UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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

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|For the fiscal year ended December 31, 2003 |  | 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
Incorporation or organization)

(I.R.S. Employer
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:

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

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

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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 ý    No o

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. o

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 ý    No o

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

The aggregate market value (based upon the last reported sale price on the New York Stock Exchange on June 30, 2003) of the shares of CRIIMI MAE Inc.
common stock held by non-affiliates was approximately $148.7 million. (For purposes of calculating the previous amount only, all directors and executive officers of the registrant
are assumed to be affiliates.)

As
of March 1, 2004, 15,471,420 shares of CRIIMI MAE Inc. common stock with a par value of $0.01 were outstanding.

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Documents Incorporated By Reference

The information required by Part III (Items 10, 11, 12, 13 and 14) is incorporated by reference to the Registrant's definitive proxy statement to be
filed pursuant to Regulation 14A relating to the Registrant's 2004 annual meeting of shareholders.



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CRIIMI MAE INC.

2003 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

|           |  |                                                                                                                 |  | Page
|---------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|           |  | PART I                                                                                                          |  |     
|Item 1.    |  | Business                                                                                                        |  | 3   
|Item 2.    |  | Properties                                                                                                      |  | 18  
|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, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 20  
|Item 6.    |  | Selected Financial Data                                                                                         |  | 21  
|Item 7.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                           |  | 23  
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                      |  | 55  
|Item 8.    |  | Financial Statements and Supplementary Data                                                                     |  | 56  
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |  | 57  
|Item 9A.   |  | Controls and Procedures                                                                                         |  | 57  
|           |  | PART III                                                                                                        |  |     
|Item 10.   |  | Directors and Executive Officers of the Registrant                                                              |  | 58  
|Item 11.   |  | Executive Compensation                                                                                          |  | 58  
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                  |  | 58  
|Item 13.   |  | Certain Relationships and Related Transactions                                                                  |  | 58  
|Item 14.   |  | Principal Accountant Fees and Services                                                                          |  | 58  
|           |  | PART IV                                                                                                         |  |     
|Item 15.   |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                                                |  | 59  
|Signatures |  | 66                                                                                                             

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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Certain Risk Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations".
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.

PART I

ITEM 1. BUSINESS

Overview

CRIIMI MAE Inc. (together with its consolidated subsidiaries, 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, a significant portfolio of commercial mortgage-related assets. Historically, we have focused
primarily on acquiring high-yielding, non-investment grade (rated below BBB- or unrated) commercial mortgage-backed securities (subordinated CMBS). We commenced
operations in 1989, are incorporated in Maryland, and are not a government sponsored entity or in any way affiliated with the United States
government or any United States government agency. Our stock is traded on the New York Stock Exchange under the symbol "CMM".

During
late 2003, we undertook a review of the current market for acquisition of subordinated CMBS in preparation for the expected resumption of such acquisition activities in 2004. Due
to a variety of factors such as increased competition in the sector, less attractive investment yields and underwriting standards that are widely believed to be deteriorating due to the surplus of
investment capital dedicated to the subordinated CMBS market, we now believe that it is more prudent for us to focus our 2004 investment activity in the "manufacturing" of subordinated CMBS
investments rather than pursuing secondary-market acquisition opportunities as we have in the past. By "manufacturing" we mean directly originating, or purchasing at origination, commercial mortgage
loans, and financing these loans via the periodic issuance of investment-grade rated CMBS. This strategy would continue our historical focus on higher-yielding tranches of CMBS, but would allow us to
better control the risk inherent in such investments by involving the company in the transactions at inception (i.e. at the time the loans are originated).

As
a full-service commercial mortgage company, we expect to originate, service and securitize commercial mortgage loanswhich we believe gives us a competitive
advantage over other securitized lenders in terms of level of service provided to mortgage loan borrowers and flexibility in addressing borrower needs over the term of their loans. Our aim would be to
use securitization as a financing tool to create attractive long-term investment yields as opposed to the current market paradigm in which securitization is primarily used to generate
short-term arbitrage gains on sale. Our goal is to deliver an attractive return on shareholders' equity generated by earnings that are sustainable over the long-term. We remain
prepared to augment those returns by selectively participating in the subordinated CMBS acquisition market if market conditions warrant.

Our
existing business consists of investments in our core assets (subordinated CMBS backed by pools of commercial mortgage loans on multifamily, retail, hotel, and other commercial real
estate) and

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investments
in non-core assets (direct and indirect investments in government-insured mortgage-backed securities and a limited number of other assets). We also are a trader in CMBS,
residential mortgage-backed securities, agency debt securities and other fixed income securities. We intend to refinance the shorter-term, recourse debt related to our existing
subordinated CMBS through a collateralized debt obligation (CDO), other refinancing transaction, or combination thereof, by mid-2004.

We
have significant experience in the following areas:



2003 Accomplishments

Our strategic priorities and accomplishments in 2003 were as follows:









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2003 Recapitalization Overview

On January 23, 2003, we completed a recapitalization of the secured debt incurred upon our emergence from Chapter 11 in April 2001. We refer to that
secured debt as the Exit Debt. This recapitalization was funded with approximately $344 million in proceeds from debt and equity financings and a portion of our available cash and liquid
assets. The recapitalization included approximately $14 million in common equity and $30 million in senior secured subordinated debt purchased by Brascan Real Estate Finance Fund I L.P.,
a private asset management fund established by Brascan Corporation and a New York-based management team. We refer to the senior secured subordinated debt as the BREF Debt and Brascan Real
Estate Finance Fund I L.P. as the BREF Fund. Additionally, we
received $300 million in secured financing in the form of a repurchase transaction from a unit of Bear, Stearns & Co., Inc., which we refer to as the Bear Stearns Debt.

The
recapitalization increased 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,

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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 investments, hedging activities and general working capital purposes. See Note 6 of Notes to
Consolidated Financial Statements for further discussion of the January 2003 recapitalization.

Business Segments

Management currently 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.

Portfolio Investment

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



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 D) 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 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 cash flows from commercial mortgage loans, or CMBS.

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.

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.

Historically,
we have focused primarily on acquiring or retaining non-investment grade and unrated tranches, issued by mortgage conduit entities, in which we believed our
market knowledge and real estate expertise allowed us to earn attractive risk-adjusted returns. We did not acquire any subordinated CMBS subsequent to 1998. Prior to the fall of 1998, we
generally acquired subordinated CMBS in

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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.

As
of December 31, 2003, our $1.1 billion portfolio of assets included $837 million of CMBS (representing approximately 78% of our total consolidated assets), which
had the following ratings (based on fair value) reflected as a percentage of total CMBS:

Rating

% of CMBSA+, BBB+ or BBB

39%
(a)BB+, BB or BB-

40%B+, B or B-

17%CCC, D or Unrated

4%


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We initially funded a substantial portion of our subordinated CMBS acquisitions with short-term, variable-rate secured debt. To 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 refinancings 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, typically provided by the
subordinated CMBS issuer and, to a lesser extent, cash, to purchase additional subordinated CMBS.

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.

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.

As
of December 31, 2003, our total debt was approximately $765.6 million, of which approximately 53% was fixed-rate, match-funded, non-recourse debt
and approximately 47% was variable-rate or

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fixed-rate
debt that was not match-funded. See Notes 4 and 6 to the Notes to Consolidated Financial Statements for further information regarding our CMBS resecuritizations and
variable-rate secured borrowings.



From 1996 through 1998, 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. 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 our subsidiary, CRIIMI MAE
CMBS Corp., issued Commercial Mortgage Loan Trust Certificates, Series 1998-1 (CMO-IV). In CMO-IV, we sold all of the investment grade tranches to third
parties and received net
cash flow on the CMBS retained by us. We sold all of our remaining interests in CMO-IV in November 2000.



See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" for a discussion of Portfolio Investment's Assets.

Mortgage Servicing

We conduct our mortgage loan servicing operations through CMSLP. CMSLP's principal servicing activities are described below.



A special servicer typically provides asset management and resolution services with respect to nonperforming or underperforming loans within a pool of mortgage
loans. When we acquired 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, we have an incentive to quickly resolve any loan workouts. As of December 31, 2003,
CMSLP was designated as the special servicer for approximately 2,800 commercial mortgage loans, representing an aggregate principal amount of approximately $15.3 billion of commercial mortgage
loans underlying our CMBS. Additionally, CMSLP performed special servicing on approximately 440 loans, representing an aggregate principal balance of approximately $2 billion, for third
parties. We currently have a Standard & Poors (S&P) Special Servicer ranking of "below average". Despite the ranking, S&P provided a "positive outlook" and recognized that CMSLP has begun to
take measures to stabilize its operations, most notably by hiring some well-experienced asset management personnel.



In April 2003, we restructured CMSLP's property servicing group resulting in the termination of 10 employees. In conjunction with this restructuring, we
have outsourced substantially all of our contractual property servicing duties related to the labor-intensive tasks of financial statement collection and analysis and property inspection performance.
The outsourcing was completed in February 2004. This outsourcing does not relieve us of any of our contractual obligations or reduce any of our rights as

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property
servicer, since CMSLP remains the property servicer of record, but it does relieve us of the administrative task of collecting financial operating data. This will allow the remaining
resources in surveillance to focus more on collateral analysis. For the outsourced loans, CMSLP coordinates the delivery of monthly reports and inspections with the third-party servicers. For the
portfolios for which the third-party servicer is not also the master servicer, CMSLP reviews and approves the reports from these servicers prior to submission by CMSLP to the securitization trustees.

For
all of the loans underlying our subordinated CMBS portfolio, including those outsourced as noted above, CMSLP performs analyses of operating performance and property inspections as
part of its routine asset monitoring process. This allows CMSLP to identify and evaluate potential issues that could result in losses. As of February 29, 2004, CMSLP analyzes the performance
and physical condition of approximately 2,800 commercial mortgage loans, representing an aggregate principal of $15 billion.



CMSLP performs master and/or direct servicing for an insignificant number of non-CMBS loans. 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. Direct (or primary) servicers typically perform certain functions for the
master servicer.

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. Under our reorganization plan, the holders of our equity retained
their shares of stock and our creditors were paid in full.

Certain Risk Factors

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

Our significant indebtedness limits our ability to take certain actions and could adversely affect our financial condition if we are unable to meet our
obligations.

We are highly leveraged. As of December 31, 2003, our total consolidated indebtedness was $765.6 million (of which $350.0 million was
recourse debt), and our shareholders' equity was $291.8 million.

Our
ability to meet our existing debt service obligations depends on a number of factors, including management's ability to:



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Our
high level of debt:



We are subject to a number of borrowing risks, including refinancing risk and margin calls.

The
Bear Stearns Debt 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 Debt and
BREF Debt at their maturity in 2006. In 2004, we expect to refinance the Bear Stearns Debt through a CDO, other refinancing, or combination thereof. There can be no assurance that a refinancing will
occur or that it will be advantageous to us. Such a 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 Debt, all of which may significantly reduce our cash flow, and further limit our financial flexibility.

Substantially
all of our future borrowings are expected to continue to be in the form of collateralized borrowings, as are the Bear Stearns Debt and BREF Debt. A default under our
collateralized borrowings could result in a liquidation of the collateral. If we are forced to liquidate any assets 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. See the risk factor related to tax related risks. The liquidation of CMBS or other assets could also result in the loss of our Investment Company Act exclusion. See the risk
factor related to the Investment
Company Act exclusion. A default under the operative documents of any collateralized borrowing could result in a default under the operative documents of other collateralized or non collateralized
borrowing or other obligations, which could result in our being required to pay all such obligations. We may be unable to repay such obligations.

A
substantial portion of any future borrowings used to acquire mortgage-related assets may be structured as collateralized, short-term, floating-rate secured
borrowings. The amount borrowed under such agreements is typically based on the market value of the assets pledged to secure specific borrowings. Under adverse market conditions, the value of pledged
assets could 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). In order to meet a margin call, we may be required to sell assets at prices lower than their carrying value or provide additional collateral, which could
have an adverse effect on us and our financial position and results of operation.

We face considerable competition from competitors with greater resources, which could adversely affect our ability to execute our strategy to become a
full-service commercial mortgage company.

If
we resume commercial mortgage loan originations and/or other mortgage related activities, we would compete with financial institutions, mortgage REITs, specialty finance companies,
banks, mortgage companies, hedge funds, other lenders, and/or other entities originating and/or purchasing commercial mortgage-related assets. Many of these competitors may have greater access to
capital and/or other resources (or the ability to obtain capital at a lower cost) and may have other advantages over us. Although subject to a non-competition agreement with us through
January 2006, BREF Fund and its controlled affiliates are permitted to sponsor collateralized bond or loan obligations, or CBOs,

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and
to acquire subordinated CMBS for inclusion in such CBOs. As a result, they could compete with us in connection with such activities.

Failure to manage mismatch between long-term mortgage assets and short-term funding could negatively impact our net income and
distributions.

Interest
rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors
beyond our control. Interest rate fluctuations can adversely affect our net income and value in many ways and present a variety of risks, including the risk of a mismanagement between asset yields and
borrowing rates and reshaping of the yield curve. We intend to continue entering into hedging transactions, as appropriate, in an effort to protect our mortgage assets and related debt from interest
rate fluctuations. See the risk factor regarding limited protection from hedging transactions.

Our
operating results depend in large part on differences between the income from our mortgage assets and our borrowing costs. We may finance a significant portion of new investments
with borrowings, initially, having adjustable interest rates (or borrowing rates) that reset while the rates on fixed rate investments stay constant. If interest rates rise, borrowing rates (and
borrowing costs) are expected to rise while coupon rates (and investment income) on our fixed rate mortgage assets remain constant. 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 slow future investments of assets. Although we intend to invest primarily in
fixed-rate mortgage assets, we also may own adjustable rate mortgage assets. We may fund these adjustable rate mortgage assets 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 mortgage assets (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 "basis" risk. 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 mortgage assets 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 mortgage assets, their valuation or income derived therefrom. During periods of changing interest rates, coupon rate and borrowing rate mismatches could negatively impact our net
income and distributions.

Our hedging transactions provide limited protection.

There can be no assurance that our hedging activities will have the desired impact of protecting us from the risks associated with changes in interest rates. No
hedging activity can completely protect us from the risks associated with changes in interest rates. Non-performance by counterparties to hedging transactions could result in losses to us.
We may not be able to dispose of, or close out a hedging position without the consent of the counterparty, and we may not be able to enter into an offsetting hedging contract in order to cover our
risk. There can be no assurance that a liquid market will exist for the purchase or sale of hedging instruments, and we may be required to maintain a position until expiration, which could result in
losses. There can be no assurance that we will be able to replace a hedge upon expiration which could result in increased interest rate risk. See further discussion of our derivative financial
instruments in Note 7 of Notes to Consolidated Financial Statements.

Owning subordinated CMBS subjects us to significant risks.

Potential Losses and Reduced Cash Flows.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 certificates until they receive all of their accrued interest and then sequentially to the
junior certificates in order of seniority. Principal payments typically flow to the most senior certificates until they are retired. Tranches are then retired in order of seniority based

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on
available principal. When delinquencies, defaults and losses occur, cash flows otherwise due to our subordinated CMBS may not be advanced by the master servicers to the extent required to meet
scheduled principal and interest payments, resulting in interest shortfalls to our subordinated CMBS. See below for a discussion of our most significant borrowing relationship and its potential impact
on our cash flows. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and Note 4 to Notes of Consolidated Financial Statements.

Changes in Value due to Economic Factors.The value of our subordinated CMBS, along with our book value per diluted share,
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
interest rates on our subordinated CMBS and the U.S. Treasury securities with comparable maturities. For instance, changes in the performance 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 subordinated CMBS and may change our anticipated yield to maturity on such
subordinated CMBS 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 subordinated CMBS investments until maturity. Temporary changes in fair value are reflected as a component of shareholders' equity. However,
such temporary changes in the value of our subordinated CMBS become permanent changes realized through our income statement when the expected credit losses related to those subordinated CMBS are
greater or occur sooner than originally anticipated or we no longer intend or fail to have the intent and ability to hold such subordinated CMBS to maturity. See "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and Note 4 to Notes of Consolidated Financial Statements.

Significant borrowing relationship related to certain mortgage loans underlying our subordinated CMBS.The most significant
borrowing relationship in our specially serviced mortgage loan portfolio consists of 27 loans with scheduled principal balances as of December 31, 2003 totaling approximately
$133 million spread across three CMBS transactions secured by hotel properties in the western and Pacific northwestern states. As of December 31, 2003, our total exposure, including
advances and interest on advances of approximately $43 million, on these loans was approximately $176 million. Such total exposure is prior to the application of payments made to date by
the borrower under the terms of our consensual settlement agreement and is expected to be reduced by the application of such payments at the settlement agreement closing. The borrower initially filed
for bankruptcy protection in February 2002 and indicated that the properties had experienced reduced operating performance due to new competition, the economic recession, and reduced travel
resulting from the September 11, 2001 terrorist attacks. We entered into a consensual settlement agreement dated February 25, 2003 pursuant to which the loan terms were amended and
modified. This agreement was subsequently approved and confirmed by the bankruptcy court on March 28, 2003. The parties are currently proceeding toward closing a comprehensive modification of
each loan, which is expected to occur in March 2004 and which is expected to return the loans to performing status. The closing of the loan modification is a complex process involving a large
number of parties, all of whom must ultimately agree on, among other things, a reconciliation of payments and funds applied since the loan modification was approved by the bankruptcy court. The
borrower continues to make payments under the modified terms. As of December 31, 2003, the borrower has made principal and interest payments totaling approximately $10 million, the
majority of which represents interest paid (as compared to principal amortization) on

12

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the
modified loan balances. During the year ended December 31, 2003, the borrower also sold one of the properties that secured these loans. In addition, as of December 31, 2003, the
borrower has remitted approximately $1.5 million in funds from debtor-in-possession accounts, which is expected to be applied to arrearages at closing.

Cash
received from our subordinated CMBS could be significantly reduced if we are not successful in resolving these loans favorably and returning them to performing status. If the
modifications are not successfully closed, the loans would remain in default. There can be no assurance that the borrower would continue making the loan payments required under the loan modifications
or that the trust master servicers would continue to advance loan payments on behalf of the borrower. Further, as previously mentioned, as a result of the borrower's initial default, the trust master
servicers have advanced substantial amounts of principal and interest payments to the related trusts. We do not believe that the governing trust agreements are clear as to the manner in which such
master servicer advances are to be reimbursed, and are attempting to negotiate an arrangement with the master servicers and other parties to the trust which would provide for reimbursement of master
servicer advances that would be in the best interest of all of the respective certificateholders. To the extent that we cannot successfully complete those arrangements, we and the other trust parties
could dispute the proper reimbursement mechanics, and, as a result, the timing and/or amount of payments made to us on our subordinated CMBS, and the related fair value of our subordinated CMBS, could
be adversely affected. Finally, even if both the loan modifications and master servicer advance reimbursement arrangements are successfully completed, distributions on our subordinated CMBS, and the
related fair value of our subordinated CMBS, will continue to be dependent on the borrower's continued performance under the terms of the modified loans.

Limited liquidity of the subordinated CMBS market results in uncertainty in the valuation of our portfolio.

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. Due to this limited liquidity, among other matters, management's estimate of the value of our
subordinated CMBS could vary significantly from the value that could be realized in a current sale transaction.

The
limited liquidity of the subordinated CMBS market and the resulting potential uncertainty in the valuation of our subordinated CMBS contributes to the risk of margin calls due to the
creditor's discretionary determination of collateral market value in a limited liquidity market. This was a factor in connection with our October 1998 Chapter 11 filing. See the risk factors
related to borrowing risks.

The effects of terrorist attacks, economic and industry slowdown have contributed to defaults on the mortgage loans underlying our subordinated
CMBS.

The
economic and commercial real estate industry slowdown, terrorist attacks and threats of further terrorist attacks have contributed to defaults on mortgage loans underlying 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 the demand for the commercial
real estate securing the underlying mortgage loans and increasing the possibility of defaults and losses. Mortgage loan defaults related to our subordinated CMBS have resulted in increased estimated
losses, and may result in further losses on our subordinated CMBS. See Note 4 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 underlying our subordinated CMBS. The factors described in this paragraph could also adversely
affect loans that we may originate in the future.

13

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We are subject to a number of tax related risks including loss of REIT status.

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 2003. There can also be no assurance that we will maintain our REIT status for 2004 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 some or all of our obligations, including 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. These two subsidiaries hold all of the partnership interests of CMSLP.

Net Operating Loss for Tax Purposes/Trader Election.For tax purposes we have elected to be
classified as a trader in securities. We trade in both short and longer duration fixed income securities, including CMBS, residential mortgage-backed securities and agency debt 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 Other MBS on our balance sheet.

As
a result of our election in 2000 to be taxed as a trader, 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 was recognized evenly for tax purposes over four years beginning with the year 2000 and ending in 2003. Such loss was
ordinary, which allowed us to offset our ordinary income.

We
generated a net operating loss (or NOL) for tax purposes of approximately $84.0 million and $83.6 million during the years ended December 31, 2003 and
2002, respectively. As such, our taxable income was reduced to zero and, accordingly, our REIT distribution requirement was eliminated for 2003 and 2002. As of December 31, 2003, our
accumulated and unused net operating loss (or NOL) was $307.8 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.

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 some or all of our contractual obligations.

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,

14

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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 carryforwards 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. If an "ownership
change" occurs under Section 382 of the Internal Revenue Code, our prospective use of our accumulated and unused NOL will be limited.

We
do not believe BREF Fund's investment in our common stock and warrants 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. 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.

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.

If we recognize phantom income our shareholders may be required to pay federal income tax with respect to such income before such income is realized by them in an
economic sense.

Our
investment in subordinated CMBS may cause us, under certain circumstances, to recognize taxable income in excess of our economic income (phantom income) actually received 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.

We are dependent upon the performance of key personnel.

Our business is dependent upon the performance of key employees, including Barry Blattman, our Chairman and Chief Executive Officer, and Mark Jarrell, our
President and Chief Operating Officer, and other executive officers. We cannot be certain that any key employee will continue in such capacity for any particular period of time. All of our key
employees are "at will" such that we or they may terminate their employment at any time and for any reason, or no reason. The loss of key personnel, or the inability to hire and retain qualified
employees, could adversely effect our business, financial condition and results of operations.

Failure to qualify for the Investment Company Act exclusion could have a material adverse effect on us.

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

15

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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 other Real Estate Interests and that certain government-insured mortgage securities also 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, 2003,
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.

If two trusts formed in connection with two CMBS resecuritization transactions in which we own all the equity interests were to lose their "taxable mortgage pool"
exemption, we could be materially adversely affected.

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, 2003, 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

16

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transactions.
See "Business-CMBS Resecuritizations" and Note 4 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, 2003 we owned all of the equity interests in each of the
Trusts, as of December 31, 2003 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, 2003, we also owned certain securities structured as debt issued by the Trusts (the Bonds). As of December 31, 2003, 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 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, rather than debt,
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 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
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 February 1, 2004, we had 81 employees, 52 of whom are employed by CMSLP and 29 of whom are employed by CRIIMI MAE Management, Inc., one of our
wholly owned subsidiaries.

17

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Executive Officers

The following table sets forth information concerning our executive officers as of March 1, 2004:

|Name                |  | Age |  | Position                                                       
|------------------- |  | --- |  | ---------------------------------------------------------------
|Barry S. Blattman   |  | 41  |  | Chairman of the Board and Chief Executive Officer              
|Mark R. Jarrell     |  | 43  |  | President and Chief Operating Officer                          
|Cynthia O. Azzara   |  | 44  |  | Executive Vice President, Chief Financial Officer and Treasurer
|Stephen M. Abelman  |  | 42  |  | Executive Vice President, Asset Management                     
|Daniel P. Warcholak |  | 43  |  | Senior Vice President, Fixed Income/Capital Markets            

Barry
S. Blattman has served as Chairman of the Board and Chief Executive Officer since January 23, 2003, and as President from January 23, 2003 to September 15,
2003.

Mark
R. Jarrell has served as President and Chief Operating Officer since September 15, 2003, and as a director from January 23, 2003 to August 13, 2003.

Cynthia
O. Azzara has served as Chief Financial Officer since 1994, Executive Vice President since August 2003, Senior Vice President from 1995 to August 2003 and Treasurer
since 1997.

Stephen
M. Abelman has served as Executive Vice President since October 29, 2003.

Daniel
P. Warcholak has served as Senior Vice President since September 2003, as Group Vice President from March 2002 to September 2003 and as Vice President from
January 1998 to March 2002.

Internet Website

Our internet website can be found atwww.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. We
also make available, free of change, access to our Codes of Business Conduct and Ethics, Board of Directors Goverance Guidelines, Audit Committee Charter, Compensation and Stock Option Committee
Charter and Nominating and Governance Committee Charter.

Certifications

Our Chief Executive Officer and Chief Financial Officer have executed certifications dated March 11, 2004, as required by Sections 302 and 906 of
the Sarbanes-Oxley Act of 2002, and we have included those certifications as exhibits to our Annual Report on Form 10-K for the year ended December 31, 2003. In addition, our
Chief Executive Officer has certified to the New York Stock Exchange that he is unaware of any violation by CRIIMI MAE of the NYSE's corporate governance listing standards in effect as of
February 26, 2004.

ITEM 2. PROPERTIES

We lease our corporate offices at 11200 Rockville Pike, Rockville, Maryland. As of December 31, 2003, these offices occupy approximately 67,600 square
feet. As of March 1, 2004, approximately 32,000 square feet of this office space was available to sublet to third parties and we are actively seeking sublet tenants.

18

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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 18 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 2003.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

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, 2004, we had approximately 2,700 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.

2003

2002Sales Price

Sales PriceQuarter EndedHigh

Low

High

LowMarch 31

$
10.86

$
8.20

$
4.19

$
3.49June 30


11.32


8.87


7.39


3.45September 30


11.96


10.36


8.87


6.15December 31


11.40


10.00


10.43


7.69


Dividends

No cash dividends were paid to common shareholders during 2003 or 2002. See "BusinessCertain Risk Factors" for a brief discussion of the elimination
of our REIT distribution requirements for 2003 and 2002 due to our net operating losses for tax purposes. 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.

In
April 2002, dividends to preferred shareholders for the fourth quarter of 2001 and the first quarter of 2002 were paid in the form of shares of common stock. During 2003,
dividends were paid to preferred shareholders in cash. See Notes 12 and 13 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).

Sale of Unregistered Securities

In connection with the 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. We claimed an exemption from registration under the Securities Act under Rule 506 of
Regulation D in connection with this sale.

Repurchases

We did not repurchase any shares of our equity securities during the fourth quarter of 2003.

20

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ITEM 6. SELECTED FINANCIAL DATA

Selected Consolidated Financial Data

Accounting Under Accounting Principles Generally Accepted in the United States

The following table contains selected consolidated financial information about us. The selected financial data should be read in conjunction with the consolidated
financial statements, the notes thereto, and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" included elsewhere in this Annual Report on Form 10-K. There
were no cash dividends declared on our common stock for any of the periods presented. See Note 2 to Notes to Consolidated Financial Statements and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" for a discussion of the accounting for servicing revenue, derivatives, goodwill and other intangibles, preferred stock issuance costs and a discussion of
certain expenses related to Chapter 11 reorganization, all of which affect the comparability of the periods presented below.

|                                    |                                                                           | For the years ended December 31, |  
|----------------------------------- | ------------------------------------------------------------------------- | -------------------------------- | -
|
|
|Consolidated Income Statement Data: |                                                                           |                                  |  
|                                    | Interest income                                                           |                                  | $
|                                    | Interest and related expense                                              |                                  |  
|                                    |                                                                           |                                  |  
|                                    |                                                                           | Net interest margin              |  
|                                    |                                                                           |                                  |  
|                                    | General and administrative expenses                                       |                                  |  
|                                    | Servicing operations, net                                                 |                                  |  
|                                    | Impairment on CMBS                                                        |                                  |  
|                                    | Reorganization items                                                      |                                  |  
|                                    | Net income (loss) before cumulative effect of accounting changes          |                                  |  
|                                    | Dividends paid or accrued on preferred shares, including redemption costs |                                  |  
|                                    | Net loss to common shareholders                                           |                                  |  
|                                    | Net loss per diluted share after cumulative effect of accounting changes  |                                  | $
|Financial Data:                     |                                                                           |                                  |  
|                                    | Cash flows provided by (used in):                                         |                                  |  
|                                    |                                                                           | Operating activities             |  
|                                    |                                                                           | Investing activities             |  
|                                    |                                                                           | Financing activities             |  
|                                    |                                                                           |                                  |  

21

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|Consolidated Balance Sheet Data: |                      |                             |  |           |         |  |           |         |  |           |         |  |           |         |  |          
|-------------------------------- | -------------------- | --------------------------- |  | --------- | ------- |  | --------- | ------- |  | --------- | ------- |  | --------- | ------- |  | ---------
|                                 | Mortgage Assets:     |                             |  |           |         |  |           |         |  |           |         |  |           |         |  |          
|                                 |                      | CMBS                        |  | $         | 837,003 |  | $         | 861,980 |  | $         | 824,220 |  | $         | 852,534 |  | $        
|                                 |                      | Insured mortgage securities |  |           | 147,498 |  |           | 275,340 |  |           | 343,091 |  |           | 385,751 |  |          
|                                 |                      | Other                       |  |           | 3,900   |  |           | 5,248   |  |           | 8,462   |  |           | 4,312   |  |          
|                                 | Servicing assets     |                             |  | 10,392    |         |  | 26,357    |         |  | 24,766    |         |  |          |         |  |         
|                                 | Total assets         |                             |  | 1,069,212 |         |  | 1,241,085 |         |  | 1,315,004 |         |  | 1,557,840 |         |  | 2,293,661
|                                 | Debt:                |                             |  |           |         |  |           |         |  |           |         |  |           |         |  |          
|                                 |                      | Total recourse debt         |  |           | 350,043 |  |           | 375,952 |  |           | 407,637 |  |           | 558,585 |  |          
|                                 |                      | Total nonrecourse debt      |  |           | 415,550 |  |           | 546,039 |  |           | 616,715 |  |           | 645,170 |  |          
|                                 | Total liabilities    |                             |  | 777,432   |         |  | 949,424   |         |  | 1,053,959 |         |  | 1,289,582 |         |  | 2,074,313
|                                 | Shareholders' equity |                             |  | 291,780   |         |  | 291,661   |         |  | 261,045   |         |  | 268,258   |         |  | 219,349  

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Tax Basis Accounting

|                                                                          |                     | For the year ended December 31, |         
|------------------------------------------------------------------------- | ------------------- | ------------------------------- | --------
|
|
|Interest income                                                           |                     | $                               | 176,976 
|Interest and related expense                                              |                     |                                 | (103,176
|                                                                          |                     |                                 |         
|                                                                          | Net interest margin |                                 |         
|Other, net                                                                |                     |                                 | (13,543 
|Credit losses on CMBS                                                     |                     |                                 | (24,658 
|January 2000 Loss recognized                                              |                     |                                 | (119,543
|Mark-to-market loss on trading assets as of 04/17/01                      |                     |                                 |        
|Mark-to-market (loss) gain on trading assets                              |                     |                                 | (94     
|Dividends paid or accrued on preferred shares                             |                     |                                 | (7,007  
|Dividends not deductible due to net operating loss                        |                     |                                 | 7,007   
|Reorganization items                                                      |                     |                                 |        
|Loss on warehouse obligation                                              |                     |                                 |        
|Loss on sale of trading assets                                            |                     |                                 |        
|                                                                          |                     |                                 |         
|(Net operating loss)/taxable income                                       |                     |                                 | (84,038 
|Accumulated net operating loss, January 1                                 |                     |                                 | (223,820
|Remaining January 2000 Loss                                               |                     |                                 |        
|                                                                          |                     |                                 |         
|Accumulated and unused net operating loss and remaining January 2000 Loss |                     | $                               | (307,858
|                                                                          |                     |                                 |         

22

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

Introduction

Our existing business consists of:



We
also perform mortgage servicing through our servicing subsidiary, CRIIMI MAE Services Limited Partnership (CMSLP). CMSLP performs special servicing on the commercial mortgage loans
underlying our subordinated CMBS.

Currently,
our primary source of revenue and cash is our subordinated CMBS. We receive cash flows from our investments in subordinated CMBS in connection with payments made on the
underlying commercial mortgage loans. The net interest margin related to our subordinated CMBS is impacted by, among other things, the credit performance of the mortgage loans underlying our
subordinated CMBS and the interest expense on our recourse debt.

During
late 2003, we undertook a review of the current market for acquisition of subordinated CMBS in preparation for the expected resumption of such acquisition activities in 2004. Due
to a variety of factors such as increased competition in the sector, less attractive investment yields and underwriting standards that are widely believed to be deteriorating due to the surplus of
investment capital dedicated to the subordinated CMBS market, we now believe that it is more prudent for us to focus our 2004 investment activity in the "manufacturing" of subordinated CMBS
investments rather than pursuing secondary-market acquisition opportunities as we have in the past. By "manufacturing" we mean directly originating, or purchasing at origination, commercial mortgage
loan, and financing these loans via the periodic issuance of investment-grade rated CMBS. This strategy would continue our historical focus on higher-yielding tranches of CMBS, but would allow us to
better control the risk inherent in such investments by involving the company in the transactions at inception (i.e. at the time the loans are originated).

As
a full-service commercial mortgage company, we expect to originate, service and securitize commercial mortgage loanswhich we believe gives us a competitive
advantage over other securitized lenders in terms of level of service provided to mortgage loan borrowers and flexibility in addressing borrower needs over the term of their loans. Our aim would be to
use securitization as a financing tool to create attractive long-term investment yields as opposed to the current market paradigm in which securitization is primarily used to generate
short-term arbitrage gains on sale. Our goal is to deliver an attractive return on shareholders' equity generated by earnings that are sustainable over the long-term. We remain
prepared to augment those returns by selectively participating in the subordinated CMBS acquisition market if market conditions warrant.

We
currently face certain significant business risks, including those risks related to owning subordinated CMBS and refinancing risks related to our Bear Stearns Debt and BREF Debt,
which mature in January 2006. We are currently exploring refinancing alternatives, including, among others, a collateralized debt obligation, to address our refinancing risk.

23

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Liquidity and Cash Flow

Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to repay recourse borrowings, fund investments and
lending activities and for other general business purposes. Currently, our primary source of funds for liquidity consists of cash flows from our subordinated CMBS and, to a lesser extent, cash flows
from our insured mortgage securities, equity investments and mezzanine loans.

Our
ability to make mortgage related investments, including direct loan originations, depends on, among other things, our ability to engage in such activities under the terms and
conditions of the operative documents evidencing our obligations, our internally generated cash flows, available liquidity, and our ability to access additional capital. Factors which could affect our
ability to access additional capital include the amount of our debt, 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, 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 mortgage related investments or obtain additional capital, or that the terms of any such capital will be favorable to us.



The following table is a summary of our significant sources and uses of cash during the years ended December 31, 2003 and 2002 (in millions):

For the year ended2003

2002Cash received from CMBS rated BB+ through unrated

$
60.0

$
70.6Cash distribution from the AIM Limited Partnerships(1)


3.3


2.7Net cash received from insured mortgage securities


2.3


3.4Cash received from investment in mezzanine loans


2.7


1.0Cash used to service recourse debt:Principal payments (excluding retirement of recourse debt)


(6.1
)

(36.2
)Interest payments


(22.2
)

(31.7
)Cash used to pay interest rate swap


(0.5
)

Cash used to pay current and previously deferred preferred dividends


(12.2
)

(0.4
)Cash used to pay executive contract terminations and severance


(4.5
)

Cash used to pay principal and interest on mortgage payable


(0.8
)

(0.8
)Cash used to prepay Fannie Mae funding note


(2.0
)

General and administrative expenses(2)


(12.0
)

(10.6
)BREF maintenance fee(2)


(1.7
)




---

The
decrease in cash received from CMBS (rated BB+ through unrated) is primarily the result of increased interest shortfalls on our subordinated CMBS resulting from increased defaults,
realized losses and appraisal reduction events during 2003 as compared to 2002. Cash flows from our subordinated CMBS will continue to be affected by additional defaults, realized losses, interest
shortfalls, master servicer advance recoveries and appraisal reduction amounts on properties underlying

24

---

our
subordinated CMBS. Estimated cumulative losses on our subordinated CMBS, which have been included in our estimated yields, are expected to continue to increase significantly through 2005 and will
likely result in further decreased cash received from our subordinated CMBS in future years. Also, we currently face uncertainty regarding the potential impact of the outcome of events involving our
most significant borrowing relationship as discussed under the caption "Financial ConditionSummary of CMBSSpecially Serviced Mortgage Loans." Our future cash flows from our
subordinated CMBS, and the related fair value determination of our subordinated CMBS, could be significantly adversely affected if certain loan modifications and servicer reimbursement arrangements
are not resolved satisfactorily.

The
increase in cash received from the AIM Limited Partnerships (which are four publicly traded limited partnerships that hold insured mortgages and whose general partner is one of our
subsidiaries) is primarily the result of continuing prepayments of the mortgages held by the AIM Limited Partnerships and the resulting distributions to partners, including one of our wholly-owned
subsidiaries. In February 2004, three of the four AIM Limited Partnerships were liquidated; accordingly, we received liquidating distributions aggregating approximately $1.8 million in
February 2004. We currently expect our cash flows from the AIM Limited Partnerships to remain at a similar level in 2004 as compared to 2003 due to the liquidations.

For
our insured mortgage securities, the net cash received after debt service, which is generally excess interest and prepayment penalties, decreased during 2003 due to the significant
prepayment of the mortgage securities during 2003 and 2002. We expect the net cash flows from our insured mortgages to increase during 2004 compared to 2003, due to the prepayment of the Freddie Mac
funding note in
March 2004 and the expected prepayment of the CMO debt by the end of the second quarter of 2004, as discussed below in "Capital ResourcesNon-Recourse Debt," assuming asset balances and
LIBOR remain at current levels. The repayments of the debt will increase our net interest margin related to these assets since we will be replacing higher, fixed rate debt with LIBOR-based debt, which
is currently lower.

The
increase in cash received from our mezzanine loans was primarily the result of the $1.7 million repayment of one of the loans. We currently expect the cash flow from our
mezzanine loans to decrease in 2004 as compared to 2003.

The
principal payments on our recourse debt decreased by approximately $30.1 million during 2003 as compared to 2002 primarily due to the refinancing of the Exit Debt in
January 2003. The Bear Stearns Debt required quarterly principal amortization payments of $1.25 million through January 2004, increasing to approximately $1.9 million per
quarter thereafter. If we complete the anticipated refinancing of the Bear Stearns Debt during 2004, our principal payments could be significantly higher than the existing payments required under the
Bear Stearns Debt. The BREF Debt does not require principal amortization payments. During 2002, substantially all of our net cash flows were required to be used to pay principal and interest payments
on the Exit Debt.

The
interest payments on our recourse debt decreased by approximately $9.5 million during 2003 due to a lower average coupon rate and lower average balance of our recourse debt
following the recapitalization in January 2003. We expect our interest payments to decrease further during 2004 under our current recourse debt facilities as compared to 2003 interest payments,
assuming LIBOR remains constant. If we complete the anticipated refinancing during 2004, our interest payments could be significantly higher than the interest payments currently required under the
Bear Stearns Debt.

We
made preferred dividend payments of approximately $12.2 million during the year ended December 31, 2003 following the Board's decision to pay all previously deferred
preferred stock dividends and current dividends during 2003. We expect our total preferred dividend payments to decrease in 2004 as compared to 2003 since we will only be paying current dividends in
2004.

25

---

As
detailed in the table above, we made payments for general and administrative expenses, executive contract terminations and severance, the BREF maintenance fee and the interest rate
swap during 2003 and 2002. See further discussion of these income statement items in our discussion of results of operations in 2003 compared to 2002.



Net cash provided by operating activities decreased by approximately $36.1 million to $20.8 million during 2003 as compared to $56.9 million
during 2002. The decrease was primarily attributable to us no longer being required to restrict cash due to the retirement of our Exit Debt, a decrease in cash received from our subordinated CMBS as
previously discussed, $2.4 million paid to certain executives for contract terminations, and $2.1 million of severance paid to our former Chairman and former President.

Net
cash provided by investing activities increased by approximately $54.4 million to $141.2 million during 2003 compared to $86.8 million during 2002. The increase
was primarily attributable to:



Net
cash used in financing activities increased by approximately $37.8 million to $169.6 million during 2003 compared to $131.8 million during 2002. The increase is
primarily attributable to the payment of approximately $12.2 million in preferred stock dividends during 2003 and a $61.0 million increase in principal payments on the securitized
mortgage obligations due to higher insured mortgage security prepayments as discussed previously. In connection with the January 2003 recapitalization, we repaid
approximately $373.6 million of Exit Debt through the incurrence of an aggregate $330.0 million of Bear Stearns and BREF Debt, the net proceeds of $13.5 million from the issuance
of common stock to BREF Fund, and $30.1 million of our available cash and liquid assets. During 2003, we also paid approximately $6.4 million of debt issuance costs, primarily in
connection with the January 2003 recapitalization. During 2002, we paid $18.7 million (approximately $396,000 of which represented accrued and unpaid dividends) to redeem the
Series E Preferred Stock. 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 approximate $2.2 million difference between the aggregate liquidation value, including preferred stock issuance costs, and the redemption price
is reflected as a dividend on preferred stock in 2002.



Net cash provided by operating activities increased by approximately $4.2 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

26

---

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 $33.3 million to $86.8 million during 2002 compared to $53.5 million during 2001. The increase
was primarily attributable to:



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 is
primarily attributable to:



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

Capital Resources

As of December 31, 2003, our total consolidated indebtedness was $765.6 million (of which $350.0 million was recourse debt), and our
shareholders' equity was approximately $291.8 million. The following discussion summarizes our existing recourse debt, hedging instruments and non-recourse debt as of
December 31, 2003.



Certain information regarding our existing recourse debt is as follows (in thousands):

|                                  |                     | 12/31/03
Face
Amount |         | Current Interest Rate |                 | Annual
Principal
Payments |   | Maturity
Date
|--------------------------------- | ------------------- | -------------------- | ------- | --------------------- | --------------- | ------------------------- | - | -------------
|Bear Stearns Debt                 |                     | $                    | 296,250 |                       | LIBOR + 300 bps |                           | $ | 7,500        
|BREF Debt                         |                     |                      | 31,267  |                       | 15%             |                           |   |             
|Bear Stearns repurchase agreement |                     |                      | 22,526  |                       | Varies          |                           |   | Varies       
|                                  |                     |                      |         |                       |                 |                           |   |              
|                                  | Total recourse debt |                      | $       | 350,043               |                 |                           |   |              
|                                  |                     |                      |         |                       |                 |                           |   |              

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
margin requirements. The BREF Debt is collateralized by an indirect second lien on all of our subordinated CMBS and is not prepayable.

The
Bear Stearns repurchase agreement is collateralized by approximately $25 million of insured mortgage securities as of December 31, 2003. The interest rate under the
Bear Stearns repurchase agreement, which is currently based on one-month LIBOR plus 10 basis points, varies by the type of

27

---

collateral.
The Bear Stearns repurchase agreement is also subject to liquidity requirements and, in certain instances, margin requirements. We expect further borrowings under the Bear Stearns
repurchase agreement during 2004, including borrowings in connection with the anticipated repayment of the Freddie Mac funding note and the CMO debt, as discussed below. For a discussion of the
related risk factors, see "BusinessCertain Risk Factors" under the caption "We are subject to a number of borrowing risks, including refinancing risk and margin calls".

See
Note 6 of the Notes to Consolidated Financial Statements for a more detailed description of these borrowing facilities, and see below for a discussion regarding the
anticipated refinancing of the Bear Stearns Debt.



The following is a summary of our derivative financial instruments as of December 31, 2003 (in thousands):

|                              |       | Notional
Amount |         | Estimated
Fair Value |   | Weighted
Average
Interest Rate |       | Maturity Date
|----------------------------- | ----- | --------------- | ------- | -------------------- | - | ------------------------------ | ----- | -------------
|Pay fixed interest rate swaps |       | $               | 100,000 |                      | $ | 3,422                          |       | 4.15         
|Interest rate cap             |       |                 | 50,000  |                      |   | 16                             |       | 2.25         
|                              |       |                 |         |                      |   |                                |       |              
|                              | Total |                 | $       | 150,000              |   | $                              | 3,438 |              
|                              |       |                 |         |                      |   |                                |       |              

We
have entered into an interest rate swap agreement to hedge the variability of the future interest payments on the anticipated CDO attributable to changes in interest rates. Our
obligations to Bear Stearns under the interest rate swap documents are collateralized by certain assets as described in Note 6. Through December 31, 2003, these swaps were treated as
cash flow hedges for GAAP. We have entered into three interest rate swap transactions under this agreement in which we agreed to pay Bear Stearns a weighted average fixed rate of 4.15% per annum in
exchange for floating payments based on one-month LIBOR on the total notional amount of $100 million. These swaps provide for monthly interest payments which commenced
November 15, 2003. We intend to terminate the swaps simultaneously with the issuance of the CDO or other refinancing transaction.

We
also maintain an interest rate cap indexed to one-month LIBOR to partially limit the adverse effects of potential rising interest rates on our variable rate secured debt.
The interest rate cap provides 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 would receive
payments based on the difference between the index and the cap.

See
"BusinessCertain Risk Factors" for a discussion of the related risk factors, under the caption "Our hedging transactions provide limited protection".



Our non-recourse debt of $415.5 million as of December 31, 2003 is collateralized, in general, by either our investment grade CMBS or
certain of our insured mortgage securities that are pledged to secure the non-recourse debt. Principal payments on these obligations are required to the extent of principal payments made
on the underlying investment grade CMBS or insured mortgage securities. See Note 6 of Notes to Consolidated Financial Statements for a more detailed discussion of our non-recourse
debt.

In
January 2004, the face amount of our Freddie Mac funding note was reduced to approximately $25.4 million due to principal prepayments on the underlying mortgage
securities. Since the face value of the debt is less than 20% of the original face value after the January 2004 payment, we have the

28

---

option
of prepaying this debt. We prepaid this debt in March 2004 by using $1.1 million of our cash and borrowing $20.9 million under the Bear Stearns repurchase agreement. We expect to
recognize a loss on extinguishment of debt of approximately $707,000 during the three months ended March 31, 2004 due to the write-off of unamortized discount and deferred fees.

In
February 2004, the face amount of the CMO debt was reduced to approximately $45.9 million due to principal prepayments on the underlying mortgage securities. Since the
face value of the debt is less than 25% of the original face value after the February payment, we have the option of prepaying this debt. We expect to prepay this debt in the second quarter of
2004 by borrowing under the Bear Stearns repurchase agreement, subject to Bear's approval, and/or selling certain of the mortgage loans that collateralize the CMO debt. We will recognize a loss on
extinguishment of debt upon the repayment of this debt due to the write-off of unamortized discount and deferred fees.



We continue to explore a refinancing of the Bear Stearns Debt during 2004. For a discussion of the related risk factors, see "BusinessCertain Risk
Factors" under the caption "We are subject to a number of borrowing risks, including refinancing risk and margin calls".



The following table summarizes our contractual obligations as of December 31, 2003. For debt obligations, the table presents the contractual principal
payments.

Payments due by period
(in thousands)

|                            |                               | Total |         | 2004    |   | 2005-2006 |       | 2007-2008 |         | Thereafter
|--------------------------- | ----------------------------- | ----- | ------- | ------- | - | --------- | ----- | --------- | ------- | ----------
|Long-Term Debt:             |                               |       |         |         |   |           |       |           |         |           
|                            | Recourse to CRIIMI MAE        |       | $       | 350,043 |   | $         | 7,905 |           | $       | 342,138   
|                            | Non-Recourse to CRIIMI MAE(a) |       |         | 458,148 |   |           | 7,319 |           |         | 64,481    
|Operating Lease Obligations |                               |       | 7,476   |         |   | 1,881     |       |           | 3,690   |           
|Purchase Obligations        |                               |       | 488     |         |   | 367       |       |           | 95      |           
|Severance Obligations       |                               |       | 749     |         |   | 747       |       |           | 2       |           
|                            |                               |       |         |         |   |           |       |           |         |           
|Totals                      |                               | $     | 816,904 |         | $ | 18,219    |       | $         | 410,406 |           
|                            |                               |       |         |         |   |           |       |           |         |           

---

We
have entered into employment agreements with three of our senior executive officers. Significant contract provisions include minimum annual base salaries, guaranteed minimum bonus
payments and stock awards. These contracts are primarily "at will" employment agreements, under which we or the executive may terminate employment for any reason or no reason. If we terminate any of
these executives without cause, then we are obligated to pay the executive as specified in their individual contracts. As of December 31, 2003, minimum aggregate severance payments payable by
us was approximately $200,000.

Results of Operations

2003 compared to 2002

Financial statement net loss to common shareholders for the years ended December 31, 2003 and 2002 was approximately $(4.1) million and
$(65.5) million, respectively. The significant reduction in net loss in 2003 as compared to 2002 was primarily the result of $14.7 million of impairment charges related to certain
subordinated CMBS that were recognized during 2003 compared to impairment charges of $70.2 million that were recognized during 2002.

29

---

2003 results include:



2002
results include:



Net interest margin increased by approximately $2.9 million to $33.6 million during 2003 compared to $30.7 million during 2002, primarily due
to reduced borrowing costs related to the January 2003 recapitalization, partially offset by additional interest expense related to discount amortization of our collateralized mortgage
obligations, as discussed below.



Interest income from investment grade CMBS did not change significantly during 2003 as compared to 2002. Interest income from subordinated CMBS decreased by
approximately $12.0 million, or 16%, to $62.6 million during 2003 as compared to $74.6 million during 2002, primarily due to changes in our loss estimates related to CMBS during
2002 and 2003 and the resulting reduction in interest income on CMBS. GAAP require that yields on CMBS be recalculated and revised as estimated future cash flows change. The revised yield on CMBS is
based on the current amortized cost (adjusted for impairment) and the revised future cash flows, including the assumed timing and amount of future defaults and credit losses. The revised weighted
average yield as of January 1, 2004, 2003, and 2002 was 11.9%, 11.6% and 12.4%, respectively.

The
effective interest method of recognizing interest income on CMBS results in income recognition that differs from cash received. For the year ended December 31, 2003, we
recognized

30

---

approximately
$11.0 million of discount amortization, partially offset by approximately $3.3 million of cash received in excess of income recognized on subordinated CMBS due to the
effective interest method. For the year ended December 31, 2002, we recognized approximately $11.4 million of discount amortization, partially offset by approximately $2.9 million
of cash received in excess of income recognized on subordinated CMBS due to the effective interest method. The net effect of the discount amortization and the cash received in excess of income is an
adjustment to the basis of our subordinated CMBS.



Interest income from insured mortgage securities decreased by approximately $8.3 million, or 35%, to $15.5 million during 2003 from
$23.8 million during 2002. This decrease was principally due to the prepayment or sale of approximately 45% of the total insured mortgage portfolio from December 31, 2002 through
December 31, 2003. The prepayment activity corresponds with the low mortgage interest rate environment during this period. 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 of approximately $70.8 million for 2003 was 24% lower than the interest expense of approximately $93.7 million for 2002. The
decrease is attributable to a lower average debt balance during 2003 ($849 million) compared to 2002 ($975 million), and a lower average effective interest rate on total debt outstanding
during 2003 (8.2%) compared to 2002 (9.5%). These decreases were partially offset by additional amortization on the collateralized mortgage obligations as discussed below.

The
overall weighted average effective interest rate on the Bear Stearns Debt and BREF Debt was 5.8% for the year ended December 31, 2003, and the weighted average coupon (pay)
rate on the Bear Stearns Debt and BREF Debt was 4.5%, reflecting the significant reduction in borrowing costs related to the January 2003 recapitalization. The difference in the weighted
average effective interest rate and the weighted average pay rate primarily relates to our deferral of two-thirds of the interest on the BREF Debt during the first 5 months of the
BREF Debt. The weighted average effective interest rate on the Exit Debt was 10.4% for the year ended December 31, 2002. The weighted average pay rate on the Exit Debt was 8.0% during the same
period.

On
January 23, 2003, we deposited amounts 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 deposit of the redemption amount 45 days prior to the actual redemption of the notes. The 45 day notice period
resulted in approximately $3.1 million of additional interest expense during the period January 23, 2003 through March 10, 2003 since the Bear Stearns Debt, BREF Debt, and the
Series A and B secured notes were outstanding at the same time.

Interest
expense on the collateralized mortgage obligations-insured mortgage securities decreased following significant prepayments of mortgages underlying the insured mortgage
securities, as discussed previously. This decrease in interest expense was partially offset by approximately $3.3 million of additional discount and deferred fees amortization expenses during
2003, which are reflected as interest expense, compared to approximately $2.8 million of additional amortization expenses during 2002. The increase in amortization is the result of the
mortgages prepaying faster than anticipated and increases in our assumed prepayment speed which, under the effective interest method of recognizing interest expense, required an adjustment to
cumulative amortization recorded through interest expense.

During
the years ended December 31, 2003 and 2002, we recognized hedge expense of approximately $1.0 million and $1.1 million, respectively, on our interest
rate caps. Our interest rate cap, which matured on November 3, 2003 (which we purchased in April 2002), set one-month LIBOR

31

---

at
a rate of 3.25%. On October 31, 2003, we purchased an interest rate cap with a notional amount of $50 million, maturity on November 4, 2004, and capping one-month
LIBOR at 2.25%. As of December 31, 2003, the one-month LIBOR rate was 1.12%.



General and administrative expenses increased by approximately $1.4 million to $12.0 million during 2003 as compared to $10.6 million during
2002 primarily due to an increase in professional fees incurred in connection with the interest rate swap and related netting agreement and corporate governance compliance due to the Sarbanes-Oxley
Act of 2002, and an increase in salary expenses. We expect a reduction in general and administrative expenses during 2004, excluding any additional general and administrative expenses that may result
from our new business initiatives, primarily due to anticipated decreases in corporate legal fees and the realignment of executive cash compensation. We are currently estimating general and
administrative expenses to be $10 million during 2004, excluding any additional general and administrative expenses that may result from our new business initiatives.



The following is a summary of the consolidated results of operations of CMSLP (in thousands):

Year ended December 31,Description2003

2002Servicing revenue

$
9,483

$
10,986Servicing general and administrative expenses


(9,168
)

(8,854
)Servicing amortization, depreciation and impairment


(1,811
)

(2,173
)Servicing restructuring expenses


(149
)

(189
)Servicing gain on sale of servicing rights





4,864Servicing (loss) gain on sale of investment-grade CMBS


(5
)

241GAAP net (loss) income from CMSLP

$
(1,650
)
$
4,875


The
net loss from CMSLP of $(1.7) million for the year 2003 compares to the net income from CMSLP of $4.9 million for 2002. CMSLP's 2002 results include a
$4.9 million gain from the sale of servicing rights. CMSLP's total revenue decreased by approximately $1.5 million, or 14%, to approximately $9.5 million during 2003. This
decrease is primarily the result of reduced mortgage, servicing income, other servicing revenue and interest income earned on cash and investments. General and administrative expenses were
$9.2 million and $8.9 million during 2003 and 2002, respectively. The increase in general and administrative expenses was primarily attributable to increased expenses related to
additional resources dedicated to special servicing resolutions and severance payments made in connection with managerial changes.

During
2003, amortization, depreciation and impairment was approximately $1.8 million as compared to $2.2 million during 2002. This $362,000 decrease was primarily the
result of accelerated prepayments on the AIM Limited Partnerships' insured mortgages and a lower balance of depreciable assets in 2003 as compared to 2002, which reduced amortization expense. During
2003 and 2002, the AIM Limited Partnerships experienced a significant amount of prepayments of their insured mortgages which reduced CMSLP's cash flows from its sub-advisory contracts with
the AIM Limited Partnerships. As a result, in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," we evaluated CMSLP's investment in the
sub-advisory contracts for impairment. We reduced the value of CMSLP's investment in the sub-advisory contracts with the AIM Limited Partnerships and recorded an impairment
charge of approximately $499,000 and $340,000 during 2003 and 2002, respectively.

32

---

In
April 2003, we restructured CMSLP's property servicing group resulting in the termination of 10 employees. In conjunction with this restructuring, we have outsourced
substantially all of our contractual property servicing duties related to the labor-intensive tasks of financial statement collection and analysis and property inspection performance. The outsourcing
was completed in February 2004. This outsourcing does not relieve us of any of our contractual obligations or reduce any of our rights as property servicer, since CMSLP remains the property
servicer of record, but it does relieve us of the administrative task of collecting financial operating data. This will allow the remaining resources in surveillance to focus more on collateral
analysis. For the outsourced loans, CMSLP coordinates the delivery of monthly reports and inspections with the third-party servicers. For the portfolios for which the third-party servicer is not also
the master servicer, CMSLP reviews and approves the reports from these servicers prior to submission by CMSLP to the trustees.

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. This sale resulted in a gain of approximately $4.9 million during the year ended December 31, 2002.
In connection with this restructuring, 34 employee positions were eliminated. During 2002, net restructuring expenses of approximately $189,000 were recorded primarily to account for vacant office
space that was taking longer to sublease than originally anticipated.



During 2003, we recorded an income tax benefit of approximately $603,000. During 2002, we recorded income tax expense of approximately $460,000. During 2002,
approximately $1.0 million of income tax expense was recognized as a result of 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 benefit
(expense) was recognized 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 (expense) that was recognized by our TRSs was the result of CMSLP's financial results.



Total equity in earnings (losses) from investments of approximately $142,000 and $(42,000) for the years ended December 31, 2003 and 2002,
respectively, includes our net equity from the AIM Limited Partnerships and the net equity from our 20% limited partnership interest in the advisor to the AIM Limited Partnerships during these
periods. The 2003 and 2002 results also include impairment charges on our equity investment in the advisor to the AIM Limited Partnerships. These impairment charges of $233,000 and $460,000 relate to
significant prepayments of the insured mortgages in the AIM Limited Partnerships' portfolios during the years ended December 31, 2003 and 2002, respectively. 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. Three of the AIM Limited Partnerships (AIM 84, AIM 86 and AIM
88) were liquidated in February 2004, resulting in an aggregate liquidating distribution to us of approximately $1.8 million.



Other income decreased by approximately $1.3 million to $1.3 million during 2003 from $2.6 million during 2002. This decrease was primarily
attributable to lower interest income earned on reduced cash balances during 2003 as compared to 2002.

33

---

We
own a shopping center in Orlando, Florida, which we account for as real estate owned. The following is a summary of the financial results of the shopping center (in thousands):

Years ended December 31,2003

2002Interest expense

$
(871
)
$
(858
)Depreciation expense


(155
)

(149
)Other, net


182


234Net loss

$
(844
)
$
(773
)


The
other, net amount is included in other income. Interest expense and depreciation expense are included in their respective captions in our Consolidated Statements of Income. We have
been working to reposition and stabilize this asset to increase its value, although we are also considering other alternatives.



Impairment on subordinated CMBS decreased to $14.7 million during 2003 compared to $70.2 million during 2002. As of December 31, 2003, the
projected loss severities of certain of the underlying mortgage loans have increased which has resulted in an increase in our overall expected loss estimate related to our subordinated CMBS to
$581 million. This revision to the overall expected loss estimate is primarily the result of increased projected losses due to lower internal estimates of values on properties underlying
certain mortgage loans and real estate owned by underlying trusts, and, in some cases, changes in the timing of resolution and disposition of certain specially serviced assets, which when combined,
has resulted in higher projected loss severities on certain loans and real estate owned by underlying trusts currently or anticipated to be in special servicing. The primary reasons for lower
estimates of value include the poor performance of certain properties and related markets and changes to workout negotiations due, in large part, to the softness in the economy and the lag typically
associated with real estate fundamentals, the continued slowdown in travel and, in some cases, over-supply of hotel properties, and a shift in retail activity in some markets. There can be
no assurance that our revised overall expected loss estimate of $581 million will not be exceeded as a result of additional or adverse events or circumstances.

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, "Accounting for Certain Investments in Debt and Equity Securities," as of June 30, 2003, September 30, 2003 and December 31, 2003. As the fair values of the
impaired subordinated CMBS aggregated approximately $8.9 million, $4.7 million and $1.1 million below the amortized cost basis as of June 30, 2003, September 30,
2003 and December 31, 2003, respectively, we recorded other than temporary impairment charges (aggregating $14.7 million) through the income statement of these same amounts during the
second, third and fourth quarters of 2003. The impairment charges reduced our basis in those impaired bonds (see also "Interest IncomeCMBS").

During
2002, we also revised our overall expected loss estimate related to our subordinated CMBS. The revisions to the overall expected loss estimate during 2002 were primarily the
result of the same factors as those described above. As we determined that there had been an adverse change in expected future cash flows, we believed some of our CMBS had been impaired during 2002
and recorded other than temporary impairment charges aggregating $70.2 million through the income statement during 2002.

For
further discussion of our loss estimate see "Management's Discussion and Analysis of Financial Condition and Results of OperationsFinancial ConditionSummary
of CMBS".

34

---



Pursuant to the Investment Agreement with Brascan Real Estate Financial Investments LLC, which we refer to as BREF Investments, we are obligated to pay BREF
Investments a quarterly maintenance fee of $434,000 through January 2006. The expense of approximately $1.7 million during 2003 represents the maintenance fee for the period
January 14 through December 31, 2003.



As previously stated, during 2003, we entered into a total of three interest rate swaps to hedge the variability of the future interest payments on the
anticipated CDO attributable to future changes in interest rates. Through December 31, 2003, these swaps are treated as cash flow hedges for GAAP. Under these swaps, we agreed to pay Bear
Stearns a weighted average fixed interest rate of 4.15% per annum in exchange for floating rate payments based on one-month LIBOR on the total notional amount of $100 million. These
swaps were effective on October 15, 2003, terminate on October 15, 2013 and provide for monthly interest payments commencing November 15, 2003. On November 15, 2003, we
began making monthly payments to Bear Stearns equal to the difference between the weighted average swap rate of 4.15% per annum and the then current one-month LIBOR rate, on the notional
amount of $100 million. We made actual payments of approximately $501,000 during 2003. The interest rate swaps were designated to hedge future interest payments on the anticipated CDO. As the
expected date of the CDO has changed, we recognized approximately $1.9 million of hedge ineffectiveness during the year ended December 31, 2003, in accordance with SFAS No. 133.
The $1.9 million expense represents the present value of the expected payments during the period of delay. We have an asset of approximately $3.4 million in Other Assets as of
December 31, 2003, representing the aggregate fair value of the interest rate swaps. During the first quarter of 2004, we have started exploring other refinancing alternatives, including the
CDO. As a result, we will begin reflecting changes in the fair value of the swaps through earnings as hedge ineffectiveness in 2004.



In August 2003, the employment contracts for former executive officers David Iannarone and Brian Hanson, and Cynthia Azzara expired and were not renewed.
These contracts were put into place in 2001 to ensure management continuity following our emergence from Chapter 11 proceedings and through our January 2003 recapitalization. In connection with
the contract terminations, we recognized approximately $1.0 million of executive contract termination expenses for each of Mr. Iannarone and Ms. Azzara and approximately $825,000
of executive contract termination expense related to severance and related benefit payments for Mr. Hanson. Mr. Iannarone and Ms. Azzara were each paid their contract termination
payments during the year ended December 31, 2003. Approximately $399,000 of Mr. Hanson's payments was made during the year ended December 31, 2003, and approximately $414,000 was
paid in January 2004 in accordance with the terms of his terminated employment agreement.

Ms. Azzara
has continued with us as an "at will" employee and was promoted to Executive Vice President, Chief Financial Officer and Treasurer. Mr. Hanson was subsequently
rehired as an "at will" employee, as Vice President, Portfolio Management, effective January 1, 2004. Mr. Iannarone resigned his position as Executive Vice President, Legal and Deal
Management effective October 24, 2003.



In connection with the January 2003 recapitalization, we amended the employment contracts of our former Chairman, William B. Dockser, and former President,
H. William Willoughby, to provide for their termination on January 23, 2003. During the first quarter 2003, we recognized approximately

35

---

$2.6 million
of expenses related to severance and related benefit payments and accelerated vesting of certain outstanding stock options held by Messrs. Dockser and Willoughby.

We
consolidated our office space in connection with our January 2003 recapitalization and, as a result, we recorded approximately $580,000 of expense for vacant office space
during 2003. The accrual for the vacant space represents the fair value of lease payments through 2007, a tenant improvement allowance and a broker commission, all net of estimated sublease revenue in
accordance with SFAS No. 146.

During
2002, we recognized approximately $1.0 million of recapitalization expenses related to the services performed by our investment banking firm during the initial stages of
our exploration of strategic alternatives.



During the three months ended March 31, 2003, we reversed approximately $7.8 million of accrued extension fees related to the Exit Debt since
the debt was repaid and the extension fees were no longer payable. This reversal is reflected as a gain on extinguishment of debt in our consolidated statement of income. This reversal was partially
offset by approximately $403,000 of breakage fee paid to the lender of the Exit Variable-Rate Secured Borrowing and legal fees of approximately $47,000, resulting in a net gain on
extinguishment of debt of $7.3 million.

In
December 2003, we repaid our Fannie Mae funding note, which had a unpaid principal balance of approximately $24.5 million by using approximately $22.5 million
available under our $200 million repurchase facility with Bear Stearns and approximately $2.0 million of our cash. In connection with the funding note repayment, we recognized a $665,000
loss on extinguishment of debt for the write-off of unamortized bond discount and deferred financing fees.



In 2001, the Financial Accounting Standards Board issued SFAS No. 142. 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 segment 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 our 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 segment (as defined in Note 20 of the Notes to Consolidated Financial Statements). The fair value of the reporting segment 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 of certain mortgage businesses affiliated
with CRI, Inc. into CRIIMI MAE in 1995. This change in accounting principle reduced our annual amortization expense by approximately $2.8 million through June 2005. The pro forma
net income and pro forma earnings per share disclosures in Note 2 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.

REIT Status and Other Tax Matters

See "BUSINESSCertain Risk Factors", under the caption "We are subject to a number of tax related risks including loss of REIT status", for a
discussion of REIT status, net operating loss and other tax matters.

36

---

Net Operating Loss for Tax Purposes.We generated a net operating loss for tax purposes of
approximately $84.0 million during the year ended December 31, 2003 compared to a net operating loss of approximately $83.6 million during the year ended December 31, 2002.
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 was recognized evenly from 2000 through 2003 for tax purposes (approximately $120 million per year).

A
summary of our 2003 and 2002 net operating loss is as follows (in millions):

2003

2002($ in millions)January 2000 Loss

$
(478.2
)
$
(478.2
)LESS: Amounts recognized in 2000 and 2001


239.1


239.1LESS: Amounts recognized in 2002


119.5


119.5LESS: Amounts recognized in 2003


119.6


Balance Remaining of January 2000 Loss to be recognized in future periods

$


$
(119.6
)Taxable Income for the year before recognition of
January 2000 Loss

$
35.7

$
36.0LESS: January 2000 Loss recognized


(119.6
)

(119.5
)PLUS: Mark-to-market unrealized loss on trading securities


(0.1
)

(0.1
)Net operating loss

$
(84.0
)
$
(83.6
)Accumulated net operating loss through January 1

$
(223.8
)
$
(140.2
)Net operating loss created during the year


(84.0
)

(83.6
)Net operating loss utilization





Net operating loss carried forward for use in future periods

$
(307.8
)
$
(223.8
)


Results of Operations

2002 compared to 2001

Financial statement net loss to common shareholders for the years ended December 31, 2002 and 2001 was $(65.5) 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:



37

---



2001
results include:





Net interest margin decreased by approximately $4.8 million to $30.7 million during 2002 compared to $35.5 million during 2001, primarily due
to a reduction in income from subordinated CMBS following decreases in the amortized cost of the subordinated CMBS, and an increase in additional interest expense related to discount amortization of
our collateralized mortgage obligations. These items are discussed in further detail below.



Interest income from investment grade CMBS did not change significantly during 2002 as compared to 2001. Interest income from subordinated CMBS decreased by
approximately $5.2 million, or 7%, to $74.6 million during 2002 as compared to $79.8 million during 2001 primarily due to changes in our loss estimates related to CMBS during 2002
and 2001 and the resulting reduction in interest income on CMBS. The revised weighted average yield as of January 1, 2002 and 2001 was 12.4%.

The
effective interest method of recognizing interest income on CMBS results in income recognition that differs from cash received. For the year ended December 31, 2002 we
recognized approximately $11.4 million of discount amortization, partially offset by approximately $2.9 million of cash received in excess of income recognized on subordinated CMBS due
to the effective interest method. For the year ended December 31, 2001, we recognized approximately $10.5 million of discount amortization, partially offset by approximately
$3.5 million of cash received in excess of income recognized on subordinated CMBS due to the effective interest method. The net effect of the discount amortization and the cash received in
excess of income is an adjustment to the basis of our subordinated CMBS.



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 approximately 21% of the total insured mortgage portfolio from December 31, 2001 through
December 31, 2002. This prepayment activity corresponded with the low mortgage interest rate environment during this period. These prepayments resulted in corresponding reductions in the
outstanding principal balances of the collateralized mortgage obligations-insured mortgage securities and the related interest expense.



Interest expense of approximately $93.7 million for 2002 was approximately $5.1 million lower than the interest expense of approximately
$98.9 million for 2001. The decrease is attributable to a lower

38

---

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, which was partially offset by approximately $2.8 million of additional discount and deferred cost amortization expenses during 2002. These additional amortization expenses
are the result of the mortgages prepaying faster than previously anticipated and increases in our assumed prepayment speed during 2002 which, under the effective interest method of recognizing
interest expense, required an adjustment to cumulative interest expense.

The
overall weighted average effective interest rate and weighted average coupon rate on the Exit Debt was 10.4% and 8.0%, respectively, during 2002. The overall weighted average
effective interest rate and weighted average coupon rate on the Exit Debt was 11.1% and 8.9%, respectively, for the period April 17, 2001 to December 31, 2001. The difference in the Exit
Debt's weighted average effective interest rate and the weighted average coupon 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 coupon rate.

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".



General and administrative expenses decreased by approximately $333,000 to $10.6 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 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 on January 1, 2002. The adoption of SFAS No. 142 reduced our annual amortization expense by approximately
$2.8 million. See further discussion above in 2003 compared to 2002 under the caption "Cumulative Effect of Adoption of SFAS 142".



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 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.

39

---

The
following is a summary of the consolidated results of operations of CMSLP (in thousands):

Year ended December 31,Description2002

2001CMSLP's results of operations (reflected in consolidated income statements effective July 1, 2001):Servicing revenue

$
10,986

$
6,684Servicing general and administrative expenses


(8,854
)

(5,570
)Servicing amortization, depreciation and impairment


(2,173
)

(1,699
)Servicing restructuring expenses


(189
)

(438
)Servicing gain on sale of servicing rights


4,864


Servicing gain on sale of investment-grade CMBS


241


GAAP net income (loss) from CMSLP

$
4,875

$
(1,023
)


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 31, 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 2002 sale of servicing rights, which reduced amortization expense, and lower impairment on CMBS held by CMSLP during 2002 as compared to
2001. The decrease was partially offset by an impairment charge of approximately $340,000 that was recorded on CMSLP's investment in AIM Limited Partnerships' sub-advisory contracts during
2002. See a discussion of this impairment charge in the discussion of "2003 compared to 2002".

As
previously discussed, in February 2002, CMSLP sold all of its rights and obligations under its CMBS master and direct servicing contracts. A restructuring charge of
approximately $438,000 was recorded during the fourth quarter of 2001 to account for employee severance costs,
non-cancelable 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 was 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 earnings (losses) from investments for 2002 and 2001 included our net equity from the AIM Limited Partnerships and the net equity from our 20%
limited partnership interest in the advisor to the AIM Limited Partnerships, and includes net equity from CMSLP/CMSI for the six months ended June 30, 2001 (since CMSLP's operations were
consolidated effective July 1, 2001).

40

---

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, the advisor to the AIM Limited Partnerships evaluated its investment in the advisory contracts for impairment. The advisor
reduced 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 earnings (losses) 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 earnings (losses) from investments (in thousands):

Year ended December 31,Description2002

2001AIM Limited Partnershipsnet equity in earnings

$
419

$
647Impairment on investment in AIM Limited Partnerships' advisor


(461
)

CMSLP/CMSInet equity in (losses) earnings





(2,279
)Total Equity in Losses from Investments

$
(42
)
$
(1,632
)




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 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, which are separate 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 decreased by approximately $1.3 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.

41

---

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 following is a summary of the financial results of the shopping center (in thousands):

Years ended December 31,2002

2001Interest expense

$
(858
)
$
(213
)Depreciation expense


(149
)

(26
)Other, net


234


(27
)Net loss

$
(773
)
$
(266
)




Impairment on subordinated CMBS increased to $70.2 million during 2002 compared to $34.7 million during 2001. 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 had increased, the projected loss severities of the underlying mortgage loans currently or anticipated to be in special servicing had increased, and the timing of certain projected losses was
anticipated to occur sooner than previously estimated, all of which resulted in an increase in our overall expected loss estimate related to our subordinated CMBS portfolio to $503 million as
of December 31, 2002. The revisions to the overall expected loss estimate during 2002 were 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, 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 included 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 aggregated approximately $212.2 million. Since we
determined that there had been an adverse change in expected future cash flows, we believed some of our subordinated CMBS had been impaired as of June 30, 2002, September 30, 2002 and
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 aggregating
$70.2 million during the second, third and fourth quarters of 2002. The impairment charges reduced our basis in those impaired bonds (see also "Interest IncomeCMBS").

During
2001, we also revised our overall expected loss estimate related to our subordinated CMBS portfolio. The revisions to the overall expected loss estimate during 2001 were primarily
the result of

42

---

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 during 2001. As the fair value of the impaired subordinated CMBS was below the amortized cost during 2001, we recorded other than temporary impairment charges through the income statement
aggregating $34.7 million during 2001.



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 (in thousands):

Short-term interest income

$
2,491Professional fees


(3,870
)Other


(801
)Net recovery on real estate owned


367Total reorganization expense, net

$
(1,813
)


We
did not recognize any reorganization expense in 2002.



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.



See discussion of this item in "2003 compared to 2002".



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. 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 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

43

---

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.



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 follows:

2002

2001($ in millions)January 2000 Loss

$
(478.2
)
$
(478.2
)LESS: Amounts recognized in 2000


119.6


119.6LESS: Amounts recognized in 2001


119.5


119.5LESS: 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 2000 Loss

$
36.0

$
29.0
(1)LESS: January 2000 Loss recognized


(119.5
)

(119.5
)PLUS: Mark-to-market unrealized loss on trading securities


(0.1
)

(0.1
)Net operating loss

$
(83.6
)
$
(90.6
)Accumulated net operating loss through January 1

$
(140.2
)
$
(49.6
)Net operating loss created during the year


(83.6
)

(90.6
)Net operating loss utilization





Net operating loss carried forward for use in future periods

$
(223.8
)
$
(140.2
)


---

Financial Condition



As of December 31, 2003, our cash and cash equivalents aggregated approximately $21.7 million, including approximately $4.4 million held by
CMSLP. In addition to our cash, we had additional liquidity at December 31, 2003 comprised of $3.9 million in Other MBS which are included elsewhere in our balance sheet. As of
March 5, 2004, our liquidity included approximately $26.6 million of cash and cash equivalents and approximately $4.1 million of Other MBS.

As
of December 31, 2003 and 2002, shareholders' equity was approximately $291.8 million or $14.91 per diluted share and approximately $291.7 million or $16.32 per
diluted share, respectively. The decrease in book value per diluted share is primarily the result of the common shares issued in connection with the January 2003 recapitalization. These diluted
book value per share amounts are based on shareholders' equity presented in accordance with GAAP. The December 2003 amounts include, among other things, approximately $36.3 million of
net assets related to our CMBS rated A+ through BBB, which we do not actually own, but are required by GAAP to be included on our balance

44

---

sheet
(see "Summary of CMBS" below for a further discussion). These investment grade CMBS, which aggregate approximately $325.3 million at December 31, 2003, are reflected at fair value
and the related match-funded debt, which aggregates approximately $289.0 million at December 31, 2003, is reflected at amortized cost, in each case in accordance with GAAP.



As of December 31, 2003, our assets, in accordance with GAAP, include CMBS with an aggregate face amount of approximately $1.5 billion rated from A+
to D and unrated. Such CMBS had an aggregate fair value of approximately $837 million (representing approximately 78% of our total consolidated assets) and an aggregate amortized cost of
approximately $750 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, 2003 (in millions):

Rating(1)

Fair Value

% of CMBSInvestment Grade:A+, BBB+ or BBB(2)

$
325.3

39
%Retained Portfolio:BB+, BB or BB-

$
332.5

40
%B+, B or B-

$
145.4

17
%CCC, D or Unrated

$
33.8

4
%


---

As
of December 31, 2003, the weighted average pay rate and the loss adjusted weighted average life (based on face amount) of the investment grade securities was 7.0% and
7.9 years, respectively. The weighted average pay rate and the loss adjusted weighted average life (based on face amount) of the

45

---

BB+
through unrated CMBS securities, sometimes referred to as the retained portfolio, were 5.2% and 11.0 years, respectively. The aggregate investment by the rating of the CMBS is as follows:

|Security Rating               |  | Face Amount as of 12/31/03
(in millions) |         | Weighted Average Pay Rate as of 12/31/03 |     | Loss Adjusted Weighted Average Life(1) |          | Fair Value as of 12/31/03
(in millions) |   | Discount Rate or Range of Discount Rates Used to Calculate Fair Value as of 12/31/03 |     | Amortized Cost as of 12/31/03
(in millions)(5) |     | Amortized Cost as of 12/31/02
(in millions)
|----------------------------- |  | ---------------------------------------- | ------- | ---------------------------------------- | --- | -------------------------------------- | -------- | --------------------------------------- | - | ------------------------------------------------------------------------------------ | --- | ---------------------------------------------- | --- | -------------------------------------------
|Investment Grade Portfolio    |  |                                          |         |                                          |     |                                        |          |                                         |   |                                                                                      |     |                                                |     |                                            
|A+(4)                         |  | $                                        | 59.4    |                                          | 7.0 | %                                      | 3 years  |                                         | $ | 62.2                                                                                 |     | 4.5%                                           |     | $                                          
|BBB+(4)                       |  |                                          | 150.6   |                                          | 7.0 | %                                      | 9 years  |                                         |   | 152.2                                                                                |     | 6.8%                                           |     |                                            
|BBB(4)                        |  |                                          | 115.2   |                                          | 7.0 | %                                      | 9 years  |                                         |   | 110.9                                                                                |     | 7.6%                                           |     |                                            
|Retained Portfolio            |  |                                          |         |                                          |     |                                        |          |                                         |   |                                                                                      |     |                                                |     |                                            
|BB+                           |  |                                          | 319.0   |                                          | 7.0 | %                                      | 11 years |                                         |   | 256.2                                                                                |     | 10.2%-10.6%                                    |     |                                            
|BB                            |  |                                          | 70.9    |                                          | 7.0 | %                                      | 13 years |                                         |   | 52.0                                                                                 |     | 11.5%                                          |     |                                            
|BB-                           |  |                                          | 35.4    |                                          | 7.0 | %                                      | 14 years |                                         |   | 24.3                                                                                 |     | 12.4%                                          |     |                                            
|B+                            |  |                                          | 88.6    |                                          | 7.0 | %                                      | 14 years |                                         |   | 48.7                                                                                 |     | 15.7%                                          |     |                                            
|B                             |  |                                          | 177.2   |                                          | 8.9 | %                                      | 17 years |                                         |   | 90.7                                                                                 |     | 16.2-16.5%                                     |     |                                            
|B-(2)(10)                     |  |                                          | 12.0    |                                          | 8.0 | %                                      | 17 years |                                         |   | 6.0                                                                                  |     | 15.0%                                          | (8) |                                            
|CCC(2)                        |  |                                          | 70.9    |                                          |    | %                                      | 1 year   |                                         |   |                                                                                     |     | 15.0%                                          | (8) |                                            
|D(2)(9)(10)                   |  |                                          | 106.3   |                                          | 0.5 | %                                      | 25 years |                                         |   | 16.5                                                                                 |     | 15.0%                                          | (8) |                                            
|Unrated/Issuer's Equity(2)(3) |  |                                          | 256.5   |                                          | 2.4 | %                                      | 1 year   |                                         |   | 17.3                                                                                 |     | 15.0%                                          | (8) |                                            
|                              |  |                                          |         |                                          |     |                                        |          |                                         |   |                                                                                      |     |                                                |     |                                            
|Total                         |  | $                                        | 1,462.0 |                                          | 5.6 | %                                      | 10 years |                                         | $ | 837.0                                                                                | (7) |                                                |     | $                                          
|                              |  |                                          |         |                                          |     |                                        |          |                                         |   |                                                                                      |     |                                                |     |                                            

---

46

---



Our determination of fair values for our CMBS portfolio is a process that requires significant judgements and estimates. 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 and/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 and/or
advisors regarding the pricing and valuation of our securities and 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 underlying commercial mortgage
loans. We make further adjustments to such pricing information based on our specific knowledge of our CMBS and the impact of relevant events, 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 assumed market yields for our CMBS rated A+ through B, depending on the
rating. The fair value for those CMBS incurring principal losses and interest shortfalls (i.e., B-rated bonds through 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 the value and risk of comparable securities, using a discounted cash flow
approach. Such anticipated principal losses and interest shortfalls, as well as the timing and amount of potential recoveries of such shortfalls, are critical estimates and have been taken into
consideration in the calculation of fair values and yields to maturity used to recognize interest income as of December 31, 2003. We have disclosed the range of discount rates by rating
category used in determining the fair values as of December 31, 2003 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.



We have $15.3 billion and $17.4 billion of seasoned commercial mortgage loans underlying our subordinated CMBS as of December 31, 2003 and
2002, respectively. This decline in unpaid principal balance is primarily due to prepayments, pay-offs at maturity and liquidations of certain underlying mortgage loans, and to a lesser
extent, normal loan amortization related to the underlying mortgage

47

---

loans.
The commercial mortgage loans are secured by properties of the types and in the geographic locations identified below:

Property Type

12/31/03
Percentage(i)

Geographic Location(ii)

12/31/03
Percentage(i)Retail

31
%
California

16
%Multifamily

27
%
Texas

12
%Hotel

15
%
Florida

8
%Office

14
%
Pennsylvania

6
%Other(iv)

13
%
New York

5
%Total

100
%
Other(iii)

53
%Total

100
%


---



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 the first loss unrated or lowest rated bond of virtually all of the CMBS transactions underlying our subordinated CMBS, we have an incentive to
efficiently and effectively resolve any loan workouts. As

48

---

of
December 31, 2003 and 2002, specially serviced mortgage loans included in the commercial mortgage loans described above are as follows:

12/31/03

12/31/02Specially serviced loans due to monetary default(a)

$
963.8 million

$
736.1 millionSpecially serviced loans due to covenant default/other


58.2 million


74.7 millionTotal specially serviced loans(b)

$
1,022.0 million

$
810.8 millionPercentage of total mortgage loans(b)


6.7%


4.7%


---

The
specially serviced mortgage loans as of December 31, 2003 were secured by properties of the types and located in the states identified below:

|Property Type |       | $ (in millions) |       | Percentage |    | Geographic Location |               | $ (in millions) |   | Percentage |        
|------------- | ----- | --------------- | ----- | ---------- | -- | ------------------- | ------------- | --------------- | - | ---------- | -------
|Hotel         |       | $               | 533.2 | (1)        | 52 | %                   | Florida       |                 | $ | 154.6      |        
|Retail        |       |                 | 225.1 | (2)        | 22 | %                   | Texas         |                 |   | 113.1      |        
|Multifamily   |       |                 | 102.4 |            | 10 | %                   | Oregon        |                 |   | 92.7       |        
|Healthcare    |       |                 | 81.2  |            | 8  | %                   | California    |                 |   | 47.8       |        
|Office        |       |                 | 47.1  |            | 5  | %                   | Massachusetts |                 |   | 47.6       |        
|Industrial    |       |                 | 23.8  |            | 2  | %                   | Pennsylvania  |                 |   | 44.4       |        
|Other         |       |                 | 9.2   |            | 1  | %                   | Other         |                 |   | 521.8      |        
|              |       |                 |       |            |    |                     |               |                 |   |            |        
|              | Total |                 | $     | 1,022.0    |    | 100                 | %             | Total           |   | $          | 1,022.0
|              |       |                 |       |            |    |                     |               |                 |   |            |        

---

The
following table provides a summary of the change in the balance of specially serviced loans from December 31, 2002 to December 31, 2003:

(in millions)Specially Serviced Loans, December 31, 2002

$
810.8Transfers in due to monetary default


640.2Transfers in due to covenant default and other


190.8Transfers out of special servicing


(595.9
)Loan amortization(1)


(23.9
)Specially Serviced Loans, December 31, 2003

$
1,022.0


---

49

---

The
most significant borrowing relationship in our specially serviced mortgage loan portfolio consists of 27 loans with scheduled principal balances as of December 31, 2003
totaling approximately $133 million spread across three CMBS transactions secured by hotel properties in the western and Pacific northwestern states. As of December 31, 2003, our total
exposure, including advances and interest on advances of approximately $43 million, on these loans was approximately $176 million. Such total exposure is prior to the application of
payments made to date by the borrower under the terms of our consensual settlement agreement and is expected to be reduced by the application of such payments at the settlement agreement closing. The
borrower initially filed for bankruptcy protection in February 2002 and indicated that the properties had experienced reduced operating performance due to new competition, the economic
recession, and reduced travel resulting from the September 11, 2001 terrorist attacks. We entered into a consensual settlement agreement dated February 25, 2003 pursuant to which the
loan terms were amended and modified. This agreement was subsequently approved and confirmed by the bankruptcy court on March 28, 2003. The parties are currently proceeding toward closing a
comprehensive modification of each loan, which is expected to occur in March 2004 and which is expected to return the loans to performing status. The closing of the loan modification is a
complex process involving a large number of parties, all of whom must ultimately agree on, among other things, a reconciliation of payments and funds applied since the loan modification was approved
by the bankruptcy court. The borrower continues to make payments under the modified terms. As of December 31, 2003, the borrower has made principal and interest payments totaling approximately
$10 million, the majority of which represents interest paid (as compared to principal amortization) on the modified loan balances. During the year ended December 31, 2003, the borrower
also sold one of the properties that secured these loans. In addition, as of December 31, 2003, the borrower has remitted approximately $1.5 million in funds from
debtor-in-possession accounts, which is expected to be applied to arrearages at closing.

Cash
received from our subordinated CMBS could be significantly reduced if we are not successful in resolving these loans favorably and returning them to performing status. If the
modifications are not successfully closed, the loans would remain in default. There can be no assurance that the borrower
would continue making the loan payments required under the loan modifications or that the trust master servicers would continue to advance loan payments on behalf of the borrower. Further, as
previously mentioned, as a result of the borrower's initial default, the trust master servicers have advanced substantial amounts of principal and interest payments to the related trusts. We do not
believe that the governing trust agreements are clear as to the manner in which such master servicer advances are to be reimbursed, and are attempting to negotiate an arrangement with the master
servicers and other parties to the trust which would provide for reimbursement of master servicer advances that would be in the best interest of all of the respective certificateholders. To the extent
that we cannot successfully complete those arrangements, we and the other trust parties could dispute the proper reimbursement mechanics, and, as a result, the timing and/or amount of payments made to
us on our subordinated CMBS, and the related fair value of the subordinated CMBS, could be adversely affected. Finally, even if both the loan modifications and master servicer advance reimbursement
arrangements are successfully completed, distributions on our subordinated CMBS, and the related fair value of the subordinated CMBS, will continue to be dependent on the borrower's continued
performance under the terms of the modified loans.

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 resulting
from appraisal reductions. An appraisal reduction event can result in reduced master servicer principal and interest advances based on the amount by which the sum of the unpaid principal balance of
the loan, accumulated principal and interest advances and other expenses exceeds 90% (in most cases) of the newly appraised value of the property underlying the mortgage loan. As the holder of the
lowest rated and first loss bonds, our

50

---

bonds
are the first to experience interest shortfalls as a result of the reduced advancing requirement. In general, the master servicer can advance up to a maximum of the difference between 90% of the
property's appraised value and the sum of accumulated principal and interest advances and expenses. As an example, assuming a weighted average coupon of 6% on a first loss subordinated CMBS, a
$1 million appraisal reduction would reduce our net cash flows by up to $60,000 on an annual basis, assuming that the total exposure was equal to or greater than 90% of the appraised value
immediately prior to receipt of the new appraisal (appraisal reduction). The ultimate disposition or work-out of the mortgage loan may result in a higher or lower realized loss on our
subordinated CMBS than the calculated appraisal reduction amount. Cumulative appraisal reductions through December 31, 2003 for the CMBS transactions in which we retain an ownership interest as
reported by the underlying trustees or as estimated by us were as follows (in thousands):

CBO-2

$
151,859CBO-1


73,684Nomura


20,516Total

$
246,059


Certain
securities 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, 2003 (including realized mortgage loan losses expected to pass through to our CMBS during the next month) and the expected
future real estate losses underlying our CMBS (in thousands):

|                                                                                                      |  | CBO-1 |         | CBO-2 |   | Nomura  |  | Total
|----------------------------------------------------------------------------------------------------- |  | ----- | ------- | ----- | - | ------- |  | -----
|Year 1999 actual realized losses                                                                      |  | $     | 738     |       | $ |        |  | $    
|Year 2000 actual realized losses                                                                      |  |       | 3,201   |       |   | 1,087   |  |      
|Year 2001 actual realized losses                                                                      |  |       | 545     |       |   | 8,397   |  |      
|Year 2002 actual realized losses                                                                      |  |       | 11,554  |       |   | 25,113  |  |      
|Year 2003 actual realized losses                                                                      |  |       | 11,796  |       |   | 57,913  |  |      
|                                                                                                      |  |       |         |       |   |         |  |      
|Cumulative actual realized losses through December 31, 2003                                           |  | $     | 27,834  |       | $ | 92,510  |  | $    
|                                                                                                      |  |       |         |       |   |         |  |      
|Cumulative actual realized losses through the year 2003                                               |  | $     | 27,834  |       | $ | 92,510  |  | $    
|Expected loss estimates for the year 2004                                                             |  |       | 51,529  |       |   | 122,121 |  |      
|Expected loss estimates for the year 2005                                                             |  |       | 36,369  |       |   | 118,345 |  |      
|Expected loss estimates for the year 2006                                                             |  |       | 3,577   |       |   | 16,054  |  |      
|Expected loss estimates for the year 2007                                                             |  |       | 2,096   |       |   | 14,075  |  |      
|Expected loss estimates for the year 2008                                                             |  |       | 1,953   |       |   | 7,147   |  |      
|Expected loss estimates for the remaining life of CMBS                                                |  |       | 6,764   |       |   | 33,419  |  |      
|                                                                                                      |  |       |         |       |   |         |  |      
|Cumulative expected loss estimates (including cumulative actual realized losses) through life of CMBS |  | $     | 130,122 |       | $ | 403,671 |  | $    
|                                                                                                      |  |       |         |       |   |         |  |      

We
revised our overall expected loss estimate related to our subordinated CMBS to $581 million at December 31, 2003, with such total losses occurring or expected to occur
through the life of the subordinated CMBS portfolio. This revision to the overall expected loss estimate is primarily the result of increased projected losses due to lower internal estimates of values
on properties underlying certain mortgage loans and real estate owned by underlying trusts, and, in some cases, changes in the timing of resolution and disposition of certain specially serviced
assets, which when combined, has resulted in higher projected loss severities on loans and real estate owned by underlying trusts currently or anticipated to be in special servicing. The primary
reasons for lower estimates of value include the poor

51

---

performance
of certain properties and related markets and changes to workout negotiations due, in large part, to the softness in the economy and the lag typically associated with real estate
fundamentals, the continued slowdown in travel and, in some cases, over-supply of hotel properties, and a shift in retail activity in some markets. There can be no assurance that our
revised overall expected loss estimate of $581 million will not be exceeded as a result of additional or adverse events or circumstances. See further discussion of changes to the overall
expected loss estimate and impairment charges in the discussions above regarding "Impairment on Subordinated CMBS".



As of December 31, 2003 and 2002, our other assets consisted primarily of insured mortgage securities, equity investments, mezzanine loans, Other MBS, cash
and cash equivalents (as previously discussed), principal and interest receivables and real estate owned.

We
had $147.5 million and $275.3 million (at fair value) invested in insured mortgage securities as of December 31, 2003 and 2002, respectively. The reduction in
total fair value is primarily attributable to the prepayment or sale of approximately 45% (based on amortized cost) of the insured mortgages during the year ended December 31, 2003. As of
December 31, 2003, 86% of our remaining investment in insured mortgage securities were GNMA mortgage-backed securities and 14% were FHA-insured mortgage loans.

As
of December 31, 2003 and 2002, we had approximately $3.5 million and $6.2 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 due to significant underlying loan payoffs and normal cash flow distributions. 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. Three of the AIM Limited
Partnerships (AIM 84, AIM 86 and AIM 88) were liquidated in February 2004.

During
the year ended December 31, 2003, one mezzanine loan prepaid. This prepayment resulted in a decrease in Other Assets of approximately $1.7 million. As of
December 31, 2003 and 2002, we had approximately $4.1 million and $5.9 million in mezzanine loans, respectively.

Our
Other MBS primarily include investment grade CMBS, investment grade residential mortgage-backed securities, agency debt securities and other fixed income securities. As of
December 31, 2003 and 2002, the fair values of our Other MBS were approximately $3.9 million and $5.2 million, respectively.

We
own a shopping center in Orlando, Florida which we account for as real estate owned. As of December 31, 2003 and 2002, we had $8.6 million and $8.8 million,
respectively, in real estate owned assets included in other assets ($8.3 million and $8.4 million, respectively, relating to the actual building and land). In addition, we had
$7.3 million and $7.2 million of mortgage payable (net of discount) related to the real estate as of December 31, 2003 and 2002, respectively. We have been working to reposition
and stabilize this asset to increase its value, although we are also considering other alternatives.



As of December 31, 2003 and 2002, CMSLP's other assets consisted primarily of advances receivable, investments in interest-only strips,
investments in CMBS, fixed assets, and investments in sub-advisory contracts. The servicing other assets have decreased by approximately $7.8 million from $13.8 million at
December 31, 2002 to $6.0 million at December 31, 2003. The decrease is primarily the result of the sale of investment grade CMBS in January 2003 in connection with our
recapitalization. In October 2003, we received approximately $2.5 million in advances receivable reimbursement related to one loan, which resulted in a corresponding decrease in advances
receivable.

52

---





As of December 31, 2003 and 2002, our liabilities consisted primarily of debt, accrued interest and accrued payables. Total recourse debt decreased by
approximately $25.9 million to $350.0 million as of December 31, 2003 from $376.0 million as of December 31, 2002 primarily due to the repayment of the Exit Debt
during the first quarter of 2003 principally through the incurrence of the Bear Stearns Debt and BREF Debt, partially offset by the $22.5 million of borrowing under the Bear Stearns
$200 million secured borrowing facility to repay the Fannie Mae funding note. Total non-recourse debt decreased by approximately $130.5 million to $415.5 million as of
December 31, 2003 from $546.0 million as of December 31, 2002. This decrease is primarily attributable to significant prepayments of mortgages underlying the insured mortgage
securities during 2003, which resulted in a corresponding reduction in the principal balances of the securitized mortgage obligations, and the repayment of the Fannie Mae funding note in
December 2003. Our payables and accrued liabilities decreased by approximately $16.7 million to $10.0 million as of December 31, 2003 from $26.7 million as of
December 31, 2002 primarily due to the January 2003 recapitalization and the payment of preferred stock dividends totaling $5.2 million that were previously deferred.
Additionally, during the three months ended March 31, 2003, we reversed approximately $7.5 million of extension fees that were accrued at December 31, 2002 on the Exit Debt
since they were no longer payable. In addition, we paid $2.9 million of interest that was accrued, as of December 31, 2002, on the Series B Senior Secured Notes.



As of December 31, 2003 and 2002, CMSLP's liabilities consisted primarily of operating accounts payable and accrued expenses. The Servicing liabilities
increased by approximately $1.1 million to $1.8 million as of December 31, 2003 from $757,000 as of December 31, 2002 primarily due to the accrual of executive contract
termination costs, severance costs and other normal operating expenses.



No cash dividends were paid to common shareholders during the year 2003 due to our net operating losses for tax purposes. Based on current taxable income
estimates, it is expected that preferred or common dividends, if any, paid in 2004 and thereafter will be taxable to the shareholders since we are not expecting to generate net operating losses.
However, we are expecting to use our accumulated net operating losses beginning in 2004. Dividends paid in 2001, 2002, and 2003 were considered "return of capital" for tax.

As
of December 31, 2003, there were no unpaid preferred dividends. On March 9, 2004, the Board of Directors declared cash dividends of $0.68, $0.30 and $0.375 per share of
Series B, Series F and Series G Preferred Stock, respectively, payable on March 31, 2004 to shareholders of record on March 19, 2004.

Factors
which could impact dividends, if any, include (i) the level of income earned on mortgage assets, such as subordinated CMBS (including, but not limited to, the amount of
original issue discount income, interest shortfalls and realized 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 hedge costs, (v) margin calls, (vi) the level of income earned on our insured mortgage securities depending primarily on prepayments,
(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,

53

---

(x) realized
losses on certain transactions, and (xi) the timing and amounts of cash flows attributable to our other lines of businessmortgage servicing. Cash dividends on
our common stock are subject to the prior payment of all accrued and unpaid dividends on our preferred stock, and cash dividends on our junior classes of preferred stock are subject to the prior
payment of all accrued and unpaid dividends on our senior preferred stock.

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 parties, and other various assumptions that are believed to be reasonable under the facts and circumstances. Actual
results could differ materially from those estimates.

Management
considers an accounting estimate to be critical if:



Our
critical accounting estimates include the determination of fair value of our subordinated CMBS and interest income recognition related to our CMBS.



54

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Recent Accounting Pronouncements

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. According to FIN No. 46R issued in December 2003, the Interpretation applies at the end of the first
reporting period ending after March 15, 2004, 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 and overall required returns. 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. As of December 31, 2003, the average U.S. Treasury rate used to price our CMBS,
excluding the B- through unrated/issuer's equity CMBS, had increased by 43 basis points, compared to December 31, 2002. As of December 31, 2003, credit spreads used to price
our investment grade CMBS tightened and credit spreads used to price our subordinated CMBS which are not expected to experience losses widened, compared to December 31, 2002. The fair values of
our CCC and D CMBS in CBO-2 and our unrated/issuer's equity are determined using a loss adjusted yield to maturity, which, in our view, is commensurate with the market's perception of
value and risk of comparable assets. As described above, interest rates and spreads, which are reflective of the credit fundamentals of the underlying commercial real estate assets, impact the fair
values of our CMBS. See Note 6 of Notes to Consolidated Financial Statements for a discussion of our margin maintenance requirements under the Bear Stearns Debt.

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 our view, in the fair
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 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 $45.8 million (or 5.5%) and approximately
$88.0 million (or 10.5%), respectively, as of December 31, 2003. 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 $29.6 million (or 5.8%) and $56.6 million (or 11.1%), respectively, as of December 31, 2003.

55

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See
also Note 4 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, master servicer advances, 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.

Interest Rate Swap

During 2003, we entered into three interest rate swaps to hedge the variability of the future interest payments on the anticipated CDO transaction attributable to
changes in interest rates. Our obligations to Bear Stearns under the interest rate swap documents are collateralized by certain assets as described in Note 6 to Notes to Consolidated Financial
Statements. Through December 31, 2003, these swaps were treated as cash flow hedges for GAAP. Under these swaps, we have agreed to pay Bear Stearns a weighted average interest fixed rate of
4.15% per annum in exchange for floating payments based on one-month LIBOR on the total notional amount of $100 million. These swaps were effective on October 15, 2003.

The
swaps are intended to protect our cost of financing in connection with our anticipated CDO. We intend to terminate the swaps simultaneously with the issuance of the CDO or other
refinancing transaction. As of December 31, 2003, the aggregate fair value of the interest rate swaps was an asset of approximately $3.4 million. A 100 basis point increase (decrease) in
the 10-year swap rates would result in an approximate $8 million increase (decrease) in the fair value of our interest rate swaps, with an aggregate notional amount of
$100 million.

Variable Rate Debt

We maintain an interest rate cap to mitigate the adverse effects of rising interest rates on the amount of interest expense payable under our variable rate debt.
On October 31, 2003, we purchased an interest rate cap for $45,000 with a notional amount of $50 million, an effective date of November 4, 2003, maturity on November 4,
2004, and capping one-month LIBOR at 2.25%. Our cap provides 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 would receive payments based on the difference between the index and the cap. The term of the cap as well as the stated interest
rate of the cap, which is currently above the current rate of the index, would limit the amount of protection that the cap offers. The one-month LIBOR rate was 1.12% at December 31,
2003.

A
100 basis point increase in the one-month LIBOR index would have increased our interest expense on our Bear Stearns Debt by approximately $2.8 million during the
year ended December 31, 2003.

Insured Mortgage Securities

There would not be a material change in the fair values of our insured mortgage securities if we assumed that the discount rate used to determine the fair values
increased by 100 basis points and 200 basis points as of December 31, 2003 since the underlying mortgages are generally prepayable and have an assumed weighted average life of less than one
year.

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.

56

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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.

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.

ITEM 9A. CONTROLS AND PROCEDURES

We have carried out an evaluation, under the supervision and with the participation of our management including our principal executive officer and principal
financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as that term is defined in Rule 13a-15(e) under the Securities
and Exchange Act of 1934, as amended. Based on that evaluation, our principal executive officer and principal financial officer concluded that as of December 31, 2003, which is the end of the
period covered by this Annual Report on Form 10-K, our disclosure controls and procedures are effective.

There
have been no changes in our internal controls over financial reporting in the fiscal quarter ending December 31, 2003 that have materially affected, or are reasonably likely
to materially affect, our internal controls over financial reporting.

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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, Item 13-Certain Relationships and Related Transactions and Item 14-Principal Accountant Fees and
Services) is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A relating to our 2004 annual meeting of shareholders.

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PART IV

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





|Description                                                                                                                              |  | Page
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|Report of Independent Auditors                                                                                                           |  | F-1 
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                                                             |  | F-3 
|Consolidated Statements of Income for the years ended December 31, 2003, 2002 and 2001                                                   |  | F-4 
|Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income for the years ended December 31, 2003, 2002 and 2001 |  | F-5 
|Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001                                               |  | F-6 
|Notes to Consolidated Financial Statements                                                                                               |  | F-7 

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.

|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1            |  | 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).                                                                                                                                                                                                 
|3.1            |  | Articles Supplementary reclassifying and designating 203,000 authorized but unissued shares of Series E Cumulative Convertible Preferred Stock as authorized but unissued preferred stock, filed with the Maryland State Department of Assessments
and Taxation on January 9, 2004 (incorporated by reference to Exhibit 3.6 to Form S-3 filed with the SEC on January 27, 2004).                                                                                   
|3.2            |  | Articles of Amendment, filed with the Maryland State Department of Assessments and Taxation on May 15, 2002 (incorporated by reference to Exhibit 3 to Current Report on Form 8-K filed with the SEC on May 16, 2002).                                                                                                                                                                                                                                              
|3.3            |  | Articles Supplementary for 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 Form S-8 filed with the SEC on
June 13, 2002).                                                                                                                                                                                                                    
|3.4            |  | Articles of Amendment to CRIIMI MAE Inc. Charter, filed with the Maryland State Department of Assessments and Taxation on October 12, 2001 (incorporated by reference to Exhibit 3.1 to Form S-8 filed with the SEC on June 13,
2002).                                                                                                                                                                                                                              
|3.5            |  | 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).
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

59

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|3.6 |  | Articles of Amendment and Restatement of CRIIMI MAE Inc., includingExhibit A,Exhibit B,Exhibit CandExhibit Dthereto 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).
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.7 |  | Second Amended and Restated Bylaws of CRIIMI MAE Inc., as amended on January 14, 2004, (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4.1 |  | 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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.2 |  | Senior Subordinated Secured Note 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 4.1 to Form 8-K filed with the SEC on
January 30, 2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|4.3 |  | 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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.4 |  | Registration Rights Agreement, dated as of January 14, 2003, between CRIIMI MAE Inc. and Brascan Real Estate Finance Fund, L.P. (incorporated by reference to Exhibit 4(d) to Annual Report on Form 10-K for the year ended
December 31, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.5 |  | 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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4.6 |  | 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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.7 |  | 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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4.8 |  | 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).                                                                                                                                                                                
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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|10.1  |  | Master Repurchase Agreement, executed on August 28, 2003 to be effective as of June 26, 2003, by and between Bear Stearns & Co. Inc., as Agent for Bear, Stearns International Limited and CRIIMI MAE Asset Acquisition Corp.
(incorporated by reference to Exhibit 10.5 to Form 8-K filed with the SEC on September 5, 2003).            
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.2  |  | Annex I to Master Repurchase Agreement, executed on August 28, 2003 to be effective as of June 26, 2003, by and between Bear, Stearns & Co. Inc., as Agent for Bear, Stearns International Limited and CRIIMI MAE Asset Acquisition
Corp. (incorporated by reference to Exhibit 10.6 to Form 8-K filed with the SEC on September 5, 2003).
|10.3  |  | Side Letter Agreement, executed on August 28, 2003 to be effective as of June 26, 2003, by and between Bear Stearns & Co. Inc., CRIIMI MAE Asset Acquisition Corp. and CRIIMI MAE Inc. (incorporated by reference to Exhibit 10.7
to Form 8-K filed with the SEC on September 5, 2003).                                                   
|10.4  |  | ISDA Master Agreement, dated as of June 26, 2003, between Bear, Stearns International Limited and CRIIMI Newco, LLC and CBO REIT II, Inc. (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter
ended June 30, 2003).                                                                               
|10.5  |  | Schedule to the ISDA Master Agreement dated as of June 26, 2003, between Bear, Stearns International Limited and each of CRIIMI Newco, LLC and CBO REIT II, Inc. (incorporated by reference to Exhibit 10.2 to Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003).                                                        
|10.6  |  | ISDA Credit Support Annex dated as of June 26, 2003, between Bear, Stearns International and CRIIMI Newco, LLC and CBO REIT II, Inc. (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003).                                                                                    
|10.7  |  | Netting and Security Agreement dated as of June 26, 2003, between and among Bear, Stearns International Limited, CRIIMI Newco LLC and CBO REIT II Inc. (incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003).                                                                  
|10.8  |  | Amendment No. 1 to Repurchase Agreement, dated as of June 26, 2003, between Bear, Stearns International Limited, CRIIMI Newco LLC and CBO REIT II, Inc. (incorporated by reference to Exhibit 10.5 to Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003).                                                                 
|10.9  |  | 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).                               
|10.10 |  | Amendment No. 1 to Guarantee, dated as of June 26, 2003, between Bear, Stearns International Limited, and CRIIMI MAE Inc. (incorporated by reference to Exhibit 10.6 to Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003).                                                                                               
|10.11 |  | 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).                                                                                                                               
|      |  |                                                                                                                                                                                                                                                                                                                                           

61

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|10.12 |  | 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).                                                                                            
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.13 |  | 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).                                                 
|10.14 |  | 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).                              
|10.15 |  | 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).                                                                            
|10.16 |  | 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).
|10.17 |  | 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).                                                                     
|10.18 |  | 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).                                                      
|10.19 |  | Deposit Trust Agreement dated as of May 8, 1998 between CRIIMI MAE CMBS Corp. and Wilmington Trust Company, as Owner Trustee (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended
March 31, 2003).                                                         
|10.20 |  | 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).                                                                                                           
|10.21 |  | 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).                                          
|10.22 |  | Deposit Trust Agreement dated as of December 20, 1996 between CRIIMI MAE QRS1, Inc. and Wilmington Trust Company, as Owner Trustee (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended
March 31, 2003).                                                   
|10.23 |  | 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).                                                                                                                      
|      |  |                                                                                                                                                                                                                                                                                                         

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|10.24 |  | 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).                
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.25 |  | 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).
|10.26 |  | 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).                                                              
|10.27 |  | 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).                                               
|10.28 |  | Registrant's 2001 Stock Incentive Plan (incorporated by reference to Annex B to Definitive Proxy Statement filed with the SEC on August 16, 2001).                                                                                                                         
|10.29 |  | 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).                                      
|10.30 |  | 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).                                                                                    
|10.31 |  | Separation Agreement, dated as of November 20, 2003, by and between CRIIMI MAE Inc. and Craig Lieberman (filed herewith).                                                                                                                                                  
|10.32 |  | Restricted Stock Award Agreement, dated as of November 6, 2003, by and between CRIIMI MAE Inc. and Stephen M. Abelman (incorporated by reference to Exhibit 10.12 to Quarterly Report on Form 10-Q for the quarter ended September 30,
2003).                              
|10.33 |  | Employment Offer Letter, dated as of October 29, 2003, by and among Stephen M. Abelman, CRIIMI MAE Inc. and CRIIMI MAE Services Limited Partnership (incorporated by reference to Exhibit 10.11 to Quarterly Report on Form 10-Q for the
quarter ended September 30, 2003).
|10.34 |  | Restricted Stock Award Agreement, dated as of October 3, 2003, by and between CRIIMI MAE Inc. and Cynthia O. Azzara (incorporated by reference to Exhibit 10.9 to Quarterly Report on Form 10-Q for the quarter ended September 30,
2003).                                 
|10.35 |  | Employment Offer Letter, dated as of August 26, 2003, by and among Cynthia O. Azzara, CRIIMI MAE Inc. and CRIIMI MAE Management, Inc. (incorporated by reference to Exhibit 10.4 to form 8-K filed with the SEC on September 5,
2003).                                     
|10.36 |  | Termination of Employment Agreement, dated as of August 26, 2003, by and between Cynthia O. Azzara and CRIIMI MAE Inc. (incorporated by reference to Exhibit 10.3 to Form 8-K filed with the SEC on September 5, 2003).                                                    
|      |  |                                                                                                                                                                                                                                                                            

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|10.37 |  | Restricted Stock Award Agreement, dated as of September 15, 2003, by and between CRIIMI MAE Inc. and Mark Jarrell (incorporated by reference to Exhibit 10.8 to Quarterly Report on Form 10-Q for the quarter ended September 30,
2003).                                                                                                                                                             
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.38 |  | Employment Offer Letter Agreement, dated as of August 11, 2003 and effective a of September 15, 2003, between CRIIMI MAE Inc. and Mark R. Jarrell (incorporated by reference to Exhibit 10.10 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003).                                                                                                                                 
|10.39 |  | Termination of Employment Agreement, dated as of August 26, 2003, by and between David B. Iannarone and CRIIMI MAE Inc. (incorporated by reference to Exhibit 10.1 to Form 8-K filed with the SEC on September 5, 2003).                                                                                                                                                                             
|10.40 |  | 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).                                                                                                                                                                                                                
|10.41 |  | 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).                                                                                                                                                                                            
|10.42 |  | 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).                                                                                                                                                                                                            
|10.43 |  | 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).                                                                                                                                                                                         
|16.1  |  | 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).                                                                                                                                                                                                                            
|18.1  |  | 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).
|21.1  |  | Subsidiaries of CRIIMI MAE Inc. (filed herewith).                                                                                                                                                                                                                                                                                                                                                    
|23.1  |  | Consent of Ernst & Young LLP (filed herewith).                                                                                                                                                                                                                                                                                                                                                       
|23.2  |  | Consent of Ernst & Young LLP (filed herewith).                                                                                                                                                                                                                                                                                                                                                       
|31.1  |  | Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) (filed herewith).                                                                                                                                                                                                                                                                                                   
|31.2  |  | Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) (filed herewith).                                                                                                                                                                                                                                                                                                   
|32.1  |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                                                                                                                                                                                                 
|32.2  |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                                                                                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                      

64

---

|99.1 |  | 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).
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|99.2 |  | Special Serviced Loan Report relating to specially serviced loans underlying the Company's CMBS as of December 31, 2003 (filed herewith).                                                                                                                                                                                                



Date

PurposeOctober 16, 2003

To report a press release dated October 15, 2003 announcing the resignation of Executive Vice President David B. Iannarone effective October 24, 2003.October 30, 2003

To report a press release dated October 29, 2003 announcing the appointment of Stephen M. Abelman as Executive Vice PresidentAsset Management effective October 29, 2003.November 12, 2003

To report a press release dated November 11, 2003 announcing the declaration of cash dividends for the fourth quarter of 2003 on our Series B, Series F and Series G Preferred Stock.November 12, 2003

To report a press release dated November 12, 2003 announcing our financial results for the three and nine months ended September 30, 2003.December 19, 2003

To report a press release dated December 17, 2003 announcing the prepayment of the $24.5 million balance of a 7% funding note issued to Fannie Mae.


65

---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

|                   |  | CRIIMI MAE INC.                                                                        
|------------------ |  | ---------------------------------------------------------------------------------------
|March 12, 2004DATE |  | /s/BARRY S. BLATTMANBarry S. Blattman
Chairman of the Board and Chief Executive Officer

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 12, 2004DATE |  | /s/BARRY S. BLATTMANBarry S. Blattman
Chairman of the Board and Chief Executive Officer (Principal Executive Officer)                             
|------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|March 12, 2004DATE |  | /s/CYNTHIA O. AZZARACynthia O. Azzara
Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
|March 9, 2004DATE  |  | /s/JEFFREY M. BLIDNERJeffrey M. Blidner
Director                                                                                                  
|March 9, 2004DATE  |  | /s/JOSHUA B. GILLONJoshua B. Gillon
Director                                                                                                      
|March 9, 2004DATE  |  | /s/ARTHUR N. HAUTArthur N. Haut
Director                                                                                                          
|                   |  |                                                                                                                                                   

66

---

|March 9, 2004DATE |  | /s/ROBERT J. MERRICKRobert J. Merrick
Director  
|----------------- |  | ------------------------------------------------
|March 9, 2004DATE |  | /s/JOHN S. MOODYJohn S. Moody
Director          
|March 9, 2004DATE |  | /s/BRUCE K. ROBERTSONBruce K. Robertson
Director
|March 9, 2004DATE |  | /s/GLENN J. RUFRANOGlenn J. Rufrano
Director    
|March 9, 2004DATE |  | /s/ROBERT E. WOODSRobert E. Woods
Director      

67

---



REPORT OF INDEPENDENT AUDITORS

Board
of Directors and Shareholders
CRIIMI MAE Inc.

We
have audited the accompanying consolidated balance sheets of CRIIMI MAE Inc. and subsidiaries (CRIIMI MAE) as of December 31, 2003 and 2002, and the related consolidated
statements of income, changes in shareholders' equity and comprehensive income, and cash flows for the years 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 audits. The financial statements of CRIIMI MAE as of December 31, 2001, and for the year then
ended, 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 2 to these consolidated financial statements.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits 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 2003 and 2002 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of CRIIMI MAE at
December 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the
United States.

As
discussed in Note 2 to the consolidated financial statements, CRIIMI MAE changed its method of accounting for preferred stock issuance costs in 2003 and changed its method of
accounting for goodwill and other intangible assets in 2002.

Ernst &
Young LLP
McLean, Virginia
March 8, 2004

F-1

---

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.

F-2

---



CRIIMI MAE INC.        CONSOLIDATED BALANCE SHEETS

|                                           |                                                                                                                               | December 31,
2003                                                                             |               | December 31,
2002 |            
|------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------- | ----------------- | -----------
|Assets:                                    |                                                                                                                               |                                                                                               |               |                   |            
|                                           | Mortgage assets:                                                                                                              |                                                                                               |               |                   |            
|                                           |                                                                                                                               | Subordinated CMBS pledged to secure recourse debt, at fair value                              |               | $                 | 511,681,345
|                                           |                                                                                                                               | CMBS pledged to secure Securitized Mortgage ObligationsCMBS, at fair value                   |               |                   | 325,321,411
|                                           |                                                                                                                               | Other MBS, at fair value                                                                      |               |                   | 3,900,132  
|                                           |                                                                                                                               | Insured mortgage securities pledged to secure Securitized Mortgage Obligations, at fair value |               |                   | 122,376,761
|                                           |                                                                                                                               | Insured mortgage securities pledged to secure recourse debt, at fair value                    |               |                   | 25,120,897 
|                                           | Equity investments                                                                                                            |                                                                                               |               | 3,530,436         |            
|                                           | Other assets                                                                                                                  |                                                                                               |               | 25,603,905        |            
|                                           | Receivables                                                                                                                   |                                                                                               |               | 24,013,265        |            
|                                           | Servicing other assets                                                                                                        |                                                                                               |               | 5,964,635         |            
|                                           | Servicing cash and cash equivalents                                                                                           |                                                                                               |               | 4,427,615         |            
|                                           | Other cash and cash equivalents                                                                                               |                                                                                               |               | 17,271,342        |            
|                                           | Restricted cash and cash equivalents                                                                                          |                                                                                               |               |                  |            
|                                           |                                                                                                                               |                                                                                               |               |                   |            
|Total assets                               |                                                                                                                               | $                                                                                             | 1,069,211,744 |                   | $          
|                                           |                                                                                                                               |                                                                                               |               |                   |            
|Liabilities:                               |                                                                                                                               |                                                                                               |               |                   |            
|                                           | Bear Stearns variable rate secured debt                                                                                       |                                                                                               | $             | 296,250,000       |            
|                                           | Bear Stearns repurchase agreement                                                                                             |                                                                                               |               | 22,526,000        |            
|                                           | BREF senior subordinated secured note                                                                                         |                                                                                               |               | 31,266,667        |            
|                                           | Securitized mortgage obligations:                                                                                             |                                                                                               |               |                   |            
|                                           |                                                                                                                               | Collateralized bond obligationsCMBS                                                          |               |                   | 288,979,376
|                                           |                                                                                                                               | Collateralized mortgage obligationsinsured mortgage securities                               |               |                   | 119,237,756
|                                           | Mortgage payable                                                                                                              |                                                                                               |               | 7,332,404         |            
|                                           | Payables and accrued expenses                                                                                                 |                                                                                               |               | 10,007,787        |            
|                                           | Servicing liabilities                                                                                                         |                                                                                               |               | 1,831,974         |            
|                                           | Exit variable-rate secured borrowing                                                                                          |                                                                                               |               |                  |            
|                                           | Series A senior secured notes                                                                                                 |                                                                                               |               |                  |            
|                                           | Series B senior secured notes                                                                                                 |                                                                                               |               |                  |            
|                                           |                                                                                                                               |                                                                                               |               |                   |            
|Total liabilities                          |                                                                                                                               |                                                                                               | 777,431,964   |                   |            
|                                           |                                                                                                                               |                                                                                               |               |                   |            
|Shareholders' equity:                      |                                                                                                                               |                                                                                               |               |                   |            
|                                           | Preferred stock, $0.01 par; 75,000,000 shares authorized; 3,424,992 shares issued and outstanding                             |                                                                                               |               | 34,250            |            
|                                           | Common stock, $0.01 par; 300,000,000 shares authorized; 15,384,648 and 13,945,068 shares issued and outstanding, respectively |                                                                                               |               | 153,846           |            
|                                           | Accumulated other comprehensive income                                                                                        |                                                                                               |               | 91,582,756        |            
|                                           | Deferred compensation                                                                                                         |                                                                                               |               | (766,093          | )          
|                                           | Warrants outstanding                                                                                                          |                                                                                               |               | 2,564,729         |            
|                                           | Additional paid-in capital                                                                                                    |                                                                                               |               | 633,348,675       |            
|                                           | Accumulated deficit                                                                                                           |                                                                                               |               | (435,138,383      | )          
|                                           |                                                                                                                               |                                                                                               |               |                   |            
|Total shareholders' equity                 |                                                                                                                               |                                                                                               | 291,779,780   |                   |            
|                                           |                                                                                                                               |                                                                                               |               |                   |            
|Total liabilities and shareholders' equity |                                                                                                                               | $                                                                                             | 1,069,211,744 |                   | $          
|                                           |                                                                                                                               |                                                                                               |               |                   |            

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

F-3

---

CRIIMI MAE INC.        CONSOLIDATED STATEMENTS OF INCOME

|                                                                                 |                                                                              | For the years ended December 31,  |            
|-------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | --------------------------------- | -----------
|
|Interest income:                                                                 |                                                                              |                                   |            
|                                                                                 | CMBS Interest Income:                                                        |                                   |            
|                                                                                 |                                                                              | Income from Investment Grade CMBS |            
|                                                                                 |                                                                              | Income from Subordinated CMBS     |            
|                                                                                 | Insured mortgage securities                                                  |                                   |            
|                                                                                 |                                                                              |                                   |            
|                                                                                 | Total interest income                                                        |                                   |            
|                                                                                 |                                                                              |                                   |            
|Interest and related expenses:                                                   |                                                                              |                                   |            
|                                                                                 | Bear Stearns variable rate secured debt                                      |                                   |            
|                                                                                 | BREF senior subordinated secured note                                        |                                   |            
|                                                                                 | Bear Stearns repurchase agreement                                            |                                   |            
|                                                                                 | Exit variable-rate secured borrowing                                         |                                   |            
|                                                                                 | Series A senior secured notes                                                |                                   |            
|                                                                                 | Series B senior secured notes                                                |                                   |            
|                                                                                 | Fixed-rate collateralized bond obligationsCMBS                              |                                   |            
|                                                                                 | Fixed-rate collateralized mortgage obligationsinsured securities            |                                   |            
|                                                                                 | Variable-rate secured borrowingsCMBS                                        |                                   |            
|                                                                                 | Fixed-rate senior unsecured notes                                            |                                   |            
|                                                                                 | Hedging expense                                                              |                                   |            
|                                                                                 | Other interest expense                                                       |                                   |            
|                                                                                 |                                                                              |                                   |            
|                                                                                 | Total interest expense                                                       |                                   |            
|                                                                                 |                                                                              |                                   |            
|Net interest margin                                                              |                                                                              |                                   | 33,615,189 
|                                                                                 |                                                                              |                                   |            
|                                                                                 | General and administrative expenses                                          |                                   |            
|                                                                                 | Deferred compensation expense                                                |                                   |            
|                                                                                 | Depreciation and amortization                                                |                                   |            
|                                                                                 | Servicing revenue                                                            |                                   |            
|                                                                                 | Servicing general and administrative expenses                                |                                   |            
|                                                                                 | Servicing amortization, depreciation, and impairment expenses                |                                   |            
|                                                                                 | Servicing restructuring expenses                                             |                                   |            
|                                                                                 | Servicing gain on sale of servicing rights                                   |                                   |            
|                                                                                 | Servicing (loss) gain on sale of investment-grade CMBS                       |                                   |            
|                                                                                 | Income tax benefit (expense)                                                 |                                   |            
|                                                                                 | Equity in earnings (losses) from investments                                 |                                   |            
|                                                                                 | Other income, net                                                            |                                   |            
|                                                                                 | Net losses on mortgage security dispositions                                 |                                   |            
|                                                                                 | Impairment on Subordinated CMBS                                              |                                   |            
|                                                                                 | BREF maintenance fee                                                         |                                   |            
|                                                                                 | Hedge ineffectiveness                                                        |                                   |            
|                                                                                 | Executive contract termination costs                                         |                                   |            
|                                                                                 | Recapitalization expenses                                                    |                                   |            
|                                                                                 | Net gain on extinguishment of debt                                           |                                   |            
|                                                                                 | Reorganization items                                                         |                                   |            
|                                                                                 | Emergence financing origination fee                                          |                                   |            
|                                                                                 |                                                                              |                                   |            
|                                                                                 |                                                                              |                                   | (30,719,791
|                                                                                 |                                                                              |                                   |            
|Net income (loss) before cumulative effect of change in accounting principle     |                                                                              |                                   | 2,895,398  
|Cumulative effect of adoption of SFAS 142                                        |                                                                              |                                   |           
|Cumulative effect of change in accounting principle related to servicing revenue |                                                                              |                                   |           
|Cumulative effect of adoption of SFAS 133                                        |                                                                              |                                   |           
|                                                                                 |                                                                              |                                   |            
|Net income (loss) before dividends paid or accrued on preferred shares           |                                                                              |                                   | 2,895,398  
|Dividends paid or accrued on preferred shares, including redemption costs        |                                                                              |                                   | (7,006,696 
|                                                                                 |                                                                              |                                   |            
|Net loss to common shareholders                                                  |                                                                              | $                                 | (4,111,298 
|                                                                                 |                                                                              |                                   |            
|Earnings per common share:                                                       |                                                                              |                                   |            
|                                                                                 | Basic and dilutedbefore cumulative effect of change in accounting principle |                                   | $          
|                                                                                 |                                                                              |                                   |            
|                                                                                 | Basic and dilutedafter cumulative effect of change in accounting principle  |                                   | $          
|                                                                                 |                                                                              |                                   |            
|Shares used in computing basic earnings per share                                |                                                                              |                                   | 15,149,303 
|                                                                                 |                                                                              |                                   |            

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

F-4

---



CRIIMI MAE INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME

For the years ended December 31, 2003, 2002 and 2001

|                             |                                                                            | Preferred
Stock Par
Value                                                     |        | Common
Stock Par
Value |   | Additional
Paid-in
Capital |        | Accumulated
Deficit |             | Accumulated Other
Comprehensive
Income (Loss) |   | Deferred
Compensation |             | Warrants
Outstanding |             | Total
Shareholders'
Equity |             | Comprehensive
Income (Loss) |           
|---------------------------- | -------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ------ | ---------------------- | - | -------------------------- | ------ | ------------------- | ----------- | --------------------------------------------- | - | --------------------- | ----------- | -------------------- | ----------- | -------------------------- | ----------- | --------------------------- | ----------
|Balance at December 31, 2000 |                                                                            | $                                                                             | 61,245 |                        | $ | 62,353                     |        | $                   | 612,496,343 |                                               | $ | (341,342,246          | )           | $                    | (3,019,679  | )                          | $           |                            |           
|                             | Net loss before dividends paid or accrued on preferred shares              |                                                                               |        |                       |   |                            |       |                     |             |                                              |   |                       | (16,077,317 | )                    |             |                           |             |                             |          
|                             | Other comprehensive income:                                                |                                                                               |        |                        |   |                            |        |                     |             |                                               |   |                       |             |                      |             |                            |             |                             |           
|                             |                                                                            | Adjustment to unrealized losses on mortgage assets                            |        |                        |  |                            |        |                    |             |                                               |  |                       |             |                     |             |                            | (3,040,719  | )                           |           
|                             |                                                                            | Adjustment to unrealized loss on interest rate cap                            |        |                        |  |                            |        |                    |             |                                               |  |                       |             |                     |             |                            | (383,200    | )                           |           
|                             |                                                                            |                                                                               |        |                        |   |                            |        |                     |             |                                               |   |                       |             |                      |             |                            |             |                             |           
|                             | Comprehensive loss                                                         |                                                                               |        |                        |   |                            |        |                     |             |                                               |   |                       |             |                      |             |                            |             |                             |           
|                             |                                                                            |                                                                               |        |                        |   |                            |        |                     |             |                                               |   |                       |             |                      |             |                            |             |                             |           
|                             | Dividends accrued or paid on preferred shares                              |                                                                               |        |                       |   |                            |       |                     |             |                                              |   |                       | (8,145,481  | )                    |             |                           |             |                             |          
|                             | Common shares issued related to preferred stock dividends                  |                                                                               |        |                       |   |                            | 30,334 |                     |             | 20,405,150                                    |   |                       |            |                      |             |                           |             |                             |          
|                             | Conversion of preferred shares into common shares                          |                                                                               |        | (25,265                | ) |                            | 36,695 |                     |             | (11,430                                       | ) |                       |            |                      |             |                           |             |                             |          
|                             | Common shares issued                                                       |                                                                               |        |                       |   |                            | 2      |                     |             | 1,458                                         |   |                       |            |                      |             |                           |             |                             |          
|                             | Common shares redeemed in reverse stock split in lieu of fractional shares |                                                                               |        |                       |   |                            | (11    | )                   |             | (3,554                                        | ) |                       |            |                      |             |                           |             |                             |          
|                             |                                                                            |                                                                               |        |                        |   |                            |        |                     |             |                                               |   |                       |             |                      |             |                            |             |                             |           
|Balance at December 31, 2001 |                                                                            |                                                                               | 35,980 |                        |   | 129,373                    |        |                     | 632,887,967 |                                               |   | (365,565,044          | )           |                      | (6,443,598  | )                          |             |                            |           
|                             | Net loss before dividends paid or accrued on preferred shares              |                                                                               |        |                        |   |                            |       |                     |             |                                              |   |                       | (56,125,023 | )                    |             |                           |             |                             |          
|                             | Other comprehensive income:                                                |                                                                               |        |                        |   |                            |        |                     |             |                                               |   |                       |             |                      |             |                            |             |                             |           
|                             |                                                                            | Adjustment to unrealized gains and losses on mortgage assets                  |        |                        |  |                            |        |                    |             |                                               |  |                       |             |                     |             |                            | 109,170,220 |                             |           
|                             |                                                                            | Adjustment to unrealized losses on interest rate caps                         |        |                        |  |                            |        |                    |             |                                               |  |                       |             |                     |             |                            | (604,565    | )                           |           
|                             |                                                                            |                                                                               |        |                        |   |                            |        |                     |             |                                               |   |                       |             |                      |             |                            |             |                             |           
|                             | Comprehensive income                                                       |                                                                               |        |                        |   |                            |        |                     |             |                                               |   |                       |             |                      |             |                            |             |                             |           
|                             |                                                                            |                                                                               |        |                        |   |                            |        |                     |             |                                               |   |                       |             |                      |             |                            |             |                             |           
|                             | Dividends accrued or paid on preferred shares                              |                                                                               |        |                       |   |                            |       |                     |             |                                              |   |                       | (9,337,018  | )                    |             |                           |             |                             |          
|                             | Common shares issued related to preferred stock dividends                  |                                                                               |        |                       |   |                            | 9,664  |                     |             | 3,435,128                                     |   |                       |            |                      |             |                           |             |                             |          
|                             | Common shares issued                                                       |                                                                               |        |                       |   |                            | 89     |                     |             | 43,341                                        |   |                       |            |                      |             |                           |             |                             |          
|                             | Restricted stock issued                                                    |                                                                               |        |                       |   |                            | 325    |                     |             | 129,350                                       |   |                       |            |                      |             |                           |             |                             | (129,675  
|                             | Amortization of deferred compensation                                      |                                                                               |        |                       |   |                            |       |                     |             |                                              |   |                       |            |                      |             |                           |             |                             | 110,154   
|                             | Redemption of Series E Preferred Stock                                     |                                                                               |        | (1,730                 | ) |                            |       |                     |             | (16,083,848                                   | ) |                       |            |                      |             |                           |             |                             |          
|                             |                                                                            |                                                                               |        |                        |   |                            |        |                     |             |                                               |   |                       |             |                      |             |                            |             |                             |           
|Balance at December 31, 2002 |                                                                            |                                                                               | 34,250 |                        |   | 139,451                    |        |                     | 620,411,938 |                                               |   | (431,027,085          | )           |                      | 102,122,057 |                            |             | (19,521                     | )         
|                             | Net income before dividends paid or accrued on preferred shares            |                                                                               |        |                       |   |                            |       |                     |             |                                              |   |                       | 2,895,398   |                      |             |                           |             |                             |          
|                             | Other comprehensive income:                                                |                                                                               |        |                        |   |                            |        |                     |             |                                               |   |                       |             |                      |             |                            |             |                             |           
|                             |                                                                            | Adjustment to unrealized gains and losses on mortgage assets                  |        |                        |  |                            |        |                    |             |                                               |  |                       |             |                     |             |                            | (16,252,696 | )                           |           
|                             |                                                                            | Adjustment to unrealized gains and losses on derivative financial instruments |        |                        |  |                            |        |                    |             |                                               |  |                       |             |                     |             |                            | 5,713,395   |                             |           
|                             |                                                                            |                                                                               |        |                        |   |                            |        |                     |             |                                               |   |                       |             |                      |             |                            |             |                             |           
|                             | Comprehensive loss                                                         |                                                                               |        |                        |   |                            |        |                     |             |                                               |   |                       |             |                      |             |                            |             |                             |           
|                             |                                                                            |                                                                               |        |                        |   |                            |        |                     |             |                                               |   |                       |             |                      |             |                            |             |                             |           
|                             | Dividends paid on preferred shares                                         |                                                                               |        |                       |   |                            |       |                     |             |                                              |   |                       | (7,006,696  | )                    |             |                           |             |                             |          
|                             | Common shares issued                                                       |                                                                               |        |                       |   |                            | 13,742 |                     |             | 14,196,162                                    |   |                       |            |                      |             |                           |             |                             |          
|                             | Restricted stock issued                                                    |                                                                               |        |                       |   |                            | 966    |                     |             | 1,087,203                                     |   |                       |            |                      |             |                           |             |                             | (1,088,169
|                             | Amortization of deferred compensation                                      |                                                                               |        |                       |   |                            |       |                     |             |                                              |   |                       |            |                      |             |                           |             |                             | 204,312   
|                             | Accelerated vesting of stock options                                       |                                                                               |        |                       |   |                            |       |                     |             | 547,600                                       |   |                       |            |                      |             |                           |             |                             |          
|                             | Shares repurchased or forfeited                                            |                                                                               |        |                       |   |                            | (313   | )                   |             | (329,499                                      | ) |                       |            |                      |             |                           |             |                             | 137,285   
|                             | Warrants issued                                                            |                                                                               |        |                       |   |                            |       |                     |             | (2,564,729                                    | ) |                       |            |                      |             |                           |             |                             |          
|                             |                                                                            |                                                                               |        |                        |   |                            |        |                     |             |                                               |   |                       |             |                      |             |                            |             |                             |           
|Balance at December 31, 2003 |                                                                            | $                                                                             | 34,250 |                        | $ | 153,846                    |        | $                   | 633,348,675 |                                               | $ | (435,138,383          | )           | $                    | 91,582,756  |                            | $           | (766,093                    | )         
|                             |                                                                            |                                                                               |        |                        |   |                            |        |                     |             |                                               |   |                       |             |                      |             |                            |             |                             |           

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

F-5

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CRIIMI MAE INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                           |                                                                                                                                               | For the years ended December 31,                                                 |                                                    
|---------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ---------------------------------------------------
|
|Cash flows from operating activities:                      |                                                                                                                                               |                                                                                  |                                                    
|                                                           | Net income (loss) before dividends paid or accrued on preferred shares                                                                        |                                                                                  | $                                                  
|                                                           | Adjustments to reconcile net income (loss) before dividends paid or accrued on preferred shares to net cash provided by operating activities: |                                                                                  |                                                    
|                                                           |                                                                                                                                               | Gain on extinguishment of debt (non-cash portion)                                |                                                    
|                                                           |                                                                                                                                               | Amortization of discount and deferred financing costs on debt                    |                                                    
|                                                           |                                                                                                                                               | Discount amortization on mortgage assets, net                                    |                                                    
|                                                           |                                                                                                                                               | Accrual of extension fees related to Exit Debt                                   |                                                    
|                                                           |                                                                                                                                               | Depreciation and other amortization                                              |                                                    
|                                                           |                                                                                                                                               | Net losses on mortgage security dispositions                                     |                                                    
|                                                           |                                                                                                                                               | Equity in earnings from investments                                              |                                                    
|                                                           |                                                                                                                                               | Servicing amortization, depreciation and impairment                              |                                                    
|                                                           |                                                                                                                                               | Hedging expense                                                                  |                                                    
|                                                           |                                                                                                                                               | Recapitalization expenses (non-cash portion)                                     |                                                    
|                                                           |                                                                                                                                               | Amortization of deferred compensation                                            |                                                    
|                                                           |                                                                                                                                               | Impairment on Subordinated CMBS                                                  |                                                    
|                                                           |                                                                                                                                               | Interest accreted to debt                                                        |                                                    
|                                                           |                                                                                                                                               | Hedge ineffectiveness expense                                                    |                                                    
|                                                           |                                                                                                                                               | Gain on sale of servicing rights and investment-grade CMBS                       |                                                    
|                                                           |                                                                                                                                               | Cumulative effect of adoption of SFAS 142                                        |                                                    
|                                                           |                                                                                                                                               | Cumulative effect of change in accounting principle related to servicing revenue |                                                    
|                                                           |                                                                                                                                               | Changes in assets and liabilities:                                               |                                                    
|                                                           |                                                                                                                                               |                                                                                  | Decrease in restricted cash and cash equivalents   
|                                                           |                                                                                                                                               |                                                                                  | (Increase) decrease in receivables and other assets
|                                                           |                                                                                                                                               |                                                                                  | Decrease in payables and accrued expenses          
|                                                           |                                                                                                                                               |                                                                                  | Decrease (increase) in servicing other assets      
|                                                           |                                                                                                                                               |                                                                                  | Increase (decrease) in servicing liabilities       
|                                                           |                                                                                                                                               | Sales (purchases) of other MBS, net                                              |                                                    
|                                                           |                                                                                                                                               | Change in reorganization items accrual                                           |                                                    
|                                                           |                                                                                                                                               | Non-cash reorganization items                                                    |                                                    
|                                                           |                                                                                                                                               |                                                                                  |                                                    
|                                                           |                                                                                                                                               | Net cash provided by operating activities                                        |                                                    
|                                                           |                                                                                                                                               |                                                                                  |                                                    
|Cash flows from investing activities:                      |                                                                                                                                               |                                                                                  |                                                    
|                                                           | Proceeds from mortgage security prepayments and dispositions                                                                                  |                                                                                  |                                                    
|                                                           | Proceeds from prepayment of mezzanine loan                                                                                                    |                                                                                  |                                                    
|                                                           | Distributions received from AIM Limited Partnerships                                                                                          |                                                                                  |                                                    
|                                                           | Receipt of principal payments from insured mortgage securities                                                                                |                                                                                  |                                                    
|                                                           | Cash received in excess of income recognized on Subordinated CMBS                                                                             |                                                                                  |                                                    
|                                                           | Principal payments on Subordinated CMBS                                                                                                       |                                                                                  |                                                    
|                                                           | Proceeds from sale of servicing rights by CMSLP                                                                                               |                                                                                  |                                                    
|                                                           | Purchases of investment-grade CMBS by CMSLP                                                                                                   |                                                                                  |                                                    
|                                                           | Sales of investment-grade CMBS by CMSLP                                                                                                       |                                                                                  |                                                    
|                                                           | Cash reflected upon consolidation of CMSLP                                                                                                    |                                                                                  |                                                    
|                                                           |                                                                                                                                               |                                                                                  |                                                    
|                                                           |                                                                                                                                               | Net cash provided by investing activities                                        |                                                    
|                                                           |                                                                                                                                               |                                                                                  |                                                    
|Cash flows from financing activities:                      |                                                                                                                                               |                                                                                  |                                                    
|                                                           | Principal payments on securitized mortgage debt obligations                                                                                   |                                                                                  |                                                    
|                                                           | Principal payments on recourse debt                                                                                                           |                                                                                  |                                                    
|                                                           | Principal payments on secured borrowings and other debt obligations                                                                           |                                                                                  |                                                    
|                                                           | Proceeds from issuance of debt                                                                                                                |                                                                                  |                                                    
|                                                           | Payment of debt issuance costs                                                                                                                |                                                                                  |                                                    
|                                                           | Payment of dividends on preferred shares                                                                                                      |                                                                                  |                                                    
|                                                           | Proceeds from the issuance of common stock, net                                                                                               |                                                                                  |                                                    
|                                                           | Redemption of Series E Preferred Stock, including accrued dividends                                                                           |                                                                                  |                                                    
|                                                           | Common stock repurchased                                                                                                                      |                                                                                  |                                                    
|                                                           |                                                                                                                                               |                                                                                  |                                                    
|                                                           |                                                                                                                                               | Net cash used in financing activities                                            |                                                    
|                                                           |                                                                                                                                               |                                                                                  |                                                    
|Net (decrease) increase in other cash and cash equivalents |                                                                                                                                               |                                                                                  | (7,552,391                                         
|Cash and cash equivalents, beginning of period(1)          |                                                                                                                                               |                                                                                  | 29,251,348                                         
|                                                           |                                                                                                                                               |                                                                                  |                                                    
|Cash and cash equivalents, end of period(1)                |                                                                                                                                               | $                                                                                | 21,698,957                                         
|                                                           |                                                                                                                                               |                                                                                  |                                                    

---

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

F-6

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CRIIMI MAE INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     ORGANIZATION

General

CRIIMI MAE Inc. (together with its consolidated subsidiaries, 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, a significant portfolio of commercial mortgage-related assets. Historically, we have focused
primarily on acquiring high-yielding, non-investment grade (rated below BBB- or unrated) commercial mortgage-backed securities (subordinated CMBS). We commenced
operations in 1989, are incorporated in Maryland, and are not a government sponsored entity or in any way affiliated with the United States government or any United States government agency. Our stock
is traded on the New York Stock Exchange under the symbol "CMM".

Our
existing business consists of investments in our core assets (subordinated CMBS backed by pools of commercial mortgage loans on multifamily, retail, hotel, and other commercial real
estate) and investments in non-core assets (direct and indirect investments in government-insured mortgage-backed securities and a limited number of other assets). We also are a trader in
CMBS, residential mortgage-backed securities, agency debt securities and other fixed income securities. We intend to refinance the shorter-term, recourse debt related to our existing
subordinated CMBS through a collateralized debt obligation (CDO), other refinancing transaction, or combination thereof, by mid-2004.

During
late 2003, we undertook a review of the current market for acquisition of subordinated CMBS in preparation for the expected resumption of such acquisition activities in 2004. Due
to a variety of factors such as increased competition in the sector, less attractive investment yields and underwriting standards that are widely believed to be deteriorating due to the surplus of
investment capital dedicated to the subordinated CMBS market, we now believe that it is more prudent for us to focus our 2004 investment activity in the "manufacturing" of subordinated CMBS
investments rather than pursuing secondary-market acquisition opportunities as we have in the past. By "manufacturing" we mean directly originating, or purchasing at origination, commercial mortgage
loans, and financing these loans via the periodic issuance of investment-grade rated CMBS. This strategy would continue our historical focus on higher-yielding tranches of CMBS, but would allow us to
better control the risk inherent in such investments by involving the company in the transactions at inception (i.e. at the time the loans are originated).

January 2003 Recapitalization

On January 23, 2003, we completed a recapitalization of the secured debt incurred upon our emergence from Chapter 11 in April 2001. We refer to that
secured debt as the Exit Debt. This recapitalization was funded with approximately $344 million in proceeds from debt and equity financings and a portion of our available cash and liquid
assets. The recapitalization included approximately $14 million in common equity and $30 million in senior secured subordinated debt purchased by Brascan Real Estate Finance Fund I L.P.,
a private asset management fund established by Brascan Corporation and a New York-based management team. We refer to the senior secured subordinated debt as the BREF Debt and Brascan Real
Estate Finance Fund I L.P. as BREF Fund. Additionally, we received $300 million in secured financing in the form of a repurchase transaction from a unit of Bear, Stearns &
Co., Inc. (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

F-7

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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. All Exit
Debt was paid off in full in connection with the January 2003 recapitalization. Under our reorganization plan, the holders of our equity retained their shares of stock.

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 2003. There can also be no assurance that we will maintain our REIT status for 2004 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 some or all of our obligations, including 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. These two subsidiaries hold all of the partnership interests of CMSLP.

Net Operating Loss for Tax Purposes/Trader Election.For tax purposes we have elected to be
classified as a trader in securities. We trade in both short and longer duration fixed income securities, including CMBS, residential mortgage-backed securities and agency debt 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 Other MBS on our balance sheet.

As
a result of our election in 2000 to be taxed as a trader, 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 was recognized evenly for tax purposes over four years beginning with the year 2000 and ending in 2003. Such loss was
ordinary, which allowed us to offset our ordinary income.

We
generated a net operating loss (or NOL) for tax purposes of approximately $84.0 million and $83.6 million during the years ended December 31, 2003 and
2002, respectively. As such, our taxable income was reduced to zero and, accordingly, our REIT distribution requirement was eliminated for

F-8

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2003
and 2002. As of December 31, 2003, our accumulated and unused net operating loss (or NOL) was $307.8 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.

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 some or all of our contractual obligations.

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 carryforwards 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. If an "ownership change" occurs under Section 382 of the Internal Revenue Code, our prospective use
of our accumulated and unused NOL will be limited.

We
do not believe BREF Fund's investment in our common stock and warrants 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. 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.

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 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 Other Real Estate Interests and that certain of our government insured mortgage securities also constitute

F-9

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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, 2003,
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 our obligations, 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 these obligations. 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.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Our consolidated financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United
States (or GAAP). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities 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.

Consolidation and Minority Interests

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 our consolidated financial statements. The accompanying consolidated financial
statements include the financial results of CRIIMI MAE and all of our majority-owned and controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated in
consolidation.

F-10

---

Reclassifications

Certain 2002 and 2001 amounts have been reclassified to conform to the 2003 presentation.

Other Cash and Cash Equivalents and Servicing Cash and Cash Equivalents

Cash and cash equivalents consist of cash and money market accounts.

Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents consisted of cash and money market accounts that were legally restricted pursuant to covenants under the Exit Debt.

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



We recognize income on our CMBS in accordance with 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". 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 (generally due to credit losses and/or prepayment
speeds). This revised yield is applied prospectively to recognize interest income. We classify our CMBS as "available for sale" and carry them at fair market value with temporary changes in fair value
recorded as a component of shareholders' equity.



Our consolidated investment in insured mortgage securities consists of participation certificates generally 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. Our insured mortgage
securities are classified as "available for sale." As a

F-11

---

result,
we carry our insured mortgage securities at fair value with changes in fair value recorded as a component of shareholders' equity.

Insured
mortgage securities income consists of amortization of the discount or premium 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 security.



Interest income on other mortgage-backed securities (or Other MBS) consists of amortization of the discount or premium on primarily investment-grade securities,
plus the stated investment interest payments received or accrued on Other MBS. 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 MBS are classified as "available for sale." As a result, we carry these securities at fair value and 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.



CRIIMI, Inc., a wholly owned subsidiary, owns all of the general partnership interests in American Insured Mortgage Investors (AIM 84), 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, we own a 20% limited partnership
interest in the advisor 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. AIM 84, AIM 86 and AIM 88 were liquidated in February 2004, resulting in an aggregate liquidating distribution to us of
approximately $1.8 million. Our general partner share of income, loss and distributions for the one remaining AIM Limited Partnership, AIM 85, is 4.9%.

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



We assess each 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 CMBS and the CMBS's current cost basis result in a

F-12

---

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 CMBS and the underlying real estate in making judgments as to whether or not other than temporary impairment has occurred. During the years
ended December 31, 2003, 2002 and 2001, we recognized impairment charges of $14.7 million, $70.2 million and $34.7 million on our subordinated CMBS, respectively. See
Note 4 for further discussion of the impairment charges.

None
of our subordinated CMBS have fair values that are below their respective amortized cost basis at December 31, 2003.



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 during the years ended December 31, 2003, 2002 and 2001.

At
December 31, 2003, some of our insured mortgage securities had fair values below their current amortized cost basis. The fair value and cost basis of these insured mortgages
which have been in
unrealized loss positions for greater than 12 months was approximately $5.4 million and $5.5 million, respectively, resulting in approximately $97,000 in unrealized losses. The
fair value and cost basis of these insured mortgages which have been in unrealized loss positions for less than 12 months was approximately $59.6 million and $60.0 million,
respectively, resulting in approximately $373,000 in unrealized losses. Considering the nature of these investments and the severity and duration of the unrealized losses, and based on our assessment
as described above, we do not believe these insured mortgages are impaired at December 31, 2003.



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 2003 and 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. 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 advisor reduced the value of its investment in the advisory contracts to the AIM
Limited Partnerships and recorded an impairment charge. Our portion of the impairment charge, totaling approximately $233,000 and $460,000, during the years ended December 31, 2003 and
2002, respectively, is included in Equity in Earnings from Investments in our Consolidated Statement of Income. This investment is included in our Portfolio Investment segment. We did not recognize
any impairment charges during 2001.

F-13

---

Also,
as a result of the significant prepayments experienced by the AIM Limited Partnerships, CMSLP's cash flows from its sub-advisory contracts with the AIM Limited
Partnerships have been reduced. As a result, in accordance SFAS No. 144, we evaluated CMSLP's investment in the sub-advisory contracts for impairment. Our estimated future
undiscounted cash flows from this investment were projected to be less than the book value on the investment during 2003 and 2002. As a result, we believed that CMSLP's investment in the
sub-advisory contracts was impaired at each of those dates. We estimated the fair value of the investment using a discounted cash flow methodology. We reduced the value of CMSLP's
investment in the sub-advisory contracts with the AIM Limited Partnerships and recorded an impairment charge of approximately $499,000 and $340,000 during the years ended
December 31, 2003 and 2002, respectively, which is included in Servicing amortization, depreciation and impairment expenses in our Consolidated Statement of Income. We did not recognize any
impairment charges on CMSLP's equity investment during 2001.

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, the fair value of derivative financial instruments and
real estate owned.

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 acquisitions of 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.

F-14

---

Servicing Other Assets and Servicing Liabilities

At December 31, 2003 and 2002, the following comprised servicing other assets and servicing liabilities (in thousands):

2003

2002Receivables and other assets

$
3,293

$
5,717Investment in interest-only certificates and CMBS


1,579


5,374AIM Limited Partnerships' sub-advisory contracts(1)


162


1,034Other, including fixed assets


931


1,650Total servicing other assets

$
5,965

$
13,775Accounts payable

$
1,832

$
757


---

Servicing Revenue 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 sub-advisory fees from the AIM Limited Partnerships. Servicing amortization, depreciation and impairment expenses include CMSLP's amortization of
sub-advisory fees, impairment on mortgage servicing
rights, impairment on sub-advisory contracts (as discussed above) and depreciation and amortization of fixed and other assets.

For
the years ended December 31, 2003, 2002 and 2001, the following comprised servicing revenue and servicing expenses (in thousands):

2003

2002

2001(1)Mortgage servicing fees

$
5,398

$
5,463

$
3,570Assumption fees and other servicing income


3,472


4,312


2,178Interest income


264


694


835AIM Limited Partnerships' sub-advisory fees


349


517


303Total servicing revenue

$
9,483

$
10,986
(2)
$
6,886Amortization of sub-advisory fees and mortgage servicing rights

$
405

$
690

$
734Depreciation and amortization of fixed and other assets


881


1,073


466Impairment on AIM Limited Partnerships' sub-advisory contracts, mortgage servicing rights and CMBS


525


410


499Total servicing amortization, depreciation and impairment

$
1,811

$
2,173

$
1,699


---

F-15

---

Discounts on Debt

Discounts 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 6, prior to January 2003
there were significant extension fees payable accrued 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.

Derivative Financial Instruments

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 approximately $(135,000) in earnings to recognize, at fair value, the interest rate caps designated as cash flow hedges as of January 1, 2001.

Our
interest rate swaps are carried at fair value with the effective portion of the derivative's gain or loss recorded in other comprehensive income and subsequently recognized in
earnings as hedging or interest expense in the same period or periods the hedged forecasted transaction affects earnings. The ineffective portion of the derivative's gain or loss is recorded in
earnings as hedge ineffectiveness expense as it occurs. We record changes in fair value related to the effective portion of the derivative's gain or loss on a quarterly basis to accumulated other
comprehensive income through other comprehensive income in accordance with SFAS 133. We record changes in fair value related to the ineffective portion of the derivative's gain or loss through
hedge ineffectiveness expense in the income statement in accordance with SFAS 133. 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 interest payments. See Note 7 for a further discussion.

We
have used interest rate caps to hedge the variability in interest payments associated with our variable rate debt. 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 in July 1, 2001, we record 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.

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.

F-16

---

Earnings Per Share

Basic earnings per share (or EPS) 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, warrants and
certain series of convertible preferred stock. See Note 14 for a reconciliation of basic earnings per share to diluted earnings per share.

Income Taxes

We have elected to qualify as a REIT for tax purposes under Sections 856-860 of the Internal Revenue Code for the 2003 and 2002
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, 2003, 2002 and 2001, no excess inclusion was distributed. 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.

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 two 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.

Cash Flow

The following is the supplemental cash flow information:

|                                             |                                                                      | Years ended December 31, |           
|-------------------------------------------- | -------------------------------------------------------------------- | ------------------------ | ----------
|
|Cash paid for interest                       |                                                                      | $                        | 61,378,348
|Cash paid for income taxes                   |                                                                      |                          | 264,356   
|Non-cash investing and financing activities: |                                                                      |                          |           
|                                             | Restricted stock issued                                              |                          |           
|                                             | Preferred stock dividends paid in shares of common stock             |                          |           
|                                             | Exit Debt incurred                                                   |                          |           
|                                             | Pre-emergence debt and payables repaid through issuance of Exit Debt |                          |           
|                                             | Fair value of real estate assets acquired                            |                          |           
|                                             | Fair value of real estate liabilities acquired                       |                          |           
|                                             | Fair value of mortgage assumed                                       |                          |           

F-17

---

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 our derivative financial instruments accounted for under SFAS No. 133. The table below details
other comprehensive income for the periods presented:

2003

2002

2001Reclassification adjustment for (gains) losses from dispositions included in net income

$
(1,570,878
)
$
1,829,607

$
350,066Reclassification adjustment for impairment losses recognized on CMBS included in net income





(406,724
)

Unrealized holding (losses) gains on mortgage securities arising during the period


(14,681,818
)

107,747,337


(3,390,785
)Unrealized gains (losses) on derivative financial instruments


5,713,395


(604,565
)

(383,200
)Net adjustment to other comprehensive income

$
(10,539,301
)
$
108,565,655

$
(3,423,919
)


The
following table summarizes our accumulated other comprehensive income:

December 31,
2003

December 31,
2002Unrealized gains on mortgage assets

$
86,857,129

$
103,109,822Unrealized gains (losses) on derivative financial instruments


4,725,627


(987,765
)Accumulated other comprehensive income

$
91,582,756

$
102,122,057


Recent Accounting Pronouncements

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. According to FIN No. 46R issued in December 2003, the Interpretation applies at the end of the first
reporting period ending after March 15, 2004, 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.

F-18

---

Adjustment for Initial Preferred Stock Issuance Costs

At the July 31, 2003 Emerging Issues Task Force meeting, the SEC Observer clarified the application of Topic D-42 related to preferred stock
issuance costs. According to the clarification, all preferred stock issuance costs, regardless of where in the stockholders' equity section the costs were initially recorded, should be charged
to income available to common shareholders for the purpose of calculating earnings per share at the time the preferred stock is redeemed. The SEC Observer indicated that preferred stock issuance costs
not previously charged to income available to common shareholders should be reflected retroactively in financial statements for reporting periods ending after September 15, 2003 by restating
the financial statements of prior periods on an as filed basis.

As
the result of this guidance, we charged to income available to common shareholders approximately $1.2 million in preferred stock offering costs during the year ended
December 31, 2002 related to our Series E preferred stock redeemed in March 2002. The following is a summary of the effect of this change in accounting principle on our
Consolidated Statement of Income and Consolidated Statement of Changes in Shareholders' Equity and Comprehensive Income during the year ended December 31, 2002:

|                                              |                                                                                | As reported |              | Adjustment |   | Adjusted   |      
|--------------------------------------------- | ------------------------------------------------------------------------------ | ----------- | ------------ | ---------- | - | ---------- | -----
|Dividends paid or accured on preferred shares |                                                                                | $           | (8,122,791   | )          | $ | (1,214,227 | )    
|Net loss to common shareholders               |                                                                                |             | (64,247,814  | )          |   | (1,214,227 | )    
|Earnings (loss) per common share:             |                                                                                |             |              |            |   |            |      
|                                              | Basic and diluted  before cumulative effect of change in accounting principle |             |              | (3.97      | ) |            | (0.09
|                                              | Basic and diluted  after cumulative effect of change in accounting principle  |             |              | (4.69      | ) |            | (0.08
|Additional paid-in capital                    |                                                                                |             | 619,197,711  |            |   | 1,214,227  |      
|Accumulated deficit                           |                                                                                |             | (429,812,858 | )          |   | (1,214,227 | )    

All
applicable 2002 disclosures have been adjusted to reflect this change in accounting principle.

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. 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 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 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.

F-19

---

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

In 2001, the Financial Accounting Standards Board (or FASB) issued 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 segment 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 in 1995, 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 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 20). 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 our 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 2001:

2001Reported net loss to common shareholders

$
(24,222,798
)Add: Goodwill amortization


399,468Add: Intangible assets amortization


2,390,004Adjusted net loss to common shareholders

$
(21,433,326
)Basic and diluted earnings per share:Reported basic and diluted earnings per share after cumulative effect of changes in accounting principles

$
(2.18
)Goodwill amortization


0.04Intangible assets amortization


0.21Adjusted basic and diluted earnings per share after cumulative effect of changes in accounting principles

$
(1.93
)


Accounting during 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 were items of income and expense that were realized or incurred because of the Chapter 11 reorganization. During the year ended
December 31, 2001, we recorded reorganization

F-20

---

items
due to the Chapter 11 filings of CRIIMI MAE, CRIIMI MAE Management and CRIIMI MAE Holdings II as follows (in thousands):

Reorganization Items

2001Short-term interest income

$
2,491Professional fees


(3,870
)Other


(801
)Net recovery on real estate owned


367Total reorganization expense, net

$
(1,813
)


3.     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.

|                                                                                  |                                                                 | As of December 31, 2003 |                 | As of December 31, 2002 |  
|--------------------------------------------------------------------------------- | --------------------------------------------------------------- | ----------------------- | --------------- | ----------------------- | -
|
|
|ASSETS:                                                                           |                                                                 |                         |                 |                         |  
|Subordinated CMBS pledged to secure recourse debt(1)                              |                                                                 | $                       | 463,194         |                         | $
|CMBS pledged to secure Securitized Mortgage ObligationsCMBS(1)                   |                                                                 |                         | 287,093         |                         |  
|Other MBS(1)                                                                      |                                                                 |                         | 3,994           |                         |  
|Insured mortgage securities pledged to secure Securitized Mortgage Obligations(1) |                                                                 |                         | 122,291         |                         |  
|Insured mortgage securities pledged to secure recourse debt(1)                    |                                                                 |                         | 25,051          |                         |  
|Derivative financial instruments(1)                                               |                                                                 |                         | 38              |                         |  
|Servicing other assets                                                            |                                                                 |                         | See footnote (2 | )                       |  
|Servicing cash and cash equivalents                                               |                                                                 |                         | 4,428           |                         |  
|Other cash and cash equivalents                                                   |                                                                 |                         | 17,271          |                         |  
|Restricted cash and cash equivalents                                              |                                                                 |                         |                |                         |  
|LIABILITIES:                                                                      |                                                                 |                         |                 |                         |  
|BREF senior subordinated secured note                                             |                                                                 |                         | 31,267          |                         |  
|Bear Stearns variable rate secured debt                                           |                                                                 |                         | 296,250         |                         |  
|Bear Stearns repurchase agreement                                                 |                                                                 |                         | 22,526          |                         |  
|Securitized mortgage obligations:                                                 |                                                                 |                         |                 |                         |  
|                                                                                  | Collateralized bond obligationsCMBS                            |                         |                 | 288,979                 |  
|                                                                                  | Collateralized mortgage obligationsinsured mortgage securities |                         |                 | 119,238                 |  
|Mortgage payable                                                                  |                                                                 |                         | 7,332           |                         |  
|Exit variable-rate secured borrowing                                              |                                                                 |                         |                |                         |  
|Series A senior secured notes                                                     |                                                                 |                         |                |                         |  
|Series B senior secured notes                                                     |                                                                 |                         |                |                         |  

---

F-21

---

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

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 our assets and 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 and/or advisors regarding the
pricing and valuation of our securities and 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 underlying commercial mortgage loans. We make further
adjustments to such pricing information based on our specific knowledge of our CMBS and the impact of relevant events, 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 assumed market yields for our CMBS rated A+ through B, depending on the rating. The fair value for those CMBS
incurring principal losses and interest shortfalls (i.e., B- rated bonds through 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 the value and risk of comparable securities, using a discounted cash flow approach. Such anticipated principal
losses and interest shortfalls, as well as the timing and amount of potential recoveries of such shortfalls, are critical estimates and have been taken into consideration in the calculation of fair
values and yields to maturity used to recognize interest income as of December 31, 2003. We have disclosed the range of discount rates by rating category used in determining the fair values as
of December 31, 2003 in Note 4.

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.

Other MBS

The fair value of the Other MBS is an estimate based on the indicative market price from publicly available pricing services, as well as management estimates.

Insured Mortgage Securities

We calculated the estimated fair value of the insured mortgage securities portfolio as of December 31, 2003 and 2002, 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 the discount rate, including institutionally available research reports, communications with dealers and active insured mortgage security investors regarding the valuation of comparable
securities and recent transactions.

F-22

---

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, 2003 and 2002 were calculated using a discounted cash flow methodology similar
to that discussed for CMBS above. The carrying amount of the Bear Stearns Debt and the Bear Stearns repurchase agreement (and at December 31, 2002, 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 BREF Debt was estimated by applying a discount rate to the debt's
future cash flows. The discount rate was determined by considering the BREF Debt's relative position in our capital structure in relation to our other capital. The fair value of the mortgage payable
is estimated based on current market interest rates of commercial mortgage debt. As of December 31, 2002, the fair values of the Series A and Series B Senior Secured Notes are the
same as the face values since the notes were redeemed in January 2003.

Derivative Financial Instruments

The fair values of our interest rate swaps and interest rate cap are the estimated amounts that we would realize to terminate the agreements as of
December 31, 2003 and 2002, taking into account current interest rates and the current creditworthiness of the counterparties. The amounts were determined based on valuations received from the
counterparties to the agreements.

4.     CMBS

As of December 31, 2003, our assets, in accordance with GAAP, include CMBS with an aggregate face amount of approximately $1.5 billion rated from A+
to D and unrated. Such CMBS had an aggregate fair value of approximately $837 million (representing approximately 78% of our total consolidated assets) and an aggregate amortized cost of
approximately $750 million. Such CMBS represent investments in securities issued in connection with CRIIMI MAE Trust 1 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, 2003 (in millions):

Rating(1)

Fair Value

% of CMBSInvestment Grade Portfolio:A+, BBB+ or BBB(2)

$
325.3

39
%Retained Portfolio:BB+, BB or BB-

$
332.5

40
%B+, B or B-

$
145.4

17
%CCC, D or Unrated

$
33.8

4
%


---

F-23

---



As
of December 31, 2003, the weighted average pay rate and the loss adjusted weighted average life (based on face amount) of the investment grade securities was 7.0% and
7.9 years, respectively. The weighted average pay 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 5.2% and 11.0 years, respectively. The aggregate investment by the rating of the CMBS is as follows:

|Security Rating               |  | Face Amount as of 12/31/03
(in millions) |         | Weighted Average Pay Rate as of 12/31/03 |     | Loss Adjusted Weighted Average Life(1) |          | Fair Value as of 12/31/03 (in millions) |   | Discount Rate or Range of Discount Rates Used to Calculate Fair Value as of 12/31/03 |     | Amortized Cost as of 12/31/03
(in millions)(5) |     | Amortized Cost as of 12/31/02
(in millions)
|----------------------------- |  | ---------------------------------------- | ------- | ---------------------------------------- | --- | -------------------------------------- | -------- | --------------------------------------- | - | ------------------------------------------------------------------------------------ | --- | ---------------------------------------------- | --- | -------------------------------------------
|Investment Grade Portfolio    |  |                                          |         |                                          |     |                                        |          |                                         |   |                                                                                      |     |                                                |     |                                            
|A+(4)                         |  | $                                        | 59.4    |                                          | 7.0 | %                                      | 3 years  |                                         | $ | 62.2                                                                                 |     | 4.5%                                           |     | $                                          
|BBB+(4)                       |  |                                          | 150.6   |                                          | 7.0 | %                                      | 9 years  |                                         |   | 152.2                                                                                |     | 6.8%                                           |     |                                            
|BBB(4)                        |  |                                          | 115.2   |                                          | 7.0 | %                                      | 9 years  |                                         |   | 110.9                                                                                |     | 7.6%                                           |     |                                            
|Retained Portfolio            |  |                                          |         |                                          |     |                                        |          |                                         |   |                                                                                      |     |                                                |     |                                            
|BB+                           |  |                                          | 319.0   |                                          | 7.0 | %                                      | 11 years |                                         |   | 256.2                                                                                |     | 10.2%-10.6%                                    |     |                                            
|BB                            |  |                                          | 70.9    |                                          | 7.0 | %                                      | 13 years |                                         |   | 52.0                                                                                 |     | 11.5%                                          |     |                                            
|BB-                           |  |                                          | 35.4    |                                          | 7.0 | %                                      | 14 years |                                         |   | 24.3                                                                                 |     | 12.4%                                          |     |                                            
|B+                            |  |                                          | 88.6    |                                          | 7.0 | %                                      | 14 years |                                         |   | 48.7                                                                                 |     | 15.7%                                          |     |                                            
|B                             |  |                                          | 177.2   |                                          | 8.9 | %                                      | 17 years |                                         |   | 90.7                                                                                 |     | 16.2-16.5%                                     |     |                                            
|B-(2)(10)                     |  |                                          | 12.0    |                                          | 8.0 | %                                      | 17 years |                                         |   | 6.0                                                                                  |     | 15.0%                                          | (8) |                                            
|CCC(2)                        |  |                                          | 70.9    |                                          |    |                                        | 1 year   |                                         |   |                                                                                     |     | 15.0%                                          | (8) |                                            
|D(2)(9)(10)                   |  |                                          | 106.3   |                                          | 0.5 | %                                      | 25 years |                                         |   | 16.5                                                                                 |     | 15.0%                                          | (8) |                                            
|Unrated/Issuer's Equity(2)(3) |  |                                          | 256.5   |                                          | 2.4 | %                                      | 1 year   |                                         |   | 17.3                                                                                 |     | 15.0%                                          | (8) |                                            
|                              |  |                                          |         |                                          |     |                                        |          |                                         |   |                                                                                      |     |                                                |     |                                            
|Total                         |  | $                                        | 1,462.0 |                                          | 5.6 | %                                      | 10 years |                                         | $ | 837.0                                                                                | (7) |                                                |     | $                                          
|                              |  |                                          |         |                                          |     |                                        |          |                                         |   |                                                                                      |     |                                                |     |                                            

---

F-24

---



Mortgage Loan Pool

We have $15.3 billion and $17.4 billion of seasoned commercial mortgage loans underlying our subordinated CMBS as of December 31, 2003 and
2002, respectively. The commercial mortgage loans are secured by properties of the types and in the geographic locations identified below:

Property Type

12/31/03
Percentage(i)

Geographic Location(ii)

12/31/03
Percentage(i)Retail

31
%
California

16
%Multifamily

27
%
Texas

12
%Hotel

15
%
Florida

8
%Office

14
%
Pennsylvania

6
%Other(iv)

13
%
New York

5
%Total

100
%
Other(iii)

53
%Total

100
%


---

F-25

---



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 the first loss unrated or lowest rated bond of virtually all of the CMBS transactions underlying our subordinated CMBS, we have an incentive to
efficiently and effectively resolve any loan workouts.

As
of December 31, 2003 and 2002, specially serviced mortgage loans included in the commercial mortgage loans described above are as follows:

12/31/03

12/31/02Specially serviced loans due to monetary default(a)

$
963.8 million

$
736.1 millionSpecially serviced loans due to covenant default/other


58.2 million


74.7 millionTotal specially serviced loans(b)

$
1,022.0 million

$
810.8 millionPercentage of total mortgage loans(b)


6.7%


4.7%


---

The
specially serviced mortgage loans as of December 31, 2003 were secured by properties of the types and located in the states identified below:

|Property Type |       | $ (in millions) |       | Percentage |    | Geographic Location |               | $ (in millions) |   | Percentage |        
|------------- | ----- | --------------- | ----- | ---------- | -- | ------------------- | ------------- | --------------- | - | ---------- | -------
|Hotel         |       | $               | 533.2 | (1)        | 52 | %                   | Florida       |                 | $ | 154.6      |        
|Retail        |       |                 | 225.1 | (2)        | 22 | %                   | Texas         |                 |   | 113.1      |        
|Multifamily   |       |                 | 102.4 |            | 10 | %                   | Oregon        |                 |   | 92.7       |        
|Healthcare    |       |                 | 81.2  |            | 8  | %                   | California    |                 |   | 47.8       |        
|Office        |       |                 | 47.1  |            | 5  | %                   | Massachusetts |                 |   | 47.6       |        
|Industrial    |       |                 | 23.8  |            | 2  | %                   | Pennsylvania  |                 |   | 44.4       |        
|Other         |       |                 | 9.2   |            | 1  | %                   | Other         |                 |   | 521.8      |        
|              |       |                 |       |            |    |                     |               |                 |   |            |        
|              | Total |                 | $     | 1,022.0    |    | 100                 | %             | Total           |   | $          | 1,022.0
|              |       |                 |       |            |    |                     |               |                 |   |            |        

---

F-26

---

The
following table provides a summary of the change in the balance of specially serviced loans from December 31, 2002 to December 31, 2003:

(in millions)Specially Serviced Loans, December 31, 2002

$
810.8Transfers in due to monetary default


640.2Transfers in due to covenant default and other


190.8Transfers out of special servicing


(595.9
)Loan amortization(1)


(23.9
)Specially Serviced Loans, December 31, 2003

$
1,022.0


---

The
most significant borrowing relationship in our specially serviced mortgage loan portfolio consists of 27 loans with scheduled principal balances as of December 31, 2003
totaling approximately $133 million spread across three CMBS transactions secured by hotel properties in the western and Pacific northwestern states. As of December 31, 2003, our total
exposure, including advances and interest on advances of approximately $43 million, on these loans was approximately $176 million. Such total exposure is prior to the application of
payments made to date by the borrower under the terms of our consensual settlement agreement and is expected to be reduced by the application of such payments at the settlement agreement closing. The
borrower initially filed for bankruptcy protection in February 2002 and indicated that the properties had experienced reduced operating performance due to new competition, the economic
recession, and reduced travel resulting from the September 11, 2001 terrorist attacks. We entered into a consensual settlement agreement dated February 25, 2003 pursuant to which the
loan terms were amended and modified. This agreement was subsequently approved and confirmed by the bankruptcy court on March 28, 2003. The parties are currently proceeding toward closing a
comprehensive modification of each loan, which is expected to occur in March 2004 and which is expected to return the loans to performing status. The closing of the loan modification is a
complex process involving a large number of parties, all of whom must ultimately agree on, among other things, a reconciliation of payments and funds applied since the loan modification was approved
by the bankruptcy court. The borrower continues to make payments under the modified terms. As of December 31, 2003, the borrower has made principal and interest payments totaling approximately
$10 million, the majority of which represents interest paid (as compared to principal amortization) on
the modified loan balances. During the year ended December 31, 2003, the borrower also sold one of the properties that secured these loans. In addition, as of December 31, 2003, the
borrower has remitted approximately $1.5 million in funds from debtor-in-possession accounts, which is expected to be applied to arrearages at closing. As described
below, there can be no assurance that our overall expected loss estimate will not be exceeded as a result of additional or existing adverse events or circumstances related to this exposure.



We experience shortfalls in expected cash flow on our CMBS prior to the recognition of a realized loss primarily due to servicing advance limitations resulting
from appraisal reductions. An appraisal reduction event can result in reduced master servicer principal and interest advances based on the amount by which the sum of the unpaid principal balance of
the loan, accumulated principal and interest advances and other expenses exceeds 90% (in most cases) of the newly appraised value of the property underlying the mortgage loan. As the holder of the
lowest rated and first loss bonds, our bonds are the first to experience interest shortfalls as a result of the reduced advancing requirement. In general, the master servicer can advance up to a
maximum of the difference between 90% of the

F-27

---

property's
appraised value and the sum of accumulated principal and interest advances and expenses. As an example, assuming a weighted average coupon of 6% on a first loss subordinated CMBS, a
$1 million appraisal reduction would reduce our net cash flows by up to $60,000 on an annual basis, assuming that the total exposure was equal to or greater than 90% of the appraised value
immediately prior to receipt of the new appraisal (appraisal reduction). The ultimate disposition or work-out of the mortgage loan may result in a higher or lower realized loss on our
subordinated CMBS than the calculated appraisal reduction amount. Cumulative appraisal reductions through December 31, 2003 for the CMBS transactions in which we retain an ownership interest as
reported by the underlying trustees or as estimated by CMSLP were as follows (in thousands):

CBO-2

$
151,859CBO-1


73,684Nomura


20,516Total

$
246,059


Certain
securities 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, 2003 (including realized mortgage loan losses expected to pass through to our CMBS during the next month) and the expected
future real estate losses underlying our CMBS (in thousands):

|                                                                                                      |  | CBO-1 |         | CBO-2 |   | Nomura  |  | Total
|----------------------------------------------------------------------------------------------------- |  | ----- | ------- | ----- | - | ------- |  | -----
|Year 1999 actual realized losses                                                                      |  | $     | 738     |       | $ |        |  | $    
|Year 2000 actual realized losses                                                                      |  |       | 3,201   |       |   | 1,087   |  |      
|Year 2001 actual realized losses                                                                      |  |       | 545     |       |   | 8,397   |  |      
|Year 2002 actual realized losses                                                                      |  |       | 11,554  |       |   | 25,113  |  |      
|Year 2003 actual realized losses                                                                      |  |       | 11,796  |       |   | 57,913  |  |      
|                                                                                                      |  |       |         |       |   |         |  |      
|Cumulative actual realized losses through December 31, 2003                                           |  | $     | 27,834  |       | $ | 92,510  |  | $    
|                                                                                                      |  |       |         |       |   |         |  |      
|Cumulative actual realized losses through the year 2003                                               |  | $     | 27,834  |       | $ | 92,510  |  | $    
|Expected loss estimates for the year 2004                                                             |  |       | 51,529  |       |   | 122,121 |  |      
|Expected loss estimates for the year 2005                                                             |  |       | 36,369  |       |   | 118,345 |  |      
|Expected loss estimates for the year 2006                                                             |  |       | 3,577   |       |   | 16,054  |  |      
|Expected loss estimates for the year 2007                                                             |  |       | 2,096   |       |   | 14,075  |  |      
|Expected loss estimates for the year 2008                                                             |  |       | 1,953   |       |   | 7,147   |  |      
|Expected loss estimates for the remaining life of CMBS                                                |  |       | 6,764   |       |   | 33,419  |  |      
|                                                                                                      |  |       |         |       |   |         |  |      
|Cumulative expected loss estimates (including cumulative actual realized losses) through life of CMBS |  | $     | 130,122 |       | $ | 403,671 |  | $    
|                                                                                                      |  |       |         |       |   |         |  |      

We
revised our overall expected loss estimate related to our subordinated CMBS to $581 million at December 31, 2003, with such total losses occurring or expected to occur
through the life of the subordinated CMBS portfolio. This revision to the overall expected loss estimate is primarily the result of increased projected losses due to lower internal estimates of values
on properties underlying certain mortgage loans and real estate owned by underlying trusts, and, in some cases, changes in the timing of resolution and disposition of certain specially serviced
assets, which when combined, has resulted in higher projected loss severities on certain loans and real estate owned by underlying trusts currently or anticipated to be in special servicing. The
primary reasons for lower estimates of value include the poor performance of certain properties and related markets and changes to workout negotiations due, in large part, to the softness in the
economy and the lag typically associated with real estate fundamentals,

F-28

---

the
continued slowdown in travel and, in some cases, over-supply of hotel properties, and a shift in retail activity in some markets. There can be no assurance that our revised overall
expected loss estimate of $581 million will not be exceeded as a result of additional or existing adverse events or circumstances.

During
2003, we determined that there had been an adverse change in expected future cash flows for certain of the CMBS as of June 30, 2003, September 30, 2003 and
December 31, 2003 due to the factors mentioned previously. As a result, we believed some of our CMBS 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 the impaired CMBS aggregated approximately $14.7 million below the amortized cost basis, we
recorded other than temporary impairment charges through the income statement during 2003.

During
2002, we revised our overall expected loss estimate related to our subordinated CMBS portfolio. The revisions to the overall expected loss estimate during 2002 were primarily the
result of the same factors as those described above. As we determined that there had been an adverse change in expected future cash flows, we believed some of our CMBS had been impaired during 2002.
As the fair value of the impaired subordinated CMBS aggregated approximately $70.2 million below the amortized cost, we recorded other than temporary impairment charges through the income
statement during 2002.

During
2001, we revised our overall expected loss estimate related to our subordinated CMBS portfolio. 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. 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 then current estimate of expected credit losses exceeded credit losses as previously projected, we believed certain of the
CMBS had been impaired during 2001. As the fair value of the impaired bonds aggregated approximately $34.7 million below the amortized
cost basis, we recorded other than temporary impairment charges through the income statement during 2001.

Yield to Maturity

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

|Pool             |  | Anticipated
Yield-to-
Maturity
as of 1/1/01(1) |   | Anticipated
Yield-to-
Maturity
as of 1/1/02(1) |   | Anticipated
Yield-to-
Maturity
as of 1/1/03(1) |   | Current
Anticipated
Yield-to-
Maturity
as of 1/1/04(1) |  
|---------------- |  | ---------------------------------------------- | - | ---------------------------------------------- | - | ---------------------------------------------- | - | ------------------------------------------------------ | -
|CBO-2 CMBS       |  | 11.8                                           | % | 12.1                                           | % | 11.6                                           | % | 11.7                                                   | %
|CBO-1 CMBS       |  | 21.0                                           | % | 14.3                                           | % | 11.6                                           | % | 19.1                                                   | %
|Nomura CMBS      |  | 25.3                                           | % | 28.7                                           | % | 8.0                                            | % | 15.0                                                   | %
|                 |  |                                                |   |                                                |   |                                                |   |                                                        |  
|Weighted Average |  | 12.4                                           | % | 12.4                                           | % | 11.6                                           | % | 11.9                                                   | %

---

F-29

---

Determining Fair Value of CMBS

We use a discounted cash flow methodology for determining the fair value of our CMBS. See Note 3 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:



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, among other things, 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.

F-30

---

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 greater or sooner than projected, and/or longer periods of recovery between the date of
default and liquidation (see also "Key Assumptions in Determining Fair Values" and "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. For purposes of this disclosure, we assumed the following loss
scenarios, each of which was assumed to begin immediately following December 31, 2003: (i) 3.0% per annum of the commercial mortgage loans were assumed to default and 30% of the then
outstanding principal amount of the defaulted commercial mortgage loans were assumed to be lost (referred to in the industry as a 3.0% CDR and 30% loss severity, and referred to herein as the "3%/30%
CDR Loss Scenario"), and (ii) 3.0% per annum of each commercial mortgage was assumed to default and 40% 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 and 40% loss severity, and referred to herein as the "3%/40% CDR Loss
Scenario"). The reduction in amount of cash flows resulting from the 3%/30% CDR Loss Scenario and the 3%/40% CDR Loss Scenario would result in a corresponding decline in the fair value of our
aggregate CMBS by approximately $62.6 million (or 7.5%) and $149.3 million (or 17.8%), respectively. The reduction in amount of cash flows resulting from the 3%/30% CDR Loss Scenario and
the 3%/40% 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 $60.5 million (or 11.8%)
and $145.0 million (or 28.3%), respectively.

The
aggregate amount of credit losses assumed under the 3%/30% CDR Loss Scenario and the 3%/40% CDR Loss Scenario totaled approximately $739 million and $984 million,
respectively. These amounts are in comparison to the aggregate amount of anticipated credit losses estimated by us as of December 31, 2003 of approximately $581 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 3%/30% CDR Loss Scenario and the 3%/40% CDR Loss Scenario.



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 $45.8 million (or 5.5%) and $88.0 million

F-31

---

(or
10.5%), respectively, and our subordinated CMBS by approximately $29.6 million (or 5.8%) and $56.6 million (or 11.1%), 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 $9.1 million (or 0.9%) and $17.5 million (or 1.7%),
respectively, and our subordinated CMBS by approximately $7.7 million (or 1.1%) and $14.1 million (or 2.0%), respectively.

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, other than if
high-coupon mortgage loans underlying our subordinated CMBS are prepaid thus reducing the excess interest available to our subordinated CMBS, the effects of increased prepayments were
excluded from the sensitivity analysis above. It should be noted that the effects of a decline in prepayments is reflected in the Sensitivity of Fair Value to Extension Risk above.

5.     INSURED MORTGAGE SECURITIES

We own the following insured mortgage securities directly or indirectly through wholly owned subsidiaries (dollars in thousands):

|                                       |  | As of December 31, 2003 |    
|-------------------------------------- |  | ----------------------- | ---
|
|CRIIMI MAE Financial Corporation(2)    |  | 14                      |    
|CRIIMI MAE Financial Corporation II(3) |  | 14                      |    
|CRIIMI MAE Asset Acquisition Corp.(4)  |  | 11                      |    
|                                       |  |                         |    
|                                       |  | 39                      | (1)
|                                       |  |                         |    

F-32

---

|                                     |  | As of December 31, 2002 | 
|------------------------------------ |  | ----------------------- | 
|
|CRIIMI MAE                           |  | 1                       | 
|CRIIMI MAE Financial Corporation     |  | 22                      | 
|CRIIMI MAE Financial Corporation II  |  | 28                      | 
|CRIIMI MAE Financial Corporation III |  | 16                      | 
|                                     |  |                         | 
|                                     |  | 67                      | 
|                                     |  |                         | 

---

We
receive the net cash flows after debt service, generally excess interest and prepayment penalties, from the wholly-owned subsidiaries that have pledged these insured mortgage
securities to secure the related obligations which represent the total cash flows that we receive from these mortgage securities.

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,
2003, summarized

F-33

---

information
regarding other mortgage securities and mortgage securities income earned in 2003, 2002 and 2001, including interest earned on the disposed mortgage securities, are as follows (in
thousands):

|                                            |                                 | Mortgage Securities as of December 31, 2003 |         | Mortgage Income Earned
|------------------------------------------- | ------------------------------- | ------------------------------------------- | ------- | ----------------------
|
|CRIIMI MAE Financial Corporation            |                                 |                                             |         |                       
|                                            | FHA-Insured Certificates        |                                             |         |                       
|                                            | Stoddard Baptist Nursing Home   |                                             | $       | 8,641                 
|                                            | Other (6 mortgage securities)   |                                             |         | 11,484                
|                                            | GNMA Mortgage-Backed Securities |                                             |         |                       
|                                            | Bellhaven Nursing Center        |                                             |         | 13,637                
|                                            | Capital Crossing Apartments     |                                             |         | 9,309                 
|                                            | Other (5 mortgage securities)   |                                             |         | 12,090                
|                                            |                                 |                                             |         |                       
|                                            |                                 |                                             | 55,161  |                       
|                                            |                                 |                                             |         |                       
|CRIIMI MAE Financial Corporation II         |                                 |                                             |         |                       
|                                            | GNMA Mortgage-Backed Securities |                                             |         |                       
|                                            | Brittany Bay Townhomes          |                                             |         | 4,835                 
|                                            | Oakwood Garden Apartments       |                                             |         | 11,996                
|                                            | San Jose South                  |                                             |         | 26,078                
|                                            | Other (11 mortgage securities)  |                                             |         | 23,624                
|                                            |                                 |                                             |         |                       
|                                            |                                 |                                             | 66,533  |                       
|                                            |                                 |                                             |         |                       
|CRIIMI MAE Asset Acquisition Corp.          |                                 |                                             |         |                       
|                                            | GNMA Mortgage-Backed Securities |                                             |         |                       
|                                            | North Central Care Center       |                                             |         | 6,731                 
|                                            | Other (10 mortgage securities)  |                                             |         | 18,265                
|                                            |                                 |                                             |         |                       
|                                            |                                 |                                             | 24,996  |                       
|                                            |                                 |                                             |         |                       
|Total Insured Mortgage Securities           |                                 | $                                           | 146,690 |                       
|                                            |                                 |                                             |         |                       
|Insured Mortgage Security Dispositions      |                                 |                                             |         |                       
|                                            |                                 |                                             |         |                       
|Insured Mortgage Securities Interest Income |                                 |                                             |         |                       
|                                            |                                 |                                             |         |                       

---

F-34

---

For the year ended December 31,2003

2002Balance at beginning of year

$
275,340

$
343,091Adjustment to net unrealized gains and losses on mortgage securities


(1,530
)

9,577Principal payments


(2,884
)

(3,824
)Mortgage prepayments/sale


(123,382
)

(73,437
)Net amortization of (premium) discount


(46
)

(67
)Balance at end of year

$
147,498

$
275,340


6.     OBLIGATIONS UNDER FINANCING FACILITIES

The following table summarizes our debt outstanding as of December 31, 2003 and 2002 (in thousands):

|                                        |                             | As of and for the year ended December 31, 2003 |        
|--------------------------------------- | --------------------------- | ---------------------------------------------- | -------
|
|Recourse to CRIIMI MAE:                 |                             |                                                |        
|Bear Stearns debt(1)                    |                             | $                                              | 296,250
|BREF debt(2)                            |                             |                                                | 31,267 
|Bear Stearns repurchase agreement(3)    |                             |                                                | 22,526 
|Exit variable-rate secured borrowing(4) |                             |                                                |       
|Series A senior secured notes(4)        |                             |                                                |       
|Series B senior secured notes(4)        |                             |                                                |       
|Non-Recourse to CRIIMI MAE:             |                             |                                                |        
|Securitized mortgage obligations:       |                             |                                                |        
|                                        | CMBS(5)                     |                                                |        
|                                        | Freddie Mac funding note(6) |                                                |        
|                                        | CMO(7)                      |                                                |        
|                                        | Fannie Mae funding note(3)  |                                                |        
|Mortgage payable(8)                     |                             |                                                | 7,332  
|                                        |                             |                                                |        
|                                        |                             | Total debt                                     |        
|                                        |                             |                                                |        

F-35

---

|                                        |                             | As of and for the year ended December 31, 2002 |        
|--------------------------------------- | --------------------------- | ---------------------------------------------- | -------
|
|Recourse to CRIIMI MAE:                 |                             |                                                |        
|Exit variable-rate secured borrowing(4) |                             | $                                              | 214,673
|Series A senior secured notes(4)        |                             |                                                | 92,789 
|Series B senior secured notes(4)        |                             |                                                | 68,491 
|Non-Recourse to CRIIMI MAE:             |                             |                                                |        
|Securitized mortgage obligations:       |                             |                                                |        
|                                        | CMBS(5)                     |                                                |        
|                                        | Freddie Mac funding note(6) |                                                |        
|                                        | CMO(7)                      |                                                |        
|                                        | Fannie Mae funding note(3)  |                                                |        
|Mortgage payable(8)                     |                             |                                                | 7,214  
|                                        |                             |                                                |        
|                                        |                             | Total debt                                     |        
|                                        |                             |                                                |        

---

F-36

---



Our
debt maturities as of December 31, 2003 are as follows (in thousands):

2004

$
15,2242005


37,5132006


369,1052007


2,8772008


11,052Thereafter


372,420$
808,191
(a)


---

Debt Incurred in Connection with January 2003 Recapitalization



Bear Stearns provided $300 million in secured financing to two of our subsidiaries, in the form of a repurchase transaction under the January 2003
recapitalization. The Bear Stearns Debt matures in 2006, bears interest at a per annum rate equal to one-month LIBOR plus 3%, payable monthly, and required quarterly principal payments of
$1.25 million through January 2004. The principal payments increased to $1.875 million per quarter effective January 23, 2004 since a collateralized debt obligation
transaction (or CDO) was not completed by January 23, 2004. If Bear Stearns structures a CDO or other transaction that meets certain rating requirements and we decline to enter into such
transaction, the interest rate will increase by 1%, to one-month LIBOR plus 4% and we will have to pay Bear Stearns an additional $2 million in cash. Although CRIIMI MAE Inc.
(unconsolidated) 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. We also
paid $250,000 of Bear Stearns' legal expenses.

F-37

---

On
the effective date of our 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. The indirect first liens are first liens on
the equity interests of three of our subsidiaries that hold certain subordinated CMBS. 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, if, and as, permitted after the application of the terms of a netting
agreement entered into in connection with an interest rate swap (as described below), 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. Under the Bear Stearns Debt, we are required to obtain interest rate protection in the form of a cap,
swap or other derivative.



In connection with the January 2003 recapitalization, BREF Fund purchased $30 million of our newly issued subordinated debt. The BREF Debt matures
on January 13, 2006 and bears interest at an annual rate of 15%. The interest on the BREF Debt is payable semi-annually and there are no principal payments until maturity. We have a
right to defer two-thirds of the interest on the BREF Debt, during its term. On the June 15, 2003 payment date, we deferred two-thirds of the interest. This deferred
interest is capitalized and treated as additional principal due upon maturity. On the December 15, 2003 payment date, we paid all non-capitalized interest current. The BREF Debt is
secured by first liens on the equity interests of two of our subsidiaries. Although these liens effectively provide BREF Fund 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 direct 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 Brascan Real Estate Financial Investments LLC, which we refer to as BREF Investments, and Bear Stearns, BREF
Investments has agreed generally that the BREF Debt is subordinate and junior to the prior payment of the Bear Stearns Debt and has further agreed to contractual restrictions on its ability to realize
upon its liens. We paid BREF Investments an origination fee of $200,000, equal to 0.5% of the $30 million in subordinated debt it had acquired plus the additional $10 million in
subordinated debt that, at our option, it could have acquired prior to January 14, 2004. We also paid BREF Investments $1 million for expenses in connection with the transactions.
Pursuant to the Investment Agreement with BREF Investments, we are also obligated to pay BREF Investments a quarterly maintenance fee of $434,000 through January 2006.

F-38

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Interest Rate Swap Agreement and Netting Agreement

During the second quarter of 2003, two of our subsidiaries (the primary obligors of the Bear Stearns Debt) entered into an interest rate swap agreement for the
purpose of hedging the variability of expected future interest payments on our anticipated CDO, as more fully described under Note 7.

Under
the interest rate swap documents, our two subsidiaries have granted to Bear Stearns a security interest in all of their rights, title and interest in certain assets, including
property now or hereafter held by Bear Stearns in connection with the Bear Stearns Debt or the interest rate swap documents and certain contract rights under the Bear Stearns Debt and interest rate
swap documents (including the subsidiaries' rights to any "margin excess" related to the collateral securing the Bear Stearns Debt, with margin excess as defined in the Bear Stearns Debt documents),
to secure their obligations under the interest rate swap documents and the Bear Stearns Debt. This security interest constitutes additional collateral for the Bear Stearns Debt. Also under the
interest rate swap documents, on any day on which there exists any obligation for us to deliver cash or additional eligible collateral under either the interest rate swap or the Bear Stearns Debt,
such obligation will be deemed satisfied to the extent there exists a margin excess under the Bear Stearns Debt or an obligation for Bear Stearns to deliver cash or eligible collateral under the
interest rate swap. CRIIMI MAE Inc. has guaranteed all of its subsidiaries' obligations under the interest rate swap documents, as well as the Bear Stearns Debt.

Bear Stearns $200 Million Secured Borrowing Facility

On August 28, 2003, one of our subsidiaries finalized and executed (effective as of June 26, 2003) a $200 million secured borrowing facility,
in the form of a repurchase transaction, with Bear Stearns. This facility may be used for the acquisition of CMBS and for financing certain other transactions involving securities. The securities to
be transferred to Bear Stearns in each transaction under this facility will be subject to the approval of Bear Stearns in its sole discretion. The debt will be secured by the securities transferred to
Bear Stearns, and if the market value of the collateral declines we may be required to pay down the debt or post additional collateral. This facility may be used for one or more transactions. The
financing available for a subordinated CMBS purchased under this facility ranges from 80% to 15% of the market value of the CMBS. The applicable percentage depends primarily upon the ratings category
of the CMBS and, to a lesser extent, upon the number of issuer trusts from which we have purchased CMBS. The maturity date of each transaction will be determined at the time the transaction is closed
and, in each case; will be on or before August 14, 2005. As to each CMBS transaction, accrued and unpaid interest will be payable monthly at an annual rate ranging from one-month
LIBOR plus 0.8% to one-month LIBOR plus 2% and all unpaid principal and accrued and unpaid interest will be payable at maturity. Commencing on the date of the closing of the first
transaction under this facility, we will be required to maintain liquidity of at least $10 million in cash and investment grade securities in order to use the facility for additional repurchase
transactions. Since the CDO was not closed by October 14, 2003, this liquidity requirement will continue to increase by $2.5 million per calendar quarter subsequent to October 14,
2003. The liquidity requirement will terminate upon the closing of the CDO or repayment in full of the Bear Stearns Debt. CRIIMI MAE Inc. has guaranteed the obligations of its subsidiary under
this facility. In December 2003, we borrowed approximately $22.5 million under this facility to repay the Fannie Mae funding note. This borrowing is collateralized by the insured
mortgage securities held by CRIIMI MAE Asset Acquisition Corp and bears an interest rate of one-month LIBOR plus 10 basis points. See Note 5 for information on the collateral. We
made additional borrowings of approximately $20.9 million under this facility in March 2004 in connection with the prepayment of the Freddie Mac funding note and expect further borrowings in
connection with the anticipated prepayment of the CMO debt, subject to Bear Stearns' approval.

F-39

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Exit Debt

The Exit Debt, which closed on April 17, 2001 and was then repaid in early 2003, 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 also significantly restricted the amount of cash dividends that could be paid to shareholders.



The 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,
(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. 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.



The Series A Senior Secured Notes 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 certain miscellaneous assets, 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 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.



The Series B Senior Secured Notes 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 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 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.

F-40

---

Net Gain on Extinguishment of Debt

During 2003, we reversed approximately $7.8 million of accrued extension fees related to the Exit Debt since the debt was repaid and the extension fees
were no longer payable. This reversal is reflected as a gain on extinguishment of debt in our consolidated statement of income. This reversal was partially offset by approximately $403,000 of breakage
fee paid to the lender of the Exit Variable-Rate Secured Borrowing and legal fees of approximately $47,000, resulting in a net gain on extinguishment of debt of approximately
$7.3 million.

In
December 2003, we repaid the Fannie Mae funding note. In connection with the funding note repayment, we recognized a $665,000 loss on extinguishment of debt for the
write-off of unamortized bond discount and deferred financing fees.

7.     DERIVATIVE FINANCIAL INSTRUMENTS

In the second and third quarters of 2003, we entered into a total of three interest rate swaps to hedge the variability of the future interest payments on the
anticipated CDO attributable to future changes in interest rates. Our obligations to Bear Stearns under the interest rate swap documents are collateralized by certain assets as described in
Note 6. Through December 31, 2003, these swaps were treated as cash flow hedges for GAAP. Under these swaps, we agreed to pay Bear Stearns a weighted average fixed interest rate of 4.15%
per annum in exchange for floating payments based on one-month LIBOR on the total notional amount of $100 million. These swaps are effective on October 15, 2003, terminate on
October 15, 2013 and provide for monthly interest payments commencing November 15, 2003. On November 15, 2003 we began making monthly payments to Bear Stearns equal to the
difference between the weighted average swap rate of 4.15% per annum and the current one-month LIBOR rate on the notional amount of $100 million. The interest rate swaps were
designated to hedge future interest payments on the anticipated CDO. As the expected date of the CDO was changed, we recognized approximately $1.9 million of hedge ineffectiveness during the
year ended December 31, 2003, in accordance with SFAS No. 133. The $1.9 million expense represents the present value of the expected payments during the period of delay. We have
an asset of approximately $3.4 million in Other Assets as of December 31, 2003, representing the aggregate fair value of the interest rate swaps. During the first quarter of 2004, we
have started exploring other refinancing alternatives, including the CDO. As a result, we will begin reflecting changes in the fair value of the swaps through earnings as hedge ineffectiveness in
2004. We intend to terminate the swaps simultaneously with the issuance of the CDO or other refinancing transaction. We expect to amortize
approximately $1.3 million from accumulated other comprehensive income into earnings during 2004 in connection with the proposed transaction.

We
maintain an interest rate cap indexed to one-month LIBOR to partially limit the adverse effects of potential rising interest rates on our variable-rate debt.
The interest rate cap provides 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 would
receive payments based on the difference between the index and the cap. On October 31, 2003, we purchased an interest rate cap for $45,000 with a notional amount of $50 million, an
effective date of November 4, 2003, maturity on November 4, 2004, and capping one-month LIBOR at 2.25%. At December 31, 2003, the interest rate cap had a fair value of
approximately $16,000. We designated this interest rate cap, in accordance with SFAS No. 133, to hedge the Bear Stearns Debt.

We
are exposed to credit loss in the event of non-performance by the counterparties to the interest rate cap and interest rate swaps should interest rates exceed the cap
rate, or if the floating rate exceeds the fixed swap rates respectively, however, we do not anticipate non-performance by the counterparties. The counterparties (or the parent to the
counterparty in the case of the interest rate swaps and cap) have long-term debt ratings of A or above by Standard and Poor's and A2 or above by Moody's.

F-41

---

Although
neither the cap nor swaps are exchange-traded, there are a number of financial institutions which enter into these types of transactions as part of their day-to-day
activities.

8.     DIFFERENCES BETWEEN GAAP NET INCOME (LOSS) AND TAXABLE LOSS

The differences between 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 loss. CRIIMI MAE Inc. does
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 loss,
as if we were a regular domestic corporation. This taxable income or 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 2000 mark-to-market loss was recognized evenly from 2000 through 2003 for tax purposes (approximately
$120 million per year).

A
summary of our 2003 and 2002 net operating losses for tax purposes is as follows:

|                                                                          |  | 2003 |        | 2002 |  
|------------------------------------------------------------------------- |  | ---- | ------ | ---- | -
|
|January 2000 Loss                                                         |  | $    | (478.2 | )    | $
|LESS: Amounts recognized in 2000 and 2001                                 |  |      | 239.1  |      |  
|LESS: Amounts recognized in 2002                                          |  |      | 119.5  |      |  
|LESS: Amounts recognized in 2003                                          |  |      | 119.6  |      |  
|                                                                          |  |      |        |      |  
|Balance Remaining of January 2000 Loss to be recognized in future periods |  | $    |       |      | $
|                                                                          |  |      |        |      |  
|Taxable Income for the year before recognition of January 2000 Loss       |  | $    | 35.7   |      | $
|LESS: January 2000 Loss recognized                                        |  |      | (119.6 | )    |  
|LESS: Mark-to-market unrealized loss on trading securities                |  |      | (0.1   | )    |  
|                                                                          |  |      |        |      |  
|Net operating loss                                                        |  | $    | (84.0  | )    | $
|                                                                          |  |      |        |      |  
|Accumulated net operating loss through January 1                          |  | $    | (223.8 | )    | $
|Net operating loss created during the year ended December 31              |  |      | (84.0  | )    |  
|Net operating loss utilization                                            |  |      |       |      |  
|                                                                          |  |      |        |      |  
|Net operating loss carried forward for use in future periods              |  | $    | (307.8 | )    | $
|                                                                          |  |      |        |      |  

As
of December 31, 2003, our TRSs have an aggregate deferred tax asset of approximately $1.8 million. We have recorded a valuation allowance of approximately
$1.7 million against the deferred tax asset, resulting in a net deferred tax asset of approximately $183,000 as of December 31, 2003. In addition, as of December 31, 2003, we have
a current income tax receivable of approximately $751,000 related to the 2003 tax loss of one of the TRSs.

9.     SERVICING RESTRUCTURING AND SALE OF CMBS MASTER AND DIRECT SERVICING RIGHTS

In April 2003, we restructured CMSLP's property servicing group resulting in the termination of 10 employees. We recognized approximately $149,000 of
servicing restructuring expenses, representing employee severance and related benefits, during 2003. In conjunction with this restructuring, we have

F-42

---

outsourced
substantially all of our contractual property servicing duties related to the labor-intensive tasks of financial statement collection and analysis and property inspection performance. The
outsourcing was completed in February 2004. This outsourcing does not relieve us of any of our contractual obligations or reduce any of our rights as property servicer, since CMSLP remains the
property servicer of record. All severance and other employee benefits were paid as of December 31, 2003.

In
February 2002, CMSLP sold all of its rights and obligations under its CMBS master and direct servicing contracts because the contracts were not profitable, given the relatively
small volume of master and direct CMBS servicing that CMSLP was performing. This sale resulted in a gain of approximately $4.9 million during 2002. In connection with this restructuring, 34
employee positions were eliminated. During the year ended December 31, 2002, approximately $1.0 million of income tax expense was recognized as a result of the gain on the sale by CMSLP
of its master and direct servicing rights. The income tax expense was incurred by us through our wholly-owned TRSs that own partnership interests in CMSLP. These TRSs are separately taxable entities
that cannot use our NOL 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 net restructuring expenses of $189,000 primarily
related to rent on vacant office space that was taking longer to sublease than originally anticipated. The following is a summary of the restructuring liability:

|                           |  | Severance and
other employee
benefits |          | Non-cancelable
Lease Costs |   | Other    |   | Total |        
|-------------------------- |  | ------------------------------------- | -------- | -------------------------- | - | -------- | - | ----- | -------
|Balance, January 1, 2002   |  | $                                     | 184,967  |                            | $ | 100,372  |   | $     | 10,000 
|Amounts paid in 2002       |  |                                       | (174,745 | )                          |   | (239,048 | ) |       | (13,686
|Additional accrual in 2002 |  |                                       |         |                            |   | 195,150  |   |       | 12,786 
|Accrual reversed in 2002   |  |                                       | (10,222  | )                          |   |         |   |       | (9,100 
|                           |  |                                       |          |                            |   |          |   |       |        
|Balance, December 31, 2002 |  |                                       |         |                            |   | 56,474   |   |       |       
|Amounts paid in 2003       |  |                                       |         |                            |   | (56,474  | ) |       |       
|                           |  |                                       |          |                            |   |          |   |       |        
|Balance, December 31, 2003 |  | $                                     |         |                            | $ |         |   | $     |       
|                           |  |                                       |          |                            |   |          |   |       |        

10.   EXECUTIVE CONTRACT TERMINATION COSTS

In August 2003, the employment contracts for former executive officers David Iannarone and Brian Hanson, and Cynthia Azzara expired and were not renewed.
These contracts were put into place in 2001 to ensure management continuity following our emergence from Chapter 11 proceedings and through our January 2003 recapitalization. In connection with
the contract terminations, we recognized approximately $1.0 million of expenses for each of Mr. Iannarone and Ms. Azzara and approximately $825,000 of expense related to severance
and related benefit payments for Mr. Hanson. Mr. Iannarone and Ms. Azzara were each paid their contract termination payments during the year ended December 31, 2003.
Approximately $399,000 of Mr. Hanson's payments were made during the year ended December 31, 2003 and approximately $414,000 was paid in January 2004 in accordance with the terms
of his terminated employment agreement.

Ms. Azzara
has continued with us as an "at will" employee and was promoted to Executive Vice President, Chief Financial Officer and Treasurer. Mr. Hanson was subsequently
hired as an "at will" employee, as Vice President, Portfolio Management effective January 1, 2004. Mr. Iannarone subsequently resigned his position as Executive Vice President, Legal and
Deal Management effective October 24, 2003.

F-43

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11.   RECAPITALIZATION EXPENSES

In connection with the January 2003 recapitalization, we amended the employment contracts of our former Chairman, William B. Dockser, and former President,
H. William Willoughby, to provide for their termination on January 23, 2003. During the three months ended March 31, 2003, we recognized approximately $2.6 million of
expenses related to severance and related benefit payments, and accelerated vesting of certain outstanding stock options held by Messrs. Dockser and Willoughby. These expenses are reflected as
recapitalization expenses in our consolidated statement of income.

We
consolidated our office space in connection with our January 2003 recapitalization and, as a result, we recorded approximately $580,000 of expense for vacant office space
during 2003. The accrual for the vacant space represents the fair value of lease payments through 2007, a tenant improvement allowance and a broker commission, all net of estimated sublease revenue in
accordance with SFAS No. 146.

12.   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 15,384,648 and 13,945,068 issued and outstanding shares of $0.01 par value common stock as of December 31, 2003 and 2002, respectively. In
connection with the January 2003 recapitalization, BREF Fund 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.

The
following table summarizes the common stock activity through December 31, 2003:

|Date              |  | Description                     |  | Common Shares
Issued |   | Balance of Common
Shares Outstanding
|----------------- |  | ------------------------------- |  | -------------------- | - | ------------------------------------
|December 31, 2001 |  | Balance                         |  |                      |   | 12,937,341                          
|                  |  | Restricted stock issued         |  | 32,500               |   |                                     
|                  |  | Dividends to Preferred Stock    |  | 966,327              |   |                                     
|                  |  | Stock options exercised         |  | 8,900                |   |                                     
|                  |  |                                 |  |                      |   |                                     
|December 31, 2002 |  | Balance                         |  |                      |   | 13,945,068                          
|                  |  | Shares issued to BREF Fund      |  | 1,212,617            |   |                                     
|                  |  | Stock options exercised         |  | 161,567              |   |                                     
|                  |  | Restricted stock granted        |  | 96,631               |   |                                     
|                  |  | Shares repurchased or forfeited |  | (31,235              | ) |                                     
|                  |  |                                 |  |                      |   |                                     
|December 31, 2003 |  | Balance                         |  |                      |   | 15,384,648                          
|                  |  |                                 |  |                      |   |                                     

In
connection with the January 2003 recapitalization, BREF Fund 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 using the Black-Scholes option pricing model. The assumptions we used to value the warrants are consistent
with the assumptions used to value our stock options. The warrants are a component of equity.

F-44

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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.

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.

In
connection with BREF's 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.

13.   PREFERRED STOCK

As of December 31, 2003 and 2002, 75,000,000 shares of preferred stock were authorized. As of December 31, 2003 and 2002, 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, 3,760,000 shares were
designated as Series G Redeemable Cumulative Dividend Preferred Stock and 45,000 shares were designated as Series H Junior Preferred Stock. In January 2004, our Board of Directors
reclassified the 203,000 shares previously designated as Series E Preferred Stock as authorized but unissued.

As
of December 31, 2003, there were no accrued and unpaid dividends for any series of our preferred stock. On March 9, 2004, the Board of Directors declared cash dividends
of $0.68, $0.30 and $0.375 per share of Series B, Series F and Series G Preferred Stock, respectively, payable on March 31, 2004 to shareholders of record on
March 19, 2004.

Series B Cumulative Convertible Preferred Stock

Holders of Series B Preferred Stock will be entitled to receive when and as declared by the Board of Directors out of legally available assets, cumulative
dividends payable quarterly in cash or common stock in an amount equal to the sum of (i) $0.68 per share per quarter plus (ii) the product of the excess over $3.00, if any, of the
quarterly cash dividend declared and paid with respect to each share of common stock times a conversion ratio of 0.4797 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

F-45

---

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, 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, 2003. The liquidation preference and the redemption price on the Series B
Preferred Stock is $25 per share.

As
of December 31, 2003 and 2002, there were 1,593,982 shares of Series B Preferred Stock issued and outstanding. The following table summarizes the dividend payment
activity for 2003 and 2002 for the Series B Preferred Stock:

|Declaration Date  |  | Payment Date       |  | Dividends per
Series B Share |      | Amount of
Dividends |   | Time Period for
which dividends
were accrued
|----------------- |  | ------------------ |  | ---------------------------- | ---- | ------------------- | - | --------------------------------------------
|March 21, 2002    |  | April 15, 2002     |  | $                            | 1.36 |                     | $ | 2,167,816                                   
|March 5, 2003     |  | March 31, 2003     |  | $                            | 0.68 |                     | $ | 1,083,908                                   
|May 15, 2003      |  | June 30, 2003      |  | $                            | 0.68 |                     | $ | 1,083,908                                   
|June 3, 2003      |  | June 30, 2003      |  | $                            | 2.04 |                     | $ | 3,251,723                                   
|August 14, 2003   |  | September 30, 2003 |  | $                            | 0.68 |                     | $ | 1,083,908                                   
|November 11, 2003 |  | December 31, 2003  |  | $                            | 0.68 |                     | $ | 1,083,908                                   

---

Series E Cumulative Convertible Preferred Stock

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 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 $2,252,000 difference between the aggregate liquidation value, including the initial preferred stock issuance costs, and the redemption price
is reflected as a dividend on preferred stock during the year ended December 31, 2002.

Series F Redeemable Cumulative Dividend Preferred Stock

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.

F-46

---

As
of December 31, 2003 and 2002, there were 586,354 shares of Series F Preferred Stock issued and outstanding. The following table summarizes the dividend payment activity
for 2003 and 2002 for the Series F Preferred Stock:

|Declaration Date  |  | Payment Date       |  | Dividends per
Series F Share |      | Amount of
Dividends |   | Time Period for which
dividends were accrued
|----------------- |  | ------------------ |  | ---------------------------- | ---- | ------------------- | - | --------------------------------------------
|March 21, 2002    |  | April 15, 2002     |  | $                            | 0.60 |                     | $ | 351,812                                     
|March 5, 2003     |  | March 31, 2003     |  | $                            | 0.30 |                     | $ | 175,906                                     
|May 15, 2003      |  | June 30, 2003      |  | $                            | 0.30 |                     | $ | 175,906                                     
|June 3, 2003      |  | June 30, 2003      |  | $                            | 0.90 |                     | $ | 527,719                                     
|August 14, 2003   |  | September 30, 2003 |  | $                            | 0.30 |                     | $ | 175,906                                     
|November 11, 2003 |  | December 31, 2003  |  | $                            | 0.30 |                     | $ | 175,906                                     

---

Series G Redeemable Cumulative Dividend Preferred Stock

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 Series G Preferred Stock provides for dividends at
a fixed annual rate of 15%. The liquidation value of the Series G Preferred Stock is $10 per share.

As
of December 31, 2003 and 2002, there were 1,244,656 shares of Series G Preferred Stock issued and outstanding. The following table summarizes the dividend payment
activity for 2003 and 2002 for the Series G Preferred Stock:

|Declaration Date  |  | Payment Date       |  | Dividends per
Series G Share |       | Amount of
Dividends |   | Time Period for which
dividends were accrued
|----------------- |  | ------------------ |  | ---------------------------- | ----- | ------------------- | - | --------------------------------------------
|March 21, 2002    |  | April 15, 2002     |  | $                            | 0.750 |                     | $ | 933,492                                     
|March 5, 2003     |  | March 31, 2003     |  | $                            | 0.375 |                     | $ | 466,746                                     
|May 15, 2003      |  | June 30, 2003      |  | $                            | 0.375 |                     | $ | 466,746                                     
|June 3, 2003      |  | June 30, 2003      |  | $                            | 1.125 |                     | $ | 1,400,238                                   
|August 14, 2003   |  | September 30, 2003 |  | $                            | 0.375 |                     | $ | 466,746                                     
|November 11, 2003 |  | December 31, 2003  |  | $                            | 0.375 |                     | $ | 466,746                                     

---

Series H Junior Preferred Stock

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

F-47

---

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 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. See Note 12 for a
further discussion of the adoption of and reasons for adopting the Shareholder Rights Plan. As of December 31, 2003 there were no shares of Series H Preferred Stock issued and
outstanding.

14.   EARNINGS PER SHARE

The following table reconciles basic and diluted earnings per share for the years ended December 31, 2003, 2002, and 2001.

|                                                                                     |                                                     | (Loss)/income |             | Shares      |            | Per Share Amount |  
|------------------------------------------------------------------------------------ | --------------------------------------------------- | ------------- | ----------- | ----------- | ---------- | ---------------- | -
|Year ended December 31, 2003                                                         |                                                     |               |             |             |            |                  |  
|Basic and diluted earnings per share(1):                                             |                                                     |               |             |             |            |                  |  
|                                                                                     | Loss to common shareholders and assumed conversions |               | $           | (4,111,298  | )          | 15,149,303       |  
|                                                                                     |                                                     |               |             |             |            |                  |  
|Year ended December 31, 2002                                                         |                                                     |               |             |             |            |                  |  
|Net loss before cumulative effect of changes in accounting principles                |                                                     | $             | (55,695,539 | )           | 13,710,914 |                  | $
|Cumulative effect of change in accounting principle related to SFAS 142              |                                                     |               | (9,766,502  | )           | 13,710,914 |                  |  
|                                                                                     |                                                     |               |             |             |            |                  |  
|Basic and diluted earnings per share(1):                                             |                                                     |               |             |             |            |                  |  
|                                                                                     | Loss to common shareholders and assumed conversions |               | $           | (65,462,041 | )          | 13,710,914       |  
|                                                                                     |                                                     |               |             |             |            |                  |  
|Year ended December 31, 2001                                                         |                                                     |               |             |             |            |                  |  
|Net loss before cumulative effect of changes in accounting principles                |                                                     | $             | (26,082,918 | )           | 11,087,790 |                  | $
|Cumulative effect of change in accounting principle related to SFAS 133              |                                                     |               | (135,142    | )           | 11,087,790 |                  |  
|Cumulative effect of change in accounting principle related to servicing fee revenue |                                                     |               | 1,995,262   |             | 11,087,790 |                  |  
|                                                                                     |                                                     |               |             |             |            |                  |  
|Basic and diluted earnings per share(1):                                             |                                                     |               |             |             |            |                  |  
|                                                                                     | Loss to common shareholders and assumed conversions |               | $           | (24,222,798 | )          | 11,087,790       |  
|                                                                                     |                                                     |               |             |             |            |                  |  

---

F-48

---

15.   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,
2003, options to purchase 630,000 shares have been granted to employees and directors. In addition, restricted stock awards of 129,131 shares had been granted to employees as of December 31,
2003. 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 vesting schedule varies by
grant. 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, 2003, net options to purchase 396,971 shares had been granted to employees. Under the Key Employee Plan, 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.

1996 Non-Employee Director Stock Plan

In September 2001, the Board amended the compensation to be provided to the unaffiliated directors. In connection with the approval of such amended
compensation package, the annual grant of shares and options and the right to elect to receive shares or options in lieu of the directors' annual retainer under the Director Stock Plan were suspended
indefinitely effective the first business day of January 2002. All share related compensation for unaffiliated directors is currently being provided under the 2001 Stock Incentive Plan. Under
the Director Plan, a maximum of 87,313 shares were available for grant pursuant to stock awards and stock options. As of December 31, 2003, 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.

F-49

---

Summary of Stock Based Compensation Activity

A summary of these stock plans as of December 31, 2003, 2002 and 2001, and changes during the years then ended is presented in the table below:

|                               |                       | 2001 Stock Plan |          | Key Employee Plan |      | Directors' Plan
|------------------------------ | --------------------- | --------------- | -------- | ----------------- | ---- | ---------------
|
|Balance, January 1, 2001       |                       |                |          | $                 |     |                
|                               | Adjustment of 3/01(1) |                 |         |                   |      |               
|                               | Granted               |                 | 285,000  |                   |      | 2.78           
|                               | Exercised             |                 |         |                   |      |               
|                               | Forfeited             |                 |         |                   |      |               
|                               |                       |                 |          |                   |      |                
|Balance, December 31, 2001     |                       | 285,000         |          |                   | 2.78 |                
|                               | Granted               |                 | 317,000  |                   |      | 6.77           
|                               | Exercised             |                 | (2,500   | )                 |      | 2.78           
|                               | Forfeited             |                 | (8,000   | )                 |      | 2.78           
|                               |                       |                 |          |                   |      |                
|Balance, December 31, 2002     |                       | 591,500         |          |                   | 4.92 |                
|                               | Granted               |                 | 28,000   |                   |      | 9.35           
|                               | Exercised             |                 | (135,767 | )                 |      | 4.39           
|                               | Forfeited             |                 | (8,234   | )                 |      | 7.41           
|                               |                       |                 |          |                   |      |                
|Balance, December 31, 2003     |                       | 475,499         |          | $                 | 5.29 |                
|                               |                       |                 |          |                   |      |                
|Exercisable, December 31, 2001 |                       | 94,998          |          | $                 | 2.78 |                
|                               |                       |                 |          |                   |      |                
|Exercisable, December 31, 2002 |                       | 295,493         |          | $                 | 4.23 |                
|                               |                       |                 |          |                   |      |                
|Exercisable, December 31, 2003 |                       | 397,060         |          | $                 | 4.91 |                
|                               |                       |                 |          |                   |      |                

---

The
following table summarizes information about stock options outstanding at December 31, 2003:

Options Outstanding

Options ExercisableRange of
Exercise prices

Number
outstanding

Weighted
Average
Remaining
Contractual Life

Weighted
Average
Exercise
Price

Number
exercisable

Weighted
Average
Exercise
Price$2.78-$15.93

609,308

5.8

$
5.64

530,869

$
5.41$15.94-$31.87

54,134

2.3


31.25

54,134


31.25$31.88-$47.81

348

5.0


35.63

348


35.63$47.82-$111.56

5,325

0.5


108.75

5,325


108.75$111.57-$127.50

2,967

1.0


127.50

2,967


127.50$127.51-$159.38

153,934

1.8


158.21

153,934


158.21$2.78-$159.38

826,016

4.8

$
36.86

747,577

$
39.98


In
addition to the stock option grants included in the table above, 96,631 shares and 32,500 shares of restricted stock were awarded to certain employees under the 2001 Stock Incentive
Plan during the years ended December 31, 2003 and 2002, respectively. The weighted average price of our common stock was $10.96 and $3.99 at the award dates in 2003 and 2002,
respectively. There are 69,071

F-50

---

unvested
restricted shares as of December 31, 2003. The fair value of the restricted stock at date of grant is recognized as deferred compensation expense over the vesting period.

We
account for our stock-based compensation arrangements in accordance with the intrinsic value method as defined by Accounting Principles Board Opinion (APB) No. 25, "Accounting
for Stock Issued to Employees". SFAS No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure", which was effective January 1, 2003 for us, requires
certain disclosures related to our stock-based compensation arrangements. The following table presents the effect on net income and earnings per share if we had applied the fair value recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", to our stock-based compensation (in thousands, except per share amounts):

Years ended December 31,2003

2002

2001Net loss to common shareholders

$
(4,111
)
$
(65,462
)
$
(24,223
)Add: Stock-based compensation expense included in reported net loss


752


110


Less: Stock-based compensation expense determined under the fair value based method for all awards


(1,182
)

(1,124
)

(1,271
)Pro forma net loss to common shareholders

$
(4,541
)
$
(66,476
)
$
(25,494
)Earnings (loss) per share:Basic and dilutedas reported

$
(0.27
)
$
(4.77
)
$
(2.18
)Basic and dilutedpro forma

$
(0.30
)
$
(4.85
)
$
(2.30
)


The
weighted average fair value of the options granted was $6.23, $4.74, and $2.66 during 2003, 2002 and 2001, respectively. The fair value of the 2003, 2002 and 2001 option grants was
estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

2003

2002

2001Risk-free interest rate

2.65
%
4.23
%
4.29
%Expected life

4.64 years

4.73 years

4.78 yearsExpected volatility

85.8
%
89.2
%
91.4
%Dividend yield


%

%

%


16.   401(k) PLAN

Our 401(k) retirement investment plan is open to all of our full-time employees who are at least 21 years of age. The employees may
elect voluntary pre-tax wage deferrals ranging from 0% to 100% of eligible compensation for the year up to $11,000 annually for the 2003 plan year. Plan participants who reached the age of
50 during the 2003 plan year were eligible to defer an additional $1,000 during the year. We made contributions to the 401(k) plan through June 30, 2003. We contributed up to 5% of each
participant's eligible compensation during the year up to a maximum compensation permitted by the IRS (such maximum compensation was $200,000 during 2003), which vested over five years. From
July 1, 2003 through December 31, 2003, we did not make contributions to the 401(k) plan. Total 401(k) contribution expense for the years ended December 31,
2003, 2002 and 2001 was approximately $119,000, $234,000, and $249,000, respectively, and is reflected in general and administrative expense. We intend to begin making contributions again during 2004.

F-51

---

17.   TRANSACTIONS WITH RELATED PARTIES

The following is a summary of the related party transactions which occurred during the years ended December 31, 2003, 2002 and 2001.

|                                                                                       |                                    | For the years ended December 31, |          
|-------------------------------------------------------------------------------------- | ---------------------------------- | -------------------------------- | ---------
|
|Amounts paid or accrued to BREF and affiliates                                         |                                    |                                  |          
|Compensation for services of Barry Blattman(1)(5)                                      |                                    | $                                | 1,000,000
|BREF maintenance fee(2)                                                                |                                    |                                  | 1,663,667
|Reimbursement of recapitalization expenses(2)                                          |                                    |                                  | 1,000,000
|Origination fee(2)                                                                     |                                    |                                  | 200,000  
|Expense reimbursements to affiliates of BREF Fund and employees of these affiliates(5) |                                    |                                  | 32,835   
|                                                                                       |                                    |                                  |          
|                                                                                       |                                    | Total                            |          
|                                                                                       |                                    |                                  |          
|Amounts received or accrued from the AIM Limited Partnerships                          |                                    |                                  |          
|                                                                                       | Income(3)                          |                                  | $        
|                                                                                       | Return of capital(4)               |                                  |          
|                                                                                       |                                    |                                  |          
|                                                                                       |                                    | Total                            |          
|                                                                                       |                                    |                                  |          
|Amounts received or accrued for AIM Acquisition Limited Partnership(3)                 |                                    | $                                | 157,083  
|                                                                                       |                                    |                                  |          
|Expense reimbursements from:                                                           |                                    |                                  |          
|                                                                                       | AIM Limited Partnerships(5)        |                                  | $        
|                                                                                       | CMSLP(5)                           |                                  |          
|                                                                                       |                                    |                                  |          
|                                                                                       |                                    | Total                            |          
|                                                                                       |                                    |                                  |          
|Expense reimbursement (to) from CRI:                                                   |                                    |                                  |          
|                                                                                       | Expense reimbursement to CRI(5)(6) |                                  | $        
|                                                                                       | Expense reimbursement from CRI(5)  |                                  |          
|                                                                                       |                                    |                                  |          
|                                                                                       |                                    | Net expense reimbursement        |          
|                                                                                       |                                    |                                  |          

---

F-52

---

In
addition to the transactions listed above, in connection with our merger in 1995, we entered into a deferred compensation arrangement with William Dockser, Chairman until
January 23, 2003 and a Director from January 23, 2003 through February 25, 2004, 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 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 (4.00% as of December 31, 2003) plus 2% per annum. During the years ended
December 31, 2003, 2002 and 2001, aggregate payments of approximately $574,000, $616,000 and $2.6 million (including $946,000 in accrued interest), 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 was $875,368 at December 31, 2003. The financial statement impact of these transactions is immaterial.

18.   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.



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.

F-53

---

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.



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.

19.   SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of unaudited quarterly results of operations for the years ended December 31, 2003, 2002 and 2001:

|                                         |  | 2003
|---------------------------------------- |  | ----
|
|Interest Income                          |  | $   
|Net income (loss) to common shareholders |  |     
|Basic net earnings (loss) per share      |  |     
|Diluted net earnings (loss) per share    |  |     

|                                         |  | 2002 |           
|---------------------------------------- |  | ---- | ----------
|
|Interest Income                          |  | $    | 32,031,879
|Net income (loss) to common shareholders |  |      | (8,042,208
|Basic net earnings (loss) per share      |  |      | (0.62     
|Diluted net earnings (loss) per share    |  |      | (0.62     

|                                         |  | 2001 |           
|---------------------------------------- |  | ---- | ----------
|
|Interest Income                          |  | $    | 33,811,044
|Net income (loss) to common shareholders |  |      | 6,030,160 
|Basic net earnings (loss) per share      |  |      | 0.80      
|Diluted net earnings (loss) per share    |  |      | 0.64      

20.   SEGMENT REPORTING

Management currently 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 currently includes (i) CMBS, (ii) direct and indirect investments in government insured mortgage securities and entities that own government insured
mortgage securities, (iii) investments in mezzanine loans and (iv) securities trading activities. Our income from this segment is primarily generated from these assets.

F-54

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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. 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.

The
following tables detail the financial performance of these operating segments for the years ended December 31, 2003, 2002 and 2001.

|                                                          |                     | As of and for the year ended December 31, 2003 |            
|--------------------------------------------------------- | ------------------- | ---------------------------------------------- | -----------
|
|Interest income                                           |                     | $                                              | 104,414,865
|Interest expense                                          |                     |                                                | (70,802,378
|                                                          |                     |                                                |            
|                                                          | Net interest margin |                                                |            
|                                                          |                     |                                                |            
|General and administrative expenses                       |                     |                                                | (10,901,540
|Deferred compensation expense                             |                     |                                                | (204,311   
|Depreciation and amortization                             |                     |                                                | (567,629   
|Impairment on CMBS                                        |                     |                                                | (14,738,431
|Servicing revenue                                         |                     |                                                |           
|Servicing general and administrative expenses             |                     |                                                |           
|Servicing amortization, depreciation and impairment       |                     |                                                |           
|Servicing restructuring expenses                          |                     |                                                |           
|Servicing loss on sale of investment-grade CMBS           |                     |                                                |            
|Income tax benefit (expense)                              |                     |                                                |           
|Equity in earnings (losses) from investments              |                     |                                                | 141,732    
|Other, net                                                |                     |                                                | 672,264    
|BREF maintenance fee                                      |                     |                                                | (1,663,667 
|Executive contract termination costs                      |                     |                                                | (2,028,343 
|Recapitalization expenses                                 |                     |                                                | (3,196,603 
|Net gain on extinguishment debt                           |                     |                                                | 6,672,872  
|Hedge ineffectiveness                                     |                     |                                                | (1,949,439 
|                                                          |                     |                                                |            
|                                                          |                     |                                                | (27,763,095
|                                                          |                     |                                                |            
|Net income (loss) before changes in accounting principles |                     | $                                              | 5,849,392  
|                                                          |                     |                                                |            
|                                                          | Total assets        |                                                | $          
|                                                          |                     |                                                |            

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|                                                          |                     | As of and for the year ended December 31, 2002 |            
|--------------------------------------------------------- | ------------------- | ---------------------------------------------- | -----------
|
|Interest income                                           |                     | $                                              | 124,459,932
|Interest expense                                          |                     |                                                | (93,765,029
|                                                          |                     |                                                |            
|                                                          | Net interest margin |                                                |            
|                                                          |                     |                                                |            
|General and administrative expenses                       |                     |                                                | (10,714,975
|Deferred compensation expense                             |                     |                                                | (110,154   
|Depreciation and amortization                             |                     |                                                | (1,095,861 
|Impairment on CMBS                                        |                     |                                                | (70,225,506
|Servicing revenue                                         |                     |                                                |           
|Servicing general and administrative expenses             |                     |                                                |           
|Servicing amortization, depreciation and impairment       |                     |                                                |           
|Servicing restructuring expenses                          |                     |                                                |           
|Servicing gain on sale of servicing rights                |                     |                                                |           
|Servicing gain on sale of investment-grade CMBS           |                     |                                                |           
|Income tax benefit (expense)                              |                     |                                                | 326,998    
|Equity in earnings (losses) from investments              |                     |                                                | (41,882    
|Other, net                                                |                     |                                                | 1,650,621  
|BREF maintenance fee                                      |                     |                                                |           
|Executive contract termination costs                      |                     |                                                |           
|Recapitalization expenses                                 |                     |                                                | (1,048,559 
|Net gain on extinguishment debt                           |                     |                                                |           
|Hedge ineffectiveness                                     |                     |                                                |           
|                                                          |                     |                                                |            
|                                                          |                     |                                                | (81,259,318
|                                                          |                     |                                                |            
|Net income (loss) before changes in accounting principles |                     | $                                              | (50,564,415
|                                                          |                     |                                                |            
|                                                          | Total assets        |                                                | $          
|                                                          |                     |                                                |            

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|                                                          |                     | As of and for the year ended December 31, 2001 |            
|--------------------------------------------------------- | ------------------- | ---------------------------------------------- | -----------
|
|Interest income                                           |                     | $                                              | 134,375,552
|Interest expense                                          |                     |                                                | (98,860,960
|                                                          |                     |                                                |            
|                                                          | Net interest margin |                                                |            
|                                                          |                     |                                                |            
|General and administrative expenses                       |                     |                                                | (10,840,864
|Deferred compensation expense                             |                     |                                                |           
|Depreciation and amortization                             |                     |                                                | (3,718,485 
|Impairment on CMBS                                        |                     |                                                | (34,654,930
|Reorganization items                                      |                     |                                                | (1,813,220 
|Emergence loan origination fee                            |                     |                                                | (3,936,616 
|Servicing revenue                                         |                     |                                                |           
|Servicing general and administrative expenses             |                     |                                                |           
|Servicing amortization, depreciation and impairment       |                     |                                                |           
|Servicing restructuring expenses                          |                     |                                                |           
|Income tax benefit (expense)                              |                     |                                                |           
|Equity in earnings (losses) from investments              |                     |                                                | 646,692    
|Other, net                                                |                     |                                                | 3,941,430  
|BREF maintenance fee                                      |                     |                                                |           
|Executive contract termination costs                      |                     |                                                |           
|Recapitalization expenses                                 |                     |                                                |           
|Net gain on extinguishment debt                           |                     |                                                |           
|Hedge ineffectiveness                                     |                     |                                                |           
|                                                          |                     |                                                |            
|                                                          |                     |                                                | (50,375,993
|                                                          |                     |                                                |            
|Net income (loss) before changes in accounting principles |                     | $                                              | (14,861,401
|                                                          |                     |                                                |            
|                                                          | Total assets        |                                                | $          
|                                                          |                     |                                                |            

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