting for Stock Issued
to  Employees,"  and have  made  the  applicable  disclosures  in Note 14 to the
consolidated financial statements.

     In January  2003,  the FASB  issued  FASB  Interpretation  (or FIN) No. 46,
"Consolidation of Variable Interest  Entities",  an interpretation of Accounting
Research  Bulletin  No.  51,  "Consolidated  Financial  Statements."  FIN No. 46
explains  how to  identify  variable  interest  entities  and how an  enterprise
assesses  its  interests  in a  variable  interest  entity to decide  whether to
consolidate that entity.  This Interpretation  requires existing  unconsolidated
variable interest entities to be consolidated by their primary  beneficiaries if
the entities do not effectively  disperse risks among parties involved.  FIN No.
46 is effective immediately for variable interest entities created after January
31, 2003, and to variable  interest  entities in which an enterprise  obtains an
interest after that date. The Interpretation applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable  interest  entities in
which an enterprise  holds a variable  interest that it acquired before February
1, 2003.  We do not expect the adoption of FIN No. 46 to have a material  effect
on our financial position or results of operations.


<PAGE>F-23


4.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The  following   estimated  fair  values  of  our  consolidated   financial
instruments  are presented in accordance  with GAAP,  which define fair value as
the  amount at which a  financial  instrument  could be  exchanged  in a current
transaction between willing parties, in other than a forced sale or liquidation.
These  values  do not  represent  our  liquidation  value  or the  value  of the
securities under a portfolio liquidation.
<TABLE>
<CAPTION>
                                                    As of December 31, 2002            As of December 31, 2001
                                                Amortized Cost     Fair Value      Amortized Cost     Fair Value
                                                --------------     ----------      --------------     ----------
<S>                                             <C>                <C>             <C>                <C>
ASSETS:
Subordinated CMBS and Other MBS (1)              $ 478,879,460    $540,755,663      $ 546,981,955     $ 536,204,992
Subordinated CMBS pledged to secure
   Securitized Mortgage Obligation - CMBS          287,039,586     326,472,580        283,993,690       296,477,050
Insured mortgage securities                        273,655,357     275,340,234        350,982,991       343,091,303
Interest rate protection agreements                    992,043           4,277            448,789            65,589
Servicing other assets                          See footnote (2)  See footnote (2)  See footnote (2)  See footnote (2)
Servicing cash and cash equivalents                 12,582,053      12,582,053          6,515,424         6,515,424
Restricted cash and cash equivalents                 7,961,575       7,961,575         38,214,277        38,214,277
Other cash and cash equivalents                     16,669,295      16,669,295         10,783,449        10,783,449

LIABILITIES:
Variable-rate secured borrowing                    214,672,536     214,672,536        244,194,590       244,194,590
Series A senior secured notes                       92,788,479      92,788,479 (3)     99,505,457        95,276,475
Series B senior secured notes                       68,491,323      68,491,323 (3)     63,937,383        54,826,306
Securitized mortgage obligations:
   Collateralized bond obligations-CMBS            285,844,933     326,472,580        283,047,470       296,477,050
   Collateralized mortgage obligations-insured
       mortgage securities                         252,980,104     266,366,729        326,558,161       351,983,544
Mortgage payable                                     7,214,189       7,341,397          7,109,252         7,109,252

</TABLE>

(1)  Includes approximately $5.3 million of amortized cost and $5.2 million of
     fair value related to other MBS as of December 31, 2002 and approximately
     $8.6 million of amortized cost and $8.5 million of fair value as of
     December 31, 2001.
(2)  CMSLP owns subordinated CMBS and interest-only strips with an aggregate
     amortized cost basis of approximately $1.9 million and $2.3 million and a
     fair value of approximately $2.1 million and $2.4 million as of December
     31, 2002 and 2001, respectively. Additionally, CMSLP owns investment-grade
     CMBS with an aggregate cost basis and fair value of approximately $3.3
     million as of December 31, 2002.
(3)  Since these notes were redeemed in January 2003 at face value, we have
     disclosed the face value as the fair value as of December 31, 2002.

     The following  methods and assumptions were used to estimate the fair value
of each class of financial instruments:

Subordinated CMBS and Other Mortgage-Backed Securities

     Our  determination  of fair values for our CMBS  portfolio  is a subjective
process.  The process  begins with the  compilation  and  evaluation  of pricing
information  (such as nominal  spreads to U.S.  Treasury  securities  or nominal
yields) that, in our view, is commensurate with the market's perception of value
and risk of  comparable  assets.  We use a variety of  sources  to compile  such
pricing information  including:  (i) recent offerings and/or secondary trades of
comparable  CMBS  (i.e.,  securities  comparable  to our CMBS or to the CMBS (or
collateral)  underlying  our CMBS issued in  connection  with CRIIMI MAE Trust I
Series  1996-C1  (or  CBO-1) and CRIIMI MAE  Commercial  Mortgage  Trust  Series
1998-C1 (or CBO-2)),  (ii) communications with dealers and active CMBS investors
regarding   the  pricing  and   valuation  of   comparable   securities,   (iii)
institutionally  available  research  reports,  (iv)  analyses  prepared  by the
nationally  recognized rating  organizations  responsible for the initial rating
assessment and on-going surveillance of such CMBS, and (v) other qualitative and
quantitative  factors that may impact the value of the CMBS such as the market's
perception  of the  issuers  of the  CMBS  and the  credit  fundamentals  of the
commercial  properties  securing each pool of commercial mortgage loans. We make
further fair value adjustments to such pricing information based on our specific
knowledge  of our CMBS,  which is then used to  determine  the fair value of our
CMBS using a discounted cash flow approach. Expected future gross cash flows are
discounted at market yields for our rated CMBS,  depending on the rating, and at
a fixed discount rate for our  unrated/issuer's  equity.  Furthermore,  the fair
value for those CMBS incurring  principal losses and interest  shortfalls (i.e.,
CBO-2 B-

<PAGE>F-24

and CCC  bonds,  and our  unrated/issuer's  equity)  based  on our  overall
expected loss estimate are valued at a loss adjusted  yield to maturity that, in
our view,  is  commensurate  with the market's  perception  of value and risk of
comparable  securities,  using  the same  discounted  cash flow  approach.  Such
anticipated  principal  losses  and  interest  shortfalls  have been  taken into
consideration  in the  calculation of fair values and yields to maturity used to
recognize  interest  income as of December 31, 2002. In addition,  we considered
the impact of our recent  recapitalization  and the value of competing offers in
determining  our year end fair values.  Since we calculated  the estimated  fair
value of our CMBS  portfolio as of December 31, 2002 and 2001, we have disclosed
the range of discount  rates by rating  category  used in  determining  the fair
values as of December 31, 2002 in Note 5.

     The  liquidity  of the  subordinated  CMBS  market  has  historically  been
limited.  Additionally,  during adverse market conditions, the liquidity of such
market has been severely limited. For this reason, among others, our estimate of
the value of the subordinated CMBS could vary  significantly from the value that
could be realized in a current transaction between a willing buyer and a willing
seller.

     The fair  value of the other  MBS is an  estimate  based on the  indicative
market price from  publicly  available  pricing  services.  We normally  apply a
slight  discount  to such  prices as we  believe it better  reflects  fair value
between  willing buyers and sellers due to the relatively  smaller sizes of this
component of the trading securities.

Insured Mortgage Securities

     We  calculated  the  estimated  fair market  value of the insured  mortgage
securities  portfolio as of December 31, 2002 and 2001,  using a discounted cash
flow methodology. The cash flows were discounted using a discount rate and other
assumptions that, in our view, was commensurate with the market's  perception of
risk and value.  We used a variety of sources to  determine  its  discount  rate
including (i) institutionally available research reports and (ii) communications
with  dealers and active  insured  mortgage  security  investors  regarding  the
valuation of comparable securities.

Servicing, Restricted and Other Cash and Cash Equivalents

     The carrying amount  approximates  fair value because of the short maturity
of these instruments.

Obligations Under Financing Facilities

     The fair values of the securitized  mortgage obligations as of December 31,
2002 and 2001 were calculated using a discounted cash flow  methodology  similar
to that discussed in  subordinated  CMBS above.  The fair values of the Series A
and Series B Senior  Secured  Notes are the same as the face values as the notes
were redeemed in January  2003.  The carrying  amount of the Exit  Variable-Rate
Secured  Borrowing  approximates fair value because the current rate on the debt
resets monthly based on market rates.  The fair value of the mortgage payable is
estimated based on current market interest rates of mortgage debt.

Interest Rate Caps

     The fair  values of our  interest  rate  caps,  which are used to hedge our
variable rate debt, are the estimated amounts that we would receive to terminate
the caps as of December 31, 2002 and 2001,  taking into account current interest
rates and the current  creditworthiness of the counterparties.  The amounts were
determined based on quotes received from the counterparties to the agreements.

5.       CMBS

     As of December 31, 2002, we owned, in accordance with GAAP, CMBS (excluding
Other MBS) with an aggregate  face amount of  approximately  $1.5 billion  rated
from  A+ to  CCC  and  unrated.  Such  CMBS  had  an  aggregate  fair  value  of
approximately  $862  million  (representing   approximately  69%  of  our  total
consolidated  assets) and an  aggregate  amortized  cost of  approximately  $761
million. Such CMBS represent investments in securities issued in connection with
CBO-1, CBO-2 and Nomura Asset Securities Corporation Series 1998-D6 (or Nomura).
The following is a summary of the ratings of our CMBS as of December 31, 2002:

<PAGE>F-25

<TABLE>
<CAPTION>

         Rating                             Fair Value                           % of CMBS
         ------                             ----------                           ---------
         <S>                                <C>                                  <C>
         A+, BBB+ or BBB (a)                  $326.5                                 38%
         BB+, BB or BB-                       $338.9                                 39%
         B+, B, B- or CCC                     $176.6                                 21%
         Unrated                               $20.0                                  2%

</TABLE>

(a)           Represents investment grade securities that we reflect as assets
              on our balance sheet as a result of CBO-2. As indicated in
              footnote 4 to the table below, GAAP requires both these assets
              (reflected as "CMBS pledged to Secure Securitized Mortgage
              Obligation-CMBS") and their related liabilities (reflected as
              "Collateralized bond obligations - CMBS") to be reflected on our
              balance sheet. All cash flows related to the investment grade CMBS
              are used to service the corresponding debt. As a result, we
              currently receive no cash flows from the investment grade CMBS.

     As of December 31, 2002,  the weighted  average  interest rate and the loss
adjusted weighted average life (based on face amount) of the investment grade
securities was 7.0% and 8.6 years,  respectively.  The weighted average interest
rate and the loss adjusted  weighted  average life (based on face amount) of
the BB+ through unrated CMBS securities,  sometimes  referred to as the retained
portfolio, were 5.3% and 10.5 years,  respectively.  The aggregate investment by
the rating of the CMBS is as follows:
<TABLE>
<CAPTION>
                                                                     Discount Rate
                                                                       or Range of
                               Weighted                              Discount Rates
                               Average        Loss       Fair Value      Used to
                  Face Amount  Pass-Through  Adjusted       as of     Calculate Fair  Amortized Cost   Amortized Cost
                     as of     Rate as      Weighted      12/31/02        Value      as of 12/31/02   as of 12/31/01
                 12/31/02 (in  of          Average Life      (in      as of 12/31/02   (in millions)   (in millions)
Security Rating    millions)    12/31/02        (1)       millions)      (9) (10)           (5)             (6)
----------------------------------------------------------------------------------------------------------------------
<S>              <C>           <C>         <C>           <C>          <C>            <C>              <C>
Investment Grade Portfolio
A+ (4)            $   62.6         7.0%     4 years      $  66.0             5.1%     $   59.4            $   58.7

BBB+ (4)             150.6         7.0%    10 years        150.6             7.0%        132.3               131.1

BBB (4)              115.2         7.0%    10 years        109.9             7.7%         95.3                94.2

Retained Portfolio
BB+                  319.0         7.0%    11 years        259.4       9.8%-10.2%        223.0               219.0

BB                    70.9         7.0%    13 years         54.2            10.8%         46.8                46.0

BB-                   35.5         7.0%    14 years         25.3            11.6%         20.8                20.5

B+                    88.6         7.0%    14 years         50.4            14.9%         46.0                45.2

B                    177.2         7.0%    17 years         94.3      15.4%-15.7%         85.1                83.7

B- (2)               118.3         7.1%    24 years         28.1           16.0%-         28.1                48.1
                                                                       20.0%  (9)

CCC (2)               70.9         0.1%     2 years          3.8             (10)          3.8                13.1

Unrated/Issuer's
Equity (2) (3)       326.1         2.1%     1 year          20.0             (10)         20.0                62.8
                 ----------                             ---------                    ----------          ----------
Total (8)         $1,534.9         5.7%    10 years      $ 862.0 (8)                  $  760.6  (7)       $  822.4
                 ==========                             =========                    ==========          ==========

</TABLE>

(1)   The loss adjusted weighted average life represents the weighted average
      expected life of the CMBS based on our current estimate of future losses.
      As of December 31, 2002, the fair values of the B-, CCC and the
      unrated/issuer's equity in Nomura, CBO-1, and CBO-2 were derived solely
      from interest cash flow anticipated to be received since our current loss
      expectation assumes that the full principal amount of these securities
      will not be recovered. See also "Advance Limitations, Appraisal Reductions
      and Losses on CMBS" below.

(2)   As of December 31, 2002, the subordinated CMBS from CBO-1 and CBO-2 (with
      the exception of the CBO-2 issuer's equity which has no stated coupon
      rate) have stated coupon rates of 8.0% and 7.0%, respectively, while the
      weighted average net coupon rates of the CMBS underlying CBO-1 and CBO-2
      are approximately 8.3% and 6.7%, respectively (prior to the consideration
      of losses, prepayments and extensions on the underlying mortgage loans).
      The subordinated CMBS experience interest shortfalls when the weighted
      average net coupon rate on the underlying CMBS is less than the weighted
      average stated coupon payments on the subordinated CMBS. Such interest
      shortfalls will continue to accumulate until they (i) are repaid through
      excess interest and/or recoveries on the underlying CMBS or (ii) are
      realized as a loss of principal on the subordinated CMBS. Based on our
      overall expected loss estimate as of December 31, 2002, the CBO-

<PAGE>F-26

      2 subordinated CMBS currently rated B- and CCC and the Nomura unrated CMBS
      are expected to incur approximately $55.4 million, $4.6 million, and $1.9
      million, respectively, of losses directly attributable to accumulated and
      unpaid interest shortfalls over their expected lives. Such anticipated
      losses and shortfalls have been taken into consideration in the
      calculations of fair market values and yields to maturity used to
      recognize interest income as of December 31, 2002.

(3)   The unrated subordinated CMBS from CBO-2 currently does not have a stated
      coupon rate since these securities are only entitled to the residual cash
      flow payments, if any, remaining after paying the securities with a higher
      payment priority. As a result, effective coupon rates on these securities
      are highly sensitive to the effective coupon rates and monthly cash flow
      payments received from the underlying CMBS that represent the collateral
      for CBO-2.

(4)   In connection with CBO-2, $62.6 million (originally A rated, currently A+
      rated) and $60.0 million (originally BBB rated, currently BBB+ rated) face
      amount of investment grade CMBS were sold with call options and $345
      million (originally A rated, currently A+ rated) face amount were sold
      without call options. Also in connection with CBO-2, in May 1998, we
      initially retained $90.6 million (originally BBB rated, currently BBB+
      rated) and $115.2 million (originally BBB- rated, currently BBB rated)
      face amount of CMBS, both with call options, with the intention to sell
      these CMBS at a later date. Such sale occurred March 5, 1999. Since we
      retained call options on certain sold CMBS (the A+, BBB+ and BBB bonds),
      we did not surrender control of these CMBS pursuant to the requirements of
      SFAS No. 125 and thus these CMBS are accounted for as a financing and not
      a sale. Since the transaction is recorded as a partial financing and a
      partial sale, we have retained these CMBS with call options and reflected
      them in our subordinated CMBS on the balance sheet to which we currently
      receive no economic benefit.

(5)   Amortized cost reflects impairment charges of approximately $70.2 million
      related to the unrated/issuer's equity bonds, the CCC bond and the B- bond
      in CBO-2, which were recognized during the year ended December 31, 2002.
      These impairment charges are in addition to the cumulative impairment
      charges of approximately $178.1 million that were recognized through
      December 31, 2001.  The impairment charges are discussed later in
      this Note 5.

(6)   Amortized cost reflects approximately $178.1 million of cumulative
      impairment charges related to certain CMBS (all bonds except those rated
      A+ and BBB+), which were recognized through December 31, 2001.

(7)   See Notes 1 and 10 to Notes to Consolidated Financial Statements for
      information regarding the Subordinated CMBS for tax purposes.

(8)   As of December 31, 2002, the aggregate fair values of the CBO-1, CBO-2
      and Nomura bonds were approximately $19.3 million, $837.2 million and
      $5.5 million, respectively.

(9)   The discount rate is applied to gross scheduled cash flows as opposed to
      loss adjusted cash flows for purposes of calculating fair values.

(10)  As a result of the significant loss of principal on these CMBS, we have
      used a significantly high discount rate to determine a reasonable fair
      value of these CMBS. The weighted average yield-to-maturity of the CCC and
      unrated/issuer's equity is 5.8% and 8.6%, respectively.

     Mortgage Loan Pool

     Through CMSLP, we perform servicing  functions on commercial mortgage loans
totaling  $17.4  billion  and $19.3  billion as of  December  31, 2002 and 2001,
respectively.  The mortgage loans underlying our subordinated CMBS portfolio are
secured by properties of the types and in the  geographic  locations  identified
below:
<TABLE>
<CAPTION>
                      12/31/02          12/31/01                                         12/31/02          12/31/01
Property Type      Percentage(i)      Percentage(i)         Geographic Location(ii)   Percentage(i)      Percentage(i)
-------------      -------------      -------------         ----------------------    -------------      -------------
<S>                <C>                <C>
Retail.............      31%                30%             California..................    17%                16%
Multifamily........      28%                29%             Texas.......................    12%                13%
Hotel..............      15%                14%             Florida.....................     8%                 8%
Office.............      13%                13%             Pennsylvania................     5%                 5%
Other (iv).........      13%                14%             Georgia.....................     4%                 5%
                         ---          ---------             Other(iii)..................    54%                53%
    Total..........     100%               100%                                             ---        -----------
                        ====          =========                 Total...................   100%               100%
                                                                                           ====        ===========

</TABLE>

(i)      Based on a percentage of the total unpaid principal balance of the
         underlying loans.
(ii)     No significant concentration by region.
(iii)    No other individual state makes up more than 5% of the total.
(iv)     Our ownership interest in one of the 20 CMBS transactions underlying
         CBO-2 includes subordinated CMBS in which our exposure to losses
         arising from certain healthcare and senior housing mortgage loans is
         limited by other subordinated CMBS (referred to herein as the
         "Subordinated Healthcare/Senior-Housing CMBS"). These other CMBS are
         not owned by and are subordinate to our CMBS in this transaction. As a
         result, our investment in such underlying CMBS will only be affected
         if interest shortfalls and/or realized losses on such healthcare and
         senior housing mortgage loans are in excess of the other CMBS not
         owned by us.

     Specially Serviced Mortgage Loans

     CMSLP performs  special  servicing on the loans underlying our subordinated
CMBS  portfolio.  A special  servicer  typically  provides asset  management and
resolution  services  with respect to  nonperforming  or

<PAGE>F-27

underperforming  loans  within a pool of mortgage  loans.  When  serving as
special  servicer of a mortgage loan pool,  CMSLP has the authority,  subject to
certain restrictions in the applicable CMBS pooling and servicing documents,  to
deal directly with any borrower that fails to perform under certain terms of its
mortgage loan,  including the failure to make  payments,  and to manage any loan
workouts  and  foreclosures.  As  special  servicer,  CMSLP  earns fee income on
services provided in connection with any loan servicing function  transferred to
it from the  master  servicer.  We  believe  that  because we own the first loss
unrated or lowest rated bond of all but one of the CMBS transactions  related to
our  subordinated  CMBS,  CMSLP has an incentive to efficiently  and effectively
resolve any loan workouts.  As of December 31, 2002 and 2001, specially serviced
mortgage loans included in the commercial  mortgage loans described above are as
follows:
<TABLE>
<CAPTION>
                                                          12/31/02                    12/31/01
                                                          --------                    --------
<S>                                                       <C>                         <C>
Specially serviced loans due to monetary default (a)   $736.1 million            $701.7 million

Specially serviced loans due to covenant default/other   74.7 million              90.0 million
                                                       --------------           ----------------
Total specially serviced loans (b)                     $810.8 million            $791.7 million
                                                       ==============           ================
Percentage of total mortgage loans (b)                    4.7%                      4.1%
                                                       ==============           ================

</TABLE>

(a)           Includes $130.5 million and $94.5 million, respectively, of real
              estate owned by underlying trusts. See also the table below
              regarding property type concentrations for further information on
              real estate owned by underlying trusts.
(b)           As of February 28, 2003, total specially serviced loans were
              approximately $1.1 billion, or 6.3% of the total mortgage loans.
              See discussion below for additional information regarding
              specially serviced loans.

     The specially  serviced mortgage loans as of December 31, 2002 were secured
by properties of the types and located in the states identified below:

<TABLE>
<CAPTION>
Property Type      $ (in millions)    Percentage            Geographic Location     $ (in millions)    Percentage
-------------      ---------------    ----------            -------------------     ---------------    ----------
<S>                <C>                <C>                   <C>                     <C>                <C>
Hotel............   $  494.7  (1)         61%               Florida...............     $ 134.3             17%
Retail...........      200.8  (2)         25%               Oregon................        91.8             11%
Multifamily......       42.6               5%               Texas.................        86.6             11%
Healthcare.......       26.7               3%               California............        46.1              6%
Office...........       22.6               3%               Georgia ..............        42.1              5%
Industrial.......       13.7               2%               North Carolina........        28.9              3%
Other............        9.7               1%               Other.................       381.0             47%
                    ------------       ----------                                      --------         ---------
  Total..........   $  810.8             100%                 Total...............     $ 810.8            100%
                    ============       ==========                                      ========         =========

</TABLE>

(1)    Approximately $80.4 million of these loans in special servicing are real
       estate owned by underlying trusts.
(2)    Approximately $32.7 million of these loans in special servicing are real
       estate owned by underlying trusts.

     As reflected above, as of December 31, 2002,  approximately $494.7 million,
or 61%, of the  specially  serviced  mortgage  loans are secured by mortgages on
hotel properties. The hotel properties that secure the mortgage loans underlying
our subordinated CMBS are geographically  diverse,  with a mix of hotel property
types and franchise  affiliations.  The  following  table  summarizes  the hotel
mortgage loans underlying our subordinated CMBS as of December 31, 2002:

<TABLE>
<CAPTION>
                                     Total Outstanding      Percentage of          Amount in
                                     Principal Balance    Total Hotel Loans     Special Servicing
                                     -----------------    -----------------     -----------------
<S>                                  <C>                  <C>                   <C>
Full service hotels (2)               $ 1.4 billion              54%            $ 206.6 million
Limited service hotels (1)              1.2 billion              46%              288.1 million
                                      --------------            ----            ----------------
    Totals                            $ 2.6 billion             100%            $ 494.7 million
                                      =============             ====            ================

</TABLE>

(1)   Limited service hotels are generally hotels with room-only operations or
      hotels that offer a bedroom and bathroom, but limited other amenities, and
      are often in the budget or economy group.
(2)   Full service hotels are generally mid-price, upscale or luxury hotels with
      restaurant and lounge facilities and other amenities.

     Of the $494.7  million of hotel loans in special  servicing  as of December
31,  2002,  approximately  $295.2  million,  or 60%,  relate  to four  borrowing
relationships more fully described as follows:

<PAGE>F-28


o    Sixteen loans and eight real estate owned properties with scheduled
     principal balances totaling approximately $92.2 million spread across four
     CMBS transactions secured by hotel properties throughout the U.S.  As of
     December 31, 2002, our total exposure, including advances, on these loans
     is approximately $96.4 million.   In one of these CMBS transactions, which
     contains 10 loans with scheduled principal balances totaling $39.0 million,
     we hold only a 25% ownership interest in the non-rated class.  In the other
     three CMBS transactions, we hold a 100% ownership interest in the non-rated
     class.  Twenty-five loans were transferred into special servicing in
     December 2001 due to the bankruptcy filing of each special purpose
     borrowing entity and their parent company.  Since the bankruptcy filing, as
     part of a consensual plan, eight properties with scheduled principal
     balances totaling $26.3 million have become real estate owned by underlying
     trusts, one loan with a scheduled principal balance totaling $5.3 million
     has been paid in full and the remaining sixteen loans with scheduled
     principal balances totaling $65.9 million were granted maturity date
     extensions and have been returned to performing status, and are in the
     process of being transferred out of special servicing.

o    Twenty-seven loans with scheduled principal balances totaling approximately
     $138.1 million spread across three CMBS transactions secured by hotel
     properties in the west and Pacific northwest states.  As of December 31,
     2002, our total exposure, including advances, on these loans is
     approximately $160.4 million.  The borrower had filed for bankruptcy
     protection in October 2001.  The borrower has indicated that the properties
     have experienced reduced operating performance due to new competition, the
     economic recession, and reduced travel resulting from the September 11,
     2001 terrorist attacks.  We have entered into a consensual settlement
     agreement dated February 25, 2003 pursuant to which the loan terms will be
     amended and modified.  The parties are currently proceeding toward closing
     a comprehensive loan modification that should return the loans to
     performing status.

o    Five loans with scheduled principal balances totaling approximately $45.7
     million secured by hotel properties in Florida and Texas. As of December
     31, 2002, our total exposure, including advances, on these loans is
     approximately $50.7 million. The loans are past due for the July 2002 and
     all subsequent payments. The balance and paid-through date do not reflect
     the recent application in 2003 of approximately $3.5 million of insurance
     proceeds and of sporadic payments received from the borrower throughout the
     year. The borrower and lender have entered into negotiations concerning a
     consensual modification of the loan terms.

o    Nine loans with scheduled principal balances totaling approximately
     $19.2 million secured by limited service hotels in midwestern states.
     As of December 31, 2002, our total exposure, including advances, on
     these loans is approximately $20.9 million. The loans are past due for
     the April 2002 and all subsequent payments. The borrower cites reduced
     occupancy related to the recent downturn in travel as the cause for a
     drop in operating performance at the properties. CMSLP was attempting
     to negotiate a workout with the borrower, but the borrower filed for
     bankruptcy protection in February 2003.

     In addition to the borrowing  relationships  described above, subsequent to
December 31, 2002 there were the following two  additional  transfers to special
servicing  of large hotel  loans,  one for an imminent  payment  default and the
other for a non-monetary default. These defaults were considered in our December
31, 2002 loss assessment.

o    One loan with a scheduled principal balance totaling approximately
     $81.1 million secured by 13 extended stay hotels located throughout the
     country. This loan was transferred to special servicing in January
     2003 due to the borrower's request for forbearance and the resulting
     possibility of an imminent payment default. In its request, the
     borrower cited continuing reduced operating performance at its hotel
     properties, which it did not expect to improve in the foreseeable
     future. CMSLP entered into a short-term forbearance agreement with the
     borrower, and a consensual term sheet to restructure and modify the
     loan terms. We recently closed a loan modification agreement with the
     borrower that is expected to return the loan to performing status in the
     future.

o    One loan with a scheduled principal balance totaling
     approximately $131.1 million, secured by 93 limited service hotels
     located in 29 states. The loan was transferred to special servicing
     in January 2003.

<PAGE>F-29

     The loan is current for payments, but was transferred to special
     servicing due to the unauthorized leasing of some of the collateral
     properties by the borrower, and unapproved franchise changes by the
     borrower, among other reasons. We have entered into a Confidentiality and
     Pre-Negotiation Agreement in an attempt to reach a consensual resolution of
     this matter.

     For each of the borrowing  relationships described in the paragraphs above,
we believe  that we have  adequate  reserves for losses that we may incur in the
future.  There can be no assurance  that the losses  incurred in the future will
not exceed our current reserves (see discussion below regarding increase in loss
estimates).

     The  following  table  provides a summary  of the change in the  balance of
specially serviced loans from December 31, 2001 to December 31, 2002:

                                                                    (in
                                                                 millions)
                                                                -------------

     Specially Serviced Loans, December 31, 2001                   $ 791.7
          Transfers in due to monetary default                       372.8
          Transfers in due to covenant default and other              23.6
          Transfers out of special servicing                        (353.9)
          Loan amortization  (1)                                     (23.4)
                                                                -------------
     Specially Serviced Loans, December 31, 2002                   $ 810.8 (2)
                                                                =============


(1) Represents the reduction of the scheduled principal balances due to advances
made by the master servicers.
(2) Specially serviced loans total approximately $1.1 billion as of
February 28, 2003.

     For all loans in special servicing, CMSLP is pursuing remedies available to
it in order to maximize the recovery of the outstanding debt.

Advance Limitations, Appraisal Reductions and Losses on CMBS

     We  experience  shortfalls  in expected  cash flow on our CMBS prior to the
recognition of a realized loss primarily due to servicing advance limitations to
the most subordinate  securities (only in certain  underlying CMBS transactions)
or appraisal  reductions.  The servicing advance  limitations  permit the master
servicer  (in  those  certain  underlying  CMBS  transactions)  to make only one
principal  and  interest  advance  with regard to a  delinquent  mortgage  loan.
Thereafter,  no future monthly  principal and interest  advances will be made by
the master servicer until the amount of the most subordinate CMBS current coupon
is eliminated.  This  restriction  is enforced until an appraisal  reduction has
been  determined  or the  loan  payments  are  brought  current.  The  appraisal
reduction  generally  requires the master  servicer to stop  advancing  interest
payments on the amount by which the sum of unpaid principal balance of the loan,
advances and other expenses exceeds 90% (in most cases) of the appraisal amount,
thus  reducing  our cash flows as the holder of the first loss unrated or lowest
rated bonds,  as if such  appraisal  reduction was a realized loss. For example,
assuming a weighted average coupon of 6%, a $1 million appraisal reduction would
reduce our net cash flows by $60,000 on an annual basis. An appraisal  reduction
may result in a higher or lower realized loss based on the ultimate  disposition
or work-out of the mortgage loan. Appraisal reductions for the CMBS transactions
in which we retain an ownership interest as reported by the underlying  trustees
or as calculated by CMSLP* were as follows:
<TABLE>
<CAPTION>
(in thousands)                                              CBO-1        CBO-2       Nomura        Total
--------------                                              -----        -----       ------        -----
<S>                                                         <C>          <C>         <C>           <C>
Year 2000                                                   $1,872    $18,871       $    --      $ 20,743
Year 2001                                                   15,599     31,962           874        48,435
Year 2002                                                    9,088     48,953        13,530        71,571
                                                           --------   --------      --------     ---------
Cumulative Appraisal Reductions through December 31, 2002  $26,559    $99,786       $14,404     $ 140,749
                                                           ========   ========      ========    ==========

</TABLE>

     * Not all  underlying  CMBS  transactions  require  the  calculation  of an
appraisal reduction;  however,  when CMSLP obtains a third-party  appraisal,  it
calculates one.

     As previously  discussed,  certain  bonds from the CBO-1,  CBO-2 and Nomura
transactions  are  expected  to  experience  principal  write-downs  over  their
expected lives. The following tables summarize the actual realized losses on our
CMBS through December 31, 2002 (including realized mortgage loan losses expected
to pass  through to our CMBS  during the next  month)  and the  expected  future
losses through the life of the CMBS:

<PAGE>F-30

<TABLE>
<CAPTION>
(in thousands)                                                 CBO 1         CBO 2        Nomura        Total
--------------                                                 -----         -----        ------        -----
<S>                                                            <C>           <C>          <C>           <C>
Year 1999 actual realized losses                               $  738        $   --       $   --       $   738
Year 2000 actual realized losses                                3,201         1,087           --         4,288
Year 2001 actual realized losses                                  545         8,397          238         9,180
Year 2002 actual realized losses                               11,554        25,113          563        37,230
                                                              -------       --------     --------      --------
Cumulative actual realized losses through December 31, 2002  $ 16,038       $34,597        $ 801       $51,436
                                                             ========       ========     ========      ========

Cumulative actual realized losses through December 31, 2002  $ 16,038       $34,597        $ 801       $51,436
Expected loss estimates for the year 2003                      54,410       136,771        6,438       197,619
Expected loss estimates for the years 2004                     17,771        89,783       20,016       127,570
Expected loss estimates for the years 2005                     11,887        37,545        4,452        53,884
Expected loss estimates for the years 2006-2008                 5,268        32,684       10,257        48,209
Expected loss estimates for the years 2009-2011                 3,543         5,904        3,206        12,653
Expected loss estimates for the remaining life of CMBS          2,865         7,557        1,364        11,786
                                                             --------      --------      ---------   ----------
Cumulative expected loss estimates (including cumulative
   actual realized losses) through life of CMBS              $111,782      $344,841      $46,534     $ 503,157
                                                             ========      ========      =========   ==========

</TABLE>

     The  following  table  provides  a summary of the  changes  in the  overall
expected  loss  estimates  on  subordinated  CMBS from  January 1, 2001  through
December 31, 2002:
<TABLE>
<CAPTION>
                        Overall        Impairment
                        Expected     Recorded During
($ in millions)      Loss Estimate    Quarter Ended                            Impaired CMBS
---------------      -------------    -------------                            -------------
<S>                  <C>              <C>                                      <C>
January 1, 2001            $298             $  -
September 30, 2001          307              3.9      Both bonds in CBO-1, and Nomura unrated bond
December 31, 2001           335             30.8      Both bonds in CBO-1, and BB- through unrated/issuer's equity
                                                      bonds in CBO-2
June 30, 2002               351              5.2      Nomura and CBO-2 unrated/issuer's equity bonds
September 30, 2002          448             29.9      All unrated/issuer's equity bonds, and the CCC bond and the B-
                                                      bond in CBO-2
December 31, 2002           503             35.1      All unrated/issuer's equity bonds, and the CCC bond and the B-
                                                      bond in CBO-2

</TABLE>

     We revised our overall  expected loss estimate  related to our subordinated
CMBS  portfolio  during  2002 as  summarized  in the table above with an overall
expected  loss estimate of  approximately  $503 million as of December 31, 2002,
with such total losses  occurring  or expected to occur  through the life of the
subordinated  CMBS  portfolio.  These  revisions  to the overall  expected  loss
estimate  were  primarily  the result of increased  mortgage  loan  defaults and
increased projected losses (and assuming the related timing of losses will occur
sooner than previously  estimated) due to lower than anticipated  appraisals and
lower internal estimates of values on real estate owned by underlying trusts and
properties  underlying  certain defaulted  mortgage loans,  which, when combined
with the updated loss severity experience, has resulted in higher projected loss
severities  on loans and real estate  owned by  underlying  trusts  currently or
anticipated to be in special servicing. Primary reasons for lower appraisals and
lower  estimates  of value  resulting in higher  projected  loss  severities  on
mortgage loans include the poor  performance  of certain  properties and related
markets,  failed  workout  negotiations,  and extended  time needed to liquidate
assets  due, in large  part,  to the  continued  softness  in the  economy,  the
continued  downturn  in  travel  and,  in  some  cases,   over-supply  of  hotel
properties,  and a shift in  retail  activity  in some  markets,  including  the
closing of stores by certain national and regional  retailers.  In addition,  as
previously  discussed,  two significant  hotel loan portfolios  transferred into
special  servicing in January 2003. The unpaid  principal  balances of these two
hotel loan  portfolios  aggregate  approximately  $212.2  million.  Our  overall
expected loss estimate of $503 million through the life of our subordinated CMBS
includes our estimate of total principal  write-downs to our  subordinated  CMBS
due to realized losses related to underlying  mortgage loans, and is included in
the calculation of the current weighted average  anticipated  yield to maturity,
as discussed below.  There can be no assurance that our revised overall expected
loss  estimate of $503 million will not be exceeded as a result of additional or
existing adverse events or circumstances.  Such events or circumstances include,
but are not limited to, the receipt of new or updated  appraisals  at lower than
anticipated amounts,  legal proceedings (including bankruptcy filings) involving
borrowers, a continued weak economy or recession,  an act of war, a delay in the
disposition of specially  serviced mortgage loans,  additional  defaults,  or an
unforeseen  reduction  in  expected  recoveries,  any of which  could  result in
additional  future credit losses and/or further  impairment to our  subordinated
CMBS, the effect of which could be materially adverse to us.

     During 2002, we had also  determined  that there had been an adverse change
in  expected  future  cash flows

<PAGE>F-31

for  certain  of the  CMBS as of June  30,  2002,  September  30,  2002 and
December  31,  2002  (as  summarized  in the  table  above)  due to the  factors
mentioned in the preceding  paragraph.  As a result, we believed these bonds had
been  impaired  under  EITF  99-20 and SFAS No.  115,  "Accounting  for  Certain
Investments in Debt and Equity  Securities,"  as of each of those dates.  As the
fair values of these  impaired  bonds were  approximately  $5.2  million,  $29.9
million and $35.1 million  below the  amortized  cost basis as of June 30, 2002,
September 30, 2002 and December 31, 2002,  respectively,  we recorded other than
temporary  impairment  charges through the income  statement  during the second,
third and fourth quarters of 2002.

     During 2001, we revised our overall  expected loss estimate  related to our
subordinated  CMBS  portfolio as detailed in the table above.  The  revisions to
loss estimates  during 2001 were  primarily the result of the continued  slowing
U.S. economy and recession,  which were exacerbated by the terrorist  attacks on
September 11, 2001 and subsequent  terrorist actions and threats.  As previously
discussed,  principally as a result of the slowing economy and terrorist actions
and  threats,  the  underlying  mortgage  loans  had a greater  than  previously
anticipated  number of monetary  defaults during 2001.  Additionally,  appraisal
amounts on properties  underlying  certain  defaulted  loans were  significantly
lower than previously  anticipated,  thereby increasing the estimated  principal
loss on the  commercial  loans.  As we had  determined  that  there  had been an
adverse  change in expected  future cash flows and that the current  estimate of
expected  credit  losses  exceeded  credit losses as  previously  projected,  we
believed certain of the CMBS had been impaired under EITF 99-20 and SFAS No. 115
as of September 30, 2001 and again as of December 31, 2001. As the fair value of
the impaired  bonds was  approximately  $3.9 million and $30.8 million below the
amortized   cost  basis  as  of  September  30,  2001  and  December  31,  2001,
respectively,  we recorded  other than  temporary  non-cash  impairment  charges
through the income  statement of those same amounts  during the third and fourth
quarters of 2001.

Yield to Maturity

     The following table summarizes  yield-to-maturity  information  relating to
our CMBS on an aggregate pool basis:
<TABLE>
<CAPTION>
                                                                                        Current
                                          Anticipated         Anticipated            Anticipated
                                           Yield-to-           Yield-to-              Yield-to-
                                           Maturity            Maturity               Maturity
         Pool                            as of 1/1/01 (1)   as of 1/1/02 (1)       as of 1/1/03 (1)
         ----                            ----------------   ----------------       ----------------
         <S>                             <C>                <C>                    <C>
        CBO-2 CMBS                           11.8% (2)         12.1% (2)              11.6% (2)

        CBO-1 CMBS                           21.0% (2)         14.3% (2)              11.6% (2)

        Nomura CMBS                          25.3% (2)         28.7% (2)               8.0% (2)
                                            ----------       ------------           --------------

        Weighted Average (3)                 12.4% (2)         12.4% (2)              11.6% (2)

</TABLE>

(1)  Represents the anticipated weighted average yield over the expected average
     life of the CMBS as of January 1, 2001, January 1, 2002, and January 1,
     2003 based on our estimate of the timing and amount of future credit
     losses.

(2)  As previously discussed, as of December 31, 2000, September 30, 2001,
     December 31, 2001, June 30, 2002, September 30, 2002 and December 31, 2002,
     we revised our overall expected loss estimate related to our subordinated
     CMBS to $298 million, $307 million, $335 million, $351 million, $448
     million and $503 million, respectively, which resulted in impairment
     recognition to certain subordinated CMBS. As a result of recognizing
     impairment, we revised the anticipated yields as of January 1, 2001,
     October 1, 2001, January 1, 2002, July 1, 2002, October 1, 2002 and
     January 1, 2003, which were or are, in the case of revised anticipated
     yields as of January 1, 2003, used to recognize interest income beginning
     on each of those dates.  These anticipated revised yields took into account
     the lower cost basis due to the impairment recognized on the subordinated
     CMBS as of dates the losses were revised, and contemplated larger than
     previously anticipated losses that were generally expected to occur sooner
     than previously anticipated. The weighted average yield-to-maturity was
     12.5% and 12.0% as of July 1, 2002 and October 1, 2002, respectively.

(3)  GAAP requires that the income on subordinated CMBS be recorded based on the
     effective interest method using the anticipated yield over the expected
     life of these mortgage assets. This method can result in accounting income
     recognition which is greater than or less than cash received. For the years
     ended December 31, 2002, 2001 and 2000, the amount of income recognized in
     excess of cash received on all of the subordinated CMBS due to the
     effective interest rate method was approximately $11.4 million, $10.2
     million and $15.2 million, respectively.


<PAGE>F-32

Determining Fair Value of CMBS

     We use a discounted cash flow methodology for determining the fair value of
our  subordinated  CMBS.  See  Note  4  for  a  discussion  of  our  fair  value
methodology.

Key Assumptions in Determining Fair Value

     The gross mortgage loan cash flows from each commercial  mortgage loan pool
and their  corresponding  distribution  on the CMBS may be  affected by numerous
assumptions and variables including:

(i) changes in the timing and/or amount of credit losses on the commercial
    mortgage loans (credit risk), which are a function of:
    o   the percentage of mortgage loans that experience a default either
        during the mortgage term or at maturity (referred to in the industry
        as a default percentage);
    o   the recovery period represented by the time that elapses between
        the default of a commercial mortgage loan and the subsequent
        foreclosure and liquidation of the corresponding real estate (a
        period of time referred to in the industry as a lag); and,
    o   the percentage of mortgage loan principal lost as a result of the
        deficiency in the liquidation proceeds resulting from the
        foreclosure and sale of the commercial real estate (referred to in
        the industry as a loss severity);
(ii) the discount rate used to derive fair value which is comprised of the
following:
    o   a benchmark risk-free rate, calculated by using the current,
        "on-the-run" U.S. Treasury curve and interpolating a comparable
        risk-free rate based on the weighted-average life of each CMBS; plus,
    o   a credit risk premium; plus,
    o   a liquidity premium;
(iii)   delays in the receipt of monthly cash flow distributions to CMBS as a
        result of mortgage loan defaults and/or extensions in the loan's term
        to maturity (see Extension Risk below); and
(iv)    the receipt of mortgage payments earlier than projected (prepayment).

Sensitivities of Key Assumptions

     Since we use a discounted cash flow methodology to derive the fair value of
our CMBS,  changes in the timing  and/or the amount of cash flows  received from
the underlying commercial mortgage loans, and their allocation to the CMBS, will
directly impact the value of such securities. Accordingly, delays in the receipt
of cash flows and/or  decreases in future cash flows  resulting from higher than
anticipated  credit losses will result in an overall  decrease in the fair value
of our CMBS. Furthermore, any increase/(decrease) in the required rate of return
for CMBS will result in a corresponding (decrease)/increase in the value of such
securities.  We have included the following narrative and numerical  disclosures
to demonstrate the sensitivity of such changes to the fair value of our CMBS.

Key Assumptions Resulting in an Adverse Impact to Fair Value

     Factors which could adversely affect the valuation of our CMBS include: (i)
the  receipt of future  cash flows less than  anticipated  due to higher  credit
losses (i.e.,  higher credit losses  resulting from a larger  percentage of loan
defaults,  and/or losses occurring sooner than projected,  and/or longer periods
of recovery between the date of default and  liquidation,  and/or higher loss of
principal,  see  "Sensitivity of Fair Value to Changes in Credit Losses" below),
(ii) an increase in the required rate of return (see  "Sensitivity of Fair Value
to Changes in the Discount  Rate"  below) for CMBS,  and/or (iii) the receipt of
cash flows later than anticipated  (see  "Sensitivity of Fair Value to Extension
Risk" below).

     Sensitivity of Fair Value to Changes in Credit Losses

     For purposes of this disclosure, we used a market convention for simulating
the impact of increased  credit losses on CMBS.  Generally,  the industry uses a
combination  of an  assumed  percentage  of loan  defaults  (referred  to in the
industry  as a Constant  Default  Rate or "CDR"),  a lag period, and an assumed
loss severity.

<PAGE>F-33

For purposes of this  disclosure,  we assumed the following loss scenarios,
each of which was assumed to begin 12 months from  December 31,  2002:  (i) 2.0%
per annum of the commercial  mortgage loans were assumed to default,  a 12 month
period of time was assumed to elapse between the date of default and the date of
liquidation  (it was further  assumed that the master servicer only continued to
advance 75% of the scheduled  principal  and interest  payments on behalf of the
borrower during this time), and 35% of the then outstanding  principal amount of
the defaulted  commercial mortgage loans were assumed to be lost (referred to in
the industry as a 2.0% CDR, 12 month lag, and 35% loss severity, and referred to
herein  as the  "2.0%  CDR  Loss  Scenario"),  and (ii)  3.0% per  annum of each
commercial  mortgage  was  assumed  to  default,  a 12 month  period of time was
assumed to elapse  between the date of default and the date of  liquidation  (it
was assumed that the master  servicer  continued to advance 75% of the scheduled
principal and interest payments on behalf of the borrower during this time), and
35% of the then outstanding  principal  amount of each commercial  mortgage loan
was assumed to be lost (referred to in the industry as a 3.0% CDR, 12 month lag,
and 35% loss severity,  and referred to herein as the "3.0% CDR Loss Scenario").
The delay in receipt and the  reduction in amount of cash flows  resulting  from
the 2.0% CDR Loss  Scenario  and the 3.0% CDR Loss  Scenario,  would result in a
corresponding  decline in the fair value of our aggregate CMBS by  approximately
$53.0 million (or 6.1%) and $132.3 million (or 15.4%),  respectively.  The delay
in receipt and the reduction in amount of cash flows resulting from the 2.0% CDR
Loss  Scenario and the 3.0% CDR Loss  Scenario  would result in a  corresponding
decline in the fair value of our subordinated CMBS (BB+ through unrated/issuer's
equity) by approximately  $50.5 million (or 9.4%) and $128.8 million (or 24.2%),
respectively.

     The  aggregate  amount of  credit  losses  assumed  under the 2.0% CDR Loss
Scenario and the 3.0% CDR Loss Scenario totaled  approximately  $696 million and
$994  million,  respectively.  These  amounts are in comparison to the aggregate
amount of  anticipated  credit  losses  assumed by us as of December 31, 2002 of
approximately  $503 million used to calculate GAAP income  yields.  It should be
noted that the amount and timing of the anticipated  credit losses assumed by us
related to the GAAP income  yields are not directly  comparable to those assumed
under the 2.0% CDR Loss Scenario and the 3.0% CDR Loss Scenario.

     Sensitivity of Fair Value to Changes in the Discount Rate

     The required rate of return used to determine the fair value of our CMBS is
comprised of many variables, such as a risk-free rate, a liquidity premium and a
credit risk  premium.  These  variables  are  combined to determine a total rate
that,  when used to  discount  the CMBS's  assumed  stream of future cash flows,
results in a net present  value of such cash flows.  The  determination  of such
rate is dependent on many quantitative and qualitative factors, such as, but not
limited to, the market's  perception of the issuers and the credit  fundamentals
of the commercial real estate underlying each pool of commercial mortgage loans.
For  purposes of this  disclosure,  we assumed  that the  discount  rate used to
determine the fair value of our CMBS increased by 100 basis points and 200 basis
points.  The  increase  in the  discount  rate  by 100  and  200  basis  points,
respectively,  would  result  in a  corresponding  decline  in the  value of our
aggregate  CMBS by  approximately  $50.0 million (or 5.8%) and $95.9 million (or
11.1%),  respectively,  and our subordinated CMBS by approximately $31.8 million
(or 6.0%) and $60.9 million (or 11.5%), respectively.

     The  sensitivities  above are hypothetical and should be used with caution.
As  the  figures  indicate,  changes  in  fair  value  based  on  variations  in
assumptions  generally  cannot be extrapolated  because the  relationship of the
change in  assumption to the change in fair value may not be linear.  Also,  the
effect  of a  variation  in a  particular  assumption  on the fair  value of the
retained  interest is  calculated  without  changing  any other  assumption;  in
reality,  changes in one factor may result in changes in another  (for  example,
increases in market interest rates may result in lower prepayments and increased
credit losses), which might magnify or counteract the sensitivities.

     Sensitivity of Fair Value to Extension Risk

     For purposes of this disclosure,  we assumed that the maturity date of each
commercial  mortgage  loan  underlying  the CMBS was extended for a period of 12
months and 24 months  beyond the  contractual  maturity  date  specified in each
mortgage  loan.  The delay in the timing  and  receipt of such cash flows for an
extended  period of time  consisting  of 12 months and 24 months,  respectively,
would result in a  corresponding  decline in the value of our aggregate  CMBS by
approximately $6.3 million (or 0.7%) and $12.5 million (or 1.5%),  respectively,
and our  subordinated  CMBS by  approximately  $4.1  million  (or 0.8%) and $8.3
million (or 1.6%), respectively.

<PAGE>F-34

     Impact of Prepayment Risk on Fair Value

     Our investments in  subordinated  CMBS are purchased at a discount to their
face amount due to their subordinated claim to principal and interest cash flows
and priority of allocation  of realized  losses.  As a result of the  discounted
purchase  price,   the  return  of  principal   sooner  than   anticipated  from
prepayments,  and/or in amounts greater than initially  assumed when determining
the discounted  purchase price,  would result in an increase in the value of our
subordinated  CMBS.  Such  appreciation  in value  would  result from the higher
subordination level of the CMBS transaction  relative to comparable CMBS and the
potential  for an upgrade in the  ratings  category of the  security.  Since the
effects of  prepayments  would enhance the value of our  subordinated  CMBS, the
effects of increased  prepayments  were excluded from the  sensitivity  analysis
below.  (It should be noted that the  effects  of a decline  in  prepayments  is
reflected in the Sensitivity of Fair Value to Extension Risk above).

6.       INSURED MORTGAGE SECURITIES

     Our  consolidated  portfolio  of mortgage  securities  is comprised of GNMA
mortgage-backed securities and FHA-insured certificates.  Additionally, mortgage
securities  include  Federal  Home Loan  Mortgage  Corporation,  or Freddie Mac,
participation  certificates  which are  collateralized  by GNMA  mortgage-backed
securities,  as discussed  below. As of December 31, 2002, 88% of our investment
in  mortgage  securities  were  GNMA   mortgage-backed   securities   (including
securities which  collateralized  Freddie Mac  participation  certificates)  and
approximately 12% were FHA-insured certificates.

     CRIIMI MAE owns the  following  insured  mortgage  securities  directly  or
indirectly through its wholly-owned subsidiaries referenced below:
<TABLE>
<CAPTION>

                                                                       As of December 31, 2002
                                                                       -----------------------
                                        Number of                                          Weighted
                                        Mortgage                                        Average Effective     Weighted Average
                                       Securities     Fair Value     Amortized Cost       Interest Rate        Remaining Term
                                      -----------   -------------- ----------------- ---------------------- -------------------
<S>                                   <C>           <C>            <C>               <C>                    <C>
CRIIMI MAE (4)                              1         $ 5,730,315       $ 5,339,840           8.00%                  32 years
CRIIMI MAE Financial Corporation           22          77,454,269        76,653,272           8.40%                  25 years
CRIIMI MAE Financial Corporation II        28         145,576,318       145,395,708           7.19%                  23 years
CRIIMI MAE Financial Corporation III (5)   16          46,579,332        46,266,537           7.92%                  27 years
                                           --        -------------   --------------           -----                  --------
                                           67 (1)    $275,340,234      $273,655,357           7.67%  (3)             25 years (3)
                                           ==        ============      ============           =====                  ========

                                                                       As of December 31, 2001
                                                                       -----------------------
                                        Number of                                          Weighted
                                        Mortgage                                        Average Effective     Weighted Average
                                       Securities     Fair Value     Amortized Cost       Interest Rate        Remaining Term
                                      -----------   -------------- ----------------- ---------------------- -------------------
<CAPTION>
<S>                                   <C>           <C>            <C>               <C>                    <C>
CRIIMI MAE                                  1         $ 5,254,885       $ 5,372,303           8.00%                  33 years
CRIIMI MAE Financial Corporation           30         106,445,595       107,546,937           8.44%                  27 years
CRIIMI MAE Financial Corporation II        42         182,696,905       188,339,465           7.19%                  25 years
CRIIMI MAE Financial Corporation III       19          48,693,918        49,724,286           7.97%                  28 years
                                           --        ------------      ------------           -----                  --------
                                           92 (2)    $343,091,303      $350,982,991           7.70%  (3)             26 years (3)
                                           ==        ============      ============           =====                  ========

</TABLE>

(1)  During the year ended December 31, 2002, 25 mortgage loans underlying our
     mortgage securities were prepaid. These prepayments generated net proceeds
     of approximately $72.6 million and resulted in a financial statement net
     loss of approximately $832,000, which is included in net losses on mortgage
     security dispositions in the accompanying consolidated statement of income
     for the year ended December 31, 2002. In addition to these losses, we
     recognized additional losses of $163,000 during the year ended December 31,
     2002 resulting from the final financial settlement on the two mortgages
     that were assigned to the U.S. Department of Housing and Urban Development
     in 2001 due to payment defaults.

(2)  During the year ended December 31, 2001, there were 9 prepayments of
     mortgage loans underlying our mortgage securities. These prepayments
     generated net proceeds of approximately $29.9 million and resulted in net
     financial statement gains of approximately $53,000, which are included in
     net (losses) gains on mortgage security and originated loan dispositions in
     the accompanying consolidated statement of income for the year ended
     December 31, 2001. During the year ended December 31, 2001, one of our
     subsidiaries referenced above

<PAGE>F-35

     received payments from the U.S. Department of Housing and Urban
     Development relating to the assignment of two mortgage loans with a
     combined amortized cost of approximately $5.5 million. These
     assignments resulted in a net financial statement loss of approximately
     ($95,000), which is included in net (losses) gains on mortgage security and
     originated loan dispositions in the accompanying consolidated statement of
     income for the year ended December 31, 2001.

(3)  Weighted averages were computed using total face value of the mortgage
     securities. It is possible that some of the underlying mortgage loans may
     prepay due to the low current mortgage interest rates.

(4)  Sold in January 2003 in connection with our recapitalization.

(5)  As of February 2003, we have the option of selling the insured mortgage
     securities held by CRIIMI MAE Financial Corporation III and prepaying the
     related match funded debt, with a face amount of approximately $45.7
     million at December 31, 2002, with the proceeds from the sale since the
     face value of the debt is less than 20% of the original face value. If we
     decide to exercise this option, we will retain any proceeds in excess of
     the unpaid principal balance of the debt.

     As shown in the table referenced  above,  the total mortgage  securities of
$275.3 million includes an unencumbered  insured  mortgage  security with a fair
value of $5.7 million  (which was sold in January  2003).  The remaining  $269.6
million of  mortgage  securities  are pledged to secure  certain  collateralized
mortgage   obligations   or   securities   issued  in   connection   with  three
securitization  transactions.  As discussed  in Note 7, the secured  obligations
cost basis was approximately  $253.0 million as of December 31, 2002. We receive
the net cash flows after debt service,  generally excess interest and prepayment
penalties,  from the three wholly-owned  subsidiaries that pledged these insured
mortgage securities to secure the related obligations, which represent the total
cash flows that we receive from these mortgage securities.  These net cash flows
after  debt  service  were  applied  as  principal   amortization  payments  (in
connection  with cash flow from  other  miscellaneous  assets)  on the  Series A
Senior Secured Notes, prior to the redemption of these notes in 2003.

     Descriptions  of  the  mortgage   securities  that  we  own,   directly  or
indirectly,  which  exceed 3% of the total  carrying  value of the  consolidated
mortgage securities as of December 31, 2002,  summarized  information  regarding
other mortgage  securities and mortgage  securities  income earned in 2002, 2001
and 2000, including interest earned on the disposed mortgage securities,  are as
follows:


<PAGE>F-36

<TABLE>
<CAPTION>


                                           Mortgage Securities as of December 31, 2002                Mortgage Income Earned
                              ----------------------------------------------------------------  ---------------------------------
                                                                                       Final
                                                                            Effective Maturity
                               Face Value     Fair Value      Amortized     Interest   Date
                                  (1)           (2)(4)       Cost (1)(3)      Rate     Range       2002        2001       2000
                              -------------  -------------  --------------  --------  ---------  ---------- ----------- ----------
<S>                           <C>            <C>             <C>            <C>       <C>        <C>         <C>
CRIIMI MAE

   GNMA Mortgage-Backed
     Securities
   Other (1 mortgage
     security) (5)           $  5,339,840    $ 5,730,315    $  5,339,840    8.00%    02/2035    $428,612    $431,096   $433,385
                              -----------    ------------   -------------                       ---------  ----------  ---------

CRIIMI MAE Financial Corporation

   FHA-Insured Certificates
   Stoddard Baptist Nursing
     Home                       8,764,672      9,098,957       8,838,749    7.90%     3/2027     703,355     712,238     720,448

   Other (10 mortgage                                                       7.35%-   02/2019-
     securities)               23,530,761     23,755,346      23,492,626   11.00%    04/2034   2,232,353   2,251,003   2,268,007

   GNMA Mortgage-Backed
     Securities
   Bellhaven Nursing Center    13,749,383     13,747,871      13,749,383    8.63%    12/2031   1,156,241   1,164,470   1,172,021
   Capital Crossing Apts.       9,548,378      9,643,862       9,582,619    7.93%     5/2021     745,343     761,795     776,996

   Other (9 mortgage                                                        8.03%-   10/2015-
     securities)               21,037,544     21,208,233      20,989,895    8.78%    04/2035   1,696,798   1,715,945   1,733,586
                             ------------   -------------   -------------                      ----------  ---------  ----------
                               76,630,738     77,454,269      76,653,272                       6,534,090   6,605,451   6,671,058
                             ------------   -------------   -------------                      ----------  ---------  -----------

CRIIMI MAE Financial Corporation II

   GNMA Mortgage-Backed
     Securities
   Oakwood Garden Apartments   12,243,915     12,366,355      12,470,483    7.51%    10/2023     885,020     901,325     916,455
   San Jose South              26,617,202     26,883,374      26,810,167    7.66%    10/2023   1,939,599   1,974,586   2,007,005
   Somerset Park Apartments    27,844,895     28,123,344      28,302,174    7.41%    07/2028   2,040,984   2,065,888   2,089,020
   Yorkshire Apartments        14,228,138     14,370,419      14,289,751    7.21%    07/2031     999,535   1,009,096   1,017,995

   Other (24 mortgage                                                       7.14%-   06/2018-
     securities)               63,200,818     63,832,826      63,523,133    7.84%    05/2029   4,646,785   4,712,121   4,772,742
                             ------------   ------------    ------------                      ----------- ---------- -----------
                              144,134,968    145,576,318     145,395,708                      10,511,923  10,663,016  10,803,217
                             ------------   --------------  --------------                    ---------- ----------- -----------

CRIIMI MAE Financial Corporation III

   GNMA Mortgage-Backed
     Securities
   Other (16 mortgage                                                       7.45%-   08/2014-
     securities)               46,205,072     46,579,332      46,266,537   10.39%    02/2035   3,684,054   3,721,516   3,756,041
                             ------------    -----------    ------------                      ---------- ----------- -----------
Total Insured Mortgage
  Securities                 $272,310,618   $275,340,234    $273,655,357                      21,158,679  21,421,079  21,663,701
                             ============   ============    ============

Insured Mortgage Security Dispositions                                                         2,687,162   7,431,640   9,004,527
                                                                                             ----------- ----------- -----------
Insured Mortgage Securities Interest                                                         $23,845,841 $28,852,719 $30,668,228
                                                                                             =========== =========== ===========

</TABLE>

(1)  Principal and interest on mortgage securities is payable at level amounts
     over the life of the mortgage asset. Total annual debt service payable to
     CRIIMI MAE and the referenced financing subsidiaries for the mortgage
     securities held as of December 31, 2002 is approximately $24.8 million.
(2)  Reconciliations of the carrying amount of our insured mortgage securities
     for the years ended December 31, 2002 and 2001 follow:
<TABLE>
<CAPTION>
                                                                        For the year ended December 31,
                                                                          2002                  2001
                                                                     ----------------      ----------------
<S>                                                                  <C>                   <C>
Balance at beginning of year                                           $ 343,091,303         $ 385,751,407
    Amortization of discount                                                  13,552                15,688
    Adjustment to net unrealized gains and losses on mortgage
      securities                                                           9,576,565            (2,802,216)
    Principal payments                                                    (3,823,603)           (4,308,118)
    Mortgage prepayments                                                 (73,437,354)          (35,469,292)
    Amortization of premium                                                  (80,229)              (96,166)
                                                                     ----------------      ----------------
Balance at end of year                                                 $ 275,340,234         $ 343,091,303
                                                                     ================      ================

</TABLE>

(3)  All mortgages are collateralized by first or second liens on residential
     apartment, retirement home, nursing home or townhouse complexes which have
     diverse geographic locations and are FHA-insured certificates or GNMA
     mortgage-backed securities. Payment of the principal

<PAGE>F-37

     and interest on FHA-insured certificates is insured by the U.S. Department
     of Housing and Urban Development pursuant to Title 2 of the National
     Housing Act. Payment of the principal and interest on GNMA mortgage-backed
     securities is guaranteed by GNMA pursuant to Title 3 of the National
     Housing Act.
(4)  None of these mortgage securities are delinquent as of December 31, 2002.
(5)  Sold in January 2003 in connection with our recapitalization.

7.   OBLIGATIONS UNDER FINANCING FACILITIES

     The following table summarizes our debt outstanding as of December 31, 2002
and 2001:
<TABLE>
<CAPTION>
                                                    As of and for the year ended December 31, 2002
                                          -------------------------------------------------------------------
                                                                                                    Average
                                                              Effective Rate                        Effective
                                           Ending Balance       at Year End    Average Balance        Rate
                                           --------------     -------------    ---------------      ---------
<S>                                        <C>                <C>              <C>                  <C>
Recourse to CRIIMI MAE:
   Exit variable-rate secured borrowing (1)  $214,672,536        6.2%          $228,731,683           6.5%
   Series A senior secured notes (2)           92,788,479       12.2%            96,077,252          12.1%
   Series B senior secured notes (3)           68,491,323       21.1%            66,005,024          21.1%

Non-Recourse to CRIIMI MAE:
   Securitized mortgage obligations:
          CMBS (4)                            285,844,933        9.1%           284,436,363           9.1%
          Freddie Mac funding note (5)        139,550,402        7.6%           157,145,288           8.8%
          Fannie Mae funding note (6)          44,902,412        7.4%            46,662,564           8.2%
          CMO (7)                              68,527,290        7.5%            88,584,927           8.8%
   Mortgage payable (8)                         7,214,189       12.0%             7,157,361          12.0%
                                          ---------------                     -------------

          Total Debt                         $921,991,564        9.2%          $974,800,462           9.5%
                                           ===============                     =============

                                                   As of and for the year ended December 31, 2001
                                         -------------------------------------------------------------------
                                                                                                   Average
                                                             Effective Rate                        Effective
                                          Ending Balance       at Year End    Average Balance        Rate
                                          --------------     -------------    ---------------      ----------
<CAPTION>
<S>                                       <C>                <C>              <C>                  <C>
Recourse to CRIIMI MAE:
   Exit variable-rate secured borrowing (1)  $244,194,590        6.5%          $179,214,481           8.2%
   Series A senior secured notes (2)           99,505,457       12.2%            71,723,157          12.2%
   Series B senior secured notes (3)           63,937,383       21.1%            43,876,198          21.0%

Non-Recourse to CRIIMI MAE:
   Securitized mortgage obligations:
          CMBS (4)                            283,047,470        9.1%           282,017,637           9.1%
          Freddie Mac funding note (5)        180,291,091        7.5%           187,895,844           7.5%
          Fannie Mae funding note (6)          48,062,403        7.4%            53,304,433           7.4%
          CMO (7)                              98,204,667        7.5%           107,514,532           7.5%
   Mortgage payable (8)                         7,109,252       12.0%             1,777,203          12.0%
   Variable-rate secured borrowings-CMBS (9)           --          --           108,784,948           6.7%
   Senior unsecured notes (9)                          --          --            29,722,222           9.1%
   Bank term loan (9)                                  --          --               386,389           7.0%
   Working capital line of credit (9)                  --          --            11,888,889           7.5%
   Bridge loan (9)                                     --          --            14,786,663           8.0%
                                           ---------------                   ---------------

          Total Debt                       $1,024,352,313        9.1%        $1,092,892,596           8.9%
                                           ===============                   ===============

</TABLE>

(1)  The effective interest rate at December 31, 2002 and 2001 and during the
     years ended December 31, 2002 and 2001 reflects the accrual of estimated
     extension fees that were payable in the future. During the years ended
     December 31, 2002 and 2001, we recognized interest expense of $3,255,621
     and $2,372,379 related to these estimated extension fees. As of December
     31, 2002, we had $5,628,000 of accrued extension fees included in payables
     and accrued expenses in the accompanying consolidated balance sheet. This
     debt was repaid in full on January 23, 2003, and the accrued extension fees
     will be reversed into income in the first quarter of 2003.

<PAGE>F-38

(2)  The effective interest rate at December 31, 2002 and 2001 and during the
     years ended December 31, 2002 and 2001 reflects the accrual of estimated
     extension fees that were payable in the future. During the years ended
     December 31, 2002 and 2001, we recognized interest expense of $350,812 and
     $337,390 related to these estimated extension fees. As of December 31,
     2002, we had $688,202 of accrued extension fees included in payables and
     accrued expenses in the accompanying consolidated balance sheet. This debt
     was repaid in full on March 10, 2003, and the accrued extension fees will
     be reversed into income in the first quarter of 2003.

(3)  The effective interest rate at December 31, 2002 and 2001 and during the
     years ended December 31, 2002 and 2001 reflects the accrual of estimated
     extension fees that were payable in the future. During the years ended
     December 31, 2002 and 2001, we recognized interest expense of $701,857 and
     $432,390 related to these estimated extension fees. As of December 31,
     2002, we had $1,134,247 of accrued extension fees included in payables and
     accrued expenses in the accompanying consolidated balance sheet. This debt
     was repaid in full on March 10, 2003, and the accrued extension fees will
     be reversed into income in the first quarter of 2003.

(4)  As of December 31, 2002 and 2001, the face amount of the debt was
     $328,446,000 with unamortized discount of $42,601,067 and $45,398,530,
     respectively. During the years ended December 31, 2002 and 2001, discount
     amortization of $2,797,463 and $2,527,205, respectively, was recorded as
     interest expense.

(5)  As of December 31, 2002 and 2001, the face amount of the note was
     $143,066,791 and $185,616,298, respectively, with unamortized discount of
     $3,516,389 and $5,325,207, respectively. During the years ended December
     31, 2002 and 2001, discount amortization of $1,808,818 and $576,636,
     respectively, was recorded as interest expense.

(6)  As of December 31, 2002 and 2001, the face amount of the note was
     $45,749,641 and $49,182,632, respectively, with unamortized discount of
     $847,229 and $1,120,229, respectively. During the years ended December 31,
     2002 and 2001, discount amortization of $273,000 and $227,510,
     respectively, was recorded as interest expense.

(7)  As of December 31, 2002 and 2001, the face amount of the note was
     $69,982,117 and $100,727,532, respectively, with unamortized discount of
     $1,454,827 and $2,522,865, respectively. During the years ended December
     31, 2002 and 2001, discount amortization of $1,068,038 and $490,940,
     respectively, was recorded as interest expense.

(8)  As of December 31, 2002 and 2001, the unpaid principal balance of this
     mortgage payable was $8,723,895 and $8,824,288, respectively, and the
     unamortized discount was $1,509,707 and $1,715,036, respectively. The
     coupon rate on the mortgage payable is 7.34%. The effective interest rate
     on the mortgage payable is 12.00% as a result of the discount amortization.
     The discount is being amortized to interest expense through maturity in
     2008. During the years ended December 31, 2002 and 2001, discount
     amortization of $205,329 and $46,929, respectively, was recorded as
     interest expense.

(9)  All outstanding unpaid amounts under these facilities, to the extent they
     constituted allowed claims, were paid in full in connection with the
     reorganization plan, except for the allowed claim related to First Union,
     as discussed in Note 16, through either cash payment or issuance of Exit
     Debt or a combination of both.

(10) Stated maturities per respective loan agreements as of December 31, 2002.
     Our debt maturities were as follows (assuming the Exit Debt remained
     in place):

        2003                $ 30,285,349
        2004                  42,341,338
        2005                 206,707,677
        2006                 108,362,761
        2007                  73,833,807
        Thereafter           510,389,850
                        -----------------
                           $ 971,920,782  (a)(b)(c)(d)
                        =================

(a)      The projected principal payments on the Exit Variable-Rate Secured
         Borrowing are based on the applicable amortization schedule
         provided in the operative documents.  These principal payments are
         based on our estimate of future cash flows, which are subject to
         continuous change due to, without limitation, changes in interest
         rates, realized losses, appraisal reductions, interest shortfalls,
         credit performance of underlying loans, unanticipated expenses on
         foreclosed and non-performing loans, accumulated advances, prepayments,
         our general and administrative and other operating expenses,
         and cash dividends, if any, paid to shareholders.  There can be no
         assurance that projected cash flows will approximate the actual cash
         flows.  The stated annual interest rate on the Exit Variable-Rate
         Secured Borrowing was LIBOR plus  3.25%.  The average stated interest
         rate assumes that LIBOR is unchanged from the December 31, 2002 LIBOR
         rate of 1.38% over the remaining term of the debt.  Any changes in the
         LIBOR rate would have affected the actual principal payments on
         our Exit Variable-Rate Secured Borrowing in the future.  This debt was
         repaid in full as part of our recapitalization in January 2003.

(b)      The projected principal payments on the Series A Senior Secured Notes
         are based, in part, on our estimate of the cash flows from the
         collateral securing the Series A Senior Secured Notes.  In addition,
         there were principal payment obligations of $5 million, $15 million,
         and $15 million due on April 15, 2003, 2004 and 2005, respectively.
         These projected cash flows were subject to continuous change due to,
         without limitation, changes in interest rates, realized losses,
         appraisal reductions, interest shortfalls, credit performance of
         underlying loans, unanticipated expenses on foreclosed and
         non-performing loans, accumulated advances, prepayments, our general
         and administrative and other operating expenses, and cash dividends,
         if any, paid to shareholders.  There can be no assurance that the
         projected cash flows will approximate the actual cash flows.  This debt
         was repaid in full as part of our recapitalization in January 2003.


<PAGE>F-39



(c)      The Series B Senior Secured Notes had no contractual principal
         payment requirements until maturity on April 15, 2007. The Series
         B Senior Secured Notes accreted interest at an annual rate of 7%.
         This accreted interest was added to the principal balance
         semi-annually on the interest payment dates. For purposes of this
         disclosure, we have not included any future accreted interest in
         the contractual principal payment amount at maturity. This debt
         was repaid in full as part of our recapitalization in January 2003.

(d)      Payments of principal on the securitized mortgage obligations are
         required to the extent mortgage principal is received on the
         related collateral. The projected principal payments on the
         securitized mortgage obligations are based on the stated terms of
         the underlying mortgages.

Exit Debt Effective as of Emergence from Chapter 11

     The  Exit  Debt,  which  closed  on  April  17,  2001,  consisted  of three
components,  as  summarized  below.  Substantially  all cash flows  relating  to
existing  assets were used to satisfy  principal,  interest and fee  obligations
under the Exit  Debt.  The Exit Debt was  secured  by  substantially  all of our
assets.  There were restrictive  covenants,  including  financial  covenants and
certain  restrictions  and  requirements  with respect to cash  accounts and the
collection, management, use and application of funds in connection with the Exit
Debt.  The terms of the Exit Debt  significantly  restricted  the amount of cash
dividends that could be paid to shareholders.

     Exit Variable-Rate Secured Borrowing

     The Exit Variable-Rate  Secured Borrowing,  in an original principal amount
of $262.4  million,  provided for (i) interest at a rate of one month LIBOR plus
3.25%  payable  monthly,  (ii)  principal  repayment/amortization   obligations,
including,  without  limitation,  a  requirement  to pay down an  aggregate  $50
million in  principal  by April 16, 2003,  (iii)  extension  fees of 1.5% of the
unpaid principal  balance payable at the end of each of 24, 30, 36 and 42 months
after April 17, 2001,  and (iv) maturity on April 16, 2005 assuming we exercised
our  options to extend the  maturity  date of the debt.  The Exit  Variable-Rate
Secured  Borrowing had an outstanding  principal balance of $214.7 million as of
December 31, 2002. In connection  with this debt, the  outstanding  stock of CBO
REIT held by CRIIMI MAE was transferred to the lenders  pursuant to a repurchase
agreement.  The obligations under the Exit Variable-Rate  Secured Borrowing were
secured by a first or third  priority lien on certain CMBS, the stock in certain
subsidiaries,  and certain deposit accounts. The foregoing transferred stock and
assets securing the Exit Variable-Rate Secured Borrowing also secured the Series
A and Series B Senior Secured Notes,  which  constituted the balance of the Exit
Debt. The Exit Variable-Rate Secured Borrowing was repaid in full on January 23,
2003 in connection with our recapitalization.

     Series A Senior Secured Notes

     The Series A Senior  Secured  Notes,  representing  an  aggregate  original
principal amount of $105 million,  provided for (i) interest at a rate of 11.75%
per annum payable monthly,  (ii) principal  repayment/amortization  obligations,
including,  without limitation, a principal payment obligation of $5 million due
April 15, 2003 (the failure to make this payment would not have  constituted  an
event of default but would have  resulted  in a 200 basis point  increase in the
interest rate on the unpaid principal amount if certain miscellaneous collateral
was not sold or otherwise  disposed  of),  (iii)  extension  fees of 1.5% of the
unpaid  principal  balance  payable  at the end of each of 48, 54, and 60 months
after April 17, 2001,  and (iv)  maturity on April 15, 2006.  The cash flow from
the  miscellaneous  assets  referenced  below,  which  secured both the Series A
Senior Secured Notes and the Series B Senior Secured  Notes,  was applied,  on a
monthly basis, as principal amortization payments on the Series A Senior Secured
Notes. The Series A Senior Secured Notes had an aggregate  outstanding principal
balance of $92.8  million as of December 31,  2002,  and were secured by a first
priority lien on the stock transferred in connection with the Exit Variable-Rate
Secured Borrowing, by a first or second priority lien on certain CMBS, the stock
in certain subsidiaries, and certain deposit accounts (these assets also secured
the Exit  Variable-Rate  Secured  Borrowing),  and by a first  priority  lien on
certain miscellaneous assets. The Series A Senior Secured Notes were redeemed on
March 10, 2003 in connection with our recapitalization.

     Series B Senior Secured Notes

     The Series B Senior  Secured  Notes,  representing  an  aggregate  original
principal amount of approximately $61.8 million,  provided for (i) interest at a
rate of 13% per annum,  payable  semi-annually,  with additional interest at

<PAGE>F-40

the rate of 7% per annum  accreting over the debt term, (ii) extension fees
of 1.5% of the unpaid principal balance payable at the end of each of 48, 54 and
60 months  after April 17, 2001 (with the payment 60 months  after the April 17,
2001 also  including an amount based on the unpaid  principal  balance 66 months
after April 17, 2001), and (iii) maturity on April 15, 2007. The Series B Senior
Secured Notes had an aggregate outstanding principal balance of $68.5 million as
of December 31, 2002,  and were secured by a second  priority  lien on the stock
transferred in connection with the Exit  Variable-Rate  Secured  Borrowing (this
asset also  secured  the Series A Senior  Secured  Notes),  by a second or third
priority lien on certain CMBS,  the stock in certain  subsidiaries,  and certain
deposit  accounts  (those  assets also  secured the Exit  Variable-Rate  Secured
Borrowing and the Series A Senior Secured Notes),  and by a second priority lien
on certain  miscellaneous  assets (these assets also secured the Series A Senior
Secured  Notes).  The Series B Senior  Secured  Notes were redeemed on March 10,
2003 in connection with our recapitalization.

Bear Stearns and BREF Debt

     See Note 19 for a  discussion  of the Bear  Stearns  and BREF Debt that was
incurred in January 2003 in connection  with our  recapitalization,  and certain
related effects on our first quarter 2003 results of operations.

Affiliate Reorganization

     On the  April  17,  2001  effective  date of the  reorganization  plan,  we
effected an affiliate reorganization in order to indirectly secure the Exit Debt
with the  equity  interests  in  CBO-1  and  CBO-2.  Pursuant  to the  affiliate
reorganization,  we formed a new REIT subsidiary (CBO REIT, Inc.), all shares of
which were initially issued to us, pledged the previously pledged bonds (Pledged
Bonds) and all outstanding shares of two qualified REIT subsidiaries  (which own
the equity  interests  in CBO-1 and CBO-2)  (the QRS  Shares) to secure the Exit
Debt,  pledged the shares held by us in CBO REIT (the REIT Shares) to secure the
Exit  Debt  represented  by the  Series A and  Series B  Senior  Secured  Notes,
contributed  the Pledged Bonds and the QRS Shares to CBO REIT,  and  transferred
the REIT Shares, in a repurchase transaction,  to the lenders which provided the
Exit Variable-Rate Secured Borrowing.  CBO REIT was dissolved in January 2003 in
connection with our recapitalization. See Note 19.

Information Regarding Certain Exit Debt Collateral

     Set forth below is certain  information  relating to the carrying  value of
certain assets which secured all three components of the Exit Debt (until it was
paid off in early 2003).
<TABLE>
<CAPTION>
                                                                  Carrying Value at December 31, 2002
      Collateral                                                           ($ in millions)
      ----------                                                  ----------------------------------
      <S>                                                         <C>
      Certain CMBS                                                           $511.7 (1)
      CBO REIT Stock                                                             (2)
      CMBS Corp Stock                                                            (3)
      QRS 1, Inc. Stock                                                          (4)

</TABLE>

(1)      Represents certain bonds pledged by us (i.e., the CBO-2 B-, B, B+, BB-,
         BB, BB+ rated bonds and the Nomura unrated bond) to secure the Exit
         Debt. Prior to the recent recapitalization, such bonds were owned by
         CBO REIT, a then subsidiary of CRIIMI MAE. As part of our
         recapitalization in January 2003, these assets were transferred to CBO
         REIT II.


(2)      Represents all outstanding shares of CBO REIT held by CRIIMI MAE Inc.
         first pledged by CRIIMI MAE Inc. to secure the Series A Senior Secured
         Notes and Series B Senior Secured Notes and then transferred in a
         repurchase transaction in connection with the Exit Variable-Rate
         Secured Borrowing. Prior to the recent recapitalization, CBO REIT owned
         the pledged bonds identified in footnote (1) above.


(3)      Represents all outstanding shares of CRIIMI MAE CMBS Corp pledged by us
         to secure the Exit Debt. Prior to the recent recapitalization, such
         shares were owned by CBO REIT. Such shares are currently owned by CBO
         REIT II. CRIIMI MAE CMBS Corp owns the CCC rated and unrated bonds from
         CBO-2 (representing the equity interests in CBO-2). The carrying value
         of these CBO-2 bonds was approximately $4.4 million at December 31,
         2002.


(4)      Represents all outstanding shares of CRIIMI MAE QRS 1, Inc. pledged by
         CRIIMI MAE Inc. to secure the Exit Debt. Prior to the recent
         recapitalization, such shares were owned by CBO REIT. Such shares are
         currently owned by CBO

<PAGE>F-41

         REIT II. CRIIMI MAE QRS 1, Inc. owns the B- rated and unrated bonds
         from CBO-1 (representing the equity interests in CBO-1). The carrying
         value of these CBO-1 bonds was approximately $19.3 million at
         December 31, 2002.

Other Debt Related Information

     Fluctuations  in  interest  rates will  continue to impact the value of our
mortgage  assets and could cause margin calls and impact the net interest margin
through increased cost of funds on our variable rate debt. We have interest rate
caps to  partially  limit the adverse  effects of rising  interest  rates on our
variable rate debt. When the caps expire, we will have interest rate risk to the
extent  interest  rates  increase on our variable  rate debt unless the caps are
replaced  with  other  hedges or other  steps are taken to  mitigate  this risk.
Furthermore,  we have interest  rate risk to the extent that the LIBOR  interest
rate  increases  between  the  current  rate and the cap  rates.  See Note 8 for
further  discussion  of  interest  rate  caps.  As of  December  31,  2002,  our
debt-to-equity  ratio  was  approximately  3.2  to 1  and  our  non-match-funded
debt-to-equity ratio was approximately 1.3 to 1.

     The following  table lists the fair value of the collateral  related to our
securitized mortgage obligations as of December 31, 2002 and 2001 (in millions):

Securitized Mortgage Obligations         December 31, 2002    December 31, 2001
--------------------------------         -----------------    -----------------
CMBS                                           $ 326                $ 296
Freddie Mac Funding Note                         146                  183
Fannie Mae Funding Note                           47                   49
CMO                                               77                  106

     Changes in  interest  rates will have no impact on the cost of funds or the
collateral requirements on these securitized mortgage obligations.

Debt Prior to Emergence from Chapter 11

     Variable-Rate Secured Borrowings-CMBS

     When we  purchased  subordinated  CMBS,  we initially  financed  (generally
through short-term,  variable-rate secured borrowings) a portion of the purchase
price of the subordinated CMBS. These secured borrowings were either provided by
the  issuer of the CMBS pool or  through  other  lenders  under  master  secured
borrowing agreements.  The allowed claims related to the foregoing variable-rate
secured  borrowings  were  paid in full on April 17,  2001 in cash or  through a
combination of cash and the Exit Debt.

     Senior Unsecured Notes

     In November 1997, we issued senior  unsecured notes due on December 1, 2002
in an aggregate  principal  amount of $100 million.  Such  unsecured  notes were
effectively  subordinated  to the claims of any secured  lender to the extent of
the value of the  collateral  securing  such  indebtedness.  The allowed  claims
related to such  unsecured  notes were paid in full on April 17, 2001  through a
combination  of cash,  Series A Senior Secured Notes and Series B Senior Secured
Notes.

     Bank Term Loan

     In  connection  with the  merger in 1995,  CRIIMI  MAE  Management  assumed
certain debt of certain  mortgage  businesses  affiliated  with CRI, Inc. in the
principal amount of $9.1 million. The bank term loan was secured by certain cash
flows  generated by our direct and  indirect  interests in the AIM Funds and was
guaranteed  by CRIIMI MAE. The allowed  claim  related to the bank term loan was
paid in full, in cash, on April 17, 2001.

<PAGE>F-42

     Working Capital Line of Credit

     In 1996,  we  entered  into an  unsecured  working  capital  line of credit
provided by two lenders which provided for up to $40 million in borrowings.  The
credit  facility  matured on December 31, 1998. Our litigation  with First Union
(one of the two  lenders)  was not settled or resolved  prior to April 17, 2001,
and   therefore,   the   classification   of  First   Union's  claim  under  the
reorganization plan was not determined at the April 17, 2001 effective date. See
Note 16 for further  information  regarding  the  settlement  of the First Union
litigation.  The allowed  claim  related to the other lender was paid in full on
April 17, 2001 through a combination of cash,  Series A Senior Secured Notes and
Series B Senior Secured Notes.

     Bridge Loan

     In August 1998,  we entered  into a bridge loan for $50 million.  The total
unpaid  principal  balance and accrued  interest was due in February  1999.  The
allowed  claim  related  to the bridge  loan was paid in full on April 17,  2001
through a combination of cash, Series A Senior Secured Notes and Series B Senior
Secured Notes.

8.       INTEREST RATE PROTECTION AGREEMENTS

     As of December 31, 2002,  we have  interest  rate caps indexed to one-month
LIBOR to partially limit the adverse effects of potential  rising interest rates
on our variable-rate  debt.  Interest rate caps provide protection to the extent
interest rates, based on a readily  determinable  interest rate index,  increase
above the stated  interest  rate cap, in which case,  we will  receive  payments
based on the difference  between the index and the cap. At December 31, 2002, we
held the following interest rate caps:

<TABLE>
<CAPTION>
Notional Amount           Effective Date        Maturity Date          Cap            Index
---------------           --------------        --------------         ----           -----
<S>                       <C>                   <C>                    <C>            <C>
$   175,000,000 (1)       May 1, 2002           November 3, 2003       3.25% (3)      1 month LIBOR
$   170,000,000 (2)       April 2, 2001         April 2, 2003          5.25% (3)      1 month LIBOR

</TABLE>

(1)  Our designated (as defined in SFAS No. 133) interest rate cap hedges
     approximately 82% of our variable-rate secured borrowings as of December
     31, 2002. This interest rate cap was purchased in April 2002 for
     approximately $1.6 million.
(2)  This interest rate cap is undesignated (as defined in SFAS No. 133). Due to
     the nominal fair value of this cap at the date we purchased the second cap
     in May 2002, we retained this cap as a non-hedge derivative.
(3)  One-month LIBOR was 1.38% at December 31, 2002.

     We are  exposed  to  credit  loss in the  event of  non-performance  by the
counterparties  to the interest rate caps should interest rates exceed the caps.
However,  we do  not  anticipate  non-performance  by  the  counterparties.  The
counterparties have long-term debt ratings of A+ or above by S&P and A1 or above
by  Moody's.  Although  our caps are not exchange-traded,  there are a number of
financial  institutions  which enter into these types of transactions as part of
their day-to-day activities.

9.       SALE OF CMBS MASTER AND DIRECT SERVICING RIGHTS

     In February 2002,  CMSLP sold all of its rights and  obligations  under its
CMBS master and direct servicing  contracts primarily because the contracts were
not  profitable,  given the  relatively  small  volume of master and direct CMBS
servicing that CMSLP was performing.  In connection with this restructuring,  34
employee positions were eliminated.  CMSLP received  approximately $12.4 million
in cash, which included reimbursement of servicing advances.  This sale resulted
in a gain of approximately $4.9 million during the year ended December 31, 2002.
During the year ended  December 31, 2002,  approximately  $1.0 million of income
tax expense was recognized primarily as a result of the income taxes on the gain
on the sale by CMSLP of its master and direct servicing  rights.  The income tax
expense was  incurred by our  wholly-owned  taxable REIT  subsidiaries  that own
partnership  interests  in CMSLP.  These  subsidiaries  are  separately  taxable
entities  that cannot use our net  operating  loss carry forward to reduce their
taxable income

     As a  result  of  this  sale  and  related  restructuring,  CMSLP  recorded
restructuring  expenses of approximately $438,000 in the fourth quarter of 2001.
During the year ended December 31, 2002, CMSLP recorded additional restructuring
expenses of approximately  $208,000  primarily  related to rent on vacant office
space that is taking

<PAGE>F-43
longer to sublease than originally anticipated, net of accrual reversals of
approximately  $19,000.  The following is a reconciliation  of the restructuring
accrual:
<TABLE>
<CAPTION>
                                         Severance and
                                        other employee        Non-cancelable
                                           benefits            Lease Costs            Other            Total
                                       ------------------     ---------------      ------------     ------------
<S>                                    <C>                    <C>                  <C>              <C>
Amounts accrued in 2001                       $240,903          $133,834             $62,986         $437,723
Amounts paid in 2001                           (55,936)          (33,462)            (52,986)        (142,384)
                                       ----------------       -----------          ----------       ----------
Balance, December 31, 2001                     184,967           100,372              10,000          295,339
Amounts paid in 2002                          (174,745)         (239,048)            (13,686)        (427,479)
Additional accrual in 2002                           -           195,150              12,786          207,936
Accrual reversed in 2002                       (10,222)                               (9,100)         (19,322)
                                       ----------------       -----------          ----------       ----------
Balance, December 31, 2002                  $        -        $   56,474            $     --        $  56,474
                                       ================       ===========          ==========       ==========

</TABLE>

10.      DIFFERENCES BETWEEN FINANCIAL STATEMENT NET LOSS AND TAXABLE LOSS

     The differences  between  financial  statement (GAAP) net income (loss) and
taxable  income  (loss) are  generally  attributable  to differing  treatment of
unrealized/realized  gains and losses associated with certain assets; the bases,
income,  impairment,  and/or credit loss recognition  related to certain assets;
and  amortization  of various  costs.  The  distinction  between GAAP net income
(loss) and  taxable  income  (loss) is  important  to our  shareholders  because
dividends  or  distributions,  if any,  are  declared  and paid on the  basis of
taxable income or taxable loss. We do not pay Federal income taxes as long as we
satisfy  the  requirements  for  exemption  from  taxation  pursuant to the REIT
requirements  of the Internal  Revenue Code. We calculate our taxable  income or
taxable loss, as if we were a regular domestic corporation.  This taxable income
or  taxable  loss  level  determines  the amount of  dividends,  if any,  we are
required to distribute over time in order to eliminate our tax liability.

     As a  result  of our  trader  election  in  early  2000,  we  recognized  a
mark-to-market  tax  loss of  approximately  $478  million  on  certain  trading
securities  on January  1, 2000.  The  January  1, 2000  mark-to-market  loss is
expected to be recognized  evenly over four years (2000,  2001,  2002, and 2003)
for tax purposes (i.e.,  approximately $120 million per year) beginning with the
year 2000.

     A summary of our 2002 and 2001 net operating  losses for tax purposes is as
follows:
<TABLE>
<CAPTION>
  ($ in millions)                                                                       2002                  2001
  ---------------                                                                       ----                  ----
  <S>                                                                                   <C>                   <C>
  January 1, 2000 Loss                                                                 $478.2                $478.2
  LESS:   Amounts recognized in 2000                                                   (119.6)               (119.6)
  LESS:   Amounts recognized in 2001                                                   (119.5)               (119.5)
  LESS:   Amounts recognized in 2002                                                   (119.5)                   --
                                                                                       -------               -------
  Balance Remaining of January 1, 2000 Loss to be recognized in future periods         $119.6                $239.1
                                                                                       =======               =======

  Taxable Income for the year before recognition of January 1, 2000 Loss               $ 36.0                $ 29.0 (1)(2)
  LESS:   January 1, 2000 Loss recognized                                              (119.5)               (119.5)
  PLUS:  Mark-to-market unrealized loss on trading securities                            (0.1)                 (0.1)
                                                                                       -------               --------
  Net operating loss for the year ended December 31                                   $ (83.6)               $ (90.6)
                                                                                      =========              ========

  Accumulated net operating loss through January 1                                    $(140.2)               $ (49.6)
  Net operating loss created during the year ended December 31                          (83.6)                 (90.6)
  Net operating loss utilization                                                           --                     --
                                                                                      --------               --------
  Net operating loss carried forward for use in future periods                        $(223.8)               $(140.2)
                                                                                      ========               ========
</TABLE>

(1)      Taxable income for the year ended December 31, 2001 includes an
         approximate $8.6 million loss on certain trading securities in
         connection with the transfer of certain trading securities on April 17,
         2001 to CBO REIT following the reorganization effected to facilitate
         the collateral structure for the Exit Debt. Assets transferred to CBO
         REIT (and subsequently transferred to CBO REIT II in January 2003) are
         no longer required to be marked-to-market on a tax basis.
(2)      The taxable income for the year ended December 31, 2001 has been
         increased by $6.3 million to reflect the actual taxable income included
         on our 2001 income tax return, which was completed during 2002.

     During the year  ended  December  31,  2002 and 2001,  no excess  inclusion
income was  distributed.  A shareholder's  allocable  share of excess  inclusion
represents the minimum  taxable income  reportable by the

<PAGE>F-44

shareholder  for that year; it may not be offset by an net  operating  loss
and may represent unrelated business taxable income for some shareholders.

11.      COMMON STOCK

     On October 17, 2001,  we  implemented  a  one-for-ten  reverse  stock split
designed,  in part, to satisfy the New York Stock Exchange  market price listing
requirement.  All share and per share information in these notes to consolidated
financial statements and the accompanying  consolidated financial statements has
been   retroactively   adjusted  to  reflect  the  reverse  stock  split.  Share
information adjustments include,  without limitation,  adjustments to the number
of  common  shares  issued  and  outstanding,  issued as  dividends  on and upon
conversion of shares of preferred stock and issuable under outstanding  options.
We had 300,000,000  authorized  shares and 13,945,068 and 12,937,341  issued and
outstanding  shares of $0.01 par value  common stock as of December 31, 2002 and
2001, respectively.

     As discussed in Note 1 under "The  Reorganization  Plan",  the terms of the
Exit Debt  significantly  restricted  the amount of cash dividends that could be
paid to shareholders. Under the operative documents evidencing the BREF Debt and
Bear Stearns Debt, we are permitted to pay cash dividends to shareholders  after
the payment of required  principal  and interest on that debt.  Preferred  stock
dividends  for the four quarters of 2001 and the first quarter of 2002 were paid
in shares of common stock except for dividends on our Series E Preferred Stock ,
which  were paid in cash in  conjunction  with the  redemption  of the  Series E
Preferred  Stock.  The following table summarizes the 2002 and 2001 common stock
activity:
<TABLE>
<CAPTION>
                                                                      Common Shares        Common Shares
         Date                           Description                       Issued            Outstanding
------------------------  -----------------------------------------  -----------------   -------------------
<S>                       <C>                                        <C>                 <C>
       12/31/00           Balance                                                             6,235,317
                          Director Stock Plan                                  200
                          Conversions of Series E Preferred Stock          414,764
                          Conversions of Series G Preferred Stock        3,254,704
                          Dividends to Preferred Stock                   3,033,393
                          Cash paid in lieu of fractional shares
                          in connection with the one-for-ten
                          reverse split                                     (1,037)
------------------------------------------------------------------------------------------------------------
       12/31/01           Balance                                                            12,937,341
------------------------------------------------------------------------------------------------------------
                          Restricted stock issued                           32,500
                          Dividends to Preferred Stock                     966,327
                          Stock options exercised                            8,900
------------------------------------------------------------------------------------------------------------
       12/31/02           Balance                                                            13,945,068 (1)
------------------------------------------------------------------------------------------------------------

</TABLE>

(1) In January 2003, we issued 1,212,617 shares of our common stock in
connection with the recapitalization.

Shareholder Rights Plan

     In January,  2002, our Board of Directors adopted a Shareholder Rights Plan
to preserve our net operating  losses for tax purposes.  As discussed in Note 1,
the future use of our net operating  loss  carryforward  could be  substantially
limited in the event of an "ownership  change" within the meaning of Section 382
of the Internal  Revenue Code. The Shareholder  Rights Plan is designed to deter
an "ownership  change" within the meaning of Section 382 of the Internal Revenue
Code by discouraging  any person or group from acquiring five percent or more of
our outstanding common shares.

     Under the Shareholder Rights Plan, one right was distributed for each share
of our common stock to shareholders of record as of February 4, 2002. The rights
trade with the  underlying  shares of our common  stock.  The rights will become
exercisable  if a person  or group (or  Acquiring  Person)  acquires  beneficial
ownership of 5% of our outstanding  common stock or announces a tender offer for
5% or more of the common  stock.  An Acquiring  Person also includes a person or
group that held 5% or more of the common stock as of January 23, 2002,  and that
acquires additional common shares. An exception could be made if the transaction
is approved by our board of directors.

<PAGE>F-45

     If the rights  become  exercisable,  each right will  entitle its holder to
purchase one  one-thousandth  of a share of a new series of preferred stock (the
Series H Junior  Preferred  Stock) at an exercise  price of $23 per share.  If a
person or group becomes an Acquiring  Person in a transaction  that has not been
approved by the board of directors,  then each right,  other than those owned by
the Acquiring  Person,  would entitle the holder to purchase $46.00 worth of our
common stock for the $23.00 exercise price.

     We generally will be entitled to redeem the rights at $0.001 per right. The
rights will expire 10 years after the date of  issuance.  However,  the Board of
Directors may amend the Shareholder  Rights Plan to provide that the rights will
expire at an  earlier  date.  The  Shareholder  Rights  Plan was filed  with the
Securities and Exchange Commission as an exhibit to a Current Report on Form 8-K
on January 25, 2002.

     In connection  with BREF's recent equity  investment,  the definition of an
Acquiring Person in the Shareholder Rights Plan was amended to exclude BREF with
respect to the equity purchased in the transaction.

12.      PREFERRED STOCK

     As of December 31, 2002 and 2001, 75,000,000 shares of preferred stock were
authorized.  As of December 31, 2002 and 2001,  3,000,000 shares were designated
as Series B  Cumulative  Convertible  Preferred  Stock,  1,610,000  shares  were
designated  as Series F Redeemable  Cumulative  Dividend  Preferred  Stock,  and
3,760,000  shares were  designated  as Series G Redeemable  Cumulative  Dividend
Preferred  Stock.  In  addition,  203,000  shares  were  designated  as Series E
Preferred  Stock as of December 31, 2001 and 45,000  shares were  designated  as
Series H Junior Preferred Stock as of December 31, 2002.

     On December 3, 2001, our Board of Directors decided to defer the payment of
dividends on the Series B Preferred Stock,  Series E Preferred  Stock,  Series F
Preferred Stock, and Series G Preferred Stock for the fourth quarter of 2001. In
connection  with the  redemption  of the Series E  Preferred  Stock on March 21,
2002,  the  Board  contemporaneously  declared  dividends  on shares of Series B
Preferred  Stock,  Series F Preferred Stock and Series G Preferred Stock for the
fourth  quarter of 2001 and the first  quarter  of 2002.  Such  preferred  stock
dividends,  payable in shares of common  stock,  were paid on April 15,  2002 to
holders of record on April 1, 2002.

     On May 16, 2002,  September  10, 2002 and  December 30, 2002,  the Board of
Directors  decided to defer the payment of  dividends  on the Series B Preferred
Stock,  Series F Preferred  Stock and Series G  Preferred  Stock for the second,
third, and fourth quarters of 2002, respectively. On March 4, 2003, the Board of
Directors  declared a cash dividend for the second quarter of 2002 on our Series
B,  Series  F and  Series  G  Preferred  Stock  payable  on  March  31,  2003 to
shareholders of record on March 17, 2003.

     The  following  is a brief  summary  of  certain  terms of each  series  of
preferred stock and is qualified by and subject to the descriptions contained in
our Articles of Amendment and Restatement,  as amended, and reference is made to
such Articles of Amendment and  Restatement  for a complete  description  of the
relative rights and preferences of each series of preferred stock.

Series B Cumulative Convertible Preferred Stock

     The Series B Preferred  Stock pays a dividend in an amount equal to the sum
of (i) $0.68 per share per  quarter  plus (ii) the  product of the  excess  over
$0.30, if any, of the quarterly cash dividend  declared and paid with respect to
each share of common stock times a  conversion  ratio of 0.4668 times one plus a
conversion  premium of 3%, subject to adjustment  upon the occurrence of certain
events.  Since the  Series B  Preferred  Stock  voted to accept  the  Chapter 11
reorganization  plan,  the  relative  rights  and  preferences  of the  Series B
Preferred  Stock  were  amended to permit the  payment of  dividends  in cash or
common stock (or a combination thereof) at our election.  The Series B Preferred
Stock is (i)  convertible  at the  option of the  holders  and (ii)  subject  to
redemption at our sole  discretion  after the tenth  anniversary  of issuance in
August 2006. Each share of Series B Preferred  Stock was originally  convertible
into 0.22844 shares of common stock,  subject to adjustment  upon the occurrence
of certain  events.  Due to certain  adjustment  provisions  in Exhibit A of our
Articles of Amendment and Restatement  related to the Series B Preferred  Stock,
the payment of  dividends  to holders of common  stock in the form of  preferred
stock in 1999 and 2000,  the payment of  dividends  on other series of preferred
stock in shares of common  stock  during 2001 and 2002,

<PAGE>F-46

and the reverse stock split effected in 2001 resulted in adjustments to the
Series B  conversion  price such that one share of Series B Preferred  Stock was
convertible  into 0.4797  shares of common stock as of December  31,  2002.  The
liquidation  preference and the redemption price on the Series B Preferred Stock
is $25 per share, together with accrued and unpaid dividends.

     As of December 31, 2002 and 2001,  there were 1,593,982  shares of Series B
Preferred  Stock issued and  outstanding.  The following  table  summarizes  the
dividend payment activity for 2002 and 2001 for the Series B Preferred Stock:
<TABLE>
<CAPTION>
                                                                                                Number of
                                                                            Time Period for    Shares of
                                         Dividends per        Amount of     which dividends   Common Stock
    Declaration Date    Payment Date   Series B Share (c)    Dividends (c)     are accrued        Issued
    -------------------------------------------------------------------------------------------------------
    <S>                 <C>            <C>                   <C>            <C>               <C>
      May 10, 2001      June 1, 2001      $  6.80          $ 10,839,078     9/1/98-3/31/01    1,454,508    (a)
    September 4, 2001 October 10, 2001    $  1.36           $ 2,167,816     4/1/01-9/30/01      413,145    (b)
     March 21, 2002    April 15, 2002     $  1.36           $ 2,167,816    10/1/01-3/31/02      607,938    (a)

</TABLE>

(a)  Represents the number of shares of common stock issued in connection with
     the payment of dividends to holders of Series B Preferred Stock. We
     determined the number of shares of common stock to issue by dividing the
     dollar amount of the dividend payable by the volume-weighted average of the
     sale prices of the common stock for the 10-trading day period commencing
     after the declaration date.

(b)  Represents the number of shares of common stock issued in connection with
     the payment of dividends to holders of Series B Preferred Stock. We
     determined the number of shares of common stock to issue by dividing the
     dollar amount of the dividend payable by the volume-weighted average of the
     sale prices of the common stock for the 10-trading day period (interrupted
     by the closing of equity markets due to the terrorist attacks) beginning
     one trading day after the dividend declaration date. As a result of the
     temporary closing of the U.S. equity markets from September 11 through
     September 14, the original payment date of September 28, 2001 was extended
     to October 10, 2001.

(c)  Although the payments of dividends for the second, third and fourth
     quarters of 2002 were deferred as of December 31, 2002, we have accrued
     $3,251,723 for the Series B Preferred Stock second, third and fourth
     quarter dividends at a dividend rate of $0.68 per share per quarter. On
     March 4, 2003, the Board of Directors declared a cash dividend for the
     second quarter of 2002 payable on March 31, 2003 to shareholders of record
     on March 17, 2003.

     Since the holders of the Series B Preferred  Stock  accepted the Chapter 11
reorganization  plan,  the  relative  rights  and  preferences  of the  Series B
Preferred  Stock  were  amended to permit the  payment of  dividends,  including
accrued and unpaid dividends, in common stock or cash, or a combination of both,
at our election.

Series C and Series D Cumulative Convertible Preferred Stock

     As of  February  22,  2000,  all of the  outstanding  shares  of  Series  C
Cumulative  Convertible  Preferred  Stock were  exchanged for Series E Preferred
Stock.  On April 17, 2001, the date of emergence from Chapter 11, we paid, as an
allowed  claim,  dividends and interest of  $1,161,137  (through the issuance of
common stock aggregating  167,794 shares) on the former Series C Preferred Stock
which  represented  dividends  accrued and unpaid through February 22, 2000 (the
date the Series C Preferred  Stock shares were exchanged for Series E Cumulative
Convertible  Preferred  Stock  shares)  plus  interest  on  accrued  and  unpaid
dividends from February 23, 2000 through April 17, 2001.

     As of July 26, 2000, all of the  outstanding  shares of Series D Cumulative
Convertible  Preferred  Stock were  exchanged for Series E Preferred  Stock.  On
April 17, 2001,  the date of emergence  from Chapter 11, we paid,  as an allowed
claim,  dividends  and  interest of  $1,310,122  (through the issuance of common
stock  aggregating  189,324 shares) on the former Series D Preferred Stock which
represented  dividends  accrued and unpaid  through  July 26, 2000 (the date the
Series D Preferred  Stock  shares were  exchanged  for Series E Preferred  Stock
shares) plus interest on accrued and unpaid dividends from July 27, 2000 through
April 17, 2001.


<PAGE>F-47

Series E Cumulative Convertible Preferred Stock

     On February 22,  2000,  CRIIMI MAE and the holder of our Series C Preferred
Stock  entered  into a  Preferred  Stock  Exchange  Agreement  pursuant to which
103,000 shares of Series C Preferred  Stock were exchanged for 103,000 shares of
a new series of preferred  stock  designated as Series E Cumulative  Convertible
Preferred  Stock.  On July 26,  2000,  CRIIMI MAE and the holder of our Series D
Preferred  Stock entered into a Preferred Stock Exchange  agreement  pursuant to
which  100,000  shares of Series D Preferred  Stock were  exchanged  for 100,000
shares of Series E Preferred Stock.  The principal  purpose of the exchanges was
to effect an extension of the mandatory  conversion dates, upon which the Series
C Preferred  Stock and Series D Preferred Stock would have converted into common
stock.

     On March 21, 2002, we redeemed all 173,000 outstanding shares of the Series
E Preferred Stock at the stated  redemption price of $106 per share in cash plus
accrued and unpaid dividends  through and including the date of redemption.  The
total redemption price was $18,734,000  ($396,000 of which  represented  accrued
and unpaid dividends for the period October 1, 2001 through March 21, 2002). The
$1,038,000 difference between the aggregate liquidation value and the redemption
price is  reflected  as a  dividend  on  preferred  stock  during the year ended
December 31, 2002. The Series E Preferred  Stock was held by a former  principal
creditor.

     As of  December  31,  2002  and  2001,  there  were 0 and  173,000  shares,
respectively,  of Series E Preferred Stock issued and outstanding. The following
table  summarizes  the  dividend  payment  activity  for 2001  for the  Series E
Preferred Stock:
<TABLE>
<CAPTION>
                                                                      Time period for    Number of Shares of
                                                      Amount of       which dividends    Common Stock Issued
    Declaration Date           Payment Date          Dividends          are accrued              (a)
--------------------------------------------------------------------------------------------------------------
    <S>                        <C>                   <C>              <C>                <C>
     March 26, 2001           April 17, 2001         $ 1,426,538      2/22/00-4/17/01          206,147
      June 4, 2001            June 29, 2001          $   262,308      4/18/01-6/30/01           40,605
    September 4, 2001       September 28, 2001       $   278,088      7/01/01-9/30/01           64,373

</TABLE>

(a)  Represents the number of shares of common stock issued in connection with
     the payment of dividends to holders of Series E Preferred Stock. We
     determined the number of shares of common stock to issue by dividing the
     dollar amount of the dividend payable by the average of the closing sale
     prices of the common stock for the 5-trading days prior to the dividend
     payment date.

Series F Redeemable Cumulative Dividend Preferred Stock

     On September  14, 1999,  we declared a dividend on its common stock for the
purpose  of  distributing  approximately  $15.7  million in  undistributed  1998
taxable  income.  The  dividend  was paid to  common  shareholders  of record on
October 20, 1999, provided that the shareholders  maintained  ownership of their
common stock through the payment date. The dividend was paid on November 5, 1999
in 1,606,595 shares of Series F Preferred Stock.

     Holders of record of our common  stock who  maintained  ownership  of their
common stock through November 5, 1999,  received,  for each share held, 3/100ths
of a share of Series F Preferred Stock (i.e., three shares of Series F Preferred
Stock for every 100 shares of common stock held).  The Series F Preferred  Stock
was  convertible  into  shares  of  common  stock  during  two  10-business  day
conversion  periods.  The first  conversion  period was from  November  15, 1999
through November 30, 1999 and the second  conversion period was from January 21,
2000 through  February 3, 2000.  Conversions  were based on the  volume-weighted
average of the sale prices of the common stock for the 10-trading  days prior to
the date converted,  subject to a floor of 50% of the volume-weighted average of
the sale  prices of the  common  stock on  November  5,  1999.  During the first
conversion  period,  756,453 shares of Series F Preferred  Stock were converted,
resulting in the issuance of 640,144  shares of common stock.  During the second
and final conversion period (January 21 through February 3, 2000) for the Series
F Preferred Stock,  263,788  additional shares were converted,  resulting in the
issuance of 239,657  shares of common stock.  Accrued and unpaid  dividends were
not paid on shares of Series F  Preferred  Stock  converted  into  common  stock
during the  conversion  periods.  After February 3, 2000, the Series F Preferred
Stock is not convertible into common stock.

<PAGE>F-48

     Since the holders of Series F  Preferred  Stock voted to accept the Chapter
11  reorganization  plan,  the relative  rights and  preferences of the Series F
Preferred  Stock  were  amended to permit the  payment of  dividends  in cash or
common stock (or a combination thereof) at our election.  The Series F Preferred
Stock is  redeemable  at our  option in cash or shares of parity  stock,  at our
election, at a price of $10.00 per share together with an amount (in cash and/or
common stock, as applicable)  equal to any accrued and unpaid dividends  through
the dividend  declaration  date next preceding the redemption date. The Series F
Preferred  Stock  provides  for  dividends  at a fixed  annual rate of 12%.  The
liquidation  value of the  Series F  Preferred  Stock is $10.00  per share  plus
accrued and unpaid dividends.

     As of December  31, 2002 and 2001,  there were  586,354  shares of Series F
Preferred  Stock issued and  outstanding.  The following  table  summarizes  the
dividend payment activity for 2002 and 2001 for the Series F Preferred Stock:
<TABLE>
<CAPTION>
                                                                      Time period for        Number of
                                     Dividends Per     Amount of      which dividends    Shares of Common
 Declaration Date    Payment Date    Series F Share  Dividends (c)      are accrued        Stock Issued
---------------------------------------------------------------------------------------------------------------
<S>                  <C>             <C>             <C>              <C>                <C>
   June 4, 2001      July 2, 2001         $    1.99    $  1,166,844   11/5/99-6/30/01         185,996      (a)
September 4, 2001  October 10, 2001       $    0.30    $    175,906    7/1/01-9/30/01          33,334      (b)
  March 21, 2002    April 15, 2002        $    0.60    $    351,812   10/1/01-3/31/02          97,824      (a)

</TABLE>

(a)  Represents the number of shares of common stock issued in connection with
     the payment of dividends to holders of Series F Preferred Stock. We
     determined the number of shares of common stock to issue by dividing the
     dollar amount of the dividend payable by the volume-weighted average of the
     sale prices of the common stock for the 10-trading day period commencing
     after the declaration date.

(b)  Represents the number of shares of common stock issued in connection with
     the payment of dividends to holders of Series F Preferred Stock. We
     determined the number of shares of common stock to issue by dividing the
     dollar amount of the dividend payable by the volume-weighted average of the
     sale prices of the common stock for the 10-trading day period (interrupted
     by the closing of equity markets due to the terrorist attacks) beginning
     one trading day after the dividend declaration date. As a result of the
     temporary closing of the U.S. equity markets from September 11 through
     September 14, the original payment date of September 28, 2001 was extended
     to October 10, 2001.

(c)  Although the payments of dividends for the second, third and fourth
     quarters of 2002 were deferred as of December 31, 2002, we have accrued
     $527,719 for the Series F Preferred Stock second, third and fourth quarter
     dividends at a dividend rate of $0.30 per share per quarter. On March 4,
     2003, the Board of Directors declared a cash dividend for the second
     quarter of 2002 payable on March 31, 2003 to shareholders of record on
     March 17, 2003.

Series G Redeemable Cumulative Dividend Preferred Stock

     On September  11, 2000,  we declared a dividend on our common stock for the
purpose  of  distributing  approximately  $37.5  million in  undistributed  1999
taxable  income.  The  dividend  was paid to  common  shareholders  of record on
October 27, 2000, provided that the shareholders  maintained  ownership of their
common  stock  through the payment  date.  The dividend was paid on November 13,
2000 in 3,741,191 shares of Series G Preferred Stock.

     Holders of record of our common  stock who  maintained  ownership  of their
common stock through November 13, 2000, received,  for each share held, 6/100ths
of a share of Series G Preferred  Stock (i.e.,  six shares of Series G Preferred
Stock for every 100 shares of common stock held).  The Series G Preferred  Stock
was  convertible  into shares of common stock during a period of 10  consecutive
trading  days  commencing  on  February  21,  2001 and  ended on March 6,  2001.
Conversions were based on the volume-weighted  average of the sale prices of the
common stock for the 10-trading days prior to the date  converted,  subject to a
floor of 50% of the  volume-weighted  average  of the sale  prices of the common
stock on November 13, 2000.  During the conversion  period,  2,496,535 shares of
Series G Preferred Stock were converted,  resulting in the issuance of 3,254,704
shares of common stock.  Accrued and unpaid dividends were not paid on shares of
Series G Preferred  Stock  converted  into common  stock  during the  conversion
period.  After March 6, 2001,  the Series G Preferred  Stock is not  convertible
into common stock.

<PAGE>F-49

     Holders of Series G  Preferred  Stock will be  entitled  to  receive,  when
declared by the Board of  Directors,  cumulative  dividends,  payable in cash or
common stock (or a combination thereof) at our option, at an annual rate of 15%.
Since the holders of the Series G Preferred Stock voted to accept the Chapter 11
reorganization  plan,  the  relative  rights  and  preferences  of the  Series G
Preferred  Stock were  amended to permit the  payments of  dividends  in cash or
common stock (or a combination thereof) at our election.  The Series G Preferred
Stock is  redeemable,  at our  option,  in whole or in part,  at any time  after
issuance in cash or shares of parity capital stock, at our election,  at a price
of $10.00 per share  together with an amount (in cash and/or  common  stock,  as
applicable)  equal to any accrued  and unpaid  dividends  through  the  dividend
declaration  date next preceding the redemption  date. The liquidation  value of
the Series G Preferred Stock is $10 per share plus accrued and unpaid dividends.

     As of December 31, 2002 and 2001,  there were 1,244,656  shares of Series G
Preferred  Stock issued and  outstanding.  The following  table  summarizes  the
dividend payment activity for 2002 and 2001 for the Series G Preferred Stock:
<TABLE>
<CAPTION>
                                                                      Time period for    Number of Shares
                                       Dividends per     Amount of    which dividends    of Common Stock
   Declaration Date    Payment Date   Series G Share   Dividends (c)    are accrued          Issued
   ------------------------------------------------------------------------------------------------------------
   <S>                 <C>            <C>              <C>            <C>                <C>
     June 4, 2001      July 2, 2001         $   0.955   $1,188,646    11/13/00-6/30/01       189,450       (a)
   September 4, 2001 October 10, 2001       $   0.375   $  466.746    7/01/01-9/30/01         88,717       (b)
    March 21, 2002    April 15, 2002        $   0.750   $  933,492    10/01/01-3/31/02       260,565       (a)

</TABLE>

(a)  Represents the number of shares of common stock issued in connection with
     the payment of dividends to holders of Series G Preferred Stock. We
     determined the number of shares of common stock to issue by dividing the
     dollar amount of the dividend payable by the volume-weighted average of the
     sale prices of the common stock for the 10-trading day period commencing
     after the declaration date.

(b)  Represents the number of shares of common stock issued in connection with
     the payment of dividends to holders of Series G Preferred Stock. We
     determined the number of shares of common stock to issue by dividing the
     dollar amount of the dividend payable by the volume-weighted average of the
     sale prices of the common stock for the 10-trading day period (interrupted
     by the closing of equity markets due to the terrorist attacks) beginning
     one trading day after the dividend declaration date. As a result of the
     temporary closing of the U.S. equity markets from September 11 through
     September 14, the original payment date of September 28, 2001 was extended
     to October 10, 2001.

(c)  Although the payments of dividends for the second, third and fourth
     quarters of 2002 were deferred as of December 31, 2002, we have accrued
     $1,400,238 for the Series G Preferred Stock second, third and fourth
     quarter dividends at a dividend rate of $0.375 per share per quarter. On
     March 4, 2003, the Board of Directors declared a cash dividend for the
     second quarter of 2002 payable on March 31, 2003 to shareholders of record
     on March 17, 2003.

Series H Junior Preferred Stock

     On January 23, 2002,  in  connection  with the adoption of our  Shareholder
Rights Plan, our Board of Directors  declared a dividend of one preferred  share
purchase right (a "Right") for each outstanding  share of common stock. See Note
11 for a further  discussion  of the  adoption of and reasons for  adopting  the
Shareholder  Rights Plan.  Unless  otherwise  determined by the Board consistent
with the terms of the Rights Plan, each Right, when it becomes exercisable, will
entitle the  registered  holder  (other than  Rights  beneficially  owned by the
Acquiring  Person (defined below)) to purchase from us one  one-thousandth  of a
share  of  Series  H  Junior  Preferred  Stock  at a price  of $  23.00  per one
one-thousandth  of a share  of a Series H Junior  Preferred  Stock,  subject  to
adjustment.  The Rights will become exercisable if a person or group ("Acquiring
Person") acquires  beneficial  ownership of 5% or more of our outstanding common
stock or  announces  a  tender  offer  for 5% or more of the  common  stock.  An
Acquiring  Person  also  includes  a person or group that held 5% or more of our
common stock as of January 23, 2002, and that acquires additional common shares.
See Note 11 regarding exclusion of BREF from definition of Acquiring Person.

     Shares of Series H Junior Preferred Stock  purchasable upon exercise of the
Rights will not be  redeemable.  Each share of Series H Junior  Preferred  Stock
will be entitled to a minimum preferential  quarterly dividend payment of $10.00
per share but will be  entitled  to an  aggregate  dividend  of 1,000  times the
dividend  declared per share of common stock. In the event of  liquidation,  the
holders of the Series H Junior  Preferred  Stock will be  entitled  to a

<PAGE>F-50

minimum  preferential  liquidation  payment of $1,000 per share but will be
entitled to an  aggregate  payment of 1,000 times the payment  made per share of
common  stock.  Each share of Series H  Preferred  Stock will have 1,000  votes,
voting  together with the shares of common stock.  Finally,  in the event of any
merger,  consolidation or other  transaction in which shares of common stock are
exchanged,  each share of Series H Junior  Preferred  Stock will be  entitled to
receive 1,000 times the amount received per share of common stock.  These rights
are protected by customary antidilution provisions.

     As of December  31,  2002 there were no shares of Series H Preferred  Stock
issued and outstanding.

13.      EARNINGS PER SHARE

     The following table reconciles basic and diluted earnings per share for the
years ended  December  31, 2002,  2001,  and 2000.  Per share  amounts have been
adjusted to reflect the one-for-ten  reverse stock split effected on October 17,
2001.
<TABLE>
<CAPTION>
                                                                                                  Per Share
                                                           (Loss)/income          Shares           Amount
                                                          ----------------     --------------     ----------
<S>                                                       <C>                  <C>                <C>
Year ended December 31, 2002
------------------------------------
Net loss before cumulative effect of
  changes in accounting principles                          $(54,481,312)         13,710,914        $(3.97)
Cumulative effect of change in accounting
  principle related to SFAS 142                               (9,766,502)         13,710,914         (0.72)
                                                          ----------------     --------------     ----------

Basic and diluted earnings per share (1):
  Loss to common shareholders and
    assumed conversions                                     $(64,247,814)         13,710,914        $(4.69)
                                                          ================     ==============     ==========

Year ended December 31, 2001
------------------------------------
Net loss before cumulative effect of
  changes in accounting principles                          $(26,082,918)         11,087,790        $(2.35)
Cumulative effect of change in accounting
  principle related to SFAS 133                                 (135,142)         11,087,790         (0.01)
Cumulative effect of change in accounting
  principle related to servicing fee revenue                   1,995,262          11,087,790          0.18
                                                          ----------------     --------------     ----------

Basic and diluted earnings per share (1):
  Loss to common shareholders and
    assumed conversions                                     $(24,222,798)         11,087,790        $(2.18)
                                                          ================     ==============     ==========

Year ended December 31, 2000
------------------------------------
Basic and diluted earnings per share (1):
  Loss to common shareholders and
    assumed conversions                                   $ (155,495,429)          6,214,479       $(25.02)
                                                          ================     ==============     ==========

</TABLE>

(1)  The common stock equivalents for the preferred stock and stock options are
     not included in the calculation of diluted earnings per share for 2002,
     2001 or 2000 because the effect would be anti-dilutive.


<PAGE>F-51

14.      STOCK BASED COMPENSATION PLANS

     We have three stock option  and/or award  plans:  the 2001 Stock  Incentive
Plan,  the Second  Amended and Restated  Stock Option Plan for Key Employees and
the 1996 Non-Employee Director Stock Plan.

2001 Stock Incentive Plan

     Under the 2001 Stock  Incentive  Plan,  a maximum of  1,235,000  shares are
available for grant pursuant to stock awards and stock  options.  As of December
31, 2002,  options granted to employees and directors to purchase 594,000 shares
were outstanding,  and restricted stock awards of 32,500 shares had been granted
to employees.  Under the 2001 Stock Incentive Plan, options granted must have an
option  price of not less than fair market  value of a share of common  stock on
the date of grant.  The  following  is a summary of the grants  during  2002 and
2001:
<TABLE>
<CAPTION>
Date of Grant              Recipients          # of Options Granted    Exercise Price
-------------------------- ------------------- ----------------------- ---------------------
<S>                        <C>                 <C>                     <C>
November 16, 2001          Employees                    285,000             $2.78       (1)
January 2, 2002            Directors                     24,000              3.99       (2)
June 5, 2002               Employees                    293,000              7.00       (1)
                                                        -------              ----
                                                        602,000             $4.88
                                                        =======             =====

</TABLE>

(1)      These options vest ratably with 33% vesting on the date of grant and
         33% vesting on each of the first and second anniversaries of the date
         of grant and expire in 10 years.
(2)      These options vest ratably with 50% vesting on the date of grant and
         25% vesting on each of the first and second anniversaries of the date
         of grant and expire in 10 years.

     In addition to the stock option grants included in the table above,  32,500
shares of restricted stock were awarded to certain employees on January 2, 2002.
The restricted  stock vests 33% on the date of grant, 33% on August 15, 2002 and
33% on April 15, 2003. The price of our common stock on the award date was $3.99
per share.  The fair value of the  restricted  stock is being  expensed over the
vesting period through our Consolidated Statement of Income.

     No option or award of stock may be granted  under the 2001 Stock  Incentive
Plan after July 1, 2011.

Second Amended and Restated Stock Option Plan for Key Employees

     Under the Key Employee Plan, a maximum of 450,000 shares were available for
grant pursuant to stock options.  Options may no longer be granted under the Key
Employee Plan. As of December 31, 2002,  options to purchase  434,272 shares had
been granted to employees. Under the Key Employee Plan, options granted prior to
July 28, 1995 have an option price of $97.70, and options granted after July 28,
1995 have an  option  price of not less  than  fair  market  value of a share of
common  stock on the date of grant and expire  after  eight  years.  On June 18,
2001, we granted  options to purchase an aggregate  137,500 shares under the Key
Employee Plan. These options vested on the date of grant, expire in 8 years, and
have an exercise  price of $5.70 per share,  which was the closing  price of the
common stock on the date of grant.

1996 Non-Employee Director Stock Plan

     Under the Director Plan, a maximum of 87,313 shares are available for grant
pursuant to stock awards and stock options.  As of December 31, 2002, options to
purchase  2,040  shares had been  granted to  directors.  These  options have an
exercise  price equal to the market price of a share of common stock on the date
of grant,  vested on the date of grant,  and expire after ten years. The options
to directors are currently being issued under the 2001 Stock Incentive Plan.

     A summary of these stock plans as of December 31, 2002,  2001 and 2000, and
changes during the years then ended is presented in the table below:


<PAGE>F-52
<TABLE>
<CAPTION>
                                          2001 Stock Plan                Key Employee Plan               Directors' Plan
                                      ------------------------     ------------------------------   --------------------------
                                                    Weighted                      Weighted                         Weighted
                                                     Average                       Average                         Average
                                        Shares         Price         Shares         Price            Shares          Price
                                      ----------------------------------------------------------------------------------------
   <S>                                <C>           <C>             <C>          <C>                 <C>           <C>
   Balance, January 1, 2000                    -     $     -         185,051     $ 104.13                 800     $ 105.63
          Adjustment of 2/00 (1)               -           -          30,386       104.13                 131       105.63
          Granted                              -           -          12,135        10.63                 200        13.75
          Exercised                            -           -               -            -                   -            -
          Forfeited                            -           -         (19,747)       68.46                   -            -
                                      ----------    ---------      ----------   ----------           ----------   -----------
   Balance, December 31, 2000                  -                     207,825       102.08               1,131        87.25
          Adjustment of 3/01 (2)               -           -         103,844       102.08                 609        87.25
          Granted                        285,000        2.78         137,500         5.70                 300         7.30
          Exercised                            -           -               -            -                   -            -
          Forfeited                            -           -         (14,302)       75.61                   -            -
                                      ----------    ---------      ----------   ----------           ----------   -----------
   Balance, December 31, 2001            285,000     $  2.78         434,867    $   72.94               2,040       $75.49
          Granted                        317,000        6.77               -            -                   -            -
          Exercised                      (2,500)        2.78          (6,400)        5.70                   -            -
          Forfeited                      (8,000)        2.78         (16,889)       45.65                   -            -
                                      ----------    ---------      ----------   ----------           ----------   -----------
   Balance, December 31, 2002            591,500     $  4.92         411,578    $   74.61               2,040       $75.49
                                      ==========    =========      =========    ==========           ==========   ===========

   Exercisable, December 31, 2000             --          --         116,180    $  124.60               1,131      $ 87.25
                                      ==========    =========      =========    ==========           ==========   ===========
   Exercisable, December 31, 2001         94,998     $  2.78         389,435    $   78.53               2,040      $ 75.49
                                      ==========    =========      =========    =========            ==========    ==========
   Exercisable, December 31, 2002        295,493     $  4.23         407,413    $   75.27               2,040      $ 75.49
                                      ==========    =========      =========    =========            ==========    ==========

</TABLE>

(1)      Adjustment as a result of anti-dilution provision associated with
         Series F Preferred Stock dividend paid to holders of common stock.
(2)      Adjustment as a result of anti-dilution provision associated with
         Series G Preferred Stock dividend paid to holders of common stock.

     In addition to the stock option grants included in the table above,  32,500
shares of  restricted  stock were  awarded to certain  employees  under the 2001
Stock Incentive  Plan. The weighted  average price of our common stock was $3.99
at the award  date,  and  10,834 of the  restricted  shares are  unvested  as of
December 31, 2002.  The fair value of  approximately  $130,000 was recognized as
deferred compensation and is being recognized into earnings over 15 months.

     In addition to the option  information  included in the table  above,  with
respect to options  granted to the  principals  at the time of the 1995  merger,
options to acquire  316,593  shares were  outstanding  as of December  31, 2000.
These  options  expired  during 2001.  There were no exercises  during the years
ended December 31, 2001 and 2000.

         The following table summarizes information about stock options
outstanding at December 31, 2002:
<TABLE>
<CAPTION>
                                          Options Outstanding                           Options Exercisable
                         ------------------------------------------------------    ------------------------------
                                             Weighted             Weighted                           Weighted
                                              Average              Average                            Average
         Range of          Number            Remaining            Exercise           Number          Exercise
      Exercise prices    outstanding     Contractual Life           Price          exercisable         Price
    -------------------- ------------ -- ------------------    ---------------- -- ------------    --------------
    <S>                  <C>             <C>                   <C>                 <C>             <C>
    $2.78 - $15.93          760,810             8.4                $  5.29            460,638         $  5.17
    $15.94 - $31.87          61,687             4.2                  31.25             61,687           31.25
    $31.88 - $47.81             348             6.0                  35.63                348           35.63
    $47.82 - $111.56         17,165             0.9                 101.69             17,165          101.69
    $111.57 - $143.44         3,840             2.2                 127.50              3,840          127.50
    $143.45 - $159.38       161,268             2.9                 158.21            161,268          158.21
                         ------------    ------------------    ----------------    ------------    --------------
    $2.78 - $159.38       1,005,118             7.1                $ 33.24            704,946         $ 45.49
                         ============    ==================    ================    ============    ==============

</TABLE>

<PAGE>F-53

     We have adopted the disclosure-only provisions of SFAS No. 123, "Accounting
for  Stock-Based  Compensation."  As a result,  we account for these plans under
Accounting Principles Board Opinion No. 25, under which no compensation cost has
been recognized. SFAS No. 123 requires pro forma disclosure of the impact on net
income and earnings per share as if the options were recorded at their estimated
fair value at the issuance date and amortized over the options'  vesting period.
If compensation  cost for these plans had been  determined  consistent with SFAS
No. 123, our net income and  earnings per share would have been  recorded at the
following pro forma amounts:

<TABLE>
<CAPTION>
                                                                 Years ended December 31,
                                                        2002               2001               2000
                                                  -----------------  -----------------  -----------------
<S>                                               <C>                <C>                <C>
Pro forma net loss to common shareholders           $ (65,287,114)     $ (25,493,873)    $ (156,370,899)
                                                  =================  =================  =================

Pro forma basic loss per share                      $       (4.76)     $       (2.30)    $      ( 25.16)
                                                  =================  =================  =================

Pro forma diluted loss per share                    $       (4.76)     $       (2.30)    $       (25.16)
                                                  =================  =================  =================

</TABLE>

     The weighted  average fair value of the options  granted was $4.74,  $2.66,
and $8.30 during 2002, 2001 and 2000, respectively.  The fair value of the 2002,
2001 and 2000  option  grants  was  estimated  on the  date of grant  using  the
Black-Scholes   option  pricing  model  with  the  following   weighted  average
assumptions:

<TABLE>
<CAPTION>
                                           2002               2001               2000
                                      ---------------    ---------------    ---------------
     <S>                              <C>                <C>                <C>
     Risk-free interest rate              4.23%              4.29%              6.44%
     Expected life                      4.73 years         4.78 years         5.29 years
     Expected volatility                  89.2%              91.4%              96.2%
     Dividend yield                        --%                --%                --%

</TABLE>

<PAGE>F-54

15.      TRANSACTIONS WITH RELATED PARTIES

     Below is a summary of the related party  transactions  that occurred during
the years ended  December 31,  2002,  2001 and 2000.  These items are  described
further in the text which follows:
<TABLE>
<CAPTION>
                                                                 For the years ended December 31,
                                                          2002                 2001                 2000
                                                          ----                 ----                 ----
<S>                                                       <C>                  <C>                  <C>
Amounts received or accrued from the AIM Limited
Partnerships
  Income(1)                                               $ 544,226          $ 751,021           $ 746,570
  Return of capital(2)                                    2,245,304          1,723,949           1,573,335
                                                         ----------         ----------          ----------
    Total                                                $2,789,530         $2,474,970          $2,319,905
                                                         ==========         ==========          ==========

Amounts received or accrued for AIM Acquisition
   Limited Partnership (1)                                $ 232,873          $ 284,411           $ 341,965
                                                          =========          =========           =========

Expense reimbursements from:
  AIM Limited Partnerships (3)                           $  203,668           $183,898            $168,978
  CMSLP (3)(5)                                                    -            248,428              39,602
                                                         ----------          ---------           ---------
    Total                                                $  203,668           $432,326            $208,580
                                                         ==========          =========            ========

Expense reimbursement (to) from CRI:
  Expense reimbursement to CRI (3) (4) (6)               $ (340,847)         $(321,505)          $(151,171)
  Expense reimbursement from CRI (3)                        190,095             87,381              30,096
                                                         -----------         ----------          ----------
    Net expense reimbursement                            $ (150,752)         $(234,124)          $(121,075)
                                                         ===========         ==========          ==========

</TABLE>

(1) Included as equity in earnings from investments on the accompanying
consolidated statements of income.
(2) Included as a reduction of equity investments on the accompanying
consolidated balance sheets.
(3) Included in general and administrative expenses on the accompanying
consolidated statements of income.
(4) Pursuant to an administrative services agreement between us and CRI, Inc.,
CRI provided us with certain administrative and office facility services and
other services, at cost, with respect to certain aspects of our business. We
used the services provided under the administrative services agreement to the
extent such services were not performed by CRIIMI MAE Management or provided by
another service provider.  The administrative services agreement was terminable
on 30 days notice at any time. The majority of such services under this
agreement were terminated in March 2003.
(5)  Includes payroll reimbursement for services provided by CRIIMI MAE
Management employees to CMSLP through June 30, 2001. Since CMSLP has been
accounted for on a consolidated basis since July 1, 2001, there are no related
party transactions with CMSLP after that date.
(6)  CMSLP reimbursed CRI for approximately $103,000 of expenses during the
period January 1, 2001 through June 30, 2001 and approximately $202,000 of
expenses during the year ended December 31, 2000. These reimbursements are
not included in the reimbursements for the years ended December 31, 2001
and 2000 since the financial results of CMSLP were not consolidated until
July 1, 2001. The CMSLP reimbursements to CRI for the six months ended
December 31, 2001 and for the year ended December 31, 2002 are included in
this table.

     In addition to the transactions listed above, in connection with the Merger
in 1995,  we  entered  into a deferred  compensation  arrangement  with  William
Dockser,  Chairman  until January 23, 2003 (a Director  after January 23, 2003),
and H. William  Willoughby,  President and a Director until January 23, 2003, in
an original  aggregate  amount of $5,002,183  pursuant to which we agreed to pay
Messrs.  Dockser and  Willoughby for services  performed in connection  with the
structuring of the merger.  Our obligation to pay the deferred  compensation  is
limited,  with certain  exceptions,  to the creation of an  irrevocable  grantor
trust for the benefit of Messrs. Dockser and Willoughby and the transfer to such
trust of the right to receive such deferred  compensation  (the Note Receivable)
in  the  original  aggregate  principal  amount  of  $5,002,183.   The  deferred
compensation  is fully vested and payable  only to the extent that  payments are
made by CRI, Inc. on the Note Receivable.  Payments of principal and interest on
the Note Receivable/deferred compensation are payable quarterly and terminate in
June 2005. The Note Receivable/deferred compensation bears interest at the prime
rate (4.25% as of December  31,  2002) plus 2% per annum.  From  October 5, 1998
through April 17, 2001, no deferred  compensation payments were made as a result
of our Chapter 11 proceeding.  For the years ended  December 31, 2002,  2001 and
2000, aggregate payments of $616,091,  $2,571,455 (including $945,740 in accrued
interest)  and  $0,  respectively,  were  made on the  Note  Receivable/deferred
compensation.  These aggregate payments were split  approximately  equally among
Messrs.  Dockser and Willoughby.  The unpaid aggregate  principal balance on the
note  receivable/deferred  compensation

<PAGE>F-55

was approximately  $1,375,588 at December 31, 2002. The financial statement
impact of these transactions is immaterial.

16.      LITIGATION

Bankruptcy Proceedings and Other Litigation

     On the  October  5,  1998  petition  date,  CRIIMI  MAE  Inc.,  CRIIMI  MAE
Management,  Inc. and CRIIMI MAE Holdings II, L.P. filed voluntary petitions for
relief under  Chapter 11 of the  Bankruptcy  Code in the  Bankruptcy  Court.  On
November  22,  2000,  the  Bankruptcy  Court  entered  an order  confirming  the
reorganization  plan before it. We emerged from Chapter 11 on April 17, 2001, at
which date all material  litigation matters existing  subsequent to the petition
date had been settled or resolved except for the First Union  litigation,  which
was settled in February 2002 as discussed below.

     First Union

     We entered into a settlement agreement with First Union National Bank dated
as of February 6, 2002. On March 5, 2002, the Bankruptcy  Court entered an order
approving the settlement agreement. The settlement agreement became effective on
March 20,  2002.  The  dispute  concerned  whether  First Union was a secured or
unsecured  creditor in connection  with certain credit and custodian  agreements
between CRIIMI MAE and First Union. First Union's claim amount was approximately
$18.6 million.  Reference is made to the settlement agreement,  previously filed
with the Bankruptcy Court (and with the Securities and Exchange Commission as an
exhibit to a Current Report on Form 8-K filed on February 13, 2002),  for a more
detailed description of the terms and conditions of the settlement agreement.

     On March 20, 2002, a previously  issued Series A Senior Secured Note having
a December 31, 2001 face amount of  $7,484,650  and  previously  issued Series B
Senior  Secured  Notes  having a December  31,  2001  aggregate  face  amount of
$4,809,273  were released from escrow to First Union.  On March 20, 2002,  First
Union sold the notes. The proceeds from the sale of the notes, combined with the
escrowed cash,  resulted in total proceeds of  approximately  $18.8 million.  We
retained  the  approximate  $238,000  of cash in excess of the First Union claim
amount  of  $18.6  million.  In  addition,   approximately  $22,938,260  of  our
restricted cash became unrestricted.

     Other

     In the course of our normal business activities,  various lawsuits,  claims
and proceedings  have been or may be instituted or asserted against us. Based on
currently available facts, we believe that the disposition of matters pending or
asserted will not have a material adverse effect on our  consolidated  financial
position, results of operations or liquidity.


<PAGE>F-56


17.      SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

     The following is a summary of unaudited quarterly results of operations for
the years ended December 31, 2002, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                               2002
                                             -------------------------------------------------------------------------
                                              First Quarter     Second Quarter       Third Quarter    Fourth Quarter
                                             ----------------   ----------------    ----------------  ----------------
<S>                                          <C>                <C>                 <C>               <C>
Interest Income                                 $ 32,031,879       $ 31,743,348        $ 31,508,173     $  29,176,532
Net income (loss)                                 (6,827,981)         2,295,745         (25,101,506)      (34,614,072)
Basic net earnings (loss) per share                    (0.52)              0.16               (1.80)            (2.48)
Diluted net earnings (loss) per share                  (0.52)              0.16               (1.80)            (2.48)

                                                                               2001
                                             -------------------------------------------------------------------------
                                              First Quarter     Second Quarter       Third Quarter    Fourth Quarter
                                             ----------------   ----------------    ----------------  ----------------
<CAPTION>
<S>                                          <C>                <C>                 <C>               <C>
Interest Income                                 $ 33,811,044       $ 33,718,486        $ 33,588,020     $  33,258,002
Net income (loss)                                  6,030,160 (1)     (2,375,818) (1)       (723,708)      (27,153,432)
Basic net earnings (loss) per share                     0.80 (1)          (0.21) (1)          (0.06)            (2.10)
Diluted net earnings (loss) per share                   0.64 (1)          (0.21) (1)          (0.06)            (2.10)

                                                                               2000
                                             -------------------------------------------------------------------------
                                              First Quarter    Second Quarter        Third Quarter    Fourth Quarter
                                             ----------------  ----------------     ----------------  ----------------
<CAPTION>
<S>                                          <C>               <C>                  <C>               <C>
Interest Income                                 $ 55,454,598      $ 51,274,382         $ 49,066,581     $  39,456,080
Net income (loss)                                  4,035,611         3,742,484          (44,463,063)     (118,810,461)
Basic net earnings (loss) per share                     0.66              0.60                (7.13)           (19.05)
Diluted net earnings (loss) per share                   0.56              0.54                (7.13)           (19.05)

</TABLE>

(1)      The net income has been adjusted to reflect the change in accounting
         principle related to servicing revenue.

18.      SEGMENT REPORTING

     Management  assesses our performance and allocates  capital  principally on
the basis of two lines of business: portfolio investment and mortgage servicing.
These two lines of business are managed  separately  as they  provide  different
sources and types of revenues.

     Portfolio  investment  primarily includes (i) acquiring  subordinated CMBS,
(ii)  securitizing  pools of mortgage loans and pools of CMBS,  (iii) direct and
indirect  investments  in government  insured  securities  and entities that own
government  insured  securities and mezzanine loans and (iv) securities  trading
activities.  Our income  from this  segment is  primarily  generated  from these
assets.

     Mortgage  servicing,  which  consists  of  all  the  operations  of  CMSLP,
primarily includes  performing  servicing functions with respect to the mortgage
loans  underlying  our CMBS.  CMSLP  performs a variety of  servicing  including
special  servicing  and loan  management.  For  these  services,  CMSLP  earns a
servicing fee which is calculated as a percentage of the principal amount of the
servicing portfolio  typically paid when the related service is rendered.  These
services may include  either  routine  monthly  services,  non-monthly  periodic
services or event-triggered  services. In acting as a servicer, CMSLP also earns
other  income  which   includes,   among  other  things,   assumption  fees  and
modification fees. Through June 30, 2001, CMSLP was an unconsolidated affiliate.
Therefore, up through June 30, 2001, the results of its operations were reported
in our  income  statement  in  equity in  (losses)  earnings  from  investments.
Beginning in the third quarter of 2001,  CMSLP's results were  consolidated into
our consolidated  financial  statements as a result of a change in the ownership
of CMSLP. See Note 3 for further discussion.  Revenues,  expenses and assets are
accounted for in accordance  with the  accounting  policies set forth in

<PAGE>F-57

Note 3. Overhead expenses,  such as administrative  expenses, are allocated
either directly to each business line or through estimates based on factors such
as number of personnel or square  footage of office space.  As discussed in Note
9,  CMSLP  sold all of its  rights  and  obligations  under its CMBS  master and
primary servicing contracts in February 2002.

     The following tables detail the financial  performance by these two primary
lines of business  for the years ended  December 31,  2002,  2001 and 2000.  The
basis of accounting used in the tables is GAAP.
<TABLE>
<CAPTION>
                                                          As of and for the year ended December 31, 2002
                                          -------------------------------------------------------------------------------
                                                                                   Elimination of
                                             Portfolio            Mortgage          Intercompany
                                             Investment          Servicing          Transactions          Consolidated
                                          -----------------    ---------------    ------------------    -----------------
<S>                                       <C>                  <C>                <C>                   <C>
Interest income                           $ 124,459,932          $         -        $             -        $ 124,459,932
Interest expense                            (92,663,283)                   -                 21,624          (92,641,659)
                                         ----------------       -------------      -----------------      ---------------
   Net interest margin                       31,796,649                    -                 21,624           31,818,273
                                         ----------------       --------------     -----------------      ---------------
General and administrative expenses         (10,825,129)                   -                 96,672          (10,728,457)
Depreciation and amortization                (1,095,861)                   -                      -           (1,095,861)
Equity in earnings (losses) from
  investments                                   (41,882)                   -                      -              (41,882)
Other, net                                      548,875                    -                      -              548,875
Impairment on CMBS                          (70,225,506)                   -                      -          (70,225,506)
Recapitalization expenses                    (1,048,559)                   -                      -           (1,048,559)
Servicing income                                      -           11,570,862               (585,092)          10,985,770
Servicing general and administrative
  expenses                                            -           (9,321,365)               466,796           (8,854,569)
Servicing amortization, depreciation
  and impairment                                      -           (2,173,137)                     -           (2,173,137)
Servicing restructuring expenses                      -             (188,614)                     -             (188,614)
Servicing gain on sale of servicing
  rights                                              -            4,864,274                      -            4,864,274
Servicing gain on sale of
  investment-grade CMBS                               -              241,160                      -              241,160
Income tax benefit (expense)                    326,998             (787,286)                     -             (460,288)
                                         ----------------      --------------     ------------------    -----------------
                                            (82,361,064)           4,205,894                (21,624)         (78,176,794)
                                         ----------------      --------------     ------------------    -----------------
Net income (loss) before changes in
  accounting principles                   $ (50,564,415)        $  4,205,894        $             -       $  (46,358,521)
                                         ===============       ==============     ==================    =================
Total assets                             $1,214,741,938         $ 26,812,985        $      (469,680)      $1,241,085,243
                                         ===============       ==============     ==================    =================

</TABLE>

<PAGE>F-58
<TABLE>
<CAPTION>
                                                   As of and for the year ended December 31, 2001
                                    ------------------------------------------------------------------------------
                                                                            Elimination of
                                       Portfolio           Mortgage         Intercompany
                                       Investment         Servicing        Transactions (1)        Consolidated
                                    -----------------   ---------------    ------------------    -----------------
<S>                                 <C>                 <C>                <C>                   <C>
Interest income                     $   134,375,552       $          -       $           -         $   134,375,552
Interest expense                        (97,787,568)                 -                   -             (97,787,568)
                                    -----------------   ---------------    ------------------    ------------------
   Net interest margin                   36,587,984                  -                   -              36,587,984
                                    -----------------   ---------------    ------------------    ------------------
General and administrative
   expenses                             (10,840,864)                 -            (110,556)            (10,951,420)
Depreciation and amortization            (3,718,485)                 -                   -              (3,718,485)
Equity in earnings (losses) from
   investments                              646,692                  -          (2,278,734)             (1,632,042)
Other, net                                2,868,038                  -                   -               2,868,038
Impairment on CMBS                      (34,654,930)                 -                   -             (34,654,930)
Reorganization items                     (1,813,220)                 -                   -              (1,813,220)
Emergence loan origination fee           (3,936,616)                 -                   -              (3,936,616)
Servicing income                                  -         12,705,666          (6,021,780)              6,683,886
Servicing general and
   administrative expenses                        -        (12,165,374)          6,595,212              (5,570,162)
Servicing amortization,
   depreciation and impairment                    -         (3,378,076)          1,678,890              (1,699,186)
Servicing restructuring expenses                  -           (437,723)                  -                (437,723)
Income tax benefit (expense)                      -            336,439                   -                 336,439
                                    -----------------   ---------------    ------------------    ------------------
                                        (51,449,385)        (2,939,068)           (136,968)            (54,525,421)
                                    -----------------   ---------------    ------------------    ------------------
Net income (loss) before changes
   in accounting principles         $   (14,861,401)      $ (2,939,068)      $    (136,968)        $   (17,937,437)
                                    =================   ===============    ==================    ==================
  Total assets                      $ 1,289,827,494       $ 25,176,629       $           -         $ 1,315,004,123
                                    =================   ===============    ==================    ==================

</TABLE>

(1)  We perform the mortgage servicing functions through CMSLP which, through
     June 30, 2001, was accounted for under the equity method. The elimination
     column reclassifies CMSLP under the equity method as it was accounted for
     in our consolidated financial statements. Beginning in the third quarter of
     2001, CMSLP's results were consolidated into our consolidated financial
     statements.



<PAGE>F-59

<TABLE>
<CAPTION>
                                                   As of and for the year ended December 31, 2000
                                   -------------------------------------------------------------------------------
                                                                           Elimination of
                                      Portfolio            Mortgage         Intercompany
                                      Investment          Servicing       Transactions (1)        Consolidated
                                   -----------------    ---------------   ------------------    ------------------
<S>                                <C>                  <C>               <C>                   <C>
Interest income                    $   195,251,641       $           -     $            -        $    195,251,641
Interest expense                      (139,366,369)                  -                  -            (139,366,369)
                                   -----------------    ---------------   ------------------    ------------------
   Net interest margin                  55,885,272                   -                  -              55,885,272
                                   -----------------    ---------------   ------------------    ------------------
General and administrative
   expenses                             (9,651,468)                  -                  -              (9,651,468)
Depreciation and amortization           (3,771,064)                  -                  -              (3,771,064)
Equity in earnings (losses) from
   investments                             701,403                   -            810,602               1,512,005
Other, net                               2,183,286                   -                  -               2,183,286
Impairment on CMBS                    (143,478,085)                  -                  -            (143,478,085)
Reorganization items                   (66,072,460)                  -                  -             (66,072,460)
Servicing income                                 -          14,684,667        (14,684,667)                      -
Servicing general and
   administrative expenses                       -         (11,986,788)        11,986,788                       -
Servicing amortization,
   depreciation and impairment                   -          (2,178,652)         2,178,652                       -
Income tax benefit (expense)                     -                   -                  -                       -
Gain on debt extinguishment             14,808,737                   -                  -              14,808,737
                                   -----------------    ---------------   ------------------    ------------------
                                      (205,279,651)            519,227            291,375            (204,469,049)
                                   -----------------    ---------------   ------------------    ------------------
Net income (loss) before changes
   in accounting principles        $  (149,394,379)      $     519,227     $      291,375        $   (148,583,777)
                                   =================    ===============   ==================    ==================
Total assets                       $ 1,535,468,572       $  25,930,760     $   (3,559,687)       $  1,557,839,645
                                   =================    ===============   ==================    ==================

</TABLE>

(1)  We perform the mortgage servicing functions through CMSLP which, during the
     period covered, was accounted for under the equity method. The elimination
     column reclassifies CMSLP under the equity method as it is accounted for in
     our consolidated financial statements.

19.      Subsequent Events

     On January 23,  2003,  we completed a  recapitalization  of all of the Exit
Debt  funded with  approximately  $44  million  from  common  equity and secured
subordinated debt issuances to BREF, a private asset management fund established
by Brascan  Corporation  and a management  team led by Barry S.  Blattman,  $300
million in secured financing,  in the form of a repurchase  transaction,  from a
unit of Bear Stearns and a portion of our available cash and liquid assets. This
recapitalization  increases our financial flexibility and provides new additions
to  management  including  Barry S.  Blattman,  as Chairman of the Board,  Chief
Executive Officer and President.

     Under the 2003  recapitalization,  BREF  acquired  1,212,617  shares of our
newly issued common stock, or approximately  8% of our outstanding  common stock
after  giving  effect  to  the  share  acquisition,  at  $11.50  per  share,  or
approximately $13.9 million.  BREF also received seven year warrants to purchase
up to 336,835  additional  shares of common stock at $11.50 per share.  The fair
value  of the  warrants  was  calculated  as  approximately  $2.6  million.  The
assumptions  we used to value the warrants are consistent  with the  assumptions
used to value  our  stock  options.  The  warrants  will be  accounted  for as a
component of equity.  BREF also  purchased  $30 million of the BREF Debt and, at
our option,  BREF will purchase up to an additional $10 million of  subordinated
debt prior to January 23,  2004.  The BREF Debt  matures on January 23, 2006 and
bears interest at an annual rate of 15%. If we decide to sell the additional $10
million of subordinated debt to BREF, it will bear interest at an annual rate of
20% and also matures on January 23, 2006.  We have a right to defer a portion of
the interest on the BREF Debt (and on the  additional  $10  million,  if sold to
BREF)  during its term.  The BREF Debt is  secured by first  liens on the equity
interests of two of our  subsidiaries.  Although this effectively  provides BREF
with an indirect lien on all of our subordinated  CMBS that are held by three of
our other  lower-tier  subsidiaries,  Bear Stearns has first liens on the equity
interests  of  these  three  lower  tier  subsidiaries  and  on  certain  of the


<PAGE>F-60

subordinated CMBS held by one of these lower tier  subsidiaries.  Pursuant to an
intercreditor agreement between BREF and Bear Stearns, our obligations under the
BREF Debt are  contractually  subordinate  to the prior  payment  in full of our
obligations  under  the $300  million  in  secured  financing  provided  by Bear
Stearns. Such intercreditor agreement also provides for contractual restrictions
on BREF's  ability to realize  upon its  indirect  interest in the Bear  Stearns
first lien  collateral.  We paid an origination  fee of 0.67% to BREF related to
the BREF Debt. We are also obligated to pay BREF a quarterly  maintenance fee of
$434,000 in connection with arranging the Bear Stearns Debt.

     Under the recently  completed  recapitalization,  Bear Stearns provided the
Bear Stearns Debt.  The Bear Stearns Debt matures in 2006,  bears  interest at a
rate equal to one-month LIBOR plus 3% and requires quarterly  principal payments
of $1.25  million.  The principal  payments will increase to $1.875  million per
quarter  if a  collateralized  debt  obligation  transaction  (or  CDO)  is  not
completed  by January  23,  2004.  The  interest  rate will  increase  by 1%, to
one-month  LIBOR plus 4%, if Bear Stearns  structures  a CDO that meets  certain
rating requirements and we decline to close. The Bear Stearns Debt is secured by
first direct and/or indirect liens on all of our subordinated CMBS. The indirect
first liens are first liens on the equity interests of three of our subsidiaries
that hold certain subordinated CMBS. A reduction in the value of this collateral
could require us to provide additional collateral or fund margin calls. Although
CRIIMI  MAE Inc.  is not a primary  obligor  of the Bear  Stearns  Debt,  it has
guaranteed all  obligations  under the debt. We paid a commitment fee of 0.5% of
the Bear Stearns Debt to Bear Stearns.

     On the  effective  date of our recent  January  2003  recapitalization,  we
effected an affiliate  reorganization  principally to indirectly secure the Bear
Stearns Debt with the equity  interests  in CBO-1 and CBO-2.  As a result of the
affiliate  reorganization,  our REIT  subsidiary  (CBO REIT II),  owns all bonds
previously pledged to secure the Exit Debt and indirectly owns all of the equity
interests in CBO-1 and CBO-2  (through its ownership of the two  qualified  REIT
subsidiaries which hold the equity interests in CBO-1 and CBO-2).

     The Bear Stearns Debt is  collateralized  by first direct  and/or  indirect
liens on all of our  subordinated  CMBS,  and is  subject  to a number of terms,
conditions and restrictions including,  without limitation,  scheduled principal
and interest  payments,  and restrictions  and requirements  with respect to the
collection and application of funds.  If the  outstanding  loan amount under the
Bear Stearns Debt exceeds 85% of the  aggregate  market value of the  collateral
securing the Bear Stearns  Debt,  as determined by Bear Stearns in its sole good
faith  discretion,  then Bear  Stearns  can require us to  transfer  cash,  cash
equivalents or securities so that the outstanding  loan amount will be less than
or equal to 80% of the aggregate  market value of the collateral  (including any
additional collateral provided). Failure to meet any margin call could result in
an event of default which would enable Bear Stearns to exercise  various  rights
and remedies  including  acceleration  of the maturity  date of the Bear Stearns
Debt and the sale of the  collateral.  In order to meet a margin call, we may be
required to sell assets at prices  lower than their  carrying  value which could
result in losses.

     In  connection  with the 2003  recapitalization,  we  expect  to  recognize
certain amounts in our Consolidated Statement of Income during the first quarter
of 2003. These amounts include the following:

o         On January 23, 2003 and in connection with the closing of the
          recapitalization, amounts were deposited with the indenture trustee to
          pay all principal and interest on our outstanding Series A and Series
          B Senior Secured Notes on the March 10, 2003 redemption date. This
          redemption required 45 days prior notice. These notes were not
          considered repaid for GAAP purposes until the March 10, 2003
          redemption date. The 45 day notice period resulted in additional
          interest expense during the period January 23, 2003 through March 10,
          2003 since the Bear Stearns and BREF Debt were outstanding and the
          senior secured notes were also outstanding. This additional interest
          expense related to the 45 day notice period, which will be recognized
          during the first quarter of 2003, totaled approximately $3.1 million.
o         Approximately $7.4 million will be recognized as a gain on
          extinguishment of debt, primarily due to the reversal of accrued
          extension fees on the Exit Debt.
o         Approximately $2.6 million of expenses will be recognized related to
          severance and related payments, and accelerated vesting of stock
          options for our former Chairman, William B. Dockser, and former
          President, H. William Willoughby, whose employment contracts were
          terminated on January 23, 2003.

     In addition to the income  statement  items  described  above,  transaction
costs  currently  estimated  to be  approximately  $6.2  million  related to the
recapitalization  will be included on the Consolidated Balance Sheet as of

<PAGE>F-61

March 31, 2003.  Such costs will be  allocated  between the debt and equity
issued.  The costs  allocated  to debt  will be  amortized  using the  effective
interest  method  over the lives of the related  debt.  The costs  allocated  to
equity will be reflected in equity net of the proceeds  from the issuance of the
common stock.