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

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

For the fiscal year ended December 31, 1998       Commission file number 1-10360

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

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

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

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

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

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

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                                      None
                               ------------------

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


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


     As of March 29, 1999, 53,551,161 shares of CRIIMI MAE Inc. common stock
(voting) with a par value of $.01 were outstanding. The aggregate market value
(based upon the last reported sale price on the New York Stock Exchange on March
29, 1999) of the shares of CRIIMI MAE Inc. common stock (voting) held by
non-affiliates was approximately $141,189,974. (For purposes of calculating the
previous amount only, all directors and executive officers of the registrant are
assumed to be affiliates.)

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


                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None.


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                                 CRIIMI MAE INC.

                         1998 ANNUAL REPORT ON FORM 10-K


                                TABLE OF CONTENTS


                                     PART I

<TABLE>
<CAPTION>

                                                                                        PAGE 

<S>               <C>                                                                     <C>
Item 1.           Business  ............................................................  1
Item 2.           Properties............................................................ 19
Item 3.           Legal Proceedings..................................................... 19
Item 4.           Submission of Matters to a Vote of Security Holders................... 24

                                     PART II

Item 5.           Market for the Registrant's Common Stock and Related Stockholder 
                    Matters............................................................. 25
Item 6.           Selected Financial Data............................................... 26
Item 7.           Management's Discussion and Analysis of Financial Condition 
                    and Results of Operations........................................... 29
Item 7A.          Quantitative and Qualitative Disclosures About Market Risks........... 41
Item 8.           Financial Statements and Supplementary Data........................... 42
Item 9.           Changes in and Disagreements with Accountants on Accounting 
                   and Financial Disclosure............................................. 42

                                     PART III

Item 10.          Directors and Executive Officers of the Registrant.................... 43
Item 11.          Executive Compensation................................................ 46
Item 12.          Security Ownership of Certain Beneficial Owners and Management........ 49
Item 13.          Certain Relationships and Related Transactions........................ 50

                                     PART IV

Item 14.          Exhibits, Financial Statement Schedules, and Reports on Form 8K....... 52

Signatures

Exhibit Index
</TABLE>
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                                     PART I

ITEM 1.  BUSINESS

FORWARD-LOOKING STATEMENTS. WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE
WORDS "BELIEVES," "ANTICIPATES," "EXPECTS" 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 UNDER THE HEADINGS "RISK FACTORS", AND "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" SET
FORTH BELOW. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY
UNDERTAKES 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 UNANTICIPATED EVENTS.

GENERAL

     CRIIMI MAE Inc. (together with its consolidated subsidiaries, unless the
context otherwise indicates, "CRIIMI MAE" or the "Company") is a fully
integrated commercial mortgage company structured as a self-administered real
estate investment trust ("REIT"). Prior to the filing by CRIIMI MAE Inc.
(unconsolidated) and two of its operating subsidiaries for relief under Chapter
11 of the U.S. Bankruptcy Code on October 5, 1998 (the "Petition Date") as
described below, CRIIMI MAE's primary activities included (i) acquiring
non-investment grade securities (rated below BBB- or unrated) backed by pools of
mortgage loans on multifamily, retail and other commercial real estate
("Subordinated CMBS"), (ii) originating and underwriting commercial mortgage
loans, (iii) securitizing pools of commercial mortgage loans and resecuritizing
pools of Subordinated CMBS, and (iv) through the Company's servicing affiliate,
CRIIMI MAE Services Limited Partnership ("CMSLP"), performing servicing
functions with respect to the mortgage loans underlying the Company's
Subordinated CMBS.

     Since filing for Chapter 11 protection, CRIIMI MAE has suspended its
Subordinated CMBS acquisition, origination and securitization programs. The
Company continues to hold a substantial portfolio of Subordinated CMBS,
originated loans and mortgage securities and, through CMSLP, acts as a servicer
for its own as well as third party securitized mortgage loan pools. Despite the
turmoil in the capital markets commencing in late summer of 1998, the mortgage
loans underlying CRIIMI MAE's portfolio of Subordinated CMBS have experienced no
losses of principal from defaults.

     In addition to the two operating subsidiaries which filed for Chapter 11
protection with the Company, the Company owns 100% of multiple financing and
operating subsidiaries as well as various interests in other entities (including
CMSLP) which either own or service mortgage and mortgage-related assets (the
"Non-Debtor Affiliates"). See Note 3 to Notes to Consolidated Financial
Statements. None of the Non-Debtor Affiliates has filed for bankruptcy
protection.

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

CHAPTER 11 FILING

     Prior to the Petition Date, CRIIMI MAE financed a substantial portion of
its Subordinated CMBS acquisitions with short-term, variable-rate financing
facilities secured by the Company's CMBS. The agreements governing these
financing arrangements typically required the Company to maintain collateral
with a market value not less than a specified percentage of the outstanding
indebtedness ("loan-to-value ratio"). The agreements further provided that the
creditors could require the Company to provide cash or additional collateral if
the market value of the existing collateral fell below this minimum amount.

     As a result of the turmoil in the capital markets commencing in late summer
of 1998, the spreads between CMBS yields and yields on Treasury securities with
comparable maturities began to widen 

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substantially and rapidly. Due to this widening of CMBS spreads, the market
value of the CMBS securing the Company's short-term, variable-rate financing
facilities declined. CRIIMI MAE's short-term secured creditors perceived that
the value of the CMBS securing their facilities with the Company had fallen
below the minimum loan-to-value ratio described above and, consequently, made
demand upon the Company to provide cash or additional collateral with sufficient
value to cure the perceived value deficiency. In August and September of 1998,
the Company received and met collateral calls from its secured creditors. At the
same time, CRIIMI MAE was in negotiations with various third parties in an
effort to obtain additional debt and equity financing that would provide the
Company with additional liquidity.

     On Friday afternoon, October 2, 1998, the Company was in the closing
negotiations of a refinancing with one of its unsecured creditors that would
have provided the Company with additional borrowings when it received a
significant collateral call from Merrill Lynch Mortgage Capital, Inc. ("Merrill
Lynch"). The basis for this collateral call, in the Company's view, was
unreasonable. After giving consideration to, among other things, this collateral
call and the Company's concern that its failure to satisfy this collateral call
would cause the Company to be in default under a substantial portion of its
financing arrangements, the Company reluctantly concluded on Sunday, October 4,
1998 that it was in the best interests of creditors, equity holders and other
parties in interest to seek Chapter 11 protection.

     On October 5, 1998, CRIIMI MAE (unconsolidated) and two of its consolidated
operating subsidiaries, CRIIMI MAE Management, Inc. ("CM Management"), and
CRIIMI MAE Holdings II, L.P. ("Holdings II" and, together with CRIIMI MAE and CM
Management, the "Debtors") 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 (the "Bankruptcy Court").
These related cases are being jointly administered under the caption "In re
CRIIMI MAE Inc., et al.," Ch. 11 Case No. 98-2-3115-DK.

     The Company is working diligently toward the preparation of a plan of
reorganization. The Bankruptcy Court has entered an order extending the
Company's exclusive right to file a plan of reorganization through May 11, 1999
and has set a hearing on such date with respect to the extension of the
exclusivity periods through August 2, 1999 for filing a plan of reorganization
and through October 3, 1999 for soliciting acceptances thereof. See "LEGAL
PROCEEDINGS." A number of parties have indicated potential opposition to any
such extension. Management expects to file a plan of reorganization during the
summer of 1999, which would contemplate the Company's emergence from bankruptcy
later in 1999. There can be no assurance at this time, however, that the Company
will propose a plan of reorganization during such time or that such plan will be
confirmed and consummated. See "LEGAL PROCEEDINGS" for a general discussion of
the bankruptcy process.

     While in bankruptcy, CRIIMI MAE has been streamlining its operations in an
effort to reduce operating expenses. The Company significantly reduced the
number of employees in its origination and underwriting operations in October
1998, but has retained key employees in each of these operational areas. In
connection with these reductions, the Company closed its five regional loan
origination offices, retaining only a core presence in Rockville, Boston,
Houston, Chicago and San Francisco. See "BUSINESS - Employees."

     Although the Company has significantly reduced its work force, the Company
recognizes that retention of its executives and other remaining employees is
essential to the efficient operation of its business and to its reorganization
efforts. Accordingly, the Company has, with Bankruptcy Court approval, adopted
an employee retention plan. See "BUSINESS - Employee Retention Plan."

EFFECT OF CHAPTER 11 FILING ON REIT STATUS AND OTHER TAX MATTERS

     REIT STATUS. CRIIMI MAE is required to meet income, asset, ownership and 
distribution tests to maintain its REIT status. The Company has satisfied the 
REIT requirements for all years through, and including, 1998. However, due to 
the uncertainty resulting from its Chapter 11 filing, there can be no 
assurance that CRIIMI MAE will retain its REIT status for 1999 or subsequent 
years. If the Company fails to retain its REIT status for any taxable year, 
it will be taxed as a regular 

                                        2

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domestic corporation subject to federal and state income tax in the year of
disqualification and for at least the four subsequent years.

     THE COMPANY'S 1998 TAXABLE INCOME. In determining its federal income tax 
liability, CRIIMI MAE, as a result of its REIT status, is entitled to deduct 
from its taxable income dividends paid to its shareholders. Accordingly, to 
the extent the Company distributes its net income to shareholders, it 
effectively reduces taxable income, on a dollar-for-dollar basis, and 
eliminates the "double taxation" that normally occurs when a corporation 
earns income and distributes that income to shareholders in the form of 
dividends. The Company, however, still must pay corporate level tax on any 
1998 taxable income not distributed to shareholders by December 31, 1999. For 
1998, the Company could have up to approximately $18 million in undistributed 
taxable income, resulting in a potential tax liability of up to $7 million 
for state and federal taxes. Notwithstanding this significant amount of 
undistributed taxable income, CRIIMI MAE has fully complied with the 
requirement for 1998 that it distribute at least 95% of its "REIT taxable 
income" for the year in order to maintain REIT status (the "required 
distribution"), because the calculation of the required distribution may 
exclude certain excess noncash income such as original issue discount ("OID").

     As noted in the preceding paragraph, the Company's taxable income for a
given year is generally reduced by the amount of distributions made in that year
to its shareholders. The Tax Code, however, permits the Company to deduct
against its 1998 taxable income dividends declared by the Company through
September 15, 1999 if such dividends are paid no later than December 31, 1999.
The Company, however, is currently exploring a variety of methods for
distributing some or all of its remaining 1998 taxable income by December 31,
1999, including the potential distribution of securities or other noncash
dividend payments. As a result of the Chapter 11 filing, there can be no
assurance that the Company will be able to make additional distributions with
respect to its 1998 taxable income. The failure to make further distributions
will result in a tax obligation of up to $7 million, but will have no effect on
CRIIMI MAE's 1998 REIT status.

     1998 EXCISE TAX LIABILITY. Apart from the requirement that the Company 
distribute at least 95% of its REIT taxable income to maintain REIT status, 
CRIIMI MAE is also required each calendar year to distribute an amount ("the 
excise tax avoidance amount") at least equal to the sum of 85% of its "REIT 
ordinary income" and 95% of its "REIT capital gain income" to avoid incurring 
a nondeductible excise tax. Unlike the 95% distribution requirement, the 85% 
distribution requirement is not reduced by excess noncash income items such 
as OID. Because the Company did not pay a dividend in the fourth quarter, its 
actual distributions fell short of the excise tax avoidance amount by 
approximately $7 million, resulting in an excise tax of approximately 
$300,000. This $300,000 excise tax has been accrued and paid by the Company.

     TAXABLE MORTGAGE POOL RISKS. An entity that constitutes a "taxable 
mortgage pool" as defined in the Tax 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. The Company currently owns all of the equity interests in three 
trusts that constitute TMPs (CBO-1, CB0-2 and CMO-IV, collectively the 
"Trusts"). See "Resecuritizations" and "Loan Originations and 
Securitizations" for descriptions of CBO-1, CBO-2 and CMO-IV. The Company 
also owns certain securities structured as bonds (the "Bonds") issued by each 
of the Trusts. 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). As a result of this exemption and the 
fact that the Company owns all of the equity interests in each Trust, the 
Trusts currently are not required to pay a separate corporate level tax on 
income they derive from their underlying mortgage assets.

     Certain of the Bonds owned by the Company serve as collateral (the "Pledged
Bonds") for short-term, variable-rate borrowings used by the Company to finance
their initial purchase. If the creditors holding the Pledged Bonds were to seize
or sell this collateral and the Pledged Bonds were deemed to 

                                    3

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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 Trust (including 
the equity interests and the Pledged Bonds) would instead be applied to tax 
payments. Since the equity interests and Bonds owned by the Company 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 and the payments received thereon.

     In addition to causing the loss of the exemption under the TMP Rules, a 
seizure or sale of the Pledged Bonds and a characterization of them as equity 
for tax purposes could also jeopardize the Company's REIT status if the value 
of the remaining ownership interests in any Trust held by the Company (i) 
exceeded 5% of the total value of the Company's assets or (ii) constituted 
more than 10% of the Trust's voting interests.

THE CMBS MARKET

     Historically, traditional lenders, including commercial banks, insurance
companies and savings and loans, have been the primary holders of commercial
mortgages. The real estate market of the late 1980s and early 1990s created
business and regulatory pressure to reduce the real estate assets held on the
books of these institutions. As a result, there has been significant movement of
commercial real estate debt from private institutional holders to the public
markets. Consequently, the supply of private sector multifamily and other CMBS
has increased dramatically over recent years. According to COMMERCIAL MORTGAGE
ALERT, CMBS issuance's in the U.S. equaled approximately $78.3 billion in 1998
compared to approximately $44.3 billion in 1997, $30.0 billion in 1996 and $19.0
billion in 1995.

     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 C) and unrated. 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 real estate-backed
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 ("REMIC") or, in the case of the Company, a
TMP. The investment vehicle then issues securities backed by the commercial
mortgage loans, or CMBS.

     The CMBS are divided into tranches, which are afforded certain priority
rights to the cash flow from the underlying mortgage loans. Principal payments
typically flow first 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.
The Company has primarily focused on acquiring or retaining non-investment grade
and unrated tranches, issued by mortgage conduits, where the Company believes
its market knowledge and real estate expertise allow it to earn attractive
risk-adjusted returns. 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 right to payment of principal. The CMBS are then
sold to investors through either a public offering or a private placement.

     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 receives a fee and other
financial incentives based on the type and extent of servicing duties.

                                      4

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     The CMBS market was adversely affected by the turmoil which occurred in 
the capital markets commencing in late summer of 1998 that caused spreads 
between CMBS yields and the yields on U.S. Treasury securities with 
comparable maturities to widen, resulting in a decrease in the value of CMBS. 
As a result, the creation of new CMBS and the trading of existing CMBS came 
to a near standstill. In late November 1998, buying and trading activity in 
the CMBS market began to recover, increasing liquidity in the CMBS market; 
however, these improvements mostly related to investment grade CMBS. New 
issuances of CMBS also returned in late November 1998. The market for 
Subordinated CMBS has, however, been slower to recover and trading in this 
market is less liquid. It is difficult, if not impossible, to predict when or 
if the CMBS market and, in particular, the Subordinated CMBS market, will 
fully recover. Therefore, management's estimate of the value of the 
securities could vary significantly from the value that could be realized in 
a current transaction between a willing buyer and a willing seller in other 
than a forced sale or liquidation.

SUBORDINATED CMBS ACQUISITIONS

     As of December 31, 1998, the Company's $2.4 billion portfolio of assets
included $1.3 billion of Subordinated CMBS (representing approximately 52% of
the Company's total consolidated assets).

     In 1998, CRIIMI MAE acquired Subordinated CMBS from offerings with a 
total face amount of $13.5 billion. These offerings comprised 17.2% of the 
total ($78.3 billion face amount, according to Commercial Mortgage Alert) 
CMBS market for 1998. For the year ended December 31, 1998, the Company 
acquired Subordinated CMBS with an aggregate face amount of approximately 
$1.2 billion, making the Company a leading purchaser of Subordinated CMBS in 
1998. As of December 31, 1998, approximately 44% of the Company's CMBS (based 
on fair value) were rated BB+, BB or BB-, 27% were B+, B, B- or CCC and 9% 
were unrated. The remaining approximately 20% represents investment grade 
securities that the Company reflects on its balance sheet as a result of the 
May 1998 resecuritization of certain Subordinated CMBS. See "THE PORTFOLIO - 
CMBS." 

     The Company generally acquired Subordinated CMBS in privately negotiated
transactions, which allowed it 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 its
Subordinated CMBS acquisitions, the Company targeted diversified mortgage loan
pools with a mix of property types, geographic locations and borrowers. CRIIMI
MAE financed a substantial portion of its Subordinated CMBS acquisitions with
short-term, variable-rate financing facilities secured by the Company's CMBS.
The Company's business strategy was to periodically refinance a substantial
portion of the Subordinated CMBS in its portfolio through a resecuritization of
such Subordinated CMBS primarily to attain a better matching of the maturities
of its liabilities and assets through the refinancing of short-term,
variable-rate, recourse financing with long-term, fixed-rate, non-recourse
financing. See "BUSINESS - Resecuritizations," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," and Notes 5 and 9 to
Notes to Consolidated Financial Statements.

     The Company generally enters into interest rate protection agreements to
mitigate the adverse effects of rising short-term interest rates on its
variable-rate financing facilities. It is the Company's policy to hedge at least
75% of its variable-rate debt with interest rate protection agreements. As of
December 31, 1998, approximately 79% of the Company's variable-rate debt was
hedged by caps, a form of interest rate protection agreement. Interest rate caps
provide protection to CRIIMI MAE to the extent interest rates, based on a
readily determinable interest rate index, increase above the stated interest
rate cap, in which case CRIIMI MAE would receive payments based on the
difference between the index and the cap. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and Notes 9 and 10 to
Notes to Consolidated Financial Statements for a further discussion of the
Company's short-term, variable-rate, secured financing facilities and interest
rate protection agreements.

RESECURITIZATIONS

     The Company initially funded a substantial portion of its Subordinated CMBS
acquisitions with short-term, variable-rate secured financing facilities. To
mitigate the Company's exposure to interest rate risk, the Company's business
strategy was to periodically refinance a significant portion of this debt with

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fixed-rate, non-recourse debt having maturities that matched those of the 
Company's mortgage assets securing such debt ("match-funded"). The Company 
effected such refinancing by pooling Subordinated CMBS, once a sufficient 
pool of Subordinated CMBS had been accumulated, and issuing newly created 
CMBS backed by the pooled Subordinated CMBS. The CMBS issued in such 
resecuritizations were fixed-rate obligations with maturities that matched 
the maturities of the Subordinated CMBS backing the new CMBS. These 
resecuritizations also increased the amount of borrowings available to the 
Company 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. The 
Company generally used the cash proceeds from the investment-grade CMBS that 
were sold in the resecuritization to reduce the amount of its short-term, 
variable-rate secured borrowings. The Company then used the net excess 
borrowing capacity created by the resecuritization to obtain new 
variable-rate secured borrowings which were used with additional new 
variable-rate secured borrowings and, to a lesser extent, cash, to purchase 
additional Subordinated CMBS. Although the Company's resecuritizations have 
mitigated the Company's exposure to interest rate risk through match-funding, 
the Company's variable-rate secured borrowings have increased from December 
31, 1996 to December 31, 1998, as a result of the Company's continued 
acquisitions of Subordinated CMBS.

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

     In May 1998, the Company completed its second resecuritization of
Subordinated CMBS ("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,
the Company sold in a private placement securities with a face amount of $468
million and retained securities with a face amount of approximately $1.3
billion. Through CBO-2, the Company refinanced approximately $468 million of
short-term, variable-rate secured borrowings with fixed-rate, non-recourse,
match-funded debt. CBO-2 generated net excess borrowing capacity of
approximately $160 million primarily as a result of a higher overall weighted
average credit rating for the new CMBS, as compared to the weighted average
credit rating on the related CMBS collateral.

     As of December 31, 1998, the Company's total debt was approximately $2.1
billion, of which approximately 46% was fixed-rate, match-funded debt and
approximately 54% was short-term, variable-rate or fixed-rate debt that was not
match-funded. For the year ended December 31, 1998, the Company's weighted
average cost of borrowing (including amortization of discounts and deferred
financing fees of approximately $6.5 million) was approximately 7.37%. See
"BUSINESS - Subordinated CMBS Acquisitions," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and Notes 5, 9 and 10
to Notes to Consolidated Financial Statements for further information regarding
the Company's resecuritizations, short-term variable-rate secured financings,
and caps.

                                      6

<PAGE>

LOAN ORIGINATIONS AND SECURITIZATIONS

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

     A majority of the mortgage loans originated under the Company's loan
conduit programs were "No Lock" mortgage loans. Unlike most commercial mortgage
loans originated for the CMBS market which contain "lock-out" clauses (that is,
provisions which prohibit the prepayment of a loan for a specified period after
the loan is originated or impose costly yield maintenance provisions), the
Company's No Lock loans allowed borrowers the ability to prepay loans at any
time by paying a prepayment penalty. Since the inception of these origination
programs, the Company has originated over $900 million in aggregate principal
amount of loans and securitized approximately $496 million in aggregate
principal amount of mortgage loans.

     In June 1998, the Company securitized approximately $496 million of the
commercial mortgage loans originated or acquired through a mortgage loan conduit
program with Citicorp Real Estate, Inc. ("Citibank"), and through CRIIMI MAE
CMBS Corp., issued Commercial Mortgage Loan Trust Certificates, Series 1998-1
("CMO-IV"). A majority of these mortgage loans were "No Lock" loans. In CMO-IV,
CRIIMI MAE sold $397 million face amount of fixed-rate, investment-grade CMBS.
The Company originally intended to sell all of the investment grade tranches of
CMO-IV; however, two investment grade tranches of CMO-IV have not yet been sold.
It is the Company's intent to sell these tranches in the future pursuant to an
agreement with Citicorp Securities, Inc. ("Citicorp") approved by the Bankruptcy
Court. CRIIMI MAE has call rights on each of the issued securities and therefore
has not surrendered control of the collateral, thus requiring the transaction to
be accounted for as a financing of the mortgage loans collateralizing the
investment-grade CMBS sold in the securitization. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Liquidity and
Capital Resources" and Note 6 to Notes to Consolidated Financial Statements for
additional information regarding this securitization.

     At the time it filed for bankruptcy, the Company had a mortgage loan
conduit program with Citibank (the "Citibank Program") as well as a loan conduit
program with Prudential Securities Incorporated and Prudential Securities Credit
Company (the "Prudential Program") (together the "Programs").

     The Citibank Program provided for CRIIMI MAE to pay to Citibank the face
value of the loans originated through the Program, which were funded by Citibank
and not otherwise securitized, plus or minus any hedging loss or gain, on
December 31, 1998. To secure this obligation, CRIIMI MAE was required to deposit
a portion of the principal amount of each originated loan in a reserve account.
At December 31, 1998, this reserve account was approximately $31.8 million.

     Under the Prudential Program, the Company has an option to pay to
Prudential the face value of the loan, plus or minus any hedging loss or gain,
at the earlier of June 30, 1999 or the date by which a stated quantity of loans
for securitization has been made. Under the Prudential Program, the Company was
required to fund a reserve account, which was approximately $2 million at
December 31, 1998. If the Company is unable to exercise its option under the
Prudential Program, the Company will forfeit the amount of the reserve account.

     On October 5, 1998, Citibank sent the Company a letter alleging that the
Company was in default under the Citibank Program and that it was terminating
the Citibank Program. The Company and Citibank 

                                  7

<PAGE>

negotiated a Stipulation and Consent Order (the "Order"), entered by the
Bankruptcy Court on April 5, 1999, regarding the Citibank Program. The Order
provides that Citibank will, with CRIIMI MAE's cooperation, sell the loans
originated under the Citibank Program, provided that the sale results in CRIIMI
MAE receiving minimum net proceeds of not less than $3.5 million, after
satisfying certain amounts due to Citibank, from the amount held in the
reserve account. The minimum net proceeds provision may be waived by agreement
of the Company, the Official Committee of Unsecured Creditors in the Company's
Chapter 11 case (the "Unsecured Committee") and the Official Committee of Equity
Security Holders in the Company's Chapter 11 case (the "Equity Committee").
CRIIMI MAE is also discussing with Prudential the sale of the loan originated
under the Prudential Program. There can be no assurance that an agreement will
be reached with Prudential or, if reached, that such agreement would be approved
by the Bankruptcy Court.

     As of December 31, 1998, the Company's obligation under the Citibank 
Program was $28.4 million (based primarily on information provided by 
Citibank) in excess of the fair value of the loans and the Company's loss 
exposure under the Prudential Program was $2 million if the Company does not 
exercise its option. As a result, CRIIMI MAE recorded an aggregate $30.4 
million unrealized loss on its obligations as of December 31, 1998. The 
unrealized loss of $28.4 million relating to the Citibank Program as of 
December 31, 1998 is based on the estimated market value of the loans offset 
by the unpaid principal balance of the loans at December 31, 1998, hedge 
losses and certain estimated fees and other costs. Depending on market 
conditions, including interest rate movements, these losses could materially 
increase or decrease in subsequent reporting periods. The Company has 
calculated the Prudential loss based upon the assumption that the Company 
will not exercise its option with Prudential.

SERVICING

     CRIIMI MAE conducts its mortgage loan servicing and advisory operations
through its affiliate, CMSLP. At the time of the Chapter 11 filing, CMSLP was
responsible for certain servicing functions on a mortgage loan portfolio of
approximately $32 billion, as compared to approximately $16.5 billion as of
December 31, 1997. Prior to the Petition Date, CRIIMI MAE increased its mortgage
loan servicing and advisory operations primarily through its purchases of
Subordinated CMBS by acquiring certain servicing rights for the mortgage loans
collateralizing the Subordinated CMBS, as well as providing servicing on the
loans originated through the CRIIMI MAE loan origination programs. At the time
of the Chapter 11 filing, CRIIMI MAE, through CMSLP, master serviced five CMBS
portfolios totaling $3.6 billion, as well as loans originated, but not yet
securitized, under its loan origination programs.

     CMSLP did not file for Chapter 11 protection. However, because of its
relationship with CRIIMI MAE, CMSLP has been under a high degree of scrutiny
from servicing rating agencies. As a result of CRIIMI MAE's Chapter 11 filing,
CMSLP was also declared in default under its credit agreements with First Union
National Bank. In order to repay these credit agreement obligations and to
increase its liquidity, CMSLP arranged for Banc One Mortgage Capital Markets,
LLC ("BOMCM") to succeed it, on October 30, 1998, as master servicer on two
commercial mortgage pools for a payment of $6.9 million, resulting in a loss to
CMSLP of approximately $1.4 million from the recorded value of the rights.
Substantially all of the loss flowed through to CRIIMI MAE through equity in
earnings in the fourth quarter of 1998. In addition, in order to allay rating
agency concerns stemming from CRIIMI MAE's Chapter 11 filing, in November 1998,
CRIIMI MAE designated BOMCM as special servicer on 33 separate CMBS
securitizations totaling approximately $29 billion, subject to certain
requirements contained in the respective servicing agreements. CMSLP continues
to perform special servicing as sub-servicer for BOMCM on all but five of these
securitizations. CRIIMI MAE remains the owner of the lowest rated tranche of the
related Subordinated CMBS and, as such, retains all rights pertaining to
ownership, including the right to replace the special servicer. CMSLP also lost
the right to specially service the DLJ MAC 95 CF-2 securitization when the
majority holder of the lowest rated tranche replaced CMSLP as special servicer.
At December 31, 1998 CMSLP's remaining servicing portfolio was $31 billion.

     CMSLP's principal servicing activities are described below.

                                    8

<PAGE>

     SPECIAL SERVICING. A special servicer typically provides asset 
management and resolution services with respect to nonperforming or 
underperforming loans within a pool of mortgage loans. When acquiring 
Subordinated CMBS, CRIIMI MAE typically required that it retain the right to 
appoint the special servicer for the related mortgage pools. When serving as 
special servicer of 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. CRIIMI MAE believes that because it owns the lowest 
rated or unrated tranche (first loss position) of the Subordinated CMBS, 
CMSLP has an incentive to quickly resolve any loan workouts. During the year 
ended December 31, 1998, CMSLP successfully resolved $138.7 million of CMBS 
loan workouts without a loss to principal. As of December 31, 1998, CMSLP was 
designated as the special servicer (or sub-servicer) for approximately 5,000 
commercial mortgage loans representing an aggregate principal amount of 
approximately $27.4 billion. Such 5,000 commercial mortgage loans represent 
substantially all of the mortgage loans underlying CRIIMI MAE'S Subordinated 
CMBS portfolio.

     As of December 31, 1998, CMSLP had a special servicer rating of "above 
average" from Fitch IBCA and had been approved on a transactional basis by 
Moody's Investors Service, Inc. ("Moody's") and Duff & Phelps Credit Rating 
Co. However, CMSLP lost an "acceptable" special servicer rating by Standard &
Poor's ("S&P") in October 1998 as a result of the Chapter 11 filing of CRIIMI 
MAE. Also, as a result of the Chapter 11 filing, Fitch IBCA placed CMSLP's 
special servicing rating on "rating watch".

     MASTER SERVICING. A master servicer typically provides administrative and
reporting services to the trustee with respect to a particular issuance of CMBS.
Mortgage loans underlying CMBS generally are serviced by a number of primary
servicers. Under most master servicing arrangements, the primary servicers
retain primary responsibility for administering the mortgage loans and the
master servicer acts as an intermediary in overseeing the work of the primary
servicers, monitoring their compliance with the standards of the issuer of the
related CMBS and consolidating the servicers' respective periodic accounting
reports for transmission to the trustee. When serving as master servicer of a
CMBS pool, CMSLP has greater control over the mortgage assets underlying its
Subordinated CMBS, including the authority to (i) collect monthly principal and
interest payments (either from a direct servicer or directly from borrowers) on
loans comprising a CMBS pool and remit such amounts to the pool trustee, (ii)
oversee the performance of sub-servicers and (iii) report to trustees. As master
servicer, CMSLP is usually paid a fee and can earn float income on the deposits
it holds. In addition to this float and fee income, the master servicer
typically has more direct and regular contact with borrowers than the special
servicer. As of December 31, 1998, CMSLP remained master servicer on three CMBS
portfolios representing commercial mortgage loans with an aggregate principal
amount of approximately $2.3 billion.

     As of December 31, 1998, CMSLP had a master servicer rating of "acceptable"
from Fitch IBCA and had been approved on a transactional basis by Moody's.
However, CMSLP lost an acceptable master servicer rating from S&P in October
1998 as a result of the Chapter 11 filing of CRIIMI MAE. Also, as a result of
the Chapter 11 filing, Fitch IBCA placed CMSLP's Master Servicer rating on
"rating watch".

     DIRECT (OR PRIMARY) SERVICING. Direct (or primary) servicers typically
perform certain functions for the master servicer. Direct serviced loans are
those loans for which CMSLP collects loan payments directly from the borrower
(including tax and insurance escrows and replacement reserves). The loan
payments are remitted to the master servicer for the loan (which may be the same
entity as the direct servicer), usually on a fixed date each month. The direct
servicer is usually paid a fee to perform these services, and is eligible to
earn float income on the deposits held. In addition to this fee and float
income, the direct servicer, like the master servicer, typically has more direct
and regular contact with borrowers than the special servicer. As of December 31,
1998, CMSLP was designated direct servicer for approximately 374 commercial
mortgage loans representing an aggregate principal amount of approximately $2.1
billion. This number excludes loans that are both direct and master serviced,
which are included in the master servicing figures above.

     LOAN MANAGEMENT. In certain cases, CMSLP acts as loan manager and monitors
the ongoing performance of properties securing the mortgage loans underlying its
Subordinated CMBS portfolio by 

                                     9

<PAGE>

continuously reviewing the property level operating data and regular site
inspections. For many of these loans, CMSLP performs these duties directly; for
the remaining loans, as part of its routine asset monitoring process, it reviews
the analysis performed by other servicers. This allows CMSLP to identify and
resolve potential issues that could result in losses. As of December 31, 1998,
CMSLP served as loan manager for approximately 4,800 commercial mortgage loans
representing an aggregate principal amount of approximately $26.6 billion. This
number excludes loans that are both direct and master serviced which are
included in the master servicing figures above.

UNDERWRITING PROCEDURES

     CRIIMI MAE believes that its experience in underwriting has enabled it to
maintain the overall quality of assets underlying its CMBS portfolio and to
properly manage certain of the risks associated with mortgage loans underlying
acquired Subordinated CMBS and loan originations. Since the Company generally
acquired CMBS through privately negotiated transactions and originated
commercial mortgage loans through its regional offices, it was able to perform
extensive due diligence on each mortgage loan as well as the underlying real
estate prior to consummating any purchase or origination. The Company underwrote
every loan it originated and re-underwrote a substantial portion of the loans
underlying the Subordinated CMBS it acquired. Furthermore, the Company's credit
committee, composed of members of senior management, reviewed originated loans
and Subordinated CMBS acquisitions. The Company also placed underwriting
personnel in its regional origination offices, not only to provide a timely
response to the originators but also to achieve a thorough understanding of
local markets and demographic trends.

     CRIIMI MAE's underwriting guidelines were designed to assess the adequacy
of the real property as collateral for the loan and the borrower's
creditworthiness. The underwriting process entailed a full independent review of
the operating records, appraisals, environmental studies, market studies and
architectural and engineering reports, as well as site visits to properties
representing a majority of the CMBS portfolio. The Company then tested the
historical and projected financial performance of the properties to determine
their resiliency to a market downturn and applied varying capitalization rates
to assess collateral value. To assess the borrower's creditworthiness, the
Company reviewed the borrower's financial statements, credit history, bank
references and managerial experience. The Company purchased Subordinated CMBS
when the loans it believed to be problematic (i.e., that did not meet its
underwriting criteria) were excluded from the CMBS pool and when satisfactory
arrangements existed that enabled the Company to closely monitor the underlying
mortgage loans and provided the Company with appropriate workout and foreclosure
rights.

EMPLOYEES

     As of December 31, 1998, the Company had 65 full-time employees, and 
CSMLP had 118 full-time employees. Prior to the Petition Date on September 
30, 1998, the Company had 170 full-time employees, and CMSLP had 113 
full-time employees. Most of these staff reductions were in the Company's 
origination and underwriting areas, which were reduced by 57 full-time and 43 
full-time employees, respectively.

EMPLOYEE RETENTION PLAN

     Upon commencement of the Chapter 11 cases, the Company believed it was
essential to both the efficient operation of the Company's business and the
reorganization effort that the Company maintain the support, cooperation and
morale of its employees. The Company obtained Bankruptcy Court approval to pay
certain pre-petition employee obligations in the nature of wages, salaries and
other compensation and to continue to honor and pay all employee benefit plans
and policies.

     In addition, to ensure the Company's continued retention of its executives
and other employees and to provide meaningful incentives for these employees to
work toward the Company's financial recovery and reorganization, the Company's
management and Board of Directors developed a comprehensive and integrated
program to retain its executives and other employees throughout the
reorganization. On December 18, 1998, the Company obtained Bankruptcy Court
approval to adopt and 

                                    10

<PAGE>

implement an employee retention program (the "Employee Retention Plan") with 
respect to all employees of the Company other than certain key executives. On 
February 28, 1999, the Company received Bankruptcy Court approval authorizing 
it to extend the Employee Retention Plan to the key executives initially 
excluded, including modifying existing employment agreements and entering 
into new employment agreements with such key executives. The Employee 
Retention Plan permitted the Company to approve ordinary course employee 
salary increases in March 1999, subject to certain limitations, and to grant 
options to its employees after the Petition Date, up to certain limits. The 
Employee Retention Plan also provides for retention payments aggregating 
approximately $4.6 million, including payments to certain executives. 
Retention payments are payable semiannually over a two-year period. The first 
retention payment vested on April 5, 1999, and will be paid on April 15, 
1999. The entire unpaid portion of the retention payments will become due and 
payable (i) upon the effective date of a plan of reorganization of the 
Company and, with respect to certain key executives, court approval or (ii) 
upon termination without cause. William B. Dockser, Chairman of the Board of 
the Company, and H. William Willoughby, President, are not currently entitled 
to receive any retention payments. Subject to the terms of their respective 
employment agreements, certain key executives will be entitled to severance 
benefits if they resign or their employment is terminated following a change 
of control. The other employees will be entitled to severance benefits if 
they are terminated subsequent to a change of control of the Company, but, 
with the exception of certain key executives, only if such change of control 
results in the successful emergence of the Company and CM Management from 
Chapter 11. In addition, all options granted by the Company after October 5, 
1998 shall immediately become exercisable upon a change of control. For a 
discussion of the Employee Retention Plan as it relates to named key 
executives of the Company, see "EXECUTIVE COMPENSATION--Employment 
Agreements".

THE PORTFOLIO

CMBS

     FAIR VALUE

     As of December 31, 1998, the Company owned CMBS rated from A to CCC and
Unrated with a total fair value amount of approximately $1.3 billion
(representing approximately 52% of the Company's total consolidated assets) and
an aggregate amortized cost of approximately $1.5 billion.

<TABLE>
<CAPTION>

                                                                                                      Amortized      Amortized
                 Face Amount     Weighted                                      Range of Discount         Cost          Cost
                    as of         Average       Weighted      Fair Value         Rates Used to          as of         as of
Security          12/31/98        Pass-         Average     as of 12/31/98       Calculate Fair        12/31/98       12/31/97
Rating          (in millions)   Through Rate    Life (2)    (in millions)(1)        Value (1)       (in millions)   (in millions)
---------       -------------   ------------    --------    ----------------    --------------      -------------   -------------
<S>             <C>             <C>             <C>         <C>                 <C>                 <C>             <C>
AA-             $      --              --            --             --                 --              $      --       $     5.6
A (5)                62.6              7.0%     7 years      $    57.2                  8.7%                57.0              --
BBB (5)(6)          150.6              7.0%    13 years          121.9                  9.7%               126.9             4.0
BBB-(6)             115.2              7.0%    13 years           85.6                 10.7%                92.8              --
BB+                 394.6              6.9%    14 years          286.8            9.3%-11.5%               317.9             8.6
BB                  275.8              6.9%    15 years          212.7           10.3%-12.3%               259.1           445.0
BB-                  89.1              6.8%    15 years           58.0           11.1%-13.3%                72.6            89.8
B+                  128.7              6.7%    17 years           72.9           12.1%-14.0%                93.0              --
B                   300.2              6.6%    17 years          159.7           12.1%-15.3%               208.9           357.4
B-                  198.7              6.7%    18 years           87.4           15.1%-18.8%               106.7            44.6
CCC                  92.0              6.8%    20 years           22.8                 25.0%                36.0            10.9
Unrated             478.1              6.7%    21 years          109.2           27.0%-33.0%               159.0           113.2
                ---------             ----     --------      ---------           -----------           ---------       ---------
Total (3)(4)    $ 2,285.6              6.8%    16 years      $ 1,274.2                                 $ 1,529.9       $ 1,079.1
                ---------             ----     --------      ---------                                 ---------       ---------
                ---------             ----     --------      ---------                                 ---------       ---------
</TABLE>

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

(1) The estimated fair values of Subordinated CMBS represent the carrying value
of these assets. Due to the Chapter 11 filing, the Company's lenders were not
willing to provide fair value quotes for the 1998 portfolio. As a result, the

                                        11

<PAGE>

Company calculated the estimated fair market value of its Subordinated CMBS 
portfolio as of December 31, 1998. The Company used a discounted cash flow 
methodology to estimate the fair value of its Subordinated CMBS portfolio. 
The projected cash flows used by the Company were the same collateral cash 
flows used to calculate the anticipated weighted average unleveraged yield to 
maturity. (See Note 5 to Notes to Consolidated Financial Statements.) The 
cash flows were then discounted using a discount rate that, in the Company's 
view, was commensurate with the market's perception of risk and value. The 
Company used a variety of sources to determine its discount rate including: 
(i) institutionally-available research reports, (ii) a relative comparison of 
dealer provided discount rates from the previous quarter to those disclosed 
in recent research reports and incorporating adjustments to reflect changes 
in the market as they relate to each of the Company's CMBS from September 30, 
1998 to December 31, 1998, and (iii) communications with dealers and active 
Subordinated CMBS investors regarding the year-end valuation of comparable 
securities. Since the Company calculated the estimated fair market value of 
its Subordinated CMBS portfolio as of December 31, 1998, it has disclosed in 
the table the range of discount rates by rating category used in determining 
these fair market values.

(2) Weighted average life represents the weighted average expected life of the
Subordinated CMBS prior to consideration of losses, extensions or prepayments
other than those factored in the assumed prepayment rate used at the time of
acquisition, which ranged from 0% to 4%, depending upon the portfolio.

(3) Refer to Note 8 to Notes to Consolidated Financial Statements for additional
information regarding the total face amount and purchase price of Subordinated
CMBS for tax purposes.

(4) Similar to the Company's other sponsored CMO's, CMO-IV, as further 
described below in Investment in Originated Loans, resulted in the creation 
of CMBS, of which the Company sold certain tranches. Since the Company 
retained call options on the sold bonds, the Company did not surrender 
control of the assets for purposes of FAS 125 and thus the entire transaction 
is accounted for as a financing and not a sale. Since the entire transaction 
is recorded as a financing, the CMBS are not reflected in the Company's CMBS 
portfolio and the mortgage assets are reflected in Investment in Originated 
Loans on the balance sheet.

(5) In connection with CBO-2, $62.6 million (A rated) and $60.0 million (BBB 
rated) face amount of investment grade securities were issued with call 
options and $345 million (A rated) face amount were issued without call 
options. Since the Company retained call options on certain sold bonds, the 
Company did not surrender control of those assets pursuant to the 
requirements of FAS 125 and thus these securities are accounted for as a 
financing and not a sale. Since the transaction is recorded as a partial 
financing and a partial sale, CRIIMI MAE has retained the securities with 
call options in its CMBS portfolio reflected on its balance sheet.

(6) In connection with CBO-2, the Company retained $90.6 million (BBB rated) 
and $115.2 million (BBB- rated) face amount of securities, with the intention 
to sell the securities at a later date. These securities were sold on March 
5, 1999 in a transaction accounted for as a financing by the Company rather 
than a sale and the related debt will be reflected as Secured Mortgage 
Obligations. See "LEGAL PROCEEDINGS".

     TYPE AND GEOGRAPHIC LOCATION OF LOANS. As of December 31, 1998 and 1997,
the mortgage loans underlying the Company's CMBS portfolio were secured by
properties of the types and at the locations identified below:
<TABLE>
<CAPTION>

Property Type                     1998(1)      1997(1)        Geographic Location(2)       1998(1)        1997(1)
-------------                     -------      -------        ----------------------       -------        -------
<S>                                <C>          <C>           <C>                            <C>            <C>
Multifamily...............          31%          37%          California..............        16%            14%
Retail....................          28%          28%          Texas...................        12%            15%
Office....................          15%          10%          Florida.................         7%             9%
Hotel.....................          13%          14%          New York................         6%             4%
Other.....................          13%          11%          Other(3)................        59%            58%
                                   ---          ---                                          ---            ---
  Total...................         100%         100%            Total.................       100%           100%
                                   ---          ---                                          ---            ---
                                   ---          ---                                          ---            ---
</TABLE>

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

(2) No significant concentration by region. 

(3) No other individual state makes up more than 5% of the total.

                                         12

<PAGE>

     CMBS POOLS. The following table summarizes information relating to the
Company's CMBS on an aggregate basis by pool as of December 31, 1998. See 
also Note 5 to Notes to Consolidated Financial Statements.

<TABLE>
<CAPTION>

                                                                                      Original      December 31, 1998
                                                                                    Anticipated        Anticipated
                                                                                    Unleveraged        Unleveraged
                                                                      Amortized       Yield to           Yield to
Pool                                 Face Amount     Fair Value (6)     Cost        Maturity(1)       Maturity(1)(2)
----                                 -----------     --------------   ---------     ------------     --------------
                                     (in millions)   (in millions)   in millions)
                                                                      
<S>                                  <C>             <C>              <C>           <C>              <C>
Retained Securities from
  CRIIMI 1996 C1 (CBO-1)               $  112.1       $   43.9        $  46.6            19.5%             20.9%(5)

DLJ Mortgage Acceptance Corp.
  Series 1997 CF2 Tranche B-30C             3.8           18.2           23.3             8.2%              8.1%

Nomura Asset Securities Corp.
  Series 1998-D6 Tranche B7                46.5            9.9           17.6            12.0%             12.0%

Retained Securities from
  CRIIMI  MAE Commercial Mortgage
  Trust Series 1998 C1 (CBO-2)
  (4)                                   1,427.2          793.0          926.6            10.3%             10.2%

Mortgage Capital Funding, Inc.
  Series 1998-MC1                         151.8           97.1          116.1             8.9%              8.9%

Chase Commercial Mortgage
Securities Corp.
  Series 1998-1                            81.8           48.2           61.1             8.8%              8.8%

First Union/Lehman Brothers
  Series 1998 C2                          289.7          159.0          207.4             8.9%              8.9%

Morgan Stanley Capital I Inc.
  Series 1998-WF2 (4)                      86.9           53.2           65.5             8.5%              8.5%

Mortgage Capital Funding, Inc.
  Series 1998-MC2                          85.8           51.7           65.7             8.7%              8.7%
                                       --------       --------        --------             ---  --          ----  -- 

                                       $2,285.6       $1,274.2        $1,529.9             9.7% (3)         10.1% (3)
                                       --------       --------        --------             ---  --          ----  -- 
                                       --------       --------        --------             ---  --          ----  -- 

</TABLE>

--------------------
(1) Represents the anticipated weighted average unleveraged yield over the
expected average life of the Company's Subordinated CMBS portfolio as of the
date of acquisition and December 31, 1998, respectively, based on management's
estimate of the timing and amount of future credit losses and prepayments. As
discussed in (4) below these yields may decrease as a result of certain
adversarial actions taken by the Company's lenders.

(2) Unless otherwise noted, changes in the December 31, 1998 anticipated yield
to maturity from that originally anticipated are primarily the result of changes
in prepayment assumptions relating to mortgage collateral.

(3) CRIIMI MAE, through CMSLP, performs servicing functions on a total CMBS 
pool of approximately $30.0 billion. Of the $30.0 billion of mortgage loans, 
approximately $195.4 million are currently being specially serviced, of which 
approximately $45.0 million are being specially serviced due to payment 
default and the remainder are being specially serviced due to nonfinancial 
covenant default. Despite the volatility in the capital markets, the mortgage 
assets underlying the Company's portfolio of CMBS experienced no losses of 
principal from default. See "BUSINESS-Servicing" and Note 5 to Notes to 
Consolidated Financial Statements for a discussion of the transfer of special 
servicing.

(4) On October 6, 1998, Morgan Stanley and Co. International Limited ("Morgan
Stanley") advised CRIIMI MAE that it was exercising alleged ownership rights
over certain classes of CMBS it held as collateral. Subsequent to year end, the
Company agreed to cooperate on selling two classes of investment grade CMBS
issued by CBO-2 ("CBO-2 BBB Bonds") and to suspend litigation with Morgan
Stanley with respect to these CMBS. CRIIMI MAE and Morgan Stanley also agreed to
a standstill period, 

                                       13

<PAGE>

now extended through April 15, 1999, regarding seven classes of Subordinated 
CMBS issued by Morgan Stanley Capital I Inc. Series 1998-WF2. On March 5, 
1999, the CBO-2 BBB Bonds with $205.8 million face amount and a coupon rate 
of 7% were sold in a transaction accounted for as a financing by the Company 
rather than a sale. Of the $159.0 million of net sale proceeds, $141.2 
million was used to repay borrowings under the agreement with Morgan Stanley 
and $17.8 million was paid to CRIIMI MAE.

(5) The increase in the anticipated yield resulted from the reallocation of a 
portion of the CBO-1 asset basis in conjunction with the CBO-2 
resecuritization.

(6) Fair value has been calculated as described above in footnote (1) to the
table on CMBS Fair Value.

INSURED MORTGAGE SECURITIES

     As of December 31, 1998, the Company had $488.1 million (at fair value )
invested in mortgage securities and insured loans, consisting of GNMA
Mortgage-Backed Securities and FHA-Insured Loans, as well as Federal Home Loan
Mortgage Company (Freddie Mac) participation certificates that are
collateralized by GNMA Mortgage-Backed Securities. As of December 31, 1998,
approximately 18% of CRIIMI MAE's investment in mortgage securities were
FHA-Insured Certificates and 82% were GNMA Mortgage-Backed Securities (including
certificates that collateralize Freddie Mac participation certificates). See
Notes 1 and 7 to Notes to Consolidated Financial Statements.

INVESTMENT IN ORIGINATED LOANS

     As of December 31, 1998, the Company had $499.1 million (at amortized 
cost) invested in commercial mortgage loans primarily originated through the 
Company's mortgage loan conduit programs and subsequently securitized in 
CMO-IV. Because the bonds sold in CMO-IV are subject to certain call options, 
under FAS 125, the entire transaction is accounted for as a financing instead 
of a sale and the mortgage loans are reflected on the Company's balance 
sheet. See "BUSINESS-Loan Originations and Securitizations" and Notes 1 and 6 
to Notes to Consolidated Financial Statements.

     As of December 31, 1998, the originated mortgage loans were secured by
properties of the types and at the locations identified below:

<TABLE>
<CAPTION>

Property Type               Percentage(1)             Geographic Location(2)                  Percentage(1)
-------------               -------------             ----------------------                  -------------
<S>                         <C>                       <C>                                     <C>
Multifamily...........           38%                  Michigan.....................                 20%
Hotel.................           26%                  Texas........................                  8%
Retail................           20%                  Illinois.....................                  7%
Office................           11%                  Connecticut..................                  6%
Other.................            5%                  California...................                  6%
                                ---                   Maryland.....................                  6%
                                                      Other(3).....................                 47%
                                                                                                   ---
   Total..................      100%                  Total.....................                   100%
                                ---                                                                ---
                                ---                                                                ---
</TABLE>

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

(2) No significant concentration by region. 

(3) No other state makes up more than 5% of the total.

EQUITY INVESTMENTS

     As of December 31, 1998, the Company had approximately $42.9 million in 
investments accounted for under the equity method of accounting. Included in 
equity investments are (a) CRIIMI, Inc., a wholly owned subsidiary of CRIIMI 
MAE, which owns all of the general partnership interests in American Insured 
Mortgage Investors L.P., American Insured Mortgage Investors L.P.-Series 85, 
American Insured Mortgage Investors L.P.-Series 86 and American Insured 
Mortgage Investors L.P.-Series 88 (collectively the "AIM Funds"), (b) CRIIMI 
MAE and CM Management each own 50% of the limited partnership interest that 
owns a 20% limited partnership interest in the adviser to the AIM Funds, (c) 
CRIIMI MAE's interest in CRIIMI MAE Services Inc., and (d) CRIIMI MAE's 
interest in CMSLP. See Note 1 to Notes to Consolidated Financial Statements.

                                     14

<PAGE>

RISK FACTORS. THE FOLLOWING RISK FACTORS ADDRESS RISKS RELATING PRIMARILY TO THE
COMPANY AND ITS OPERATIONS DURING THE PENDENCY OF THE BANKRUPTCY. BECAUSE IT IS
NOT POSSIBLE TO PREDICT THE OUTCOME OF THE CHAPTER 11 FILING AND THERE CAN BE NO
ASSURANCE AS TO WHEN OR IF THE COMPANY WILL RESUME BUSINESS ACTIVITIES THAT IT
HAS SUSPENDED DURING THE BANKRUPTCY, THE FOLLOWING DISCUSSION DOES NOT ADDRESS
RISKS RELATING TO THE RESUMPTION OF THE COMPANY'S SUBORDINATED CMBS ACQUISITION,
LOAN ORIGINATION OR SECURITIZATION PROGRAMS.

EFFECT OF BANKRUPTCY FILING; ABILITY TO CONTINUE AS A GOING CONCERN

     Since filing for bankruptcy, CRIIMI MAE has suspended its Subordinated CMBS
acquisition, origination and securitization operations, but continues to service
mortgage loans through CMSLP. Accordingly, the Company's results of operations
during the pendency of the bankruptcy are expected to differ materially from the
Company's performance prior to bankruptcy. Moreover, depending upon when and if
any of these activities is resumed by the Company, the Company's future
performance will differ materially from its present operations.

     The Company's ability to resume the acquisition of Subordinated CMBS, as
well as its loan origination and securitization programs, depends to a
significant degree on its ability to obtain additional capital and emerge from
bankruptcy as a successfully reorganized company. The Company's ability to
access the necessary additional capital will be affected by a number of factors,
many of which are not in the Company's control. These include the cost of such
capital, changes in interest rates and interest rate spreads, changes in the
commercial mortgage industry and the commercial real estate market, general
economic conditions, perceptions in the capital markets of the Company's
business, covenants under the Company's current and future debt securities and
credit facilities, results of operations, leverage, financial condition and
business prospects. Currently, CRIIMI MAE is exploring a variety of possible
capital sources, including bank debt, high yield bond financing and equity
capital. However, the Company can give no assurances as to whether or when it
will obtain the necessary capital or the terms upon which such capital can be
obtained.

     The Bankruptcy Court has entered an order extending the Company's exclusive
right to file a plan of reorganization through May 11, 1999 and has set a
hearing for such date with respect to the extension of the exclusivity periods
through August 2, 1999 for filing a plan of reorganization and through October
3, 1999 for soliciting acceptances thereof. A number of parties have indicated
potential opposition to any such extension. Management expects to file a plan of
reorganization during the summer of 1999, which would contemplate the Company's
emergence from bankruptcy later in 1999. There can be no assurance at this time,
however, that a plan of reorganization will be proposed by the Company during
such time or that such plan will be confirmed and consummated. After the
expiration of the exclusivity period, any party-in-interest has the right to
propose alternative plans of reorganization. The consummation of a plan of
reorganization will require the requisite vote of impaired creditors and
shareholders under the Bankruptcy Code (unless the proponent of the plan invokes
the so-called "cramdown" provisions of the Bankruptcy Code) and confirmation of
the plan by the Bankruptcy Court. See "LEGAL PROCEEDINGS-Bankruptcy
Proceedings."

     At this time, it is not possible to predict the outcome of the Chapter 11
filing, in general, or its effects on the business of the Company or on the
claims and interests of creditors and shareholders. In addition, the Company's
independent public accountants have issued a report expressing substantial doubt
about the Company's ability to continue as a going concern. See "REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS."

RISK OF LOSS OF REIT STATUS

     See "BUSINESS-Effect of Chapter 11 Filing on REIT Status and Other Tax
Matters" for a discussion.

TAXABLE MORTGAGE POOL RISK

     See "BUSINESS-Effect of Chapter 11 Filing on REIT Status and Other Tax
Matters" for a discussion.

                                   15

<PAGE>

SUBSTANTIAL INDEBTEDNESS; LEVERAGE

     The Company has substantial indebtedness. As of December 31, 1998, the
Company's total consolidated indebtedness was $2.1 billion, of which $1.1
million was recourse debt to the Company (i.e. not match-funded debt). This high
level of debt limits the Company's ability to obtain additional financing,
reduces income available for distributions to the extent income from assets
purchased with borrowed funds fails to cover the cost of the borrowings,
restricts the Company's ability to react quickly to changes in its business and
makes the Company more vulnerable to economic downturns.

RISKS OF OWNING SUBORDINATED CMBS

     As an owner of the most subordinate tranches of CMBS, the Company will be
the first to bear any loss and the last to have a priority right to the cash
flow of the related mortgage pool. For example, if the Company owns a $10
million subordinated interest in an issuance of CMBS consisting of $100 million
of mortgage loan collateral, a 7% loss on the underlying mortgage loans will
result in a 70% loss on the subordinated interest.

     The Company's Subordinated CMBS can change in value due to a number of 
economic factors. These factors include changes in the underlying real 
estate, fluctuations in Treasury rates, and changes in CMBS pricing spreads. 
Changes in the credit quality of the properties securing the underlying 
mortgage loans can result in interest payment shortfalls, to the extent there 
are mortgage payment delinquencies, and principal losses, to the extent that 
there are payment defaults and the principal is not fully recovered. These 
changes can result in permanent changes in the value of the CMBS and the 
Company's anticipated yield if the losses are in excess of those previously 
estimated. CMBS securities are priced as a spread above the Treasury rate 
with a comparable maturity. The value of CMBS securities can be affected by 
changes in interest rates, as well as changes in the spread between such CMBS 
and the comparable Treasury security. For example, the spread to a comparable 
Treasury of a CMBS security may have increased from 400 basis points to 500 
basis points. If the Treasury security with a comparable maturity had a yield 
of 5% then, in this example, the yield on a CMBS security would have changed 
from 9% to 10% and accordingly, the value of such CMBS security would have 
declined. Generally, increases in interest rates or spreads will result in 
temporary changes in the value of the Subordinated CMBS assuming that the 
Company has the ability to hold its CMBS investments until their maturity. 
However, the Company has historically been unable to obtain financing at the 
time of acquisition that matches the maturity of the related investments, 
resulting in a periodic need to obtain short-term financing secured by the 
Company's CMBS. The inability to refinance this short-term financing with 
match-funded financing or a decline in the value of the collateral securing 
such short-term indebtedness could result in a situation where the Company is 
required to sell CMBS securities or provide additional collateral, which 
could have an adverse effect on the Company and its financial position and 
results of operations.

LIMITED PROTECTION FROM HEDGING TRANSACTIONS

     To minimize the risk of interest rate changes on its variable-rate debt,
the Company follows a policy to hedge at least 75% of its variable-rate debt
with interest rate protection agreements in order to provide a ceiling on the
amount of interest expense payable by the Company. As of December 31, 1998, 79%
of the Company's outstanding variable-rate debt was hedged with interest rate
protection agreements that partially limit the impact of rising interest rates
above a certain defined threshold, or strike price. When these interest rate
protection agreements expire, the Company will have increased interest rate risk
unless it is able to enter into replacement interest rate protection agreements.
As of December 31, 1998, the weighted average remaining term for the interest
rate protection agreements was approximately two years with a weighted average
strike price of 6.6%. There can be no assurance that the Company will be able to
maintain interest rate protection agreements to meet its 75% hedge policy on
satisfactory terms or to adequately protect against rising interest rates. In
addition, the Company does not currently hedge against all interest rate risks,
including increases in interest rate spreads, which adversely affect the value
of its CMBS assets.

                                      16

<PAGE>

RISK OF FORECLOSURE ON PLEDGED CMBS

     Additionally, changes in interest rates, as well as changes in market
spreads, may cause the value of the Company's CMBS portfolio to decrease. A
decrease in the market value of these assets may cause lenders to seek relief
from the automatic stay provision of the Bankruptcy Code to foreclose on the
collateral or to take other action.

LIMITED LIQUIDITY OF SUBORDINATED CMBS MARKET

     There is currently no active secondary trading market for Subordinated 
CMBS. This limited liquidity results in uncertainty in the valuation of the 
Company's portfolio of Subordinated CMBS. In addition, even if the market for 
Subordinated CMBS fully recovers, during adverse market conditions, the 
liquidity of such market may again be severely limited, which would impair 
the amount the Company could realize if it were required to sell a portion of 
its Subordinated CMBS. Furthermore, management's estimate of the value of its 
securities could vary significantly from the value that could be realized in 
a current transaction between a willing buyer and a willing seller in other 
than a forced sale or liquidation.

PENDING LITIGATION

     Since the Petition Date, material litigation has commenced before the
Bankruptcy Court between the Company and certain of its secured creditors,
including Merrill Lynch, Morgan Stanley and Citicorp. In addition, the Company
is aware that certain plaintiffs filed 20 separate class action civil lawsuits.
On March 9, 1999, the District Court ordered the consolidation of the complaints
in the United States District Court for the District of Maryland filed against
certain officers and directors of the Company between October 7, 1998 and
November 30, 1998. Although CRIIMI MAE was not named as a defendant in such
suits, the Company has an obligation to indemnify the officer and director
defendants. The Company intends to defend vigorously the claims asserted in all
of the foregoing lawsuits; however, there can be no assurance of, nor can CRIIMI
MAE predict with any degree of certainty, the ultimate outcome of such
litigation. See "LEGAL PROCEEDINGS."

INVESTMENT COMPANY ACT RISK

     Under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), an investment company is required to register with the 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 that
are primarily engaged in the business of acquiring mortgages and other liens on
and interests in real estate ("Qualifying Interests") are exempted by the
Investment Company Act.

     To qualify for the Investment Company Act exemption, CRIIMI MAE, among
other things, must maintain at least 55% of its assets in Qualifying Interests
(the "55% Requirement") and is also required to maintain an additional 25% in
Qualifying Interests (the "25% Requirement") or other real estate-related assets
("Other Real Estate Interests"). According to current SEC staff interpretations,
CRIIMI MAE believes that its government insured mortgage securities and
originated loans constitute Qualifying Interests. In accordance with current SEC
staff interpretations, the Company believes that all of its Subordinated CMBS
constitute Other Real Estate Interests and that certain of its Subordinated CMBS
also constitute Qualifying Interests. On certain of the Company's Subordinated
CMBS, the Company, along with other rights, has the unilateral right to direct
foreclosure with respect to the underlying mortgage loans. As a result of
obtaining such right, the Company believes that the related Subordinated CMBS
constitute Qualifying Interests. As of December 31, 1998, the Company believes
that it was 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, the Company
could, among other things, be required either (i) to change the manner in which
it conducts its 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 the Company. If the Company were required to change
the manner in which it conducts its business, it would likely have to dispose of
a significant portion of its Subordinated CMBS or acquire significant additional
assets that are Qualifying Interests. Alternatively, if the Company were
required to register as an investment company, it expects that its operating
expenses would significantly increase and that the Company would have to reduce
significantly its indebtedness, 

                                      17

<PAGE>

which could also require it to sell a significant portion of its assets. No
assurances can be given that any such dispositions or acquisitions of assets, or
deleveraging, could be accomplished on favorable terms.

     Further, if the Company were deemed an unregistered investment company, the
Company could be subject to monetary penalties and injunctive relief. The
Company would be unable to enforce contracts with third parties and third
parties could seek to obtain rescission of transactions undertaken during the
period the Company was deemed an unregistered investment company. In addition,
as a result of the Company's Chapter 11 filing, the Company is limited in
possible actions it may take in response to any need to modify its business plan
in order to register as an investment company, or avoid the need to register.
Certain dispositions or acquisitions of assets would require Bankruptcy Court
approval. Also, any forced sale of assets that occurs after the bankruptcy stay
is lifted would change the Company's asset mix, potentially resulting in the
need to register as an investment company under the Investment Company Act or
take further steps to change the asset mix. Any such results would be likely to
have a material adverse effect on the Company.

EFFECT OF ECONOMIC RECESSION ON LOSSES AND DEFAULTS

     Economic recession may increase the risk of default on commercial mortgage
loans and correspondingly increase the risk of losses on the Subordinated CMBS
backed by such loans. Economic recession may also cause reduced demand for
commercial mortgage loans. This in turn may cause declining values of commercial
real estate securing the outstanding mortgage loans, weakening collateral
coverage and increasing the possibility of losses in the event of a default.

YEAR 2000

     The Year 2000 issue is a computer programming issue that may affect many
electronic processing systems. Until relatively recently, in order to minimize
the length of data fields, most date-sensitive programs eliminated the first two
digits of the year. This issue could affect information technology ("IT")
systems and date sensitive embedded technology that controls certain systems
(such as telecommunications systems, security systems, etc.) leaving them unable
to properly recognize or distinguish dates in the twentieth and twenty-first
centuries. This treatment could result in significant miscalculations when
processing critical date-sensitive information relating to dates after December
31, 1999.

     CRIIMI MAE is currently in the process of assessing and testing Year 2000
compliance of its IT systems, which include software systems to service mortgage
loans, administer securitizations and manage mortgage assets, as well as
software systems used for internal accounting purposes. A majority of the IT
systems used by the Company are licensed from third parties. These third parties
have either provided upgrades to existing systems or have indicated that their
systems are Year 2000 compliant. CRIIMI MAE has applied upgrades and has
completed a substantial amount of compliance testing as of March 31, 1999. The
Company anticipates that all year 2000 testing will be completed in the second
quarter of 1999. There can be no assurance, however, that the Company's IT
systems will be Year 2000 compliant by December 31, 1999.

     The Year 2000 issue may also affect CRIIMI MAE's date-sensitive embedded
technology, which controls systems such as the telecommunications systems,
security systems, etc. The failure of any such systems to be Year 2000 compliant
could be material to the Company. The Company does not currently anticipate that
any material expenditure will be necessary to remediate the Company's embedded
technology systems.

     The potential impact of the Year 2000 issue depends not only on the
corrective measures CRIIMI MAE has undertaken and will undertake, but also on
the ways in which the Year 2000 issue is addressed by third parties with whom
CRIIMI MAE directly interfaces or whose financial condition or operations are
important to CRIIMI MAE, including government agencies, financial institutions,
creditors, borrowers and others involved in the CMBS industry. CRIIMI MAE has
initiated communications with third parties with which it directly interfaces to
evaluate the risk of their failure to be Year 2000 compliant and the extent to
which CRIIMI MAE may be vulnerable to such failure. Although the Company has
received positive responses from those third parties that have been contacted,
there can be no assurance that the systems of these third parties or those who
have not yet been contacted will be Year 2000 compliant by December 31, 1999.
The failure of these third parties to be Year 2000 compliant could have a
material adverse effect on the operations of CRIIMI MAE.

                                   18

<PAGE>

     The Company believes that its greatest risk with respect to the Year 2000
issue relates to failures by third parties to be Year 2000 compliant. In
addition to risks posed by third parties with which the Company interfaces
directly, risks are created by third parties providing services to large
segments of society. The failure of third parties to be Year 2000 compliant
could, among other things, cause disruptions in the capital and real estate
markets and borrower defaults on real estate loans underlying mortgage-backed
securities. With respect to the systems used directly by the Company, the
Company believes that its greatest exposure to the Year 2000 issue involves the
Company's loan servicing operations, which rely on computers to process and
manage loans. The Company has applied a vendor upgrade and has substantially
completed compliance testing on the upgrade. However, any failure of these
systems to be Year 2000 compliant could have a material adverse effect on the
Company's loan servicing operations.

     The cost of IT and embedded technology systems testing and upgrades is not
expected to be material to CRIIMI MAE's consolidated operating results. The
Company estimates incurring total costs of approximately $300,000 for the Year
2000 assessment and compliance testing, which will be recorded as noninterest
expense. Currently, the Company also estimates the cost of system upgrades
purely in relation to the Year 2000 issue will be immaterial.

     Although CRIIMI MAE has substantially completed its compliance testing 
and remediation, it is also in the process of developing contingency plans 
for the risks of the failure of the Company or third parties to be Year 2000 
compliant. Management intends to complete contingency plans for the Year 2000 
issue during the second quarter of 1999. Due to the inability to predict all 
of the potential problems that may arise from the Year 2000 issue, there can 
be no assurance that all contingencies will be adequately addressed by such 
plans.

ITEM 2.   PROPERTIES

     CRIIMI MAE leases its corporate offices at 11200 Rockville Pike, Rockville,
Maryland. As of March 29, 1999, these offices occupy approximately 68,500 square
feet.


ITEM 3.   LEGAL PROCEEDINGS

BANKRUPTCY PROCEEDINGS

     On the Petition Date, the Debtors each filed voluntary petitions for relief
under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. These cases are
being jointly administered for procedural purposes. None of the cases has been
substantively consolidated. Under the Bankruptcy Code, the Debtors are
authorized to manage their respective affairs and operate their businesses as
debtors-in-possession while they attempt to develop a reorganization plan that
will restructure their financial affairs and allow them to emerge from
bankruptcy. As a debtor-in-possession under the Bankruptcy Code, no Debtor may
engage in any transaction outside the ordinary course of business without the
approval of the Bankruptcy Court. The following discussion describes certain
aspects of the Chapter 11 cases of the Debtors (the "Chapter 11 Cases"), but it
is not intended to be a complete summary.

     Pursuant to the Bankruptcy Code, the commencement of the Chapter 11 Cases
created an automatic stay, applicable generally to creditors and other parties
in interest, but subject to certain limited exceptions, of: (i) the commencement
or continuation of judicial, administrative or other actions or proceedings
against the Debtors that were or could have been commenced prior to the
commencement of the Chapter 11 Cases; (ii) the enforcement against the Debtors
or their property of any judgments obtained prior to the commencement of the
Chapter 11 Cases; (iii) the taking of any action to obtain possession of
property of the Debtors or to exercise control over such property; (iv) the
creation, perfection or enforcement of any lien against the property of the
bankruptcy estates of the Debtors; (v) any act to create, perfect or enforce
against the property of the Debtors any lien that secures a claim that arose
prior to the commencement of the Chapter 11 Cases; (vi) the taking of any action
to collect, assess or recover claims against the Debtors that arose before the
commencement of the Chapter 11 Cases; (vii) the set-off of any debt owing to the
Debtors that arose prior to the commencement of the Chapter 11 Cases against any
claim against the Debtors; or (viii) the commencement or continuation of a
proceeding before the United States Tax Court concerning 

                                    19


<PAGE>

the Debtors. Any entity may apply to the Bankruptcy Court, upon appropriate
showing of cause, for relief from the automatic stay.

     As noted above, the Debtors are authorized to manage their respective
properties and operate their respective businesses pursuant to the Bankruptcy
Code. During the course of the Chapter 11 Cases, the Debtors will be subject to
the jurisdiction and supervision of the Bankruptcy Court. The United States
Trustee has appointed (i) an official committee of Unsecured Creditors in the
CRIIMI MAE Chapter 11 case, (ii) an official committee of Unsecured Creditors in
the Management Chapter 11 case and (iii) an official committee of Equity
Security Holders in the CRIIMI MAE Chapter 11 case (collectively, the
"Committees"). The Committees are expected to participate in the formulation of
the plans of reorganization for the respective Debtors. The Debtors are required
to pay certain expenses of the Committees, including professional fees, to the
extent allowed by the Bankruptcy Court.

     Under the Bankruptcy Code, for 120 days following the Petition Date, only
the debtor-in-possession has the right to propose and file a plan of
reorganization with the Bankruptcy Court. If a debtor-in-possession files a plan
of reorganization during this exclusivity period, no other party may file a plan
of reorganization until 180 days following the Petition Date, during which
period the debtor-in-possession has the exclusive right to solicit acceptances
of the plan. If a debtor-in-possession fails to file a plan during the
exclusivity period or such additional exclusivity period as may be ordered by
the Bankruptcy Court or, after such plan has been filed, fails to obtain
acceptance of such plan from impaired classes of creditors and equity security
holders during the exclusive solicitation period, any party in interest,
including a creditors' committee, an equity security holders' committee, a
creditor or an equity security holder may file a plan of reorganization for such
debtor. Additionally, if the Bankruptcy Court were to appoint a trustee, the
exclusivity period, if not previously terminated, would terminate.

     The Debtors did not file a plan of reorganization during the initial
exclusivity period; however, the Bankruptcy Court has entered an order extending
the Company's exclusive right to file a plan of reorganization through May 11,
1999. The Bankruptcy Court has set a hearing for May 11, 1999 with respect to a
further extension of the exclusivity periods through August 2, 1999 for filing a
plan of reorganization and through October 3, 1999 for soliciting acceptances
thereof. A number of parties have indicated potential opposition to any such
extension.

     After a plan of reorganization has been filed with the Bankruptcy Court, it
will be sent, together with a disclosure statement approved by the Bankruptcy
Court after notice and a hearing, to members of all classes of impaired
creditors and equity security holders for acceptance or rejection. Following
acceptance or rejection of any plan by impaired classes of creditors and equity
security holders, the Bankruptcy Court, after notice and a hearing, will
consider whether to confirm the plan. To confirm a plan, the Bankruptcy Court is
required to find among other things: (i) with respect to each class of impaired
creditors and equity security holders, that each holder of a claim or interest
of such class either (A) will, pursuant to the plan, receive or retain property
of a value as of the effective date of the plan, that is at least as much as
such holder would have received in a liquidation on such date of the Debtors or
(B) has accepted the plan, (ii) with respect to each class of claims or equity
security holders, that such class has accepted the plan or is not impaired under
the plan, and (iii) confirmation of the plan is not likely to be followed by the
liquidation or need for further financial reorganization of the Debtors or any
successor unless such liquidation or reorganization is proposed in the plan.

     If any impaired class of creditors or equity security holders does not
accept a plan, the proponent of the plan may invoke the so-called "cramdown"
provisions of the Bankruptcy Code. Under these provisions, the Bankruptcy Court
may confirm a plan, notwithstanding the non-acceptance of the plan by an
impaired class of creditors or equity security holders, if certain requirements
of the Bankruptcy Code are met. These requirements include: (i) the plan does
not discriminate unfairly and (ii) the plan is fair and equitable, with respect
to each class of claims or interests that is impaired under, and has not
accepted, the plan. As used in the Bankruptcy Code, the phrases "discriminate"
and "fair and equitable" have narrow and specific meanings and their use herein
is qualified in its entirety by reference to the Bankruptcy Code.

                                    20

<PAGE>

BANKRUPTCY RELATED LITIGATION

     The following is a summary of material litigation matters between the
Company and certain of its secured creditors that was commenced since the
Petition Date. The Company has reached agreement with certain of these
creditors, as set forth in greater specificity below.

     MERRILL LYNCH

     As of the Petition Date, the Company owed Merrill Lynch approximately
$274.8 million with respect to advances to the Company under an assignment
agreement pursuant to which the Company pledged Subordinated CMBS. Borrowings
under this assignment agreement are secured by a first priority security
interest in certain CMBS issued by CMO-IV, together with all proceeds,
distributions and amounts realized therefrom (the "Distributions") (the CMBS
pledged to Merrill Lynch and the Distributions are hereafter referred to
collectively as the "Merrill Collateral").

     On October 16, 1998, Merrill Lynch filed a motion with the Bankruptcy Court
for relief from the automatic stay or, in the alternative, for entry of an order
directing the Company to provide adequate protection for its interest in the
Merrill Collateral. On October 21, 1998, the Company filed a complaint against
Merrill Lynch for turnover of Distributions remitted to Merrill Lynch on October
2, 1998 by LaSalle National Bank, as well as other relief.

     On December 4, 1998, the Bankruptcy Court approved a consent order entered
into between the Company and Merrill Lynch. Among other things, pursuant to the
consent order, the pending litigation with Merrill Lynch was dismissed without
prejudice. The consent order also preserved the portfolio of CMBS pledged as
collateral to Merrill Lynch and provided for the Company to receive
distributions of 50 percent of the monthly cash flow from those CMBS, net of
interest payable to Merrill Lynch. The 50 percent of distributions received by
Merrill Lynch is to be applied to reduce principal. Such arrangement will remain
in effect until the earlier of a further order of the Bankruptcy Court affecting
the arrangement or the effective date of a plan of reorganization of the
Company.

     MORGAN STANLEY

     As of the Petition Date, the Company owed Morgan Stanley approximately
$182.4 million with respect to advances to the Company under an agreement
pursuant to which the Company pledged CMBS. The borrowings under this agreement
are secured by certain CMBS, including (i) CRIIMI MAE Commercial Mortgage Trust,
Series 1998-C1, Class B and C Certificates (collectively or any portion thereof,
the "CBO-2 BBB Bonds") and (ii) Morgan Stanley Capital I Inc., Series 1998-W2,
Class F, G, H, J, K, L and M Certificates (collectively or any portion thereof,
the "Wells Fargo Bonds" and, together with the CBO-2 BBB Bonds, the "Morgan
Collateral").

     On October 6, 1998, Morgan Stanley advised the Company that it was
exercising alleged ownership rights over the Morgan Collateral. On October 20,
1998, the Company filed an adversary proceeding against Morgan Stanley alleging,
among other things, that Morgan Stanley violated the automatic stay and seeking
turnover of the Morgan Collateral.

     On January 12, 1999, the Company and Morgan Stanley agreed upon and filed
with the Bankruptcy Court a stipulation and consent order, which was approved by
the Bankruptcy Court and entered on January 26, 1999. The consent order
provided, among other things, for the following: (i) an agreed sale procedure
for the CBO-2 BBB Bonds during a specified sale period; (ii) the payment of a
portion of the sale proceeds of the CBO-2 BBB Bonds to the Company; (iii) a
standstill period relating to the Wells Fargo Bonds through March 31, 1999
unless otherwise extended by the Company and Morgan Stanley, during which time
Morgan Stanley may not sell, pledge, encumber or otherwise transfer the Wells
Fargo Bonds and (iv) the postponement of the litigation with Morgan Stanley
while the parties seek a permanent resolution of their disputes. On March 5,
1999, the CBO-2 BBB Bonds were sold. Of the $159.0 million in net sale proceeds,
$141.2 million was used to repay the Company's borrowings under the agreement
with Morgan Stanley, and $17.8 million was paid to CRIIMI MAE. As a result of
the transaction, CRIIMI MAE's litigation against Morgan Stanley has been
resolved with respect to the CBO-2 BBB Bonds to the satisfaction of both
parties. The Company and Morgan Stanley have agreed to extend the standstill
period with 

                                    21

<PAGE>

respect to the Wells Fargo Bonds through April 15, 1999. At the end of this
standstill period, Morgan Stanley has until April 25, 1999 to respond to the
Company's complaint and resume litigation with respect to the Wells Fargo Bonds,
unless the standstill period is further extended by the parties or an 
agreement between the parties is reached.

     CITICORP AND CITIBANK

     In addition to the Citibank Program pursuant to which the Company
originated loans, as previously discussed, the Company also has a financing
arrangement with Citicorp pursuant to which the Company pledged CMBS.

     On October 13, 1998, Citicorp demanded from Norwest Bank Minnesota, N.A.
("Norwest") the immediate transfer of certain CMBS (the "Retained Bonds") issued
pursuant to CMO-IV. Norwest served as indenture trustee. The Retained Bonds are
collateral for amounts advanced to the Company by Citicorp under the financing
arrangement. As of the Petition Date, the Company owed Citicorp $79.1 million
under the facility.

     On October 15, 1998, the Company filed an emergency motion to enforce the
automatic stay against Norwest and Citicorp. Pursuant to an Order dated October
23, 1998, the Bankruptcy Court prohibited Citicorp from selling the Retained
Bonds without further order of the Bankruptcy Court. On October 23, 1998,
Citicorp requested an emergency hearing regarding the October 23 Order, and on
November 2, 1998, the Company filed a complaint against Citicorp seeking, among
other things, a declaratory judgment as to whether the automatic stay applies to
actions taken by Citicorp with respect to the Retained Bonds.

     On March 11, 1999, the Company finalized agreements with Citicorp and 
Citibank pursuant to which the parties agreed to adjourn the pending 
litigation for a four month period. One of the agreements also provides that 
Salomon Smith Barney, in cooperation with CRIIMI MAE, will sell two classes 
of investment grade CMBS from CMO-IV constituting a portion of the collateral 
securing advances under the Citicorp financing arrangements. In addition, 
Citibank, in cooperation with CRIIMI MAE, will sell commercial mortgages 
originated last year under the Citibank Program, provided that the sale 
results in CRIIMI MAE receiving minimum net proceeds of not less than $3.5 
million, after satisfying certain amounts due to Citibank, from the amount 
held in the reserve account. The minimum net proceeds provision may be waived 
by agreement of the Company, the Unsecured Committee and the Equity 
Committee. The agreements with Citicorp and Citibank were approved by the 
Bankruptcy Court by stipulations and consent orders entered on April 5, 1999.

     A related interpleader action between Norwest, the Company and Citicorp,
which was initiated on October 20, 1998 by Norwest to determine whether the
Company or Citicorp is the rightful owner of funds that were to have been paid
by Norwest, as indenture trustee, remains pending before the Bankruptcy Court.
During the pendency of this matter, certain payments on the related bonds are
held in an account controlled by the Bankruptcy Court. No trial date has been
set for this matter.

ARRANGEMENTS WITH OTHER CREDITORS

     In addition to the foregoing, the Company has had discussions with other 
secured creditors against whom the Company was not engaged in litigation. One 
such creditor is German American Capital Corporation ("GACC"). On February 3, 
1999, the Bankruptcy Court approved an Amended Consent Order between the 
Company and GACC that provides for the following: (a) acknowledgement that 
GACC has a valid perfected security interest in its collateral; (b) authority 
for GACC to hedge its loan, subject to a hedge cost cap; and (c) as adequate 
protection, sharing of cash collateral on a 50/50 basis, after payment of 
interest expense, with the percentage received by GACC to be applied to 
reduce principal and pay certain hedge costs, if any. In addition, the 
Company is prohibited from using GACC's cash collateral for certain purposes, 
including loan originations and Subordinated CMBS acquisitions.

     The Company has also had discussions with First Union National Bank ("First
Union"). First Union, a creditor of both the Company and CM Management, is
asserting substantial secured and unsecured claims. On or about March 23, 1999,
First Union filed in each of the Company's and CM Management's Chapter 11 cases
a motion for relief from the automatic stay pursuant to section 362(d) of the
United States Bankruptcy Code. On or about March 26, 1999, First Union requested
that the Court dismiss without prejudice both motions. The Company 

                                    22

<PAGE>

and First Union continue to have discussions aimed at resolving the open issues
between the parties, including, but not limited to, the validity of First
Union's liens, adequate protection of First Union's interests and an appropriate
sharing of what First Union asserts is its cash collateral. There can, however,
be no assurance that the Company and First Union will reach an agreement.

SHAREHOLDER LITIGATION

     The Company is aware that certain plaintiffs (collectively, the
"Plaintiffs") filed 20 separate class action civil lawsuits (the "Complaints")
in the United States District Court for the District of Maryland (the "District
Court") against certain officers and directors of the Company between October 7,
1998 and November 30, 1998. Two additional complaints filed in other Federal
Courts have been dismissed without prejudice. The Complaints name as defendants
William B. Dockser, as Chairman of the Board of Directors of CRIIMI MAE, and H.
William Willoughby as a member of the Board of Directors and/or an officer of
CRIIMI MAE. In addition, a majority of the Complaints name Cynthia O. Azzara as
a defendant as an officer of CRIIMI MAE. Several of the Complaints also name
Garrett G. Carlson, Sr., G. Richard Dunnells and Robert J. Merrick as defendants
as members of both the Board of Directors and the Audit Committee of CRIIMI MAE.
Although CRIIMI MAE and CM Management have not been named as defendants, both
companies are subject to indemnity obligations to the defendants under the
provisions of their respective constituent documents and applicable state law
and, with respect to Messrs. Dockser and Willoughby and Ms. Azzara, their
employment contracts. CRIIMI MAE has directors and officers liability insurance
policies that have a combined coverage limit of $20 million.

     Each Complaint alleges generally that the named defendants violated Section
10(b) of the Securities and Exchange Act of 1934, as amended (the "Exchange
Act") by, among other things, making false statements of material facts and
failing to disclose certain material facts concerning, among other things,
CRIIMI MAE's ability to meet the earnings estimates of analysts and to meet
collateral calls from lenders. The Complaints also generally allege that the
named defendants violated Section 20(a) of the Exchange Act because each named
defendant was allegedly a "controlling person" as that term is defined under
Section 20(a).

     The relief sought in each Complaint includes all or substantially all of
the following: (i) certification of a class under Rule 23 of the Federal Rules
of Civil Procedure; (ii) certification of the named plaintiff as a class
representative and/or as lead plaintiff and its counsel as lead counsel and/or
class counsel; (iii) entry of a finding that the defendants violated federal
law, including federal securities laws; (iv) award of monetary damages,
including compensatory and rescissionary damages against all defendants jointly
and severally, including punitive damages where appropriate, and pre-judgment
and post-judgment interest running from the date of the wrongs alleged to the
date of judgment; (v) award to the plaintiff of costs, expenses and
disbursements incurred in the action, including reasonable attorneys' fees and
experts' fees; (vi) award to the plaintiff of extraordinary, equitable and/or
injunctive relief as permitted by law, equity, and federal statutory provisions
and state law remedies to attach, impound or otherwise restrict the defendants'
assets; (vii) award to the plaintiff of such other relief as the District Court
deems just and proper or as the District Court otherwise requires; and (viii)
trial by jury.

     A group of putative members of the class of individuals who allegedly
suffered damages, as described in the Complaints, filed a motion requesting the
District Court to appoint a group of 13 individual Plaintiffs as lead plaintiffs
under the Private Securities Litigation Reform Act of 1995 (the "Motion"). The
Motion also requests the District Court, to approve, among other things, certain
law firms as counsel to the lead plaintiffs and the consolidation of the twenty
(20) pending law suits into a single action. Defendants Dockser, Willoughby and
Azzara have opposed the Motion to the extent that it seeks appointment of lead
plaintiffs and approval of their selection of counsel. On March 9, 1999, the
District Court ordered the consolidation of the Complaints. The District Court
deferred a decision on the Motion, to the extent that it seeks the appointment
of lead plaintiffs and approval of their selection of counsel, until a later
date.

     CRIIMI MAE and the defendants are continuing to investigate the allegations
in the Complaints. The defendants intend to defend vigorously the claims
asserted in the Complaints. CRIIMI MAE cannot predict with any degree of
certainty the ultimate outcome of such litigation.

                                    23

<PAGE>

EDGE PARTNERS SETTLEMENT

     In February 1996, Edge Partners, L.P. ("Edge Partners"), on behalf of
CRIIMI MAE, filed a First Amended Class and Derivative Complaint (the
"Derivative Complaint") in the United States District Court for the District of
Maryland, Southern Division (the "District Court"). The Derivative Complaint
named as defendants each of the individuals who served on the CRIIMI MAE board
of directors at the time of the Merger and CRIIMI MAE as a nominal defendant.
The Company was subject to indemnity obligations to the directors under
provisions of its constituent documents. In addition, the Company had directors
and officers liability insurance policies with a combined coverage limit of $5
million.

     Count I of the Derivative Complaint alleged violations of Section 14(a) of
the Exchange Act for issuing a materially false and misleading proxy in
connection with the Merger and alleged derivatively on behalf of CRIIMI MAE a
breach of fiduciary duty owed to CRIIMI MAE and its shareholders. Edge Partners
sought, among other relief, that unspecified damages be accounted to CRIIMI MAE,
that the shareholder vote in connection with the Merger be null and void and
that certain salaries and other remuneration paid to the directors be returned
to the Company.

     On June 16, 1998, the District Court approved a settlement agreement (the
"Settlement Agreement"). Under the terms of the Settlement Agreement, the
Company agreed to make certain disclosures relating to alleged conflicts between
two directors and the Company in connection with the Merger transaction and
adopted a non-binding policy relating generally to the approval of certain
interested transactions. Among other things, the non-binding policy adopted by
the Company's board of directors imposes certain conditions on the board's
approval of transactions between the Company and any director, officer or
employee who owns greater than 1% of the outstanding common shares of the
Company. Such conditions generally include: (1) approval by written resolution
of any transaction involving an amount in excess of $5 million in any year
adopted by a majority of the members of the board having no personal stake in
the transaction; and (2) in the case of any such transaction in excess of $15
million in any year, consideration by the board as to the formation of a special
committee of the board, to be comprised of at least two directors having no
personal stake in such transaction.


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

     No matters were submitted to the security holders to be voted on during the
fourth quarter of 1998.

                                      24

<PAGE>

                                     PART II

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

MARKET DATA

     CRIIMI MAE's common stock is listed on the New York Stock Exchange (symbol
CMM). As of March 16, 1999, there were approximately 2,282 holders of record
of the Company's common stock. The following table sets forth the high and low
closing sales prices and the dividends per share for CRIIMI MAE's common stock
during the periods indicated:

<TABLE>
<CAPTION>
                                                     1998
---------------------------------------------------------------------------------------------
                           Sales Price                                       Dividends
Quarter Ended                 High                  Low                      per Share

------------------         ------------         ------------           ----------------------
<S>                          <C>                  <C>                       <C>
March 31                     $16 1/16             $ 14 7/8                  $    0.37
June 30                       15 3/4                13 7/8                       0.40
September 30                  14 15/16               8 5/8                       0.40
December 31                    7 1/8                 1 1/4                          -(1)
                                                                             ---------
                                                                             $   1.17
                                                                             ---------
                                                                             ---------
</TABLE>
<TABLE>
<CAPTION>

                                                    1997

---------------------------------------------------------------------------------------------
                           Sales Price                                       Dividends
Quarter Ended                 High                  Low                      per Share

------------------         ------------         ------------           ----------------------
<S>                          <C>                  <C>                       <C>
March 31                     $ 18 1/8             $ 12 3/4                  $    0.35
June 30                        16 5/8               13 7/8                       0.35
September 30                   17 9/16              15 11/16                     0.35
December 31                    16 1/2               13 7/8                       0.37
                                                                            ---------
                                                                            $    1.42
                                                                            ---------
                                                                            ---------
</TABLE>



(1) During the pendency of the Chapter 11 proceedings, the Company is prohibited
from paying dividends without first obtaining Bankruptcy Court approval.

                                     25

<PAGE>

ITEM 6.           SELECTED FINANCIAL DATA

SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
                                                    For the years ended December 31,

                                        1998          1997         1996         1995         1994
                                        ----          ----         ----         ----         ----
                                                  (In thousands, except per share data)
<S>                                    <C>          <C>          <C>          <C>          <C> 
TAX BASIS ACCOUNTING
Interest Income:
     Subordinated CMBS                 $ 184,947    $  86,166    $  43,632    $  11,846    $   1,163
     Insured Mortgage Securities          43,063       49,342       54,827       62,020       60,622
     Originated Loans                     20,570         --           --           --           --
                                       ---------    ---------    ---------    ---------    ---------
     Total interest income               248,580      135,508       98,459       73,866       61,785
                                       ---------    ---------    ---------    ---------    ---------
Interest and related expenses            161,890       79,574       64,503       52,231       39,077
                                       ---------    ---------    ---------    ---------    ---------
Net interest margin                       86,690       55,934       33,956       21,635       22,708
                                       ---------    ---------    ---------    ---------    ---------
Capital gains                              1,746        7,815        9,618        5,442       11,023
Other income                              12,309        6,256        6,410        4,938        3,160
Other operating expenses                 (14,440)      (9,464)      (7,451)      (6,727)      (7,285)
Realized loss on reverse
  repurchase obligation                   (4,503)        --           --           --           --
Write-off of capitalized
  origination costs                       (3,284)        --           --           --           --
Reorganization Items                      (2,705)        --           --           --           --
                                       ---------    ---------    ---------    ---------    ---------
                                         (10,877)       4,607        8,577        3,653       6,898
                                       ---------    ---------    ---------    ---------    ---------

Tax basis income before preferred
  dividends                            $  75,813    $  60,541    $  42,533    $  25,288    $  29,606
Dividends paid or accrued on
  preferred shares                        (6,998)      (6,473)      (3,526)        --           --
                                       ---------    ---------    ---------    ---------    ---------
Tax basis income available to common
  Shareholders                         $  68,815    $  54,068    $  39,007    $  25,288    $  29,606
                                       ---------    ---------    ---------    ---------    ---------
                                       ---------    ---------    ---------    ---------    ---------
Tax basis income per share:
     Income before gains
       From CRI Liquidating            $    1.42    $    1.24    $    1.00    $    0.70    $    0.76
     Capital gains from CRI
       Liquidating                            --         0.21         0.27         0.19         0.41
                                       ---------    ---------    ---------    ---------    ---------
Total tax basis income per share       $    1.42    $    1.45    $    1.27    $    0.89    $    1.17
                                       ---------    ---------    ---------    ---------    ---------
                                       ---------    ---------    ---------    ---------    ---------
Tax basis Shares                          48,503       37,334       30,774       28,537       25,310
                                       ---------    ---------    ---------    ---------    ---------
                                       ---------    ---------    ---------    ---------    ---------
Dividends paid on common               $    1.17    $    1.42    $    1.22    $    0.92    $    1.16
                                       ---------    ---------    ---------    ---------    ---------
                                       ---------    ---------    ---------    ---------    ---------
</TABLE>

                                        26

<PAGE>

<TABLE>
<CAPTION>

                                                              For the years ended December 31,

                                                    1998        1997          1996         1995         1994
                                                 -------      -------      -------      -------      -------

                                                            (In thousands, except per share data)
<S>                                                <C>          <C>         <C>         <C>          <C> 
ACCOUNTING UNDER GENERALLY ACCEPTED
  ACCOUNTING PRINCIPLES

Statement of Income Data:
 Interest Income:
  Subordinated CMBS                                $143,656     $ 79,670    $ 41,713    $ 11,105     $    976
  Insured Mortgage Securities                        43,063       49,425      56,912      66,115       67,043
  Originated Loans                                   20,588           --          --          --           --
                                                   --------     --------    --------    --------     --------

  Total interest income                             207,307      129,095      98,625      77,220       68,019
                                                   --------     --------    --------    --------     --------

  Interest and related expense                      136,268       77,919      63,079      49,853       39,245
                                                   --------     --------    --------    --------     --------

  Net interest margin                                71,039       51,176      35,546      27,367       28,774

  Gain on sale of CMBS                               28,800           --          --          --           --
  Other income                                        6,897        6,222       7,330       5,504        3,980
  Gain on mortgage securities dispositions            1,196       17,343       9,601       1,502       12,999
  Other operating expenses                          (14,623)      (9,610)     (7,970)     (9,583)      (8,040)
  Amortization of assets acquired in the Merger      (2,878)      (2,878)     (2,882)     (1,435)          --
  Realized loss on reverse repurchase obligation     (4,503)          --          --          --           --
  Unrealized losses on warehouse obligations        (30,378)          --          --          --           --
  Write-off of capitalized origination costs         (3,284)
  Reorganization Items                               (9,857)          --          --          --           --
                                                   --------     --------    --------    --------     --------

                                                    (28,630)      11,077       6,079      (4,012)       8,939
                                                   --------     --------    --------    --------     --------

  Net income before minority interest                42,409       62,253      41,625      23,355       37,713

  Minority interest in net income of 
   consolidated Subsidiary                              (40)      (8,065)     (6,386)     (4,821)     (11,703)

  Dividends paid or accrued on preferred
   shares                                            (6,998)      (6,473)     (3,526)         --           --
                                                   --------     --------    --------    --------     --------
  Net income available to common 
  shareholders                                     $ 35,371     $ 47,715    $ 31,713    $ 18,534     $ 26,010
                                                   --------     --------    --------    --------     --------

  GAAP basis income  per share - Basic             $   0.75     $   1.29    $   1.03    $   0.65     $   1.07
                                                   --------     --------    --------    --------     --------
                                                   --------     --------    --------    --------     --------
  GAAP basis income  per share - Diluted           $   0.74     $   1.25    $   1.03    $   0.65     $   1.07
                                                   --------     --------    --------    --------     --------
                                                   --------     --------    --------    --------     --------
  Weighted average shares outstanding                47,280       36,993      30,665      28,414       24,249
                                                   --------     --------    --------    --------     --------
                                                   --------     --------    --------    --------     --------
</TABLE>

                                       27

<PAGE>

<TABLE>
<CAPTION>

                                                                       As of December 31,

                                                   1998            1997             1996          1995          1994
                                                 -------         -------          -------       -------       -------
                                                                              (In thousands)

<S>                                        <C>                 <C>            <C>            <C>            <C>      
Balance Sheet Data:
Mortgage Assets:
  Subordinated CMBS                        $  1,274,186        $1,114,480     $  564,335     $  278,401     $  38,858
  Insured Mortgage Securities                   488,095          605,114         691,110        807,113       857,589
  Investment in Originated Loans                499,076               --              --             --            --
  Total assets                                2,437,918        1,873,305       1,367,245      1,203,303       955,050
  Total debt                                  2,085,722        1,414,932         982,258        854,436       627,248
  Shareholders' equity                          307,877          444,981         346,671        285,704       250,042
</TABLE>

The selected consolidated statement of income data presented above for the years
ended December 31, 1998, 1997 and 1996, and the selected consolidated balance
sheet data as of December 31, 1998 and 1997, were derived from and are qualified
by reference to CRIIMI MAE's consolidated financial statements, which have been
included elsewhere in this Annual Report on Form 10-K. The selected consolidated
statement of income data for the years ended December 31, 1995 and 1994, and the
selected consolidated balance sheet data as of December 31, 1996, 1995 and 1994,
were derived from audited financial statements not included as part of this
Annual Report on Form 10-K. This data should be read in conjunction with the
consolidated financial statements and the notes thereto.

                                    28

<PAGE>

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

INTRODUCTION

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

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                  For the years ended December 31,

                                                  1998          1997         1996
                                                 -------      -------      -------
                                               (In thousands, except per share data)
<S>                                            <C>          <C>          <C>      
Interest Income:
    Subordinated CMBS                          $143,656     $  79,670    $  41,713
    Insured Mortgage Securities                  43,063        49,425       56,912
    Originated Loans                             20,588            --           --
                                               --------     ---------     --------

          Total interest income                 207,307       129,095       98,625
                                               --------     ---------     --------

   Interest and related expense                 136,268        77,919       63,079
                                               --------     ---------     --------

    Net interest margin                          71,039        51,176       35,546

    Gain on sale of CMBS                         28,800            --           --
    Equity in earnings from investments           2,618         3,612        4,432
    Other income                                  4,279         2,610        2,898
    Gain on mortgage securities dispositions      1,196        17,343        9,601
    Other operating expenses                    (14,623)       (9,610)      (7,970)
    Amortization of assets acquired
     in the Merger                               (2,878)       (2,878)      (2,882)
    Realized loss on reverse repurchase 
     obligation                                  (4,503)           --           --
    Unrealized losses on warehouse purchase 
     obligations                                (30,378)           --           --
    Write-off of capitalized origination costs   (3,284)           --           --
    Reorganization Items                         (9,857)           --           --
                                               --------     ---------     --------

                                                (28,630)       11,077        6,079
                                               --------     ---------     --------

    Net income before minority interest          42,409        62,253       41,625

    Minority interest in net income of 
     consolidated Subsidiary                        (40)       (8,065)      (6,386)

    Dividends paid or accrued on 
     preferred shares                            (6,998)       (6,473)      (3,526)
                                               --------     ---------     --------
    Net income available to common
      shareholders                             $ 35,371     $  47,715     $ 31,713
                                               --------     ---------     --------
    Adjustments to tax basis income
     (see also Note 8 to Notes to Consolidated
      Financial Statements)                      33,444        6,354         7,294
                                               --------     --------      --------
    Tax basis income available to common
        shareholders                           $ 68,815     $ 54,069      $ 39,007
                                               --------     --------      --------
                                               --------     --------      --------
    GAAP basis income  per share - Basic       $   0.75     $   1.29      $   1.03
                                               --------     --------      -------
                                               --------     --------      --------
     Tax basis income  per share               $   1.42     $   1.45      $   1.27
                                               --------     --------      --------
                                               --------     --------      --------
</TABLE>

                                        29 

<PAGE>


1998 VERSUS 1997

     INTEREST INCOME - SUBORDINATED CMBS

     Income from Subordinated CMBS increased by approximately $64 million, or
80%, to $143.7 million during 1998 as compared to $79.7 million during 1997.
During 1998, the Company increased its CMBS portfolio by acquiring Subordinated
CMBS at purchase prices aggregating approximately $853 million during 1998 as
compared to the $554 million during 1997. This increase was partially offset by
a reduction in income from Subordinated CMBS due to the de-recognition of $132
million face amount of CMBS from CBO-1 in connection with CBO-2 and also the
de-recognition of $345 million face amount of CMBS in connection with CBO-2. See
Note 5 to Notes to Consolidated Financial Statements.

     Generally accepted accounting principles ("GAAP") require that interest 
income generated by Subordinated CMBS be recorded based on the effective 
interest method using the anticipated yield over the expected life of the 
Subordinated CMBS. This currently results in income which is lower for 
financial statement purposes than for tax purposes. Based upon the timing and 
amount of future credit losses and certain other assumptions estimated by 
management, as discussed below, the estimated weighted average anticipated 
unleveraged yield for CRIIMI MAE's Subordinated CMBS for financial statement 
purposes as of December 31, 1998 and 1997, was approximately 10% and 11%, 
respectively. The decrease in anticipated unleveraged yield is primarily due 
to five Subordinated CMBS acquisitions in 1998 with anticipated unleveraged 
yields between 8.5% and 8.9% which reduced the overall average of the CMBS 
portfolio. These returns were determined based on the anticipated yield over 
the expected weighted average life of the Subordinated CMBS, which considers, 
among other things, anticipated losses and interest expense attributable to 
the financing of the rated tranches at current interest rates and current 
borrowing amounts.

     INTEREST INCOME-INSURED MORTGAGE SECURITIES

     Interest income from Insured Mortgage Securities decreased by approximately
$6.3 million or 13% to $43.1 million for 1998 from $49.4 million for 1997. This
decrease was principally due to the prepayment of 22 mortgage securities held by
CRIIMI MAE and its wholly owned subsidiaries for net proceeds aggregating
approximately $104.0 million and the sale of four mortgage securities and a
portion of a fifth mortgage security for net proceeds aggregating approximately
$13.4 million during 1998.

     INTEREST INCOME-ORIGINATED LOANS

     Interest income from originated loans of approximately $20.6 million for
1998 was derived from originated loans included in the CMO-IV securitization.
The CMO-IV securitization totaled $496 million face value of conduit loans, a
majority of which were "No Lock".

     INTEREST EXPENSE

     Interest expense increased by approximately $58.4 million or 75% to 
approximately $136.3 million for 1998 from approximately $77.9 million for 
1997. This increase was principally a result of increased borrowings in 
connection with the acquisition of Subordinated CMBS during 1998. 
Additionally, CRIIMI MAE incurred interest expense in connection with $100 
million aggregate principal amount of senior unsecured notes issued during 
the fourth quarter of 1997 and the issuance of collateralized mortgage 
obligations in connection with CMO-IV. These increases were partially offset 
by the impact of $477 million face amount of debt de-recognized from the 
financial statements in conjunction with CBO-2 in May 1998 and the decrease 
in the Company's weighted average cost of borrowing to 7.37% in 1998 from 
7.68% in 1997, primarily due to a decrease in one-month LIBOR, based on the 
average, for the year 1997 as compared to the year 1998. Due to the Chapter 
11 filing, certain lenders declared defaults or otherwise taken action 
against the Company with respect to a number of CRIIMI MAE's financing 
facilities. See "LEGAL PROCEEDINGS" for a discussion of material litigation 
between the Company and various creditors and agreements the Company has 
reached with certain of these creditors.

                                     30
<PAGE>


     NET INTEREST MARGIN

     Net interest margin increased by approximately $19.8 million or 39% for
1998 to approximately $71.0 million from approximately $51.2 million for 1997.
The net interest margin increase was due primarily to the increase in
Subordinated CMBS and, to a lesser extent, income from originated loans, as
previously discussed.

     GAIN ON SALE OF CMBS

     In May 1998, CRIIMI MAE completed CBO-2 pursuant to which it sold $468
million of investment grade securities created through the resecuritization of
approximately $1.8 billion of its Subordinated CMBS. CRIIMI MAE recognized a
gain of approximately $28.8 million on the sale of $345 million face amount
investment grade securities sold without call provisions, recognizing CRIIMI
MAE's transfer of control on those securities. The sale of $123 million face
amount investment grade securities with significant call provisions was treated
as a financing and resulted in an unrealized gain of approximately $26 million.
Certain of these securities included call provisions to enable CRIIMI MAE to 1)
repurchase bonds if market conditions warrant, and 2) call bonds when it is no
longer cost effective to service them. The sold investment grade securities
treated as a financing, as well as approximately $1.3 billion face amount of
investment grade and non-investment grade securities retained by CRIIMI MAE, are
now required to be reflected on CRIIMI MAE's balance sheet at their fair market
value. Additionally, due to the sale treatment under FAS 125, all remaining
Subordinated CMBS and insured mortgage securities are required to be carried at
fair market value. This reclassification currently results in a cumulative net
decrease to shareholders' equity of approximately $251.3 million (a $174.0
million decrease from September 30, 1998).

     Additionally, as part of CBO-2, CMSLP sold trustee servicing rights for
$4.2 million, resulting in a gain of $4.2 million for tax purposes, and
approximately $400,000 for financial reporting purposes.

     EQUITY IN EARNINGS FROM INVESTMENTS

     Equity in earnings from investments decreased by approximately $1.0 
million or 28% to $2.6 million during 1998 as compared to $3.6 million during 
1997. This decrease included impairment losses on purchased mortgage 
servicing rights recorded by CMSLP since their fair value was less than their 
amortized cost at December 31, 1998. The general market turmoil commencing in 
late summer of 1998 resulted in the use of higher yields in determining the 
servicing rights' fair value which caused the fair value to be less than the 
amortized cost. At September 30, 1998, CMSLP was responsible for certain 
servicing functions on a mortgage loan portfolio of approximately $32 
billion. However, due to CRIIMI MAE's Chapter 11 filing and its relationship 
with CRIIMI MAE, CMSLP arranged for BOMCM to succeed it as master servicer on 
two commercial mortgage pools during the fourth quarter of 1998, which 
resulted in a loss of approximately $1.4 million for the recorded value of 
the rights, of which substantially all of the loss flowed through to CRIIMI 
MAE. These decreases are partially offset by increases in servicing fee 
streams and float income earned on escrow balances derived from the remaining 
servicing portfolio, which has grown to approximately $31.0 billion as of 
December 31, 1998 as compared to approximately $16.5 billion as of December 
31, 1997.

     OTHER INCOME

     Other income increased by approximately $1.7 million or 65% to $4.3 million
during 1998 as compared to $2.6 million during 1997. This increase was primarily
attributable to an increase in short-term interest and other income earned
during 1998 on the amounts deposited in the loan origination reserve account,
which had an average balance of approximately $38 million for the year ended
December 31, 1998. Approximately $1.9 million of short-term interest income and
net-carry income were earned on these deposits for the year ended December 31,
1998. Amounts earned on the origination reserve account for the year ended
December 31, 1997 were immaterial.

                                     31

<PAGE>

     GAINS ON MORTGAGE DISPOSITIONS

     During 1998, net gains on mortgage dispositions were approximately $1.2
million, of which approximately $666,000 was a result of 22 prepayments of
mortgage securities held by CRIIMI MAE's subsidiaries, or approximately 17% of
its portfolio. In addition, CRIIMI MAE sold four unencumbered mortgage
securities and a portion of a fifth mortgage security, which resulted in a
financial statement gain of $531,000. During 1997, CRI Liquidating's disposition
of its remaining 11 mortgage assets and its interest in three limited
partnership participation agreements resulted in net gains of approximately
$17.4 million (before minority interests) for financial statement purposes.
These 1997 net gains were partially offset by nine prepayments of mortgage
assets held by CRIIMI MAE's subsidiaries which resulted in financial statement
losses of $52,000. For any year, gains or losses on mortgage dispositions are
based on the number, carrying amounts and proceeds of mortgages disposed of
during the period. The proceeds realized from the disposition of mortgage assets
are based on the net coupon rates of the specific mortgages disposed of in
relation to prevailing long-term interest rates at the date of disposition.

     GENERAL AND ADMINISTRATIVE EXPENSES

     General and administrative expenses increased by approximately $5.0
million, or 52%, to $14.6 million for 1998 as compared to $9.6 million for 1997.
The increase in general and administrative expenses during these periods was
primarily the result of the significant growth of CRIIMI MAE's commercial
mortgage operations during the first nine months of 1998. This increase was
partially offset in the fourth quarter due to the closing of regional offices,
the suspension of certain business activities and the dismissal of employees
involved in suspended activities following the Chapter 11 filing.

     REALIZED LOSS ON REVERSE REPURCHASE OBLIGATION AND UNREALIZED LOSSES ON
WAREHOUSE OBLIGATIONS

     During 1998, the Company recorded realized and unrealized losses
aggregating $4.5 million and $30.4 million, respectively, primarily due to the
impact of financial market volatility on losses on hedge positions and
commitments related to commercial mortgage loans in the Company's securitization
pipeline.

     As part of CMO IV, the Company intended to sell certain of the security 
tranches that were not initially sold to the public (the "CMO-IV BBB bonds"). 
In anticipation of this sale, the Company entered into a transaction to hedge 
the value of those securities. As a result, CRIIMI MAE borrowed and then sold 
a 10-year Treasury Note in the amount of $44 million. The Company was 
informed by Citibank that the position was closed on October 8, 1998. This 
transaction did not qualify for hedge accounting purposes because it involved 
the purchase and sale of a cash instrument and therefore is required to be 
recorded at market ("marked to market"). Because Treasury rates declined from 
the date of the transaction to the liquidation of the position, the Company 
recorded a realized loss of approximately $4.5 million, of which 
approximately $4.1 million was recognized as of September 30, 1998 with the 
remaining $400,000 loss recognized in the fourth quarter.

     The parties who fund the Company's loan originations are required under 
the relevant agreements to hedge the related loans and to provide timely 
written hedge position reporting. As of December 31, 1998, the Company's 
obligation under the Citibank Program was $28.4 million (based primarily on 
information provided by Citibank) in excess of the fair value of the loans 
and the Company's loss exposure under the Prudential Program was $2 million 
if the Company does not exercise its option. As a result, CRIIMI MAE recorded 
an aggregate $30.4 million unrealized loss on its obligations as of December 
31, 1998. The unrealized loss of $28.4 million relating to the Citibank 
Program as of December 31, 1998, is based on the estimated fair value of the 
loans offset by the unpaid principal balance of the loans at December 31, 
1998, hedge losses and certain estimated fees and other costs. Depending on 
market conditions, including interest rate movements, these losses could 
materially increase or decrease in subsequent reporting periods. The Company 
has calculated the Prudential loss based upon the assumption that the Company 
will not exercise its option with Prudential.

                                   32

<PAGE>

     WRITE-OFF OF CAPITALIZED ORIGINATION COSTS

     Since the Company no longer has the intention to securitize the remaining
loans in warehouse that were originated through the Citibank and Prudential
Programs, the net deferred costs of $3.3 million associated with the warehoused
loans were written off in 1998.

     REORGANIZATION ITEMS

     During the fourth quarter of 1998, the Company recorded $9.9 million in
reorganization items due to the Chapter 11 filings of CRIIMI MAE, CM Management
and Holdings II.

<TABLE>
<CAPTION>

               REORGANIZATION ITEM                        AMOUNT
               <S>                                        <C>
               Professional fees                          $  5,219,000
               Write-off of debt discounts and deferred    
                  costs                                      2,835,210
               Employee Retention Program accrued costs        612,885
               Lease Cancellation Fees                         621,902
               Excise Tax                                      300,000
               Other                                           267,950
                                                          ------------
                   Total                                  $  9,856,947
                                                          ------------
                                                          ------------
</TABLE>


     FINANCIAL STATEMENT NET INCOME

     As a result of the foregoing, net income available to common shareholders
for financial statement purposes was approximately $35.4 million for 1998, a 26%
decrease from approximately $47.7 million for 1997. On a per basic share basis,
financial statement net income decreased to $0.75 per basic share for 1998 from
$1.29 per basic share in 1997.

     TAX BASIS INCOME

     CRIIMI MAE earned approximately $68.8 million in tax basis income 
available to common shareholders in 1998 or $1.42 per share, compared to 
approximately $54.1 million or $1.45 per share in 1997.

     The primary factors resulting in the $14.7 million increase in tax basis 
income from 1997 to 1998 was due to the growth of CRIIMI MAE's portfolio of 
Subordinated CMBS and, to a lesser extent, earnings from CMO-IV. Also 
contributing to the increase in tax basis income was a $4.2 million gain on 
the sale of the trustee servicing rights associated with CBO-2. (See Note 5 
to Notes to Consolidated Financial Statements). Partially offsetting the 
increases in the foregoing were increases in interest expense, general and 
administrative expenses, reorganization items and the write-off of certain 
net deferred costs related to the Citibank and Prudential Programs. Although, 
in absolute dollars, tax basis income increased from 1997 to 1998, tax basis 
income per share decreased due to the increase in the average number of shares
outstanding from 37,334,034 in 1997 to 48,502,522 in 1998. Total tax basis 
income per share for 1997 included $0.21 of non-recurring income from the 
mortgage dispositions of a subsidiary, CRI Liquidating, that completed its 
scheduled liquidation in late 1997. (See also Note 8 to Notes to Consolidated 
Financial Statements.)

RESULTS OF OPERATIONS

1997 VERSUS 1996

     INTEREST INCOME - SUBORDINATED CMBS

     Income from Subordinated CMBS increased by approximately $38 million, or
91%, to approximately $79.7 million during 1997 as compared to approximately
$41.7 million during 1996. This 

                                     33

<PAGE>


increase was a result of the acquisition of Subordinated CMBS at purchase prices
aggregating approximately $554 million during 1997 as compared to approximately
$285 million during 1996.

     Generally accepted accounting principles require that the income on
Subordinated CMBS be recorded based on the effective interest method using the
anticipated yield over the expected life of these mortgage assets. This
currently results in income which is lower for financial statement purposes than
for tax purposes. Based on the timing and amount of future credit losses and
certain other assumptions estimated by management, as discussed below, the
estimated weighted average anticipated unleveraged yield for CRIIMI MAE's
Subordinated CMBS for financial statement purposes as of December 31, 1997 and
1996, was approximately 11% and 12%, respectively. This return was determined
based on the anticipated yield over the expected weighted average life of the
Subordinated CMBS, which considers, among other things, anticipated losses and
interest expense attributable to the financing of the rated tranches at current
interest rates and current borrowing amounts.

     INTEREST INCOME-INSURED MORTGAGE SECURITIES

     Mortgage income decreased by approximately $7.5 million or 13% to 
approximately $49.4 million for 1997 from approximately $56.9 million for 
1996. This decrease was principally due to the scheduled disposition of the 
remaining 11 mortgages of CRI Liquidating's mortgage assets in 1997 in 
accordance with its business plan. Also contributing to the decrease in 
mortgage income was the prepayment of nine mortgages held by CRIIMI MAE and 
its wholly owned subsidiaries for net proceeds aggregating approximately $27 
million of proceeds during 1997.

     INTEREST EXPENSE

     Interest expense increased by approximately $14.8 million or 23% to
approximately $77.9 million for 1997 from approximately $63.1 million for 1996.
This increase was principally a result of additional amounts borrowed in
connection with the acquisition of Subordinated CMBS during 1997 and to a lesser
extent, the marginally higher cost of debt on CBO-1. These increases were
mitigated by temporary paydowns of short-term secured financing facilities
during 1997, pending the purchase of additional CMBS.

     NET INTEREST MARGIN

     Net interest margin increased by approximately $15.7 million or 44% for the
twelve months ended December 31, 1997 to approximately $51.2 million from
approximately $35.5 for the corresponding period in 1996. The net interest
margin increase was due primarily to the increase in Subordinated CMBS.

                                      34

<PAGE>

     EQUITY IN EARNINGS FROM INVESTMENTS

     Equity in earnings from investments decreased by approximately $800,000 or
18% to $3.6 million during 1997 as compared to $4.4 million during 1996. The
decrease was primarily due to a one-time receipt in the fourth quarter of 1996
of previously unpaid and unaccrued net servicing fees (approximately $1.4
million) received by CMSLP on a group of multi-family loans. This decrease was
partially offset by higher income from CMSLP , which resulted from additional
servicing fee streams derived from an expanded servicing portfolio, which grew
to approximately $16.5 billion as of December 31, 1997 as compared to
approximately $6.4 billion as of December 31, 1996. The increased servicing fee
revenue was partially offset by increased general and administrative expenses
associated with the growth in the servicing portfolio, as well as amortization
of certain purchased servicing rights.

     GENERAL AND ADMINISTRATIVE EXPENSES

     General and administrative expenses increased by approximately $1.6 million
or 20% to $9.6 million for 1997 as compared to $8.0 million for 1996. The
increase in general and administrative expenses was primarily the result of the
continued growth of CRIIMI MAE's commercial mortgage operations.

     GAINS/LOSSES ON MORTGAGE DISPOSITIONS

     During 1997, CRI Liquidating disposed of its remaining 11 mortgage assets
and its interest in three limited partnership participation agreements resulting
in net gains of approximately $17.4 million for financial statement purposes.
These net gains were partially offset by nine prepayments of mortgage assets
held by CRIIMI MAE and its subsidiaries which resulted in financial statement
net losses of $52,000. This compares to the disposition of 11 CRI Liquidating
mortgage assets which resulted in financial statement net gains of approximately
$9.7 million and 10 CRIIMI MAE mortgage prepayments which resulted in net losses
of $91,000 during 1996. Gains or losses on mortgage dispositions are based on
the number, carrying amounts and proceeds of mortgages disposed of during the
period. The proceeds realized from the disposition of mortgage assets were based
on the net coupon rates of the specific mortgages disposed of in relation to
prevailing long-term interest rates at the date of disposition.

     FINANCIAL STATEMENT NET INCOME

     As a result of the foregoing, net income available to common shareholders
for financial statement purposes was approximately $47.7 million for 1997, a 50%
increase from approximately $31.7 million for 1996. On a per basic share basis,
financial statement net income increased to $1.29 per basic share for 1997 from
$1.03 for 1996.

     TAX BASIS INCOME

     CRIIMI MAE earned approximately $54.1 million in tax basis income available
to common shareholders during 1997, a 39% increase from approximately $39.0
million earned in 1996. Tax basis income per share increased to $1.45 in 1997
from $1.27 in 1996. Ordinary income increased to $1.24 in 1997 from $1.00 in
1996. The primary factor for the increase in tax basis income for 1997 as
compared to 1996 was continued growth in CRIIMI MAE's portfolio of Subordinated
CMBS. Partially offsetting these increases in income was a decrease in mortgage
interest income due to the mortgage security dispositions described above, an
increase in interest expense as a result of additional amounts borrowed to
acquire Subordinated CMBS and an increase in general and administrative expenses
as a result of CRIIMI MAE's continued growth. Net capital gains resulting from
the disposition of CRI Liquidating's mortgage assets, on a per share basis,
decreased from $.27 per weighted average share in 1996 to $.21 per weighted
average share in 1997. (See also Note 8 to Notes to Consolidated Financial
Statements.)

                                     35

<PAGE>

CASH FLOW

1998 VERSUS 1997

     Net cash provided by operating activities increased for 1998 as compared 
to 1997 primarily due to the increase in the net interest margin resulting 
from the Company's acquisitions of Subordinated CMBS and, to a lesser extent, 
CMO-IV (as previously discussed in Results of Operations). This increase in 
net interest margin was partially offset primarily by an increase in net 
receivables associated with the Chapter 11 filing.

     Net cash used in investing activities increased for 1998 as compared to
1997. The increase was primarily a result of increased purchases of Subordinated
CMBS. Also contributing to the increase in cash used in investing activities was
the purchase of $496 million of commercial loans in connection with CMO-IV.
These increases were partially offset by approximately $335 million of proceeds
received from the sale of collateral bond obligations in connection with CBO-2
and from mortgage securities disposition proceeds.

     Net cash provided by financing activities increased for 1998 as compared to
1997 primarily due to proceeds from debt issuances related to the sale of the
collateralized mortgage obligations in connection with CMO-IV, collateralized
bond obligations in connection with CBO-2, and variable-rate secured borrowings,
net of principal payments, and increased proceeds from equity offerings. These
increases were partially offset by payments made in connection with collateral
calls made by lenders primarily in the latter part of the third quarter.


1997 VERSUS 1996

     Net cash provided by operating activities increased for 1997 as compared to
1996 primarily due to an increase in net income. Partially offsetting this
increase is an increase in gains on mortgage dispositions and an increase in
interest receivable on Subordinated CMBS as a result of 1997 Subordinated CMBS
acquisitions.

     Net cash used in investing activities increased for 1997 as compared to
1996. The increase was primarily due to an increase in purchases of Subordinated
CMBS, decreased proceeds from mortgage dispositions, increased purchases of
servicing rights and the funding of the loan origination reserve.

     Net cash provided by financing activities increased from 1997 as compared
to 1996 primarily due to increased proceeds from debt issuances, net of
principal payments. Additionally, proceeds from equity offerings increased
primarily as a result of various stock offerings in 1997. The net proceeds from
debt issuances and equity offerings were used primarily to fund additional
Subordinated CMBS purchases, and, to a lesser extent, fund the estimated
subordinate class of loans originated through CRIIMI MAE's mortgage loan conduit
program. Partially offsetting the increase was an increase in dividends paid
resulting from increased net income.

LIQUIDITY AND CAPITAL RESOURCES

     Prior to the Petition Date, CRIIMI MAE used proceeds from long-term,
fixed-rate match-funded debt refinancings, short-term, variable-rate, secured
borrowings, securitizations, other borrowings, issuances of common and preferred
shares and unsecured borrowings to meet the capital requirements of its business
plan. Since the Chapter 11 filing, the Company has suspended its Subordinated
CMBS acquisition, origination and securitization operations, but continues to
service mortgage loans through CMSLP.

     Prior to the Petition Date, CRIIMI MAE financed a substantial portion of
its Subordinated CMBS acquisitions with short-term, variable rate borrowings
secured by the Company's Subordinated CMBS. The agreements governing these
financing arrangements typically required the Company to maintain loan-to-value
ratios. The agreements further provided that the lenders could require the
Company to post cash or additional collateral if the value of the existing
collateral fell below this minimum amount.

                                     36

<PAGE>

     In order to refinance a portion of its short-term, variable rate secured
borrowings with long-term, fixed rate debt, the Company entered into
resecuritization transactions. In May 1998, CRIIMI MAE completed CBO-2, its
second resecuritization of its Subordinated CMBS portfolio, which under FAS 125,
qualified for both sale and financing accounting. Through CBO-2, CRIIMI MAE
refinanced $468 million of its variable rate debt with fixed-rate, match-funded
debt. The debt is considered match-funded because the maturities and principal
requirements of the debt match those of the related collateral. The transaction
also generated additional borrowing capacity of approximately $160 million,
which was used primarily to fund additional Subordinated CMBS purchases. In June
1998, CRIIMI MAE securitized $496 million of originated or acquired commercial
mortgage loans by selling $397 million face amount of fixed-rate investment
grade securities. The tranches not sold to the public were partially financed
with variable-rate, secured financing agreements.

     After the above structured finance transactions, the Company continued to
have a substantial amount of short-term, variable rate, secured financing
facilities which were subject to the previously discussed collateral
requirements based on CMBS security prices. As a result of the turmoil in the
capital markets commencing in late summer of 1998, the spreads between CMBS
yields and the yields on Treasury securities with comparable maturities began to
increase substantially and rapidly. CRIIMI MAE's short-term secured creditors
perceived that the value of the Subordinated CMBS securing their facilities with
the Company had fallen below the minimum loan-to-value ratio and, consequently,
made demand upon the Company to provide cash or additional collateral with
sufficient value to cure the perceived value deficiency. In August and September
of 1998, the Company received and met collateral calls from its secured
creditors. At the same time, CRIIMI MAE was in negotiations with various third
parties in an effort to obtain additional debt and equity financing that would
provide the Company with additional liquidity.

     On Friday afternoon, October 2, 1998, the Company was in the closing
negotiations of a refinancing with one of its unsecured creditors that would
have provided the Company with additional borrowings, when it received a
significant collateral call from Merrill Lynch. The basis for this collateral
call, in the Company's view, was unreasonable. After giving consideration to,
among other things, this collateral call and the Company's concern that its
failure to satisfy this collateral call would cause the Company to be in default
under a substantial portion of its financing arrangements, the Company
reluctantly concluded on Sunday, October 4, 1998 that it was in the best
interests of creditors, equity holders and other parties in interest to seek
Chapter 11 protection. Accordingly, the Company filed for relief under Chapter
11 on Monday, October 5, 1998.

     At December 31, 1998, CRIIMI MAE had secured financing agreements with 
GACC, Lehman ALI, Inc., First Union, Morgan Stanley, Merrill Lynch, and 
Citicorp. Certain of these lenders have registered the pledged securities in 
their own names. As a result, the trustee makes payments on such securities 
to the registered holder. During the fourth quarter, certain registered 
holders withheld payments related to securities not registered to CRIIMI MAE. 
The Company has negotiated and finalized agreements with four of its lenders. 
CRIIMI MAE's cash position has increased from approximately $7 million on 
October 5, 1998 to approximately $52 million as of March 31, 1999. Based on 
present information, the Company believes that it will have sufficient cash 
flow to fund its current operations while in bankruptcy during 1999. However, 
due to the uncertainty of the effects of the Chapter 11 filing on the 
business of the Company, pending litigation, material reorganization items to 
be incurred during the pendency of the bankruptcy and numerous other factors 
beyond the Company's control, no assurance can be given that the Company's 
cash flow will be sufficient to fund operations while the Company is in 
bankruptcy during 1999.

     The Company's ability to resume the acquisition of Subordinated CMBS, as
well as its loan origination and securitization programs, depends on its ability
to obtain additional capital and emerge from bankruptcy as a successfully
reorganized company. Factors which could affect the Company's access to the
capital markets, or the costs of such capital, include changes in interest
rates, general economic conditions and perception in the capital markets of the
Company's business, covenants under the Company's current and future debt
securities and credit facilities, results of operations, leverage, financial

                                    37

<PAGE>

conditions and business prospects. The Company can give no assurances as to
whether it will obtain capital or the terms upon which capital can be obtained.

     DIVIDENDS

     During the pendency of the Chapter 11 proceedings, the Company is
prohibited from paying dividends without first obtaining Bankruptcy Court
approval. Among the other factors which impact CRIIMI MAE's dividends are (i)
the level of income earned on uninsured mortgage assets, such as Subordinated
CMBS (including, but not limited to, the amount of OID income and losses, if
any, on Subordinated CMBS), and, to the extent applicable, originated loans,
which varies depending on prepayments, defaults, etc., (ii) the level of income
earned on CRIIMI MAE's or its subsidiaries' insured mortgage security collateral
depending on prepayments, defaults, etc., (iii) the fluctuating yields on
short-term, variable rate, debt and the rate at which CRIIMI MAE's LIBOR-based
debt is priced, as well as the rate CRIIMI MAE pays on its other borrowings,
(iv) the rate at which cash flows from mortgage assets, mortgage dispositions,
and, to the extent applicable, loan origination reserves, escrow deposits and
distributions from its subsidiaries can be reinvested, (v) changes in operating
expenses (including those related to the Chapter 11 filing), (vi) to the extent
applicable, dividends paid on preferred shares, (vii) to the extent applicable,
whether the Company's taxable mortgage pools continue to be exempt from
corporate level taxes, (viii) the timing and amounts of cash flows attributable
to its other lines of business - mortgage servicing, advisory, to the extent
applicable, origination services and, (ix) to the extent applicable, realized
losses on certain transactions.

     Dividends paid or accrued per share are summarized below:

<TABLE>
<CAPTION>

                                 For the three months ended                  For the twelve months ended
                                         December 31,                                December 31,
                                 1998(1)(3)        1997(2)                  1998(1)(3)           1997(2)
                               --------           --------                  --------            --------
<S>                            <C>               <C>                        <C>                <C>
Common shares                  $ 0.000           $  0.370                    $ 1.170             $ 1.420

Series B Preferred Shares        0.680              0.845                      3.355               3.236

</TABLE>



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

(1) In addition to the per share amounts described above, amounts paid or
payable to Series C Cumulative Preferred Shares for the three and twelve months
ended December 31, 1998 were $259,139 and $1,305,082, respectively, and amounts
paid or payable to Series D Cumulative Preferred Shares for the three and twelve
months ended December 31, 1998 were $154,931 and $264,011, respectively.

(2) In addition to the per share amounts described above, Series A Preferred
shares were paid $50,848 for the twelve months ended December 31, 1997 and
Series C Cumulative Preferred Shares were paid $269,531 for the twelve months
ended December 31, 1997.

(3) Due to the Chapter 11 filing on October 5, 1998, dividends were not paid in
the fourth quarter on common or preferred shares. However, since dividends on
the Company's preferred shares are cumulative, the dividends payable at December
31, 1998 were accrued in the financial statements.

     REIT STATUS

     CRIIMI MAE has elected to qualify as a REIT for tax purposes under Sections
856-860 of the Internal Revenue Code for the 1998 tax year. To qualify for tax
treatment as a REIT under the Internal Revenue Code, CRIIMI MAE must satisfy
certain criteria, including certain requirements regarding the nature of its
ownership, 

                                     38

<PAGE>

assets, income and distributions of taxable income. For a discussion of the
effect of the Chapter 11 filing on REIT status and related risks see "BUSINESS -
Effect of Chapter 11 Filing on REIT Status and Certain Tax Matters".

     INVESTMENT COMPANY ACT

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

                                      39

<PAGE>

     YEAR 2000 ISSUE

     See "BUSINESS - Risk Factors - Year 2000" for the Company's assessment of
Year 2000 compliance, the impact of the Year 2000 issue, the Company's risk
associated with the Year 2000 issue and estimated costs to the Company.

                                    40

<PAGE>

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's principal market risk is exposure to changes in interest
rates related to the US Treasury market as well as the LIBOR market. The Company
will have an increase in the amount of interest expense paid on its variable
rate obligations primarily due to increases in One-Month LIBOR. The Company will
also experience fluctuations in the market value of its assets related to
changes in the interest rates of US Treasury bonds as well as increases in the
spread between US Treasury bonds and CMBS.

     CRIIMI MAE has entered into interest rate protection agreements to mitigate
the adverse effects of rising interest rates on its variable-rate borrowings.
The caps provide protection to CRIIMI MAE 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, CRIIMI MAE will 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 in most cases is
currently above the current rate of the index, will limit to some degree the
amount of protection that the caps offer.

     Prior to the Petition Date, CRIIMI MAE financed a substantial portion of
its Subordinated CMBS acquisitions with short-term, variable rate borrowings
secured by the Company's CMBS. The agreements governing these financing
arrangements typically required the Company to maintain collateral at all times
with a market value not less than a specified percentage of the outstanding
indebtedness. The agreements further provided that the lenders could require the
Company to post cash or additional collateral if the value of the existing
collateral fell below this threshold amount. These financing arrangements were
used by CRIIMI MAE to provide financing during the period of time from the
acquisition or creation of the Subordinated CMBS to the date when CRIIMI MAE
would resecuritize the portfolio in order to match-fund a significant portion of
the portfolio with fixed rate debt, thereby eliminating interest rate risk on
this portion of the CMBS. CRIIMI MAE, in limited cases, entered into
transactions to hedge the value of securities it intended to sell by selling
short Treasury or government insured securities the Company did not own. These
transactions are marked to market with unrealized gains or losses reflected in
the Company's income statement.

     The table below provides information about the Company's Subordinated CMBS,
Insured Mortgage Securities, and Investment in Originated Loans. The Company
holds these assets in its portfolio for other than trading purposes. For
Subordinated CMBS, Insured Mortgage Securities, and Investment in Originated
Loans, the table presents anticipated principal and interest cash flows based
upon the assumptions used in determining the fair value of these securities and
the related weighted average interest rates by expected maturity. The
assumptions used to price these securities include an estimate for prepayments
which ranged from 0% for the Subordinated CMBS, and 0% to 14% for the Investment
in Originated Loans.

<TABLE>
<CAPTION>

                                                   (in millions)


                                                                                    There-                    Fair 
Assets                       1999       2000        2001       2002        2003     after        Total       Value
------                       ----       ----        ----       ----        ----     -----        -----       -----
<S>                         <C>       <C>         <C>         <C>       <C>         <C>        <C>        <C>     
Subordinated CMBS           $122.6    $122.8      $122.9      $123.1    $123.4      $3,462.5   $4,077.3   $1,274.2
Average Interest Rate          6.8%      6.8%        6.8%        6.8%      6.8%          6.8%

Insured Mortgage
  Securities                $ 41.1    $ 41.1      $ 41.1      $ 41.1    $ 41.1      $1,002.6   $1,208.1   $  488.1
Average Interest Rate          7.6%      7.6%        7.6%        7.6%      7.6%          7.6%
Investment in Originated
  Loans                     $ 71.1    $ 73.7      $ 71.3      $ 64.8    $ 58.9      $  386.1   $  725.9   $  499.1
Average Interest Rate          7.6%      7.6%        7.6%        7.6%      7.6%          7.6%

</TABLE>

                                         41

<PAGE>

     The next table provides information about the Company's debt obligations
and derivative instruments. For debt obligations, the table presents the
contractual principal and interest payments and the related weighted average
interest rates by contractual maturity date. For the caps, the table presents
the notional amount of the agreement by fiscal year of maturity and weighted
average strike price.

<TABLE>
<CAPTION>

                                                   (in millions)

                                                                                  There-               Fair
Debt Obligations                 1999      2000      2001       2002      2003    after      Total     Value
----------------                 ----      ----      ----       ----      ----    -----      -----     -----
<S>                              <C>      <C>       <C>        <C>       <C>      <C>       <C>        <C>  
Securitized mortgage             
Obligations - fixed rate         $136.9   $139.4    $159.2     $142.8    $128.1   $633.5    $1,339.9   $973.4
Average Interest Rate               6.7%     6.7%      6.8%       6.8%      6.8%     6.7%

Senior unsecured notes           $  9.1   $  9.1    $  9.1     $108.4    $ --     $ --      $ 135.7    $ 62.0
Average Interest Rate               9.1%     9.1%      9.1%       9.1%     --       --

Variable rate secured            
Borrowings                       $663.8   $283.2      --         --        --       --      $ 947.0      N/A
Average Interest Rate               6.6%     6.6%     --         --        --       --

Other variable rate              $ 93.4     --        --         --        --       --      $  93.4       N/A
Average Interest Rate               7.6%    --        --         --        --       --



DERIVATIVE CONTRACTS
Cap contracts                    $ 35.0   $350.0    $425.0       --        --       --       $810.0      $1.0
Average Strike Rate                 6.1%     6.7%      6.6%      --        --       --

</TABLE>



ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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


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

     None.

                                     42

<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth information concerning the executive
officers and directors of the Company as of March 16, 1999.

<TABLE>
<CAPTION>
                  Name                        Age                               Position
                  ----                        ---                               --------
<S>                                           <C>                     <C>
William B. Dockser (1)........................ 62                      Chairman of the Board and Director
H. William Willoughby (1)..................... 52                      President, Secretary and Director
Cynthia O. Azzara............................. 39                      Senior Vice President,
                                                                          Chief Financial Officer
                                                                          and Treasurer
David B. Iannarone............................ 38                      Senior Vice President and General Counsel
Douglas L. Cooper............................. 37                      Senior Vice President/Underwriting
Donald R. Drew................................ 41                      Senior Vice President/Originations
Brian L. Hanson............................... 37                      Senior Vice President/Servicing
Garrett G. Carlson, Sr. (2)(3)................ 62                      Director
G. Richard Dunnells (2)(3).................... 61                      Director
Robert J. Merrick (2)(3)...................... 54                      Director
Robert E. Woods (2)(3)........................ 51                      Director

</TABLE>
-----------------------------

(1)  Member of the Transactional Committee
(2)  Member of the Audit Committee
(3)  Member of the Compensation and Stock Option Committee


     Mr. William B. Dockser has been Chairman of the Board of CRIIMI MAE since
1989. Mr. Dockser also serves as Chairman of the Board of CRI, Inc., the former
advisor to CRIIMI MAE, which currently oversees a $3 billion real estate
portfolio. Prior to forming CRI in 1974, he served as President of Kaufman Broad
Asset Management, Inc., an affiliate of Kaufman and Broad, Inc., which managed a
number of publicly held limited partnerships created to invest in low and
moderate income multifamily apartment complexes. For a period of 2 1/2 years
prior to joining Kaufman and Broad, he served in various positions at HUD,
culminating in the post of Deputy FHA Commissioner and Deputy Assistant
Secretary for Housing Production and Mortgage Credit, where he was responsible
for a federally insured housing production program. Before coming to Washington,
Mr. Dockser was a practicing attorney in Boston and also was a special Assistant
Attorney General for the Commonwealth of Massachusetts. He holds a Bachelor of
Laws degree from Yale University Law School and a Bachelor of Arts degree from
Harvard University.

     Mr. H. William Willoughby has been President of CRIIMI MAE since 1990. Mr.
Willoughby was a co-founder of CRI and has served as its President since its
inception in 1974. Mr. Willoughby is principally responsible for the structuring
and oversight of investment vehicles and acquisition programs. Prior to joining
CRI in 1974, he was Vice President of Shelter Company of America and a number of
its subsidiaries, dealing principally with real estate development and equity
financing. Before joining Shelter Company, he was a senior tax accountant with
Arthur Andersen & Company. He holds a Juris Doctorate degree, a Master of
Business Administration degree and a Bachelor of Science degree in Business
Administration from the University of South Dakota.

     Ms. Cynthia O. Azzara has been Chief Financial Officer since 1994, a Senior
Vice President since 1995 and Treasurer since 1997. Ms. Azzara is responsible
for accounting, financial and treasury matters of CRIIMI MAE as well as equity
and debt placements in the capital markets. From 1989 to 1994, she served as
Vice President/Controller of CRI public funds. From 1985 to 1989, she held
positions at CRI as manager of financial reporting and assistant controller.
Before joining CRI in 1985, Ms. Azzara was controller for a consulting 

                                    43

<PAGE>

company and was a staff accountant for a regional CPA firm in Virginia. Ms.
Azzara is a certified public accountant and holds a B.B.A. in accounting from
James Madison University, magna cum laude.

     Mr. David B. Iannarone is Senior Vice President and General Counsel of
CRIIMI MAE. Mr. Iannarone joined CRIIMI MAE Inc. during 1996, and is responsible
for all corporate legal affairs. From 1991 to 1996, he served with the Federal
Deposit Insurance Company/Resolution Trust Company as Counsel-Securities and
Finance. From 1989 to 1991, Mr. Iannarone served with Citibank, N.A. as 
assistant vice president and counsel, serving the World Corporate Group and 
the Corporate Banking Department. He was with Kaye, Scholer, Fierman, Hays & 
Handler as an associate in the Corporate and Banking Department from 1986 to 
1989. Mr. Iannarone received an LLM from the Georgetown University Law 
Center, a JD from the University of Villanova School of Law, and a BA from 
Trinity College.

     Mr. Douglas L. Cooper has been a Senior Vice President of the Company since
March 1998. From January 1996 to March 1998, he served as a Vice President and
Chief Underwriter of the Company. From June 1995 to January 1996, Mr. Cooper was
Senior Credit Policy Officer for the Real Estate Banking Group for 
NationsBank. From 1993 to June 1995, Mr. Cooper was Vice President and Team 
Leader within NationsBank's Special Assets Division.

     Mr. Donald R. Drew has been a Senior Vice President of the Company since
April 1997. He served as Vice President of First Union National Bank of Virginia
from June 1994 to April 1997. In addition, Mr. Drew served as Senior Vice
President and Vice President of First American Metro Company from December 1992
to June 1993 and July 1992 to December 1992, respectively.

     Mr. Brian L. Hanson has been a Senior Vice President of the Company 
since March 1998. From March 1996 to March 1998, he served as Group Vice 
President of the Company. Prior to joining the Company, from May 1991 to 
February 1996, Mr. Hanson was with the Lanham, Maryland based company of JCF 
partners where he served as Chief Operating Officer and Director of Asset 
Operations and Portfolio Director.

     Mr. Garrett G. Carlson, Sr. has served as a Director of the Company 
since 1989. Mr. Carlson has served as President of Can-American Realty Corp. 
and the Canadian Financial Corp. since 1979 and 1974, respectively, and 
President of Garrett Real Estate Development since 1982. Since 1996, Mr. 
Carlson has served as a director of Satellite Broadcasting Company. From 1985 
to 1995, he served as Chairman of the Board of SCA Realty Holdings Inc; from 
1983 to 1995, he served as Vice Chairman of the Shelter Development Company 
Ltd. and from 1992 to 1994, he served as a director of Bank Windsor.

     Mr. G. Richard Dunnells has served as a Director of the Company since 1991.
Since 1994, Mr. Dunnells has served as the hiring partner in the Washington D.C.
office of the law firm Holland & Knight. He was Chairman of the Washington, D.C.
law firm of Dunnells & Duvall from 1989 to 1993 and was the firm's Senior
Partner from 1973 to 1993. Mr. Dunnells served on the President's Commission on
Housing from 1981 to 1982 and thereafter served in various roles at the U.S.
Department of Housing and Urban Development from 1969 to 1973, including Special
Assistant to the Under-Secretary, Deputy Assistant Secretary for Housing and
Urban Renewal and Deputy Assistant Secretary for Housing Management.

     Mr. Robert J. Merrick has served as a Director of the Company since 1997.
Since February 1998, Mr. Merrick has served as the Director of MCG Credit
Company. From 1985 to 1997, he served as Executive Vice President and Chief
Credit Officer of Signet Banking Company. In addition, while at Signet, Mr.
Merrick also served as Chairman of the Credit Policy Committee and was a member
of the Asset and Liability Committee, as well as the Management Committee. Prior
to joining Signet, Mr. Merrick was a Credit Officer of the Virginia Banking
Company from 1980 to 1984. He also served as Senior Vice President of the Bank
of Virginia from 1976 to 1980.

     Mr. Robert Woods has served as a Director of the Company since 1998. He is
currently the Managing Director and head of loan syndications for the Americas
at Societe Generale in New York where he has served in that position since 1997.
Prior to that, Mr. Woods had been Managing Director and Head of the Real Estate
Capital Markets and Mortgage-Backed Securities division at Citicorp since 1991.
Mr. Woods also served as Head of Citicorp's syndications, private placements,
money markets and asset-backed businesses from 1985 to 1990.

                                    44

<PAGE>


MEETINGS OF DIRECTORS

     During 1998, the Board of Directors met two times in person, seven times by
conference telephone and acted by unanimous written consent on seven occasions.
Each member of the Board of Directors attended at least 75% of the meetings of
the Board of Directors and the committees on which he served during 1998 or such
shorter period during which he was a member. Pursuant to the Company's Bylaws, a
majority of the Board of Directors shall at all times consist of directors who
are not officers or employees of the Company and do not perform any services for
the Company other than as a director ("Unaffiliated Directors").

COMPENSATION OF DIRECTORS

     Directors who are also employees of the Company receive no additional
compensation for their services as directors. Each Unaffiliated Director
receives (i) an aggregate annual fee of $12,000, (ii) 500 common shares
annually, (iii) options to purchase 500 common shares annually and (iv) a fee of
$750 (for telephonic meetings) or $1,500 (for in-person meetings) per day for
each meeting in which such director participates, including committee meetings
held on days when the Board of Directors is not meeting. In addition, the
Company reimburses directors (including those employed by the Company as
executive officers) for travel and other expenses incurred in connection with
their duties as directors of the Company.

COMMITTEES OF THE BOARD OF DIRECTORS

     The Board of Directors has an Audit Committee, a Compensation and Stock
Option Committee, and a Transactional Committee. The Company has no nominating
or similar committee.

     AUDIT COMMITTEE. The Board of Directors has an Audit Committee currently
comprised of Messrs. Carlson, Dunnells, Merrick and Woods, each of whom is an
Unaffiliated Director. The functions performed by the Audit Committee are to:
(1) recommend independent auditors to the Company; (2) review the scope of the
audit, audit fees, the audit report and the management letter with the Company's
independent auditors; (3) review the financial statements of the Company; (4)
review and approve non-audit services provided by the independent auditors; and
(5) consult with the independent auditors and management with regard to the
adequacy of internal controls. The Audit Committee met twice in 1998.

     COMPENSATION AND STOCK OPTION COMMITTEE. The Board of Directors has a
Compensation and Stock Option Committee currently comprised of Messrs. Carlson,
Dunnells, Merrick and Woods, each of whom is an Unaffiliated Director. The
Compensation and Stock Option Committee was formed to establish, review and
modify the compensation (including salaries and bonuses) of the Company's
executive officers, to administer the Employee Stock Option Plan and to perform
such other duties as may be delegated to it by the Board of Directors. The
Compensation and Stock Option Committee met twice in 1998.

     TRANSACTIONAL COMMITTEE. The Board of Directors has a Transactional
Committee currently comprised of Messrs. Dockser and Willoughby. The
Transactional Committee was formed to review and approve certain debt and equity
financings, and securitizations and resecuritizations of assets, with certain of
the foregoing subject to specific limitations. The Transactional Committee acted
14 times in 1998 by unanimous written consent.

                                    45

<PAGE>

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16 of the Securities Exchange Act of 1934, as amended, requires
each director and executive officer of the Company and each person who owns more
than 10% of the Company's common stock to report to the Securities and Exchange
Commission, by a specified date, his, her or its beneficial ownership of, and
certain transactions in, the Company's common stock. Except as otherwise noted,
based solely on its review of Forms 3 and 4 and amendments thereto furnished to
the Company, and written representations from certain reporting persons that no
Forms 5 were required for those persons, the Company believes that all
directors, officers and beneficial owners of more than 10% of the common stock
have filed on a timely basis Forms 3, 4 and 5 as required in the year ended
December 31, 1998.


ITEM 11. EXECUTIVE COMPENSATION

     The following table sets forth certain information concerning compensation
earned during the last three years by the Chairman of the Board of Directors and
each of the other four most highly compensated executive officers of the Company
whose income exceeded $100,000 during the year ended December 31, 1998
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>


                                                     SUMMARY COMPENSATION TABLE


                                           AnnuaL Compensation(1)                         Long Term Compensation

                          -------------------------------------------------------   ----------------------------------
                                                                                       Securities
Name and Principal                                                    Restricted       Underlying       All Other
Position                  Year        Salary($)         Bonus ($)    Stock Awards     Options (#)    Compensation ($)
------------------        ----        --------          ---------   -------------   -------------    ----------------
<S>                       <C>         <C>               <C>                <C>           <C>         <C>      <C>
William B. Dockser        1998        $285,600          $ 59,000          -0-            225,000     $334,916 (2)
    Chairman of the       1997        $230,000          $215,000          -0-            150,000     $467,424 (2)
    Board of              1996        $167,500               -0-          -0-                -0-     $494,672 (2)
    Directors 

H. William                1998        $285,600          $ 59,000          -0-            225,000     $334,916 (2)
Willoughby                1997        $230,000          $215,000          -0-            150,000     $467,424 (2)
    President and         1996        $167,500               -0-          -0-                -0-     $494,672 (2)
    Secretary                          

Frederick J.              1998        $233,150          $ 48,000          -0-             25,000         -0-
Burchill                  1997        $191,875          $200,000          -0-             45,000         -0-
    Executive Vice        1996        $179,375          $125,000          -0-             20,000         -0-
    President (3)

Cynthia O. Azzara         1998        $185,150          $ 45,000          -0-             20,000         -0-
    Senior Vice           1997        $147,500          $ 77,500          -0-             25,000         -0-
    President,            1996        $135,000          $ 50,000          -0-             10,000         -0-
    Chief Financial
    Officer and
    Treasurer

Donald R. Drew            1998         $525,500(4)      $ 30,000          -0-             10,000         -0-
    Senior Vice           1997         $166,596(5)           -0-          -0-                -0-         -0-
    President                         

</TABLE>

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

(1) Certain of the Company's executive officers receive personal benefits in 
addition to salary; however, the aggregate amounts of such personal benefits 
do not exceed the lesser of $50,000 or 10% of annual salary and bonus 
reported for any Named Executive Officer.

(2) These amounts represent deferred compensation which the Company has agreed
to pay for services performed in connection with the Merger. These amounts were
paid solely from principal and interest received by the Company from CRI in
connection with a note receivable acquired by the Company in the Merger. 

                                    46

<PAGE>

(3) Mr. Burchill resigned as Executive Vice President of the Company effective
February 8, 1999.

(4) This amount includes commissions paid of $416,125 but does not include 
$144,579 owed to Mr. Drew for commissions accrued, but not paid, prior to the 
Petition Date, with respect to which Mr. Drew has an unsecured claim.

(5) This amount relates to the period from April 7, 1997 (commencement of
employment) through December 31, 1997 and includes commissions paid of $55,216.

     EMPLOYMENT AGREEMENTS

     On June 30, 1995, in connection with the Merger, the Company, through its
wholly-owned operating subsidiary CM Management, entered into employment
agreements with each of Messrs. Dockser and Willoughby. In connection with the
adoption of the Employee Retention Plan, such employment agreements were assumed
by CM Management and were amended as of October 5, 1998 (together and as
amended, the "Employment Agreements.") The Employment Agreements each expire
June 30, 2000 and provide that Messrs. Dockser and Willoughby salaries will be
adjusted at least annually by the Compensation and Stock Option Committee of 
the Board of Directors. Each of Mr. Dockser and Mr. Willoughby currently 
receive a base salary of $324,500. The Employment Agreements require each of 
Messrs. Dockser and Willoughby to devote a substantial portion of his time to 
the affairs of the Company and its affiliated entities, except that each of 
them may devote time to other existing business activities; provided that the 
time devoted to such other existing business activities does not interfere 
with the performance of his duties to the Company and its affiliated 
entities. The agreements define the phrase "substantial portion" to mean all 
of the time required to perform the services necessary and appropriate for 
the conduct of the businesses of the Company and its affiliated entities.

     In the event of a change of control, as defined in the Employment
Agreements, Messrs. Dockser and Willoughby reserve the right to voluntarily
terminate their employment with the Company. Messrs. Dockser and Willoughby are
entitled to severance payments in an amount equal to 18 months' base salary upon
termination without cause and upon an involuntary resignation for any of the 
reasons set forth in the Employment Agreements, including a change of 
control. Messrs. Dockser and Willoughby are not currently entitled to receive 
any retention payments under the Employee Retention Plan.

     The Employment Agreements provide for indemnification of Messrs. Dockser
and Willoughby to the extent provided for in the bylaws of the Company and/or CM
Management up to and including amounts totaling a maximum of $250,000 for all
covered persons, constituting the aggregate deductible under applicable Director
and Officer insurance policies, the application of any available portion of
proceeds of applicable Director and Officer insurance policies, up to $20
million in the aggregate for all covered persons, and the payment of all
uninsured indemnification arising under the post-petition actions of the
executives for which they are otherwise entitled to indemnification under the
Bylaws of the Company and/or CM Management.

     In July 1998, the Company entered into a new employment agreement with 
Cynthia O. Azzara that, in connection with the adoption of the Employee 
Retention Plan, was assumed by CM Management and was amended as of October 5, 
1998 (as amended, the "Azzara Employment Agreement"). The Azzara Employment 
Agreement has a three year term and provides for minimum base annual 
compensation of $225,000. The Azzara Employment Agreement contains provisions 
that prohibit Ms. Azzara from competing with the Company and certain of its 
affiliates for a period not to extend beyond October 5, 2000, subject to 
certain limited exceptions. In addition, Ms. Azzara is entitled to receive 
retention payments, under the Employee Retention Plan, equal to two times her 
base salary semiannually over a two year period, subject to certain 
conditions. The first retention plan payment to Ms. Azzara vested on April 5, 
1999 and is payable on April 15, 1999. The fourth retention plan payment to 
Ms. Azzara is subject to Bankruptcy Court approval. The entire unpaid portion 
of the retention payments owed to Ms. Azzara will become immediately due and 
payable upon the effective date of a plan of reorganization of the Company, 
only upon receipt of Bankruptcy Court approval, or upon the termination of 
Ms. Azzara other than for cause.

     Ms. Azzara is entitled to severance payments in an amount equal to 24 
months' base salary upon termination without cause. In addition, upon 
termination following a change of control, all options to acquire shares of 
the Company's common stock held by Ms. Azzara, to the extent not then 
exercisable, will become immediately exercisable. The Azzara Employment 
Agreement provides for indemnification of Ms. Azzara to the extent provided 
for in the bylaws of the Company and/or CM Management up to and including 
amounts totaling a maximum of $250,000 for all covered persons, constituting 
the aggregate deductible under applicable Officer and Director insurance 
policies, the application of any available portion of proceeds of applicable 
Officer and Director insurance policies, up to $20 million in the aggregate 
for all covered persons, and the payment of all uninsured indemnification 
arising under the post-petition actions of the executive for which she is 
otherwise entitled to indemnification under the bylaws of the Company and/or 
CM Management.

                                  47

<PAGE>

     Mr. Drew is entitled to receive retention payments, under the Employee 
Retention Plan, equal to one times his base salary semiannually over a two 
year period, subject to certain conditions. The first retention plan payment 
to Mr. Drew vested on April 5, 1999 and is payable on April 15, 1999. The 
entire unpaid portion of the retention payments owed to Mr. Drew will become 
immediately due and payable upon the effective date of a plan of 
reorganization of the Company or upon the termination of Mr. Drew other than 
for cause. Mr. Drew is entitled to severance payments in an amount equal to 
26 weeks' base salary upon termination without cause, including a change of 
control, but only if such change of control results in the successful 
emergence of the Company and CM management from Chapter 11.

     Pursuant to the Employee Retention Plan, options granted to each of the 
Named Executive Officers after October 5, 1998 shall immediately become 
exercisable upon a change of control.

     EMPLOYEE STOCK OPTION PLAN

     The purpose of the Employee Stock Option Plan is to enhance the long-term
profitability of the Company and shareholder value by offering incentives and
rewards to those officers and other employees of the Company and its
subsidiaries who are important to the Company's growth and success, and to
encourage such officers and employees to remain in the service of the Company
and its subsidiaries and to acquire and maintain stock ownership in the Company.

     The Employee Stock Option Plan currently provides for grants of stock
options to purchase up to 2,000,000 shares of Company common stock. As of March
16, 1999, options to purchase a total of 1,824,188 common shares are outstanding
under the Employee Stock Option Plan. Options granted under the Employee Stock
Option Plan are either "nonqualified stock options" or "incentive stock
options." The exercise price for options granted under the Employee Stock Option
Plan may not be less than the fair market value of a share of common stock on
the date of grant.

     Any executive officer or other employee of the Company or any subsidiary of
the Company is eligible to be granted options, subject to certain limitations.
The Compensation and Stock Option Committee is authorized to select from among
employees the individuals to whom options are to be granted and to determine the
number of common shares that will be subject to the options, whether such
options are to be incentive stock options or nonqualified stock options, and the
terms and conditions of the options consistent with the Employee Stock Option
Plan.

     The Employee Stock Option Plan is administered by the Compensation and
Stock Option Committee. Currently, the Compensation and Stock Option Committee
consists of Messrs. Carlson, Dunnells, Merrick and Woods, each of whom is an
Unaffiliated Director. Except as permitted by Rule 16b-3(c)(2) under the
Exchange Act, options may not be granted under the Employee Stock Option Plan to
any member of the Compensation and Stock Option Committee during the term of his
or her membership on the Compensation and Stock Option Committee.

     Pursuant to the Employee Retention Plan, options granted after October 
5, 1998 shall immediately become exercisable upon a change of control.

     The following table sets forth certain information concerning options
granted to the Named Executive Officers during the year ended December 31, 1998:

<TABLE>
<CAPTION>

                                       OPTION GRANTS IN LAST FISCAL YEAR

                                                % of Total Options 
                                 Common Shares       Granted to 
                                   Underlying        Employees        Exercise Price        Expiration          Grant Date 
            Name                Options Granted    in Fiscal Year        ($/sh)               Date            Present Value
            -----               ---------------    --------------     ---------------      -----------        --------------
<S>                             <C>                <C>                <C>                  <C>                <C>
William B. Dockser                225,000(1)            28.99%          $15.7500           16-Mar-2006        $299,363 (2)
H. William Willoughby             225,000(1)            28.99%          $15.7500           16-Mar-2006        $299,363 (2)
Frederick J. Burchill (3)          25,000(1)             3.22%          $15.7500           08-Feb-1999(4)      $33,263 (2)
Cynthia O. Azzara                  20,000(1)             2.58%          $15.7500           16-Mar-2006         $26,610 (2)
Donald R. Drew                     10,000(1)             1.29%          $15.7500           16-Mar-2006         $13,305 (2)

</TABLE>

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

(1) These options were granted on March 16, 1998 and will vest in equal annual
installments commencing on the first anniversary of the date of grant.

(2) These values are estimated on the date of grant using the Black-Scholes
option pricing model, which produces a per option share value as of March 16,
1998, the grant date, of $1.3305 using the following principal assumptions:
expected stock price volatility of 26.6%, risk free rate of return of 4.95%,
dividend yield of 9.4% and expected life of 8 years. No adjustments have been
made for forfeitures or nontransferability. The actual value, if any, that the
executive officer will realize from these options will depend solely on the
increase in the stock price over the option price when the options are
exercised.

(3) Mr. Burchill resigned as Executive Vice President of the Company effective
February 8, 1999.

(4) Mr. Burchill has 180 days from the date of his resignation to exercise any
outstanding options held by him that were exercisable at the time of his
resignation. As of February 8, 1999, Mr. Burchill had options to acquire 79,999
shares of the Company's common stock that were fully exercisable.

                                     48

<PAGE>

The following table provides information concerning the exercise of options
during the year ended December 31, 1998 for each of the Named Executive
Officers.
<TABLE>
<CAPTION>

                           AGGREGATED OPTION EXERCISES IN 1998 AND YEAR-END 1998 OPTION VALUES

                                                                       Number of Common Shares         Value of Unexercised
                                                                       Underlying Unexercised         in-the-money Options
                        Common Shares Acquired       Value Realized     Options at FY-end (#)               at FY-end ($)
Name                  On Exercise During 1998 (#)        ($)(1)      Exercisable / Unexercisable   Exercisable / Unexercisable(2)
----                  ---------------------------    --------------  ---------------------------   ------------------------------
<S>                   <C>                            <C>                <C>            <C>           <C>           <C>
William B. Dockser                 12,698                 $52,125       677,302        975,000        $0            $0
H. William Willoughby               2,000                 $10,710       841,905        975,000        $0            $0
Frederick J. Burchill(3)           20,000                 $77,100        73,332         61,668(4)     $0            $0
Cynthia O. Azzara                   6,600                 $27,505        33,399         40,001        $0            $0
Donald R. Drew                       -0-                    -0-               0         10,000        $0            $0
</TABLE>

---------

(1) The value realized on the exercise of stock options was determined by taking
the difference between the option price and the fair market value of the common
shares on the date of exercise.

(2) Options have been granted at exercise prices from $9.77 to $15.9375. The
closing price of a share of common stock was $3.50 on December 31, 1998. The
exercise price of the option shares exceeded the market value of such options at
fiscal year end and, accordingly, such options were not "in the money" as of
December 31, 1998.

(3) Mr. Burchill resigned as Executive Vice President of the Company effective
February 8, 1999.

(4) Mr. Burchill has 180 days from the date of his resignation to exercise any
outstanding options held by him that were exercisable at the time of his
resignation. As of February 8, 1998, Mr. Burchill had options to acquire 79,999
shares of the Company's common stock that were fully exercisable.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of March 16, 1999 by (i) each person
known by the Company to be the beneficial owner of more than 5% of its common
stock, (ii) each director of the Company, (iii) each Named Executive Officer,
and (iv) all directors and executive officers of the Company as a group. Unless
otherwise indicated, each stockholder has sole voting and investment power with
respect to the shares beneficially owned.

                                    49

<PAGE>


<TABLE>
<CAPTION>


                                                  Amount and Nature
                                                  of Common Shares                     Percentage of Common
Name                                             Beneficially Owned                     Shares Outstanding
----                                             ------------------                    ---------------------
<S>                                              <C>                                   <C>
William B. Dockser                                   2,561,099 (1)(2)                          4.6%
H. William Willoughby                                2,409,500 (1)(3)                          4.3%
Garrett G. Carlson, Sr.                                 17,500 (4)                                *
G. Richard Dunnells                                     15,720 (8)                                *
Robert J. Merrick                                        4,000 (9)                                *
Robert E. Woods                                          1,000(10)                                *
Frederick J. Burchill (5)                               79,999                                    *
Cynthia 0. Azzara                                       60,435(11)                                *
Donald R. Drew                                           4,934 (6)                                *

Gotham Partners L.P.
Gotham Partners III
Gotham International Advisors LLC(7)                 4,917,900 (7)                             9.2%
   110 East 42nd Street 18th Floor
   New York, NY  10017

All Directors and Executive
  Officers as a Group (13 persons)                   5,192,971 (1)(2)(3)(4)(6)(12)             8.8%

</TABLE>

---------------
*Less than 1%.

 (1) Includes 2,767 common shares owned by C.R.I, Inc. of which Messrs. Dockser
     and Willoughby are the sole shareholders.

 (2) Includes 752,302 shares exercisable upon exercise of presently exercisable
     options or those exercisable within 60 days. Includes 104,343 common shares
     held by Mr. Dockser's wife, 125,000 common shares held by the William B.
     Dockser '59 Charitable Lead Annuity Trust (for which Mr. Dockser has sole
     voting power) and 200,000 common shares held by the Dockser Family
     Foundation (for which Mr. Dockser has sole voting power).

 (3) Includes 916,905 shares exercisable upon exercise of presently exercisable
     options or those exercisable within 60 days. Includes 43,100 common shares
     held by Mr. Willoughby's wife, 27,000 common shares held by Mr.
     Willoughby's parents, 10,000 common shares held by Mr. Willoughby's son and
     4,095 common shares held by Mr. Willoughby's daughter.

 (4) Includes 2,000 shares exercisable upon exercise of presently exercisable
     options or those exercisable within 60 days. Includes 1,000 common shares
     held by Mr. Carlson's wife and 14,500 common shares held by a partnership
     for which Mr. Carlson is the sole general partner.

 (5) Includes 79,999 shares exercisable upon exercise of presently exercisable
     options or those exercisable within 60 days. Mr. Burchill resigned as
     Executive Vice President of the Company effective February 8, 1999.

 (6) Includes 3,334 shares exercisable upon exercise of presently exercisable
     options or those exercisable within 60 days. Includes 1,000 common shares
     held by Mr. Drew's wife.

 (7) Based on a Schedule 13G filed by Gotham Partners, L.P., Gotham Partners
     III, L.P. and Gotham International Advisors L.L.C., such entities
     collectively hold 4,917,900 common shares, for which they hold sole voting
     and investment power.

 (8) Includes 2,000 shares exercisable upon exercise of presently exercisable
     options or those exercisable within 60 days.

 (9) Includes 1,000 shares exercisable upon exercise of presently exercisable
     options or those exercisable within 60 days.

(10) Includes 500 shares exercisable upon exercise of presently exercisable
     options or those exercisable within 60 days.

(11) Includes 3,334 shares exercisable upon exercise of presently exercisable
     options or those exercisable within 60 days.

(12) Includes 1,842,690 shares exercisable upon exercise of presently
     exercisable options or those exercisable within 60 days.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Company maintains its headquarters office in Rockville, Maryland. 
Pursuant to an administrative services agreement with CRI which was entered 
into in connection with the Merger (the "CRI Administrative Services 
Agreement"), CRI is obligated to provide the Company and its subsidiaries 
with certain 

                                    50

<PAGE>

administrative office, facility and other services, at cost, with respect to
certain aspects of the Company's business. The Company intends to use the
services provided under the CRI Administrative Services Agreement to the extent
such services are not performed by the Company or provided by another service
provider. The CRI Administrative Services Agreement is terminable on 30 days'
notice at any time by the Company. The Company and its subsidiaries paid charges
under the CRI Administrative Services Agreement of $352,471 for the year ended
December 31, 1998.

     In June 1997, a subsidiary of the Company acquired a Holiday Inn Express
hotel in Nashville, Tennessee in a foreclosure sale from a commercial
mortgage-backed security trust. In connection with such purchase, the
subsidiary-owner of the hotel entered into a hotel management agreement
(the"Hotel Management Agreement") with Capitol Hotel Group International, Inc.
("CHGI"), a Maryland company partially owned by Messrs. Dockser and Willoughby.
The Hotel Management Agreement provides that in exchange for the hotel
management and operating duties set forth in the agreement, CHGI will receive an
annual management fee in an amount equal to four percent of the total annual
revenues of the hotel plus twenty percent of the annual net profit of the hotel.
For the year ended December 31, 1998, the Company paid a total of $ 4,691 to
CHGI pursuant to the Hotel Management Agreement. Prior to entering into the
Hotel Management Agreement, the Company received a written opinion from an
independent hotel consulting and appraisal company that the terms of the Hotel
Management Agreement were reasonable and within industry standards.

                                       51

<PAGE>

                                     PART IV

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

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

          1 and 2. Financial Statements and Financial Statement Schedules

<TABLE>
<CAPTION>
                                                                                               Page
Description                                                                                  Number(s)
-----------                                                                                  --------
<S>                                                                                            <C>
Report of Independent Public Accountants....................................................   F-1

Consolidated Balance Sheets as of December 31,
  1998 and 1997.............................................................................   F-2

Consolidated Statements of Income for the
  years ended December 31, 1998, 1997 and 1996..............................................   F-3

Consolidated Statements of Changes in Shareholders' Equity for the years ended
  December 31, 1998, 1997 and 1996..........................................................   F-4

Consolidated Statements of Cash Flows for the
  years ended December 31, 1998, 1997 and 1996..............................................   F-5

Notes to Consolidated Financial Statements..................................................   F-6
</TABLE>

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

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

           Exhibit No. 3 - Articles of Incorporation and bylaws.

               a. Articles of Incorporation of CRIIMI MAE Inc. (incorporated by
                  reference from Exhibit 3(d) to the Quarterly Report on Form
                  10-Q for the quarter ended June 30, 1993).

               b. Amended and Restated Bylaws of CRIIMI MAE Inc. (incorporated
                  by reference from Exhibit 4.2 to the S-3 filed with the
                  Securities and Exchange Commission June 9, 1997).

               c. Amendment to the Articles of Incorporation of CRIIMI MAE Inc.
                  (filed herewith).

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

               e. Agreement and Articles of Merger between CRIIMI MAE Inc. and
                  CRI Insured Mortgage Association, Inc. as filed with the State
                  Department of Assessment and Taxation for the State of
                  Maryland (incorporated by 

                                         52

<PAGE>

                  reference from Exhibit 3(g) to the Quarterly Report on Form
                  10-Q for the quarter ended June 30, 1993).

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

               g. First Amendment to the Limited Partnership Agreement of CRIIMI
                  MAE Services Limited Partnership effective as of December 31,
                  1995 between CRIIMI MAE Management Inc. and CRIIMI MAE
                  Services, Inc. (filed herewith).

               h. Second Amendment to the Limited Partnership Agreement of
                  CRIIMI MAE Services Limited Partnership effective as of
                  January 2, 1997 between CRIIMI MAE Management Inc. and CRIIMI
                  MAE Services, Inc. (filed herewith).

               i. Third Amendment to the Limited Partnership Agreement of CRIIMI
                  MAE Services Limited Partnership effective as of December 31,
                  1997 between CRIIMI MAE Management Inc. and CRIIMI MAE
                  Services, Inc. (filed herewith).

               j. Articles Supplementary to the Articles of Incorporation of
                  CRIIMI MAE Inc. designating 150,000 shares of the Company's
                  Preferred Stock as "Series A Cumulative Convertible Preferred
                  Stock" (incorporated by reference from Exhibit 4.1 to the S-3
                  registration statement filed with the Securities and Exchange
                  Commission on June 26, 1996).

               k. Articles Supplementary to the Articles of Incorporation of
                  CRIIMI MAE Inc. designating 3,000,000 shares of the Company's
                  Preferred Stock as "Series B Cumulative Convertible Preferred
                  Stock" (incorporated by reference from Exhibit 4.1 to the S-3
                  registration statement filed with the Securities and Exchange
                  Commission on August 7, 1996).

               l. Articles Supplementary to the Articles of Incorporation of
                  CRIIMI MAE Inc., designating 300,000 shares of the Company's
                  Preferred Stock as "Series C Cumulative Convertible Preferred
                  Stock" (incorporated by reference from Exhibit 4.1 to the 8-K
                  filed with the Securities and Exchange Commission on September
                  23, 1997).

               m. Articles Supplementary to the Articles of Incorporation of
                  CRIIMI MAE Inc. designating 300,000 shares of the Company's
                  Preferred Stock as "Series D Cumulative Convertible Preferred
                  Stock" (incorporated by reference from Exhibit 4.1 to the 8-K
                  filed with the Securities and Exchange Commission on August 3,
                  1998).

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

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

                                        53

<PAGE>

               a. 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).

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

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

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

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

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

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

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

               i. Funding Note Issuance and Security Agreement dated as of
                  December 15, 1995 among Federal National Mortgage Association,
                  CRIIMI MAE Inc. and CRIIMI MAE Financial Company III
                  (incorporated by reference from Exhibit 4(nnn) to the Annual
                  Report on Form 10-K for 1995).

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

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

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

                                         54

<PAGE>

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

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

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

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

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

               r. Indenture Agreement, dated as of November 19, 1997, between
                  the Company and State Street Bank and Trust Company
                  (incorporated by reference from Exhibit 4 (aaaa) to the Annual
                  Report on Form 10-K for 1997).

               s. First Supplemental Indenture, dated as of November 21, 1997,
                  between the Company and State Street Bank and Trust Company
                  (incorporated by reference from Exhibit 4 (bbbb) to the Annual
                  Report on Form 10-K for 1997).

               t. Prospectus dated May 29, 1998 whereby CRIIMI MAE Inc. from
                  time to time may offer one or more series of debt securities,
                  preferred shares, common shares or warrants to purchase
                  Preferred Shares or Common shares up to an aggregate public
                  offering price of up to $350,000,000 (incorporated by
                  reference from Form S-3 on Form 8-K filed May 29, 1998).

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

          Exhibit No. 10 - Material contracts.

               a. Revised Form of Advisory Agreement (incorporated by reference
                  from Exhibit No. 10.2 to the Registration Statement).

               b. Employment and Non-Competition Agreement dated April 20, 1995
                  between CRIIMI MAE Management, Inc. and William B. Dockser
                  (incorporated by reference from Exhibit 10(b) to the Annual
                  Report on Form 10-K for 1995).

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

                                         55

<PAGE>

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

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

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

               g. The CRIIMI MAE Management, Inc. Executive Deferred
                  Compensation Trust Agreement dated June 30, 1995 between
                  CRIIMI MAE Management, Inc. and Richard J. Palmer
                  (incorporated by reference from Exhibit 10(g) to the Annual
                  Report on Form 10-K for 1995).

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

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

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

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

               l. Employment and Non-Competition Agreement dated June 30, 1995
                  between CRIIMI MAE Management, Inc. and Frederick J. Burchill
                  (incorporated by reference from Exhibit 10(n) to the Annual
                  Report on Form 10-K for 1995).

               m. Employment and Non-Competition Agreement dated June 30, 1995
                  between CRIIMI MAE Management, Inc. and H. William Willoughby
                  (incorporated by reference from Exhibit 10(q) to the Annual
                  Report on Form 10-K for 1995).

               n. Employee Stock Option Agreements and Stock Option Plan for Key
                  Employees (incorporated by reference from Exhibit 4(c) to the
                  S-8 Registration Statement filed with the Securities and
                  Exchange Commission on June 20, 1997).

               o. 1996 Non-Employee Director Stock Option Plan (incorporated by
                  reference from Exhibit 4 to the S-8 Registration Statement
                  filed with the Securities and Exchange Commission on June 13,
                  1996).

                                          56

<PAGE>

               p. Employment and Non-Competition Agreement dated as of July 1,
                  1998 between CRIIMI MAE Management, Inc. and Cynthia O.
                  Azzara (filed herewith).

               q. First Amendment to the Employment and Non-Competition
                  Agreement dated as of October 5, 1998 by and among CRIIMI MAE
                  Management, Inc. and Cynthia O. Azzara and CRIIMI MAE Inc.
                  (filed herewith).

               r. Employment and Non-Competition Agreement dated as of October
                  7, 1998 between CRIIMI MAE Management, Inc. and David B.
                  Iannarone (filed herewith).

               s. First Amendment to the Employment and Non-Competition
                  Agreement, dated as of October 7, 1998, by and among CRIIMI
                  MAE Management, Inc., David B. Iannarone and CRIIMI MAE Inc.
                  (filed herewith).

               t. First Amendment to Employment and Non-Competition Agreement,
                  dated as of October 5, 1998, by and among CRIIMI MAE
                  Management, Inc., William B. Dockser and CRIIMI MAE Inc.
                  (filed herewith).

               u. First Amendment to Employment and Non-Competition Agreement,
                  dated as of October 5, 1998, by and among CRIIMI MAE
                  Management, Inc., H. William Willoughby and CRIIMI MAE Inc.
                  (filed herewith).

               v. Master Loan and Security Agreement dated as of March 31, 1998
                  between CRIIMI MAE Inc. and German American Capital Company
                  (incorporated by reference from Exhibit 10(a) to the Quarterly
                  Report on Form 10-Q for the quarter ended March 31, 1998).

               w. Master Assignment Agreement dated as of November 25, 1997
                  between CRIIMI MAE Inc. and Lehman Commercial paper, Inc.
                  (incorporated by reference from Exhibit 10(b) to the Quarterly
                  Report on Form 10-Q for the quarter ended March 31, 1998).

               x. Whole Loan Origination Facility Agreement between Prudential
                  Securities Credit Corp., and CRIIMI MAE Inc., dated as of June
                  1, 1998 (incorporated by reference from Exhibit 10 to the
                  Quarterly Report on Form 10-Q for the quarter ended June 30,
                  1998).

               y. Underwriting Agreement dated January 22, 1998 between CRIIMI
                  MAE Inc. and Prudential Securities Incorporated (incorporated
                  by reference from Exhibit 1.0 to the 8-K filed with the
                  Securities and Exchange Commission on January 23, 1998).

               z. Underwriting Agreement dated March 19, 1998 between CRIIMI MAE
                  Inc. and Prudential Securities Incorporated and Friedman,
                  Billings, Ramsey & Co., Inc. (incorporated by reference from
                  Exhibit 1.0 to the 8-K filed with the Securities and Exchange
                  Commission on March 20, 1998).

              aa. Amended and Restated Mortgage Loan Origination and Disposition
                  Program Agreement made as of May 1, 1998 between Citicorp Real
                  Estate, Inc. and CRIIMI MAE Inc. (filed herewith).

              bb. Articles of Incorporation of CRIIMI MAE Management, Inc.
                  (incorporated by reference from Exhibit 3(h) to the Annual
                  Report on Form 10-K for 1995).

                                        57

<PAGE>


              cc. Bylaws of CRIIMI MAE Management, Inc. (incorporated by
                  reference from Exhibit 3(i) to the Annual Report on Form 10-K
                  for 1995).

              dd. Articles of Incorporation of CRIIMI MAE Services, Inc. as a
                  Maryland Close Company (incorporated by reference from Exhibit
                  3(j) to the Annual Report on Form 10-K for 1995).

              ee. Bylaws of CRIIMI MAE Services, Inc. (incorporated by reference
                  from Exhibit 3(k) to the Annual Report on Form 10-K for 1995).

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

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

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

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

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

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

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

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

              nn. Certificate of Incorporation of CRIIMI MAE Holdings, Inc.
                  (incorporated by reference from Exhibit 3(r) to the Annual
                  Report on Form 10-K for 1996).

              oo. Bylaws of CRIIMI MAE Holdings, Inc. (incorporated by reference
                  from Exhibit 3(s) to the Annual Report on Form 10-K for 1996).

              pp. Certificate of Limited Partnership of CRIIMI MAE Holdings,
                  L.P. (incorporated by reference from Exhibit 3(t) to the
                  Annual Report on Form 10-K for 1996).

              qq. Limited Partnership Agreement of CRIIMI MAE Holdings, L.P.
                  effective as of December 17, 1996 between CRIIMI MAE Inc.,
                  CRIIMI MAE Services Limited Partnership and CRIIMI MAE
                  Holdings, Inc. (incorporated by reference from Exhibit 3(u) to
                  the Annual Report on Form 10-K for 1996).

              rr. First Amendment to Preferred Stock Purchase Agreement for
                  Series C Preferred Stock dated May 9, 1997 (incorporated by
                  reference from Exhibit 

                                        58

<PAGE>

                  10.2 to the Form 8-K filed with the Securities and Exchange
                  Commission on September 23, 1997).

              ss. Second Amendment to Preferred Stock Purchase Agreement for
                  Series C Preferred Stock dated February 18, 1998 (incorporated
                  by reference from Exhibit 4.1 to the Form 8-K filed with the
                  Securities and Exchange Commission on February 20, 1998).

              tt. Preferred Stock Purchase Agreement for Series D Preferred
                  Stock dated July 22, 1998 (incorporated by reference from
                  Exhibit 10.1 to the Form 8-K filed with the Securities and
                  Exchange Commission on August 3, 1998).

              uu. Certificate of Limited Partnership of CRIIMI MAE Holdings II,
                  L.P. (filed herewith).

              vv. Limited Partnership Agreement of CRIIMI MAE Holdings II, L.P.
                  effective as of June 4, 1998 between CRIIMI MAE Inc. and
                  CRIIMI MAE Services Limited Partnership (filed herewith).

              ww. Installment Note dated June 30, 1995 between CRIIMI MAE
                  Services, Inc. and CRI/AIM Management, Inc. (incorporated by
                  reference from Exhibit 4(oo) to the Annual Report on Form 10-K
                  for 1995).

              xx. Installment Note dated June 30, 1995 between CRIIMI MAE
                  Services, Inc. and CRICO Mortgage Company, Inc. (incorporated
                  by reference from Exhibit 4(pp) to the Annual Report on Form
                  10-K for 1995).

              yy. $9,100,000 Credit Agreement dated as of June 30, 1995 between
                  CRIIMI MAE Management, Inc. and Signet Bank/Virginia
                  (incorporated by reference from Exhibit 4(qq) to the Annual
                  Report on Form 10-K for 1995).

              zz. Loan Note dated June 30, 1995 between CRIIMI MAE Management,
                  Inc. and Signet Bank/Virginia (incorporated by reference from
                  Exhibit 4(rr) to the Annual Report on Form 10-K for 1995).

             aaa. Modification of Interest Rate dated August 22, 1995 for the
                  Credit Agreement Dated as of June 30, 1995 between CRIIMI MAE
                  Management, Inc. and Signet Bank/Virginia (incorporated by
                  reference from Exhibit 4(ss) to the Annual Report on Form 10-K
                  for 1995).

             bbb. Guaranty dated June 30, 1995 entered into by CRIIMI MAE Inc.
                  in favor of and for the benefit of Signet Bank/Virginia
                  (incorporated by reference from Exhibit 4(tt) to the Annual
                  Report on Form 10-K for 1995).

             ccc. First Amendment to Guaranty dated September 21, 1995 entered
                  into by CRIIMI MAE Inc., in favor of and for the benefit of
                  Signet Bank/ Virginia (incorporated by reference from Exhibit
                  4(yy) to the Annual Report on Form 10-K for 1995).

             ddd. Second Amendment to Guaranty dated September 21, 1995 entered
                  into by CRIIMI MAE Inc., in favor of and for the benefit of
                  Signet Bank/ Virginia (incorporated by reference from Exhibit
                  4(zz) to the Annual Report on Form 10-K for 1995).

                                        59

<PAGE>

             eee. Option agreement between CRIIMI MAE Inc. and William B.
                  Dockser (incorporated by reference from Exhibit No. 4(a) to
                  the registration statement on Form S-8 filed January 16,
                  1996).

             fff. Option agreement between CRIIMI MAE Inc. and H. William
                  Willoughby (incorporated by reference from Exhibit No. 4(b) to
                  the registration statement on Form S-8 filed January 16,
                  1996).

             ggg. Form of Option Agreement for Cynthia O. Azzara, Frederick J.
                  Burchill, Jay R. Cohen and Deborah A. Linn (incorporated by
                  reference from Exhibit No. 4(d) to the registration statement
                  on Form S-8 filed January 16, 1996).

             hhh. Form of Option Agreement for other key employees (incorporated
                  by reference from Exhibit No. 4(e) to the registration
                  statement on Form S-8 filed January 16, 1996).

             iii. Master Assignment Agreement dated September 25, 1997 between
                  CRIIMI MAE Inc. and Merrill Lynch Mortgage Capital Inc.
                  (incorporated by reference from Exhibit 4 (eeee) to the Annual
                  Report on Form 10-K for 1997).


          Exhibit No. 21 - Subsidiaries of the registrant.

               a. CRIIMI, Inc., incorporated in the State of Maryland.

               b. CRIIMI MAE Financial Company, incorporated in the State of
                  Maryland.

               c. CRIIMI MAE Financial Company II, incorporated in the State of
                  Maryland.

               d. CRIIMI MAE Financial Company III, incorporated in the State of
                  Maryland.

               e. CRIIMI MAE Management, Inc., incorporated in the State of
                  Maryland.

               f. CRIIMI MAE QRS 1, Inc., incorporated in the State of Delaware.

               g. CRIIMI MAE Holdings, Inc., incorporated in the State of
                  Delaware.

               h. CRIIMI MAE Holdings L.P. formed in the State of Delaware.

               i. CRIIMI MAE Services Limited Partnership formed in the State of
                  Maryland.

               j. CRIIMI MAE Services Inc. incorporated in the State of
                  Maryland.

               k. CRIIMI MAE Holdings L.P. II formed in the State of Delaware.

               l. CRIIMI MAE CMBS Company incorporated in the State of Delaware.

          Exhibit No. 27 - Financial Data Schedule

               a. Financial Data Schedule (filed herewith).

          Exhibit No. 99 - Additional Exhibits

               a. United States Bankruptcy Court Voluntary Petition #9823115
                  filed on October 5, 1998 for CRIIMI MAE Inc. (incorporated by
                  reference from 

                                        60

<PAGE>

                  Exhibit 99(a) to the Quarterly Report on Form 10-Q for the
                  quarter ended September 30, 1998).

               b. United States Bankruptcy Court Voluntary Petition #9823116
                  filed on October 5, 1998 for CRIIMI MAE Management, Inc.
                  (incorporated by reference from Exhibit 99(b) to the Quarterly
                  Report on Form 10-Q for the quarter ended September 30, 1998).

               c. United States Bankruptcy Court Voluntary Petition #9823117
                  filed on October 5, 1998 for Holdings II, L.P. (incorporated
                  by reference from Exhibit 99(c) to the Quarterly Report on
                  Form 10-Q for the quarter ended September 30, 1998).

               d. Motion for an Order Extending the Debtor's Exclusive Periods
                  to File a Plan of Reorganization and Solicit Acceptances
                  Thereof Pursuant to 11 U.S.C. Sec. 1121(d) filed on
                  January 28, 1999 (filed herewith).

               e. Stipulation and Consent Order regarding Motion and Adversary
                  Proceeding (Merrill Lynch) entered December 4, 1998 (filed
                  herewith).

               f. Supplement to Stipulation and Consent Order Regarding Motion
                  and Adversary Proceeding (Merrill Lynch) entered January 6,
                  1999 (filed herewith).

               g. Stipulation and Agreed Order Authorizing Use of Cash
                  Collateral (German American Capital Corporation) entered
                  February 2, 1999 (filed herewith).

               h. Stipulation and Consent Order Regarding Adversary Proceeding
                  (Morgan Stanley and Co. International Limited) entered on
                  January 26, 1999 (filed herewith).

               i. Stipulation and Order Regarding Proceeds Received by the
                  Debtor from the Sale of the BBB Bonds (Morgan Stanley and Co.
                  International Limited) entered on January 26, 1999 (filed
                  herewith).

               j. Order Upon Motions for Reconsideration of Order Extending
                  Debtors' Exclusive Periods entered on February 24, 1999 (filed
                  herewith).

               k. Stipulation and Consent Order Regarding Sale of Certain Triple
                  B Bonds (Citicorp) entered on April 5, 1999 (filed herewith).

               l. Supplemental Stipulation and Consent Order Regarding Sale of
                  Certain Triple B Bonds (Citicorp) entered on April 5, 1999
                  (filed herewith).

               m. Stipulation and Order Regarding Proceeds Received by the
                  Debtor from the Sale of Certain Triple B Bonds (Citicorp)
                  entered on April 5, 1999 (filed herewith).

               n. Stipulation and Consent Order Regarding Mortgage Loan
                  Origination Agreement with Citicorp Real Estate Inc. entered
                  on April 5, 1999 (filed herewith).

               o. Supplemental Stipulation and Consent Order Regarding Mortgage
                  Loan Origination Agreement with Citicorp Real Estate, Inc.
                  entered on April 5, 1999 (filed herewith).

                                        61

<PAGE>


               p. Stipulation and Order Regarding Proceeds Received by the
                  Debtor from Mortgage Loan Sale entered on April 5, 1999 (filed
                  herewith).



          (b) Reports on Form 8-K

           Date                             Purpose
           -----                            -------
        October 5, 1998          On October 5, 1998, a voluntary petition of
                                 reorganization was filed by CRIIMI MAE Inc.,
                                 under chapter 11 of the federal Bankruptcy
                                 Code, as amended.  The petition was filed in
                                 the United States Bankruptcy Court for the
                                 District of Maryland (Case No. 9823115).

        November 19, 1998        The registrant issued press releases on
                                 October 21, 1998, October 22, 1998, November
                                 5, 1998 and November 18, 1998.

        December 7, 1998         The registrant issued a press release on
                                 December 7, 1998.

          (c) Exhibits

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

          (d) Financial Statement Schedules

                                        62

<PAGE>

                                   SIGNATURES

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

                                          CRIIMI MAE INC.

APRIL 12, 1999                            /S/ WILLIAM B. DOCKSER
----------------                          --------------------------------------
DATE                                      William B. Dockser
                                          Chairman of the Board and
                                          Principal Executive Officer

                                        63

<PAGE>

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


APRIL 12, 1999                            /S/ WILLIAM B. DOCKSER 
----------------                          --------------------------------------
DATE                                      William B. Dockser
                                          Chairman of the Board and
                                          Principal Executive Officer




APRIL 12, 1999                            /S/ H. WILLIAM WILLOUGHBY    
----------------                          --------------------------------------
DATE                                      H. William Willoughby
                                          Director, President and
                                          Secretary



APRIL 12, 1999                            /S/ CYNTHIA O. AZZARA        
----------------                          --------------------------------------
DATE                                      Cynthia O. Azzara
                                          Senior Vice President, Chief
                                          Financial Officer and Principal
                                          Accounting Officer



APRIL 12, 1999                            /S/ GARRETT G. CARLSON, SR.  
----------------                          --------------------------------------
DATE                                      Garrett G. Carlson, Sr.
                                          Director



APRIL 12, 1999                            /S/ G. RICHARD DUNNELLS      
----------------                          --------------------------------------
DATE                                      G. Richard Dunnells
                                          Director



APRIL 12, 1999                            /S/ ROBERT MERRICK           
----------------                          --------------------------------------
DATE                                      Robert Merrick
                                          Director


APRIL 12, 1999                            /S/ ROBERT E. WOODS          
----------------                          --------------------------------------
DATE                                      Robert E. Woods
                                          Director

                                        64


<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Shareholders of CRIIMI MAE Inc.

         We have audited the accompanying consolidated balance sheets of CRIIMI
MAE Inc. (CRIIMI MAE) and its subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of income and comprehensive income, changes
in shareholders' equity and cash flows for the years ended December 31, 1998,
1997 and 1996. 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 generally accepted auditing
standards. 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 and its subsidiaries as of December 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for the years ended December
31, 1998, 1997 and 1996, in conformity with generally accepted accounting
principles.

         The accompanying financial statements have been prepared assuming that
CRIIMI MAE will continue as a going concern. As discussed in Note 1 to the
financial statements, on October 5, 1998, CRIIMI MAE filed for relief under
Chapter 11 of the U.S. Bankruptcy Code which raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to this
matter are also described in Note 1. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
CRIIMI MAE be unable to continue as a going concern.

Arthur Andersen LLP
Washington, D.C.
April 12, 1999


                                      F-1

<PAGE>

                                 CRIIMI MAE INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                        December 31,
                                                                                  1998                 1997
                                                                            ---------------      ---------------
<S>                                                                         <C>                  <C>            

Assets:
  Mortgage Assets:

     Subordinated CMBS, at fair value                                       $ 1,274,185,678      $    35,424,387
     Subordinated CMBS, at amortized cost                                              --          1,079,055,459
     Insured Mortgage Securities, at fair value                                 488,095,221           18,888,883
     Insured Mortgage Securities, at amortized cost                                    --            586,224,858
     Investment in originated loans, at
     amortized cost                                                             499,076,030                 --
  Equity Investments                                                             42,868,469           46,234,269
  Receivables                                                                    46,992,337           17,789,273
  Other assets                                                                   62,520,146           87,579,565
  Cash and cash equivalents                                                      24,180,072            2,108,794
                                                                            ---------------      ---------------
Total assets                                                                $ 2,437,917,953      $ 1,873,305,488
                                                                            ---------------      ---------------
                                                                            ---------------      ---------------
Liabilities:
  LIABILITIES NOT SUBJECT TO CHAPTER 11 PROCEEDINGS:
   SECURITIZED MORTGAGE OBLIGATIONS:
      Collateralized bond obligations-CMBS                                  $   117,831,435      $   137,061,676
      Collateralized mortgage obligations -
      insured mortgage securities                                               456,101,720          559,363,321
      Collateralized mortgage obligations -
      originated loans                                                          386,752,951                 --
      Payables and accrued expenses                                              17,124,124           12,460,018
   LIABILITIES SUBJECT TO CHAPTER 11 PROCEEDINGS:
   SECURED:
      Variable rate secured borrowings-CMBS                                     932,236,674          585,379,360
      Other financing facilities                                                  3,050,000            3,250,000
   UNSECURED:
        Senior unsecured  notes                                                 100,000,000           99,877,695
        Other financing facilities                                               89,749,522           30,000,000
        Payables and accrued expenses                                            27,194,622                 --
                                                                            ---------------      ---------------
        Total liabilities                                                     2,130,041,048        1,427,392,070
                                                                            ---------------      ---------------
Minority interests in
  consolidated subsidiaries                                                            --                932,431
                                                                            ---------------      ---------------
Shareholders' equity:
  Convertible preferred stock, $ .01 par; 25,000,000 shares authorized;
  1,816,982 and 1,829,376 shares issued and outstanding, respectively                18,170               18,294
  Common stock, $ .01 par; 120,000,000 and 60,000,000 shares
  authorized; 52,898,100 and 40,131,551 shares issued and
  outstanding, respectively                                                         528,981              406,703
  Accumulated Other Comprehensive Income                                       (251,255,309)           1,082,811
  Additional paid-in capital                                                    558,585,063          448,524,552
                                                                            ---------------      ---------------
                                                                                307,876,905          450,032,360
Less treasury shares, at cost-
 538,635 shares as of December 31, 1997                                                --             (5,051,373)
                                                                            ---------------      ---------------
  Total shareholders' equity                                                    307,876,905          444,980,987
                                                                            ---------------      ---------------
  Total liabilities and shareholders'
   equity                                                                   $ 2,437,917,953      $ 1,873,305,488
                                                                            ---------------      ---------------
                                                                            ---------------      ---------------

</TABLE>

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


                                      F-2

<PAGE>

                                 CRIIMI MAE INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                            AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>

                                                                                        For the years ended December 31,
                                                                                    1998             1997               1996
                                                                               -------------     -------------     -------------
<S>                                                                            <C>               <C>               <C>          

Interest Income:
   Subordinated CMBS                                                           $ 143,656,307     $  79,669,816     $  41,713,126
   Insured Mortgage Securities                                                    43,062,743        49,425,401        56,911,670
   Originated Loans                                                               20,588,112              --                --
                                                                               -------------     -------------     -------------
   Total interest income                                                         207,307,162       129,095,217        98,624,796
                                                                               -------------     -------------     -------------
Interest and related expenses:
  Fixed-rate collateralized bond obligations-CMBS                                  8,945,570        11,351,890           331,826
  Fixed-rate collateralized mortgage obligations-insured                          39,503,033        42,795,773        46,708,352
  Fixed-rate collateralized mortgage obligations-originated loans                 14,772,782             --                --
  Fixed-rate senior unsecured notes                                                9,689,621         1,065,843             --
  Variable-rate secured borrowings-CMBS                                           59,628,760        21,958,309        15,002,157
  Other financing facilities                                                       3,728,665           747,599         1,036,432
                                                                               -------------     -------------     -------------
   Total interest expense                                                        136,268,431        77,919,414        63,078,767
                                                                               -------------     -------------     -------------
Net interest margin                                                               71,038,731        51,175,803        35,546,029
                                                                               -------------     -------------     -------------

Gain on sale of CMBS                                                              28,800,408             --                --
Equity in earnings from investments                                                2,617,728         3,612,230         4,431,977
Other income                                                                       4,278,878         2,609,354         2,898,646
Gain on mortgage security dispositions                                             1,196,499        17,343,481         9,601,360
General and administrative expenses                                              (14,623,407)       (9,610,579)       (7,969,943)
Amortization of assets acquired in the Merger                                     (2,877,576)       (2,877,564)       (2,881,824)
Realized loss on reverse repurchase obligation                                    (4,503,177)            --                --
Unrealized losses on warehouse obligations                                       (30,378,173)            --                --
Write-off of capitalized loan origination costs                                   (3,284,037)            --                --
Reorganization Items                                                              (9,856,947)            --                --
                                                                               -------------     -------------     -------------
                                                                                 (28,629,804)       11,076,922         6,080,216

Minority interest in net income of consolidated subsidiary                           (40,334)       (8,065,109)       (6,386,388)

Net Income before dividends paid or accrued on preferred shares                   42,368,593        54,187,616        35,239,857

Dividends paid or accrued on preferred shares                                     (6,997,859)       (6,472,540)       (3,526,451)
                                                                               -------------     -------------     -------------
Net income available to common shareholders                                    $  35,370,734     $  47,715,076     $  31,713,406
                                                                               -------------     -------------     -------------
                                                                               -------------     -------------     -------------
Net income available to common shareholders per common share:
   Basic                                                                       $        0.75     $        1.29     $        1.03
                                                                               -------------     -------------     -------------
                                                                               -------------     -------------     -------------
    Diluted                                                                    $        0.74     $        1.25     $        1.03
                                                                               -------------     -------------     -------------
                                                                               -------------     -------------     -------------
Shares used in computing basic earnings
  per share, exclusive of shares held in treasury                                 47,280,371        36,993,130        30,665,052
                                                                               -------------     -------------     -------------
                                                                               -------------     -------------     -------------
Comprehensive Income
Net Income before Dividends paid or accrued on preferred shares                   42,368,593        54,187,616        35,239,856
Other Comprehensive Income                                                      (252,338,120)       (7,833,417)       (7,222,421)
                                                                               -------------     -------------     -------------
   Comprehensive Income                                                        $(209,969,527)    $  46,354,199     $  28,017,435
                                                                               -------------     -------------     -------------
                                                                               -------------     -------------     -------------

</TABLE>

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


                                      F-3

<PAGE>

                                 CRIIMI MAE INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

<TABLE>
<CAPTION>

                                                                         Accumulated
                                           Preferred     Common Stock      Other           Additional   
                                           Stock Par         Par        Comprehensive        Paid-in    
                                             Value          Value          Income            Capital    
                                           ---------     ----------     -------------     -------------
<S>                                        <C>           <C>            <C>               <C>          
Balance, December 31, 1995                 $    --       $  309,356     $  16,138,649     $ 274,226,356
    Net income                                  --             --                --                --   
    Dividends paid or accrued on 
      preferred shares                          --             --                --                --   
    Dividends of $1.03 per weighted
      average share                             --             --                --                --   
    Return of capital of $0.19 per
      weighted average share                    --             --                --          (5,842,422)
    Conversion of preferred shares
      into common shares                        (750)         7,446              --              (6,696)
    Stock options exercised                     --            2,306              --           2,251,559
    Adjustment to unrealized losses
      on investments                            --             --          (7,222,421)             --   
    Shares issued                             25,650             20              --          71,833,583
    Shares forfeited                            --             --                --                --   
                                           ---------     ----------     -------------     -------------
    Balance, December 31, 1996                24,900        319,128         8,916,228       342,462,380
    Net Income                                  --             --                --                --   
    Dividends paid or accrued on 
      preferred shares                          --             --                --                --   
    Dividends of $1.29 per weighted
      average common share                      --             --                --                --   
    Return of capital of $0.13 per
      weighted average share                    --             --                --          (5,320,553)
    Conversion of preferred shares into
      common shares                           (8,106)        22,402              --             (14,296)
    Stock options exercised                     --              738              --             623,393
    Adjustment to unrealized gains on
      investments                               --             --             994,083              --   
    Adjustment to unrealized losses on
      Investments                                                          (8,827,500)                  
    Shares issued                              1,500         64,435              --         110,773,628
                                           ---------     ----------     -------------     -------------
Balance, December 31, 1997                    18,294        406,703         1,082,811       448,524,552
    Net income                                  --             --                --                --   
    Dividends paid or accrued on 
      preferred shares                          --             --                --                --   
    Dividends of $0.75 per weighted
      average common share                      --             --                --                --   
    Return of capital of $0.42 per
      weighted average share                    --             --                --         (19,582,467)
    Conversion of preferred shares
      into common shares                      (2,624)        49,464              --             (46,840)
    Stock options exercised                     --              897              --             827,176
    Adjustment to unrealized gains
      on investments                            --             --           4,016,052              --   
    Adjustment to unrealized losses
      on investments                            --             --        (256,354,172)             --   
    Shares issued                              2,500         77,345              --         133,908,587
    Treasury shares retired                     --           (5,428)             --          (5,045,945)
                                           ---------     ----------     -------------     -------------
Balance, December 31, 1998                 $  18,170     $  528,981     $(251,255,309)    $ 558,585,063
                                           ---------     ----------     -------------     -------------
                                           ---------     ----------     -------------     -------------

<CAPTION>

                                                                                   Total
                                           Undistributed       Treasury         Shareholders'  
                                            Net Income           Stock            Equity
                                           -------------     -------------     -------------
<S>                                        <C>               <C>               <C>          
Balance, December 31, 1995                                  $  (4,970,418)    $ 285,703,943
    Net income                                35,239,857              --          35,239,857
    Dividends paid on preferred shares        (3,526,451)             --          (3,526,451)
    Dividends of $1.03 per weighted
      average share                          (31,713,406)             --         (31,713,406)
    Return of capital of $0.19 per
      weighted average share                        --                --          (5,842,422)
    Conversion of preferred shares
      into common shares                            --                --                --
    Stock options exercised                         --                --           2,253,865
    Adjustment to unrealized losses
      on investments                                --                --          (7,222,421)
    Shares issued                                   --                --          71,859,253
    Shares forfeited                                --             (80,955)          (80,955)
                                           -------------     -------------     -------------
    Balance, December 31, 1996                      --          (5,051,373)      346,671,263
    Net Income                                54,187,616              --          54,187,616
    Dividends paid on preferred shares        (6,472,540)             --          (6,472,540)
    Dividends of $1.29 per weighted
      average common share                   (47,715,076)             --         (47,715,076)
    Return of capital of $0.13 per
      weighted average share                        --                --          (5,320,553)
    Conversion of preferred shares into
      common shares                                 --                --                --
    Stock options exercised                         --                --             624,131
    Adjustment to unrealized gains on
      investments                                   --                --             994,083
    Adjustment to unrealized losses on
      Investments                                                                 (8,827,500)
    Shares issued                                                     --         110,839,563
                                           -------------     -------------     -------------
Balance, December 31, 1997                          --          (5,051,373)      444,980,987
    Net income                                42,368,593              --          42,368,593
    Dividends paid or accrued on 
      preferred shares                        (6,997,859)             --          (6,997,859)
    Dividends of $0.75 per weighted
      average common share                   (35,370,734)             --         (35,370,734)
    Return of capital of $0.42 per
      weighted average share                        --                --         (19,582,467)
    Conversion of preferred shares
      into common shares                            --                --                --
    Stock options exercised                         --                --             828,073
    Adjustment to unrealized gains
      on investments                                --                --           4,016,052
    Adjustment to unrealized losses
      on investments                                --                --        (256,354,172)
    Shares issued                                   --                           133,988,432
    Treasury shares retired                         --           5,051,373              --
                                           -------------     -------------     -------------
Balance, December 31, 1998                 $        --       $        --       $ 307,876,905
                                           -------------     -------------     -------------
                                           -------------     -------------     -------------

</TABLE>

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


                                      F-4

<PAGE>

                                 CRIIMI MAE INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                 For the years ended December 31,
                                                                           1998               1997                 1996
                                                                     ---------------     ---------------     ---------------
<S>                                                                  <C>                 <C>                 <C>            
Cash flows from operating activities:
  Net Income                                                         $    42,368,593     $    54,187,616     $    35,239,857
  Adjustments to reconcile net income to net cash
    provided by operating activities:
        Cash gain on sale of CMBS                                        (28,800,408)               --                  --
        Amortization of discount and deferred financing
        costs on debt                                                      6,503,100           3,893,343           2,811,444
        Amortization of assets acquired in the Merger                      2,877,576           2,877,564           2,881,824
        Depreciation and other amortization                                2,030,183             920,058             914,671
        Premium/(Discount) amortization on mortgage assets                   424,293            (451,758)           (880,349)
        Net gains on mortgage dispositions                                (1,196,499)        (17,343,481)         (9,601,360)
        Equity in earnings from investments                                2,282,382          (3,426,545)         (4,471,575)
        Valuation adjustment to hedges                                          --                28,250             178,750
        Reorganization items accrual                                       9,856,947                --                  --
        Minority interests in earnings of consolidated subsidiary             40,334           8,065,109           6,386,388
        Realized loss on reverse repurchase obligation                     4,503,177                --                  --
        Unrealized losses on warehouse obligations                        30,378,173                --                  --
        Write-off of capitalized origination costs                         3,284,037                --                  --
        Changes in assets and liabilities:
           Increase in receivables and other assets                      (35,015,988)         (5,772,930)         (1,426,598)
           Increase in payables and accrued expenses                      16,793,946           1,162,165           1,368,927
                                                                     ---------------     ---------------     ---------------
        Net cash provided by operating activities                         56,329,846          44,139,391          33,401,979
                                                                     ---------------     ---------------     ---------------

  Cash flows from investing activities:
      Proceeds from sale of collateralized bond obligation               334,919,531                --                  --
      Proceeds from mortgage securities dispositions                     117,414,346          83,492,408         109,055,010
      Purchase of originated loans                                      (495,825,576)               --                  --
      Purchase of Subordinated CMBS                                     (852,560,342)       (553,913,225)       (285,419,093)
      Return of loan origination reserve from securitization              71,877,560                --                  --
      Funding of loan origination reserve                                (75,433,979)        (29,514,700)           (609,560)
      Payment of deferred costs                                           (8,959,628)           (840,747)           (102,696)
      Distributions received from equity investments                       3,114,000           4,463,485           7,303,081
      Receipt of principal payments                                       14,338,531          10,368,624           5,955,067
      Servicing rights acquired and contributed to CMSLP                  (3,880,235)        (12,692,597)         (1,549,017)
      Collateral calls on reverse repurchase obligation                   (4,766,916)               --                  --
      Purchase of Real Estate Owned Property                                    --            (4,146,652)               --
      Purchase of mortgages and advances on construction loans                  --              (285,430)           (968,689)
      Other investing activities                                                --                  --               253,292
                                                                     ---------------     ---------------     ---------------
         Net cash used in investing activities                          (899,762,708)       (503,068,834)       (166,082,605)
                                                                     ---------------     ---------------     ---------------

Cash flows from financing activities:
      Proceeds from sale of CMO bonds                                    390,068,687                --                  --
      Proceeds from debt issuances                                     1,998,430,321         666,636,095         534,166,951
      Principal payments on debt obligations                          (1,591,337,145)       (235,394,131)       (407,793,958)
      Increase in deferred financing costs                                (5,975,059)         (6,133,915)         (5,226,281)
      Dividends (including return of capital) paid to
      shareholders, including minority interests                         (60,499,169)        (86,499,860)        (68,190,257)
      Proceeds from issuance of convertible preferred stock               25,000,000          15,000,000          71,859,253
      Proceeds from the issuance of common stock                         109,816,505          96,463,694           2,253,865
                                                                     ---------------     ---------------     ---------------
         Net cash provided by financing activities                       865,504,140         450,071,883         127,069,573
                                                                     ---------------     ---------------     ---------------
Net increase (decrease) in cash and cash equivalents                      22,071,278          (8,857,560)         (5,611,053)

Cash and cash equivalents, beginning of year                               2,108,794          10,966,354          16,577,407
                                                                     ---------------     ---------------     ---------------
Cash and cash equivalents, end of year                               $    24,180,072     $     2,108,794     $    10,966,354
                                                                     ---------------     ---------------     ---------------
                                                                     ---------------     ---------------     ---------------

</TABLE>

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


                                      F-5

<PAGE>

                                 CRIIMI MAE INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       ORGANIZATION

GENERAL

         CRIIMI MAE Inc. (together with its consolidated subsidiaries, unless 
the context otherwise indicates, "CRIIMI MAE" or the "Company") is a fully 
integrated commercial mortgage company structured as a self-administered real 
estate investment trust ("REIT"). On October 5, 1998 (the "Petition Date"), 
CRIIMI MAE (unconsolidated) and two of its consolidated operating 
subsidiaries, CRIIMI MAE Management, Inc. ("CM Management"), and CRIIMI MAE 
Holdings II, L.P. ("Holdings II" and, together with CRIIMI MAE and CM 
Management, the "Debtors") 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 (the "Bankruptcy Court"). 
These related cases are being jointly administered under the caption "In re 
CRIIMI MAE Inc., et al.," Ch. 11 Case No. 98-2-3115-DK.

         Prior to the Petition Date, CRIIMI MAE's primary activities included 
(i) acquiring non-investment grade securities (rated below BBB- or unrated) 
backed by pools of mortgage loans on multifamily, retail and other commercial 
real estate ("Subordinated CMBS"), (ii) originating and underwriting 
commercial mortgage loans, (iii) securitizing pools of commercial mortgage 
loans and resecuritizing pools of Subordinated CMBS, and (iv) through the 
Company's servicing affiliate, CRIIMI MAE Services Limited Partnership 
("CMSLP"), performing servicing functions with respect to the mortgage loans 
underlying the Company's Subordinated CMBS. Since filing for Chapter 11 
protection, CRIIMI MAE has suspended its Subordinated CMBS acquisition, 
origination and securitization programs. The Company continues to hold a 
substantial portfolio of Subordinated CMBS, originated loans and mortgage 
securities and, through CMSLP, acts as a servicer for its own as well as 
third party securitized mortgage loan pools.

         The Company's business is subject to a number of risks and 
uncertainties including, but not limited to: (1) the effect of the Chapter 11 
filing and substantial doubt as to the Company's ability to continue as a going 
concern; (2) risk of loss of REIT status; (3) Taxable Mortgage Pool risk; (4) 
substantial leverage; (5) inherent risks in owning Subordinated CMBS; (6) the 
limited protection provided by hedging transactions; (7) risk of foreclosure 
on CMBS assets; (8) limited liquidity of the CMBS market; (9) pending 
litigation; (10) risk of being considered an investment company; (11) 
possible effects of an economic recession on losses and defaults; (12) 
information technology risks associated with the Year 2000.

         In addition to the two operating subsidiaries which filed for Chapter
11 protection with the Company, the Company owns 100% of multiple financing and
operating subsidiaries as well as various interests in other entities (including
CMSLP) which either own or service mortgage and mortgage-related assets (the
"Non-Debtor Affiliates"). See Note 3. None of the Non-Debtor Affiliates has
filed for bankruptcy protection.

     The Company is working diligently toward the preparation of a plan of 
reorganization. The Bankruptcy Court has entered an order extending the 
Company's exclusive right to file a plan of reorganization through May 11, 
1999 and has set a hearing on such date with respect to the extension of the 
exclusivity periods through August 2, 1999 for filing a plan of 
reorganization and through October 3, 1999 for soliciting acceptances 
thereof. A number of parties have indicated potential opposition to any such 
extension. Management expects to file a plan of reorganization during the 
summer of 1999, which would contemplate the Company's emergence from 
bankruptcy later in 1999. There can be no assurance at this time, however, 
that a plan of reorganization will be proposed by the Company during such 
time or that such plan will be confirmed and consummated.

     While in bankruptcy, the Company has been streamlining its operations in 
an effort to reduce operating expenses. The Company significantly reduced the 
number of employees in its originations and underwriting operations in 
October 1998, but has retained key employees in each of these operational 
areas. In connection with these reductions, the Company closed its five 
regional loan origination and underwriting offices, retaining only a core 
presence in Rockville, Boston, Houston, Chicago and San Francisco.

     Although the Company has significantly reduced its work force, the 
Company recognizes that retention of its executive management and other 
remaining employees is essential to the efficient operation of its business 
and to its reorganization efforts. Accordingly, the Company has, with 
Bankruptcy Court approval, adopted an employee retention plan. See Note 15.

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

EFFECT OF CHAPTER 11 FILING ON REIT STATUS AND OTHER TAX MATTERS

         REIT STATUS. CRIIMI MAE is required to meet income, asset, ownership
and distribution tests to maintain its REIT status. The Company has satisfied
the REIT requirements for all years through, and including, 1998. However, due
to the uncertainty resulting from its Chapter 11 filing, there can be no
assurance that CRIIMI MAE will retain its REIT status for 1999 or subsequent
years. If the Company fails to retain its REIT status for any taxable year, it
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.

         THE COMPANY'S 1998 TAXABLE INCOME. In determining its federal income
tax liability, CRIIMI MAE, as a result of its REIT status, is entitled to deduct
from its taxable income dividends paid to its shareholders. Accordingly, to the
extent the Company distributes its net income to shareholders, it effectively
reduces taxable


                                      F-6

<PAGE>

income, on a dollar-for-dollar basis, and eliminates the "double taxation" 
that normally occurs when a corporation earns income and distributes that 
income to shareholders in the form of dividends. The Company, however, still 
must pay corporate level tax on any 1998 taxable income not distributed to 
shareholders by December 31, 1999. For 1998, the Company could have up to 
approximately $18 million in undistributed taxable income, resulting in a 
potential tax liability of up to $7 million for state and federal taxes. 
Notwithstanding this significant amount of undistributed taxable income, 
CRIIMI MAE has fully complied with the requirement for 1998 that it 
distribute at least 95% of its "REIT taxable income" for the year in order to 
maintain REIT status (the "required distribution") because the calculation of 
the required distribution may exclude certain excess noncash income such as 
original issue discount ("OID").

         As noted in the preceding paragraph, the Company's taxable income for a
given year is generally reduced by the amount of distributions made in that year
to its shareholders. The Tax Code, however, permits the Company to deduct
against its 1998 taxable income dividends declared by the Company through
September 15, 1999 if such dividends are paid no later than December 31, 1999.
The Company, however, is currently exploring a variety of methods for
distributing some or all of its remaining 1998 taxable income by December 31,
1999, including the potential distribution of securities or other noncash
dividend payments. As a result of the Chapter 11 filing, there can be no
assurance that the Company will be able to make additional distributions with
respect to its 1998 taxable income. The failure to make further distributions
will result in a tax obligation of up to $7 million, but will have no effect on
CRIIMI MAE's 1998 REIT status.

         1998 EXCISE TAX LIABILITY. Apart from the requirement that the 
Company distribute at least 95% of its REIT taxable income to maintain REIT 
status, CRIIMI MAE is also required each calendar year to distribute an 
amount ("the excise tax avoidance amount") at least equal to the sum of 85% 
of its "REIT ordinary income" and 95% of its "REIT capital gain income" to 
avoid incurring a nondeductible excise tax. Unlike the 95% distribution 
requirement, the 85% distribution requirement is not reduced by excess 
noncash income items such as OID. Because the Company did not pay a dividend 
in the fourth quarter, its actual distributions fell short of the excise tax 
avoidance amount by approximately $7 million, resulting in an excise tax of 
approximately $300,000. This $300,000 excise tax has been accrued and paid by 
the Company.

         TAXABLE MORTGAGE POOL RISKS. An entity that constitutes a "taxable
mortgage pool" as defined in the Tax 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.
The Company currently owns all of the equity interests in three trusts that
constitute TMPs (CBO-1, CB0-2 and CMO-IV, collectively the "Trusts"). See Notes
5 and 6 for descriptions of CBO-1, CBO-2 and CMO-IV. The Company also owns 
certain securities structured as bonds (the "Bonds") issued by each of the 
Trusts. 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). As a result of this exemption and the fact that the 
Company owns all of the equity interests in each Trust, the Trusts currently 
are not required to pay a separate corporate level tax on income they derive 
from their underlying mortgage assets.

         Certain of the Bonds owned by the Company serve as collateral (the 
"Pledged Bonds") for short-term, variable-rate borrowings used by the Company 
to finance their initial purchase. If the creditors holding the Pledged Bonds 
were to seize or sell this collateral 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 Trust (including the equity 
interests and the Pledged Bonds) would instead be applied to tax payments. 
Since the equity interests and Bonds owned by the Company 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 and the payments received thereon.

         In addition to causing the loss of the exemption under the TMP 
Rules, a seizure or sale of the Pledged Bonds and a characterization of them 
as equity for tax purposes could also jeopardize the Company's REIT status if 
the value of the remaining ownership interests in any Trust held

                                      F-7

<PAGE>

by the Company (i) exceeded 5% of the total value of the Company's assets or 
(ii) constituted more than 10% of the Trust's voting interests.

2.       INVESTMENT COMPANY ACT OF 1940

         Under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), an investment company is required to register with the 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 that
are primarily engaged in the business of acquiring mortgages and other liens on
and interests in real estate ("Qualifying Interests") are exempted by the
Investment Company Act.

         To qualify for the Investment Company Act exemption, CRIIMI MAE, 
among other things, must maintain at least 55% of its assets in Qualifying 
Interests (the "55% Requirement") and is also required to maintain an 
additional 25% in Qualifying Interests (the "25% Requirement") or other real 
estate-related assets ("Other Real Estate Interests"). According to current 
SEC staff interpretations, CRIIMI MAE believes that its government insured 
mortgage securities and originated loans constitute Qualifying Interests. In 
accordance with current SEC staff interpretations, the Company believes that 
all of its Subordinated CMBS constitute Other Real Estate Interests and that 
certain of its Subordinated CMBS also constitute Qualifying Interests. 
On certain of the Company's Subordinated CMBS, the Company, along with other 
rights, has the unilateral right to direct foreclosure with respect to the 
underlying mortgage loans. As a result of obtaining such right, the Company 
believes that the related Subordinated CMBS constitute Qualifying Interests. 
As of December 31, 1998, the Company believes that it was 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, the Company
could, among other things, be required either (i) to change the manner in which
it conducts its 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 the Company. If the Company were required to change
the manner in which it conducts its business, it would likely have to dispose of
a significant portion of its Subordinated CMBS or acquire significant additional
assets that are Qualifying Interests. Alternatively, if the Company were
required to register as an investment company, it expects that its operating
expenses would significantly increase and that the Company would have to reduce
significantly its indebtedness, which could also require it to sell a
significant portion of its assets. No assurances can be given that any such
dispositions or acquisitions of assets, or deleveraging, could be accomplished
on favorable terms.

         Further, if the Company were deemed an unregistered investment company,
the Company could be subject to monetary penalties and injunctive relief. The
Company would be unable to enforce contracts with third parties and third
parties could seek to obtain rescission of transactions undertaken during the
period the Company was deemed an unregistered investment company. In addition,
as a result of the Company's Chapter 11 filing, the Company is limited in
possible actions it may take in response to any need to modify its business plan
in order to register as an investment company, or avoid the need to register.
Certain dispositions or acquisitions of assets would require Bankruptcy Court
approval. Also, any forced sale of assets that occurs after the bankruptcy stay
is lifted would change the Company's asset mix, potentially resulting in the
need to register as an investment company under the Investment Company Act or
take further steps to change the asset mix. Any such results would be likely to
have a material adverse effect on the Company.


3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

METHOD OF ACCOUNTING

         The consolidated financial statements of CRIIMI MAE are prepared on the
accrual basis of accounting in accordance with generally accepted accounting
principles. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect 


                                      F-8

<PAGE>

the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.


RECLASSIFICATIONS

         Certain amounts in the consolidated financial statements for the years
ended December 31, 1997 and December 31, 1996 have been reclassified to conform
to the 1998 presentation.

CONSOLIDATION AND MINORITY INTERESTS

         The consolidated financial statements reflect the financial position,
results of operations and cash flows of CRIIMI MAE; CM Management; Holdings II;
CRIIMI, Inc.; CRIIMI MAE Financial Corporation; CRIIMI MAE Financial Corporation
II; CRIIMI MAE Financial Corporation III; CRIIMI MAE QRS 1, Inc.; CRIIMI MAE
Holding, Inc. (currently inactive) CRIIMI MAE Holdings L.P. (currently inactive)
and CRIIMI MAE CMBS Corporation for all periods presented. All intercompany
accounts and transactions have been eliminated in consolidation.

         CRI Liquidating was dissolved as of December 31, 1997 and therefore
CRIIMI MAE had no interest in that subsidiary as of December 31, 1998. However,
CRIIMI MAE owned approximately 57% of CRI Liquidating throughout 1997 and as of
December 31, 1996. The ownership interests of the other shareholders in the
equity and net income of CRI Liquidating are reflected as minority interests in
the accompanying consolidated financial statements.

         Additionally, the 1% of equity and net income of CRIIMI MAE Holdings
L.P. and Holdings II not owned by CRIIMI MAE is reflected as minority interests
in the accompanying consolidated financial statements.

BANKRUPTCY ACCOUNTING

         Entering a reorganization, although a significant event, does not
ordinarily affect or change the application of GAAP followed by a company. The
accompanying financial statements have been prepared assuming that CRIIMI MAE
will continue as a going concern in accordance with SOP 90-7, "Financial
Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7").
As such, asset and liability carrying amounts do not purport to represent
realizable or settlement values as contemplated by the Bankruptcy Code.

         LIABILITIES SUBJECT TO CHAPTER 11 PROCEEDINGS

         Liabilities subject to Chapter 11 proceedings, including claims that
become known after the petition date, are reported at their expected allowed
claim amount in accordance with SFAS No. 5, "Accounting for Contingencies". To
the extent that the amounts of claims change as a result of actions in the
bankruptcy case or other factors, the recorded amount of liabilities subject to
Chapter 11 proceeding will be adjusted. The gain or loss resulting from the
entries to record the adjustment will be recorded as a reorganization item. The
Company wrote-off all debt discount and deferred debt costs related to
liabilities subject to Chapter 11 bankruptcy which resulted in these liabilities
being carried at their face amount; the resulting decrease in income was
approximately $ 2.8 million.

         REORGANIZATION ITEMS

         Reorganization items are items of expense that are realized or incurred
by CRIIMI MAE because it is in reorganization. These include, but are not
limited to the following:

-  Professional fees and similar types of expenditures directly relating
   to the chapter 11 proceeding.

-  Employee Retention Program costs and severance payments.

-  Loss accruals or realized gains or losses resulting from activities of
the reorganization process such as the rejection of certain executory contracts
and the write-off of debt issuance costs and debt discounts.


                                      F-9

<PAGE>

         For the year ended December 31, 1998, accrued reorganization items 
were $9.9 million. The components of this total are as follows:

<TABLE>
<CAPTION>

                REORGANIZATION ITEM                          AMOUNT
                -------------------                          ------

<S>                                                       <C>       
            Professional fees                             $5,219,000
            Write-off of debt discounts and deferred       2,835,210
            costs
            Employee Retention Program accrued costs         612,885
            Lease Cancellation Fees                          621,902
            Excise Tax                                       300,000
            Other                                            267,950
                                                          ----------
                Total                                     $9,856,947
                                                          ----------
                                                          ----------
</TABLE>

         CONDENSED FINANCIAL STATEMENTS

         In accordance with SOP 90-7, the three debtor entities, CRIIMI MAE, CM
Management and Holdings II, are required to present condensed financial
statements for the period beginning October 5, 1998 through December 31, 1998.
(See Note 21).

CASH AND CASH EQUIVALENTS

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

TRANSFER OF FINANCIAL ASSETS

         The Company transfers assets (mortgages and mortgage securities) in
securitization transactions where the transferred assets become the sole source
of repayment for newly issued debt. When both legal and control rights to a
financial asset are transferred, the transfer is treated as a sale. 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, the Company recognizes the incurrence of
debt and the character of the collateralizing assets remains unchanged.

INCOME RECOGNITION AND CARRYING BASIS

         SUBORDINATED CMBS

         On May 8, 1998, CRIIMI MAE consummated a transaction which resulted in
the sale of a portion of its Subordinated CMBS portfolio (see Note 5). As a
result of the May 8 transaction and in accordance with GAAP, effective in the
second quarter of 1998, the Company no longer classifies CMBS securities as Held
to Maturity, but instead classifies CMBS as Available for Sale. CRIIMI MAE
carries its Subordinated CMBS at fair market value where changes in fair value
are recorded as a component of shareholders' equity (see Note 5). Prior to this
time, such securities were carried at their amortized cost basis as the Company
had the ability and intent to hold these securities to maturity.

         CRIIMI MAE recognizes income from Subordinated CMBS using the effective
interest method, using the anticipated yield over the projected life of the
investment. Changes in anticipated yields are generally due to revisions in
estimates of future credit losses, actual losses incurred, revisions in
estimates of future prepayments and actual prepayments received. Changes in
anticipated yield resulting from prepayments are recognized through a cumulative
catch-up adjustment at the date of the change which reflects the change in
income of the security from the date of purchase through the date of change in
anticipated yield. The new yield is then used for income 


                                      F-10

<PAGE>

recognition for the remaining life of the investment. Changes in anticipated
yield resulting from reduced estimates of losses are recognized on a prospective
basis.

         INVESTMENT IN ORIGINATED LOANS

         This portfolio consists of commercial loans originated and 
securitized by CRIIMI MAE in CMO-IV. The origination fee income, application 
fee income and costs associated with originating the loans were deferred 
("deferred loan costs") and the net amount was added to the basis of the 
loans on the balance sheet upon acquisition. Income is recognized using the 
effective interest method and consists of mortgage income from the loans and 
amortization of deferred loan costs. Expenses of this portfolio consist of 
interest expense, discount amortization on the bonds sold and amortization of 
costs incurred in connection with the securitization. CRIIMI MAE has the 
intent to hold these loans for the foreseeable future and therefore the 
originated loans are classified as Held for Investment and recorded at 
amortized cost on the balance sheet.

         INSURED MORTGAGE SECURITIES

         CRIIMI MAE's consolidated investment in mortgage securities consists of
participation certificates evidencing a 100% undivided beneficial interest in
Government Insured Multifamily Mortgages issued or sold pursuant to programs of
the Federal Housing Administration ("FHA") ("FHA-Insured Loans") and
mortgage-backed securities guaranteed by the Government National Mortgage
Association ("GNMA") ("GNMA Mortgage-Backed Securities"). Payment of principal
and interest on FHA-Insured Loans is insured by the U.S. Department of Housing
and Urban Development (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.

         As a result of the CBO-2 transaction involving the sale of a portion of
its Subordinated CMBS portfolio (see Note 5), the Company, in accordance with
GAAP, no longer classifies its insured mortgage securities as Held to Maturity.
The Company's mortgage securities are now classified as Available for Sale. As a
result, the Company now carries its mortgage securities at fair value where
changes in fair value are recorded as a component of shareholders' equity. Prior
to this time, the securities were carried at their amortized cost basis as the
Company had the ability and intent to hold these securities to maturity.

         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.

         Mortgage income consists of amortization of the discount plus the
stated mortgage interest payments received or accrued less amortization of the
premium.

         EQUITY INVESTMENTS

         CRIIMI, Inc., a wholly owned subsidiary of CRIIMI MAE, owns all of the
general partnership interests in American Insured Mortgage Investors L.P.,
American Insured Mortgage Investors L.P. - Series 85, American Insured Mortgage
Investors L.P. - Series 86 and American Insured Mortgage Investors L.P. - Series
88 (the "AIM Funds"). The AIM Funds own mortgage assets which are substantially
similar to Insured Mortgage Securities owned by CRIIMI MAE. CRIIMI, Inc.
receives the general partner's share of income, loss and distributions (which
ranges among the AIM Funds from 2.9% to 4.9%) from each of the AIM Funds. In
addition, CRIIMI MAE and CM management each own 50% of the limited partnership
that owns a 20% limited partnership interest in the adviser to the AIM Funds.
CRIIMI MAE is utilizing the equity method of accounting for its investment in
the AIM Funds and advisory partnership, which provides for recording CRIIMI
MAE's share of net earnings or losses in the AIM Funds and advisory partnership
reduced by distributions from the limited partnerships and adjusted for purchase
accounting amortization.

         CRIIMI MAE accounts for its investment in CRIIMI MAE Services, Inc.
("Services Inc.") under the equity method because it does not own the voting
common stock of Services Inc. As of December 31, 1998, Services Inc. holds a 27%
general partner interest in CMSLP.


                                      F-11

<PAGE>

         As of December 31, 1998, CRIIMI MAE, through CM Management, held a 73%
limited partnership interest in CMSLP. CRIIMI MAE's limited partner investment
in CMSLP is accounted for under the equity method as CRIIMI MAE does not control
CMSLP. However, because it owns 73% of the partnership and because it has
certain rights described below, it follows the equity method of accounting. As a
limited partner, CRIIMI MAE is entitled to all of the rights and benefits of
being a limited partner including the right to receive income and cash
distributions in accordance with its limited partner interest. In addition,
CRIIMI MAE has the right to approve the sale of the principal assets of CMSLP.
Services Inc. is the general partner of CMSLP and manages the day to day affairs
of CMSLP.


IMPAIRMENT

         SUBORDINATED CMBS

         CRIIMI MAE assesses each Subordinated CMBS for other than temporary
impairment when the fair market value of the asset declines below amortized cost
and when one of the following conditions also exists: 1) fair value has been
below amortized cost for a significant period of time and CRIIMI MAE concludes
that it no longer has the ability to hold the security for the period that fair
value is expected to be below amortized cost through the period of time CRIIMI
MAE expects the value to recover to amortized cost or 2) the credit quality of
its Subordinated CMBS is declining and the Company determines that the current
estimate of expected future credit losses exceeds credit losses as originally
projected. The amount of impairment loss is measured by comparing the fair
value, based on available market information, of a Subordinated CMBS to its
current amortized cost basis, the difference is recognized as a loss in the
income statement.

         The Company assesses current economic events and conditions that impact
the value of its Subordinated CMBS and the underlying real estate in making
judgements as to whether or not other than temporary impairment has occurred. No
other than temporary impairment was recognized in 1996, 1997 or 1998.

         INVESTMENT IN ORIGINATED LOANS

         CRIIMI MAE recognizes impairment on the originated loans when it is
probable that CRIIMI MAE will not be able to collect all amounts due according
to the contractual terms of the loan agreement. CRIIMI MAE measures impairment
based on the present value of expected future cash flows discounted at the
loan's effective interest rate or the fair value of the collateral if the loan
is collateral dependent.

         INSURED MORTGAGE SECURITIES

         CRIIMI MAE assesses 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 CRIIMI MAE concludes that it
no longer has 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 carrying amount, the difference is recognized
as a loss in the income statement.

         EQUITY INVESTMENTS

         Impairment is recognized on CRIIMI MAE's 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". In this case an
unrealized loss is recognized as the difference between the fair value and
carrying amount.

RECEIVABLES

         Receivables primarily consist of interest and principal receivables on
the Company's Subordinated CMBS, Insured Mortgage Securities and Originated Loan
portfolios. In addition, prepayments in the Insured Mortgage Securities
portfolio that have not yet been received by CRIIMI MAE are included.


                                      F-12

<PAGE>

OTHER ASSETS

         Other Assets primarily include Merger assets and related costs,
deferred financing costs, deferred costs, investment in mezzanine loans and a
deposit account, as further discussed below. Additionally included in Other
Assets is Real Estate Owned (REO) property acquired through foreclosure that
will be held for the long-term. In June 1997, CRIIMI MAE acquired a real estate
property in a foreclosure sale from a CMBS trust. CRIIMI MAE also serves as the
special servicer and owns a portion of the subordinated tranches in the same
trust. As of December 31, 1998, CRIIMI MAE's investment in REO property totaled
approximately $3.9 million. REO property acquired through foreclosure is
recorded at fair value on the date of foreclosure. Such assets will be evaluated
for impairment by the Company 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.

         The Merger assets acquired and costs incurred in connection with the
Merger were recorded using the purchase method of accounting. The amounts
allocated to the assets acquired were based on management's estimate of their
fair values, with the excess of purchase price over fair value allocated to
goodwill. The AIM Funds subadvisory contracts and the mortgage servicing
contracts transferred to CMSLP are amortized using the effective interest method
over 10 years. This amortization is reflected through CRIIMI MAE's equity in
earnings from investments. The remaining assets acquired by CRIIMI MAE,
including goodwill, are amortized using the straight-line method over 10 years.

         Deferred costs are costs incurred in connection with the establishment
of CRIIMI MAE's 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 to the Adviser or were paid
to the former general partners or adviser to the predecessor entities of CRI
Liquidating (collectively, the "CRIIMI Funds"). 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 from CRIIMI MAE. 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. As a result of the Chapter 11
filing, CRIIMI MAE wrote off all deferred costs in connection with its financing
facilities that are subject to the Chapter 11 filing.

         Costs incurred in connection with the loan origination programs are
netted against any origination fees received and the net amount is deferred and
will be recognized using the effective interest method over the life of the
intended securitization of the loans. These costs include a one-time fee to the
financial institution and direct costs of originating the loans for the program.
All net deferred costs are written off if the Company and the financial
institution decide to sell the loans in the warehouse program. In addition, the
Company is required to fund the estimated subordinated levels for the
securitization of the loans originated through its loan origination programs.
This subordinated level is held as a deposit at the financing institution and is
reflected in Other Assets. Due to the financial institution taking title to the
loans during the warehousing period and bearing substantive risk for the
investment portion of each loan, the originated loans are not recorded on the
Company's balance sheet during the warehouse period.

DISCOUNT ON SECURITIZED MORTGAGE OBLIGATION ISSUANCES

         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.

INTEREST RATE PROTECTION AGREEMENTS

         CRIIMI MAE acquires interest rate protection agreements to reduce its
exposure to interest rate risk. The costs of such agreements which qualify for
hedge accounting are included in other assets and are amortized over the
interest rate agreement term. To qualify for hedge accounting, the interest rate
protection agreement must meet two criteria: (i) the debt to be hedged exposes
CRIIMI MAE to interest rate risk and (ii) the interest rate protection


                                      F-13

<PAGE>

agreement reduces CRIIMI MAE's exposure to interest rate risk. In the event that
interest rate protection agreements are terminated, the associated gain or loss
is deferred over the remaining term of the agreement, provided that the
underlying hedged asset or liability still exists. Amounts to be paid or
received under interest rate protection agreements are accrued currently and are
netted with interest expense for financial statement presentation purposes.
Additionally, in the event that interest rate protection agreements do not
qualify as hedges, such agreements are reclassified to be investments accounted
for at fair value, with any gain or loss included as a component of income.


SHAREHOLDERS' EQUITY

         CRIIMI MAE has authorized 120,000,000 shares of $.01 par value common
stock and has issued 52,898,100 and 40,131,551 shares as of December 31, 1998
and 1997, respectively. All shares issued, exclusive of the shares held in
treasury, are outstanding. As of December 31, 1998 and 1997, 7,245 and 7,346
shares, respectively were held for issuance pending presentation of predecessor
units and were considered outstanding.

         CRIIMI MAE has authorized 25,000,000 shares of $.01 par value preferred
stock, of which 150,000 shares have been designated as Series A Cumulative
Convertible Preferred Shares, 3,000,000 shares have been designated as Series B
Cumulative Convertible Preferred Shares, 300,000 shares have been designated as
Series C Cumulative Convertible Preferred Shares and 300,000 shares have been
designated as Series D Preferred Shares. At December 31, 1998, CRIIMI MAE had no
Series A Preferred Shares outstanding, 1,593,982 Series B Preferred Shares
outstanding, 123,000 Series C Preferred Shares outstanding and 100,000 Series D
Preferred Shares outstanding.

INCOME TAXES

         CRIIMI MAE has elected to qualify as a REIT for tax purposes under
Sections 856-860 of the Internal Revenue Code for the 1998 tax year. To qualify
for tax treatment as a REIT under the Internal Revenue Code, CRIIMI MAE must
satisfy certain criteria including certain requirements regarding the nature of
their ownership, assets, income and distributions of taxable income. The income
from certain CRIIMI MAE activities, including origination and servicing, will
not be considered as Qualifying Income under Section 856. CRIIMI MAE will
monitor and minimize the levels of Non-Qualifying Income in order to meet REIT
qualification criteria. (See also Note 1).

         Also, in 1998, CRIIMI MAE generated $.1456 per common share of excess
inclusion income from CBO-1 and CBO-2 and in 1997 generated $.0977 per common
share of excess inclusion income from CBO-1. The excess inclusion income is
taxable at the shareholder level, as CRIIMI MAE intends to distribute
substantially all of its taxable income. Excess inclusion income cannot be
offset by a net operating loss and is considered unrelated taxable business
income under Section 511.

PER SHARE AMOUNTS

         Basic earnings per share amounts for 1998, 1997 and 1996 represent net
income available to common shareholders divided by the weighted average common
shares outstanding during each year. Diluted earnings per share amounts for
1998, 1997 and 1996 represent basic earnings per share adjusted for dilutive
common stock equivalents which for CRIIMI MAE include stock options and certain
series of preferred stock. See Note 13 for a reconciliation of basic earnings
per share to diluted earnings per share.

CONSOLIDATED STATEMENTS OF CASH FLOWS

         Since the consolidated statements of cash flows are intended to reflect
only cash receipt and cash payment activity, the consolidated statements of cash
flows do not reflect investing and financing activities that affect recognized
assets and liabilities while not resulting in cash receipts or cash payments.

         Cash payments made for interest for the years ended December 31, 1998,
1997 and 1996, were $109,502,466, $72,824,682, and $59,621,711, respectively.


                                      F-14

<PAGE>

COMPREHENSIVE INCOME

         Comprehensive income is the change in shareholders' equity during a
period from transactions from nonowner sources. For CRIIMI MAE, this includes
net income before dividends paid or accrued on preferred shares adjusted for
unrealized gains and losses related to CRIIMI MAE's "Available for Sale"
Subordinated CMBS and mortgage securities carried at fair value. Net unrealized
gains and losses are reported in the shareholders' equity section of the balance
sheet. The table below breaks out the adjustment to net unrealized gains and
losses that relate to investments that were disposed of during the period with
the resulting gain or loss reflected in the income statement (reclassification
adjustments) and the portion of the adjustment that relates to those investments
that were not disposed of during the period.

<TABLE>
<CAPTION>

                                                                                1998               1997              1996

<S>                                                                         <C>               <C>               <C>           
            Reclassification adjustment for gains included in net income    $    (963,748)    $  (8,648,062)    $  (5,903,127)

            Unrealized holding (losses)/gains arising during the period      (251,374,372)          814,645        (1,319,294)
                                                                            -------------     -------------     ------------- 
            Net adjustment to unrealized losses/gains on Investments        $(252,338,120)    $  (7,833,417)    $  (7,222,421)
                                                                            -------------     -------------     ------------- 
                                                                            -------------     -------------     ------------- 

</TABLE>

NEW ACCOUNTING STATEMENTS


         During 1997, FASB issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("FAS 131"). FAS 131 establishes standards
for the way that public business enterprises report information about operating
segments and related disclosures about products and services, geographical areas
and major customers. FAS 131 was adopted January 1, 1998 (See Note 20).

         During 1998, FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and for Hedging Activities" ("FAS 133"). FAS 133 establishes
accounting and reporting standards for derivative investments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as a hedge. The accounting for the changes in the fair
value of a derivative depends on the intended use of the derivative and the
resulting designation. FAS 133 is effective for the Company beginning January 1,
2000. The Company is evaluating the eventual impact of FAS 133 on its financial
statements.


4.       FAIR VALUE OF FINANCIAL INSTRUMENTS

         The following estimated fair values of CRIIMI MAE's consolidated 
financial instruments are presented in accordance with generally accepted 
accounting principles ("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 the liquidation value of the Company or the value of 
the securities under a portfolio liquidation.

<TABLE>
<CAPTION>

                                                    As of December 31, 1998                As of December 31, 1997
                                              Amortized Cost          Fair Value       Amortized Cost      Fair Value
                                              --------------          ----------       --------------    --------------
<S>                                         <C>                   <C>                 <C>                <C>           

ASSETS:
Subordinated CMBS                           $  1,529,898,540      $1,274,185,678      $ 1,114,479,846    $1,225,602,722

Insured Mortgage Securities                      483,637,668         488,095,221          605,113,741       622,252,075

Originated loans                                 499,076,030         480,485,570                   --                --

Cash and cash equivalents                         24,180,072          24,180,072            2,108,794         2,108,794

Accrued interest and principal receivable         46,992,337          46,992,337           17,789,273        17,789,273

</TABLE>


                                      F-15

<PAGE>

<TABLE>

<S>                                                          <C>             <C>             <C>            <C>          
LIABILITIES:

Liabilities not Subject to Chapter 11 proceedings: 
Securitized mortgage obligations:
    Collateralized bond obligations-CMBS                      117,831,435     105,799,081     137,061,676     139,632,181
    Collateralized insured mortgage obligations               456,101,720     486,179,236     559,363,321     572,131,147
    Collateralized mortgage obligations-originated loans      386,752,951     381,481,150            --              --
Liabilities Subject to Chapter 11 proceedings:
    Variable rate secured borrowings-CMBS                     932,236,674             N/A     585,379,360     585,379,360
    Senior unsecured notes                                    100,000,000      62,000,000      99,877,695     100,250,000
    Other financing facilities                                 92,799,522             N/A      33,250,000      33,250,000
                                                             ------------    ------------    ------------   -------------
Off Balance Sheet:
Interest rate protection agreements -- asset                 $  2,531,371    $    992,516    $  2,809,109   $   1,311,536

</TABLE>

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

SUBORDINATED CMBS

         The fair market value of the Company's 1997 portfolio of 
Subordinated CMBS was based upon quotes obtained from, in most cases, the 
lender to which the security was pledged. The lender also quoted the related 
unrated bonds even though the bonds did not serve as collateral for CRIIMI 
MAE's obligations. The Company obtained "ask" quotes as compared to "bid" 
quotes because it is the owner of the securities. Due to the Chapter 11 
filing, the Company's lenders were not willing to provide fair value quotes 
for the 1998 CMBS portfolio. As a result, the Company calculated the 
estimated fair market value of its Subordinated CMBS portfolio as of December 
31, 1998. The Company used a discounted cash flow methodology to estimate the 
fair value of its Subordinated CMBS portfolio. The projected cash flows used 
by the Company were the same collateral cash flows used to calculate the 
anticipated weighted average unleveraged yield to maturity. See Note 5. The 
cash flows were then discounted using a discount rate that, in the Company's 
view, was commensurate with the market's perception of risk and value. The 
Company used a variety of sources to determine its discount rate including: 
(i) institutionally-available research reports, (ii) a relative comparison of 
dealer provided discount rates from the previous quarter to those disclosed 
in recent research reports and incorporating adjustments to reflect changes 
in the market as they relate to each of the Company's CMBS from September 30, 
1998 to December 31, 1998, and (iii) communications with dealers and active 
Subordinated CMBS investors regarding the year-end valuation of comparable 
securities. Since the Company calculated the estimated fair market value of 
its Subordinated CMBS portfolio as of December 31, 1998, it has disclosed in 
Note 5 the range of discount rates by rating category used in determining 
these fair market values.

         The CMBS market was adversely affected by the turmoil which occurred 
in the capital markets commencing in late summer of 1998 that caused spreads 
between CMBS yields and the yields on U.S. Treasury securities with 
comparable maturities to widen, resulting in a decrease in the value of CMBS. 
As a result, the creation of new CMBS and the trading of existing CMBS came 
to a near standstill. In late November 1998, buying and trading activity in 
the CMBS market began to recover, increasing liquidity in the CMBS market; 
however, these improvements mostly related to investment grade CMBS. New 
issuances of CMBS also returned in late November 1998. The market for 
Subordinaetd CMBS has, however, been slower to recover and trading in this 
market is less liquid. It is difficult, if not impossible, to predict when or 
if the CMBS market and, in particular, the Subordinated CMBS market, will 
fully recover. Therefore management's estimate of the value of its securities 
could vary significantly from the value that could be realized in a current 
transaction between a willing buyer and a willing seller in other than a 
forced sale or liquidation.

INSURED MORTGAGE SECURITIES

         The fair value of the insured mortgage securities is based on the
quoted market price from an investment banking institution which trades these
instruments as part of its day-to-day activities.

ORIGINATED LOANS

         Due to the Chapter 11 filing, the Company's lenders were not willing to
provide fair value quotes for the portfolio. As a result, the Company calculated
the estimated fair market value of its Originated Loan portfolio. The Company
used the same discounted cash flow methodology used in determining the fair
value of its Subordinated CMBS portfolio and further used cash flows projected
at a prepayment speed of 0% to 14% depending upon the call protection of the
loan. These cash flows were then discounted using a weighted average discount
rate of approximately 8%, which the Company believes was commensurate with the
market's perception of risk and value.

CASH AND CASH EQUIVALENTS, ACCRUED INTEREST AND PRINCIPAL RECEIVABLE

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


                                      F-16

<PAGE>

OBLIGATIONS UNDER FINANCING FACILITIES

         The fair value of the securitized mortgage obligations and unsecured
senior notes as of December 31,1997 are based on the quoted market price from an
investment banking institution. The carrying amount of the variable -rate
secured borrowings -CMBS and other financing facilities as of December 31, 1997
approximates fair value because the current rate on the debt is generally reset
monthly based on market rates.

         The fair value of the securitized mortgage obligations as of December
31,1998 are calculated using a discounted cash flow methodology. The fair value
of the unsecured notes was calculated using a quoted market price from
Bloomberg. Management has determined that fair value of the variable-rate
secured borrowings-CMBS and other financing facilities is not practicable to
measure because there is no quoted market price available and the facilities are
in default and have been the subject of dispute as discussed in Note 9. See Note
9 for a detailed discussion of these facilities and the terms of the facilities.

INTEREST RATE PROTECTION AGREEMENTS

         The fair value of interest rate protection agreements (used to hedge
CRIIMI MAE's variable-rate debt) is the estimated amount that CRIIMI MAE would
receive to terminate the agreements as of December 31, 1998 and 1997, taking
into account current interest rates and the current creditworthiness of the
counterparties. The amount was determined based on a quote received from the
counterparty to each agreement.

5.       SUBORDINATED CMBS

         During 1997, FAS 125 "Accounting for Transfers and Servicing of
Financial Assets" became effective. This statement significantly changed the
accounting treatment for transfers of financial assets. FAS 125 changed
accounting standards to require transfers of assets to be accounted for on a
component basis instead of as an entire unit. Accordingly, in a securitization
or resecuritization, components (securities) are treated as sales or retained
interests based upon CRIIMI MAE's ability to control the component. Components
where control is not retained are treated as sales and those where control is
retained are treated as retained interests.

         In May 1998, CRIIMI MAE completed its second resecuritization of CMBS
assets, with a combined face value of approximately $1.8 billion involving 75
individual securities collateralized by 19 mortgage pools and three of the
retained securities from CBO-1 ("CBO-2"). CBO-2 involved CRIIMI MAE's private
placement of securities with a face amount of $468 million. In CBO-2, CRIIMI MAE
retained securities with a face amount of approximately $1.3 billion. Certain
securities included call provisions to enable CRIIMI MAE to 1) call bonds if
market conditions warrant, and 2) call bonds when it is no longer cost effective
to service them. As a result, CBO-2 resulted in a sale of certain securities and
the retention of new securities. In accordance with FAS 125, the assets
collateralizing the resecuritization are "derecognized" and the combined
amortized cost basis of the collateralizing assets was allocated to the new
securities issued. CRIIMI MAE received $335 million for the $345 million face
amount of investment grade securities sold without call provisions which had an
allocated cost basis of $306 million, resulting in a gain of approximately $28.8
million. CRIIMI MAE recorded retained assets totaling $926 million representing
the allocated amortized cost basis for the $123 million face amount of
investment grade securities issued with call provisions and the $1.3 billion
face amount of non-investment grade retained securities in CBO-2. CBO-2
generated $160 million of net borrowing capacity primarily as a result of a 
higher overall weighted average credit rating for its new securities as 
compared to the weighted average credit rating on the related CMBS 
collateral. The net excess borrowing capacity was used to obtain short-term, 
variable rate secured borrowings which were used to acquire additional 
Subordinated CMBS during the second quarter of 1998.

         The CBO-2 transaction requires reclassification of CRIIMI MAE's entire
portfolio of mortgage securities (consisting of mortgage security collateral and
CMBS) from Held to Maturity to Available for Sale. Therefore, CRIIMI MAE's
securities, effective second quarter of 1998, are reflected on the balance sheet
at fair market value. At December 31, 1998, the amortized cost of the mortgage
securities exceeded the fair market value by approximately $251.3 million (a
$174.0 million decrease from September 30, 1998) and is reflected as a decrease
in shareholders' equity.


                                      F-17

<PAGE>

         Additionally, as part of CBO-2, CMSLP sold trustee servicing rights on
CBO-2 for $4.2 million, resulting in a gain of approximately $400,000 for
financial reporting purposes, which is included in equity in earnings from
investments on the consolidated statements of income, and gain of $4.2 million
for tax purposes.

At December 31, 1998, CRIIMI MAE held the following securities with respect to
its CMBS portfolio:

<TABLE>
<CAPTION>
                                         Original           12/31/98
                                         Anticipated       Anticipated
                                         Unleveraged       Unleveraged
                                         Yield to          Yield to
   Pool(3)                               Maturity (1)      Maturity (1)(2)
   -------                               ------------      ---------------

<S>                                      <C>               <C>
Retained Securities from
  CRIIMI 1996 C1 (CBO-1)                      19.5%            20.9%(5)

DLJ Mortgage Acceptance Corp.
  Series 1997 CF2 Tranche B-30C                8.2%             8.1%

Nomura Asset Securities Corp.
  Series 1998-D6 Tranche B7                   12.0%            12.0%

Retained Securities from
  CRIIMI 1998 C1 (CBO-2)                      10.3%            10.2%(4)

Mortgage Capital Funding, Inc.
  Series 1998-MC1                              8.9%             8.9%

Chase Commercial Mortgage Securities
  Corp.
  Series 1998-1                                8.8%             8.8%

First Union/Lehman Brothers
  Series 1998 C2                               8.9%             8.9%

Morgan Stanley Commercial Inc.
  Series 1998-WF2                              8.5%             8.5%(4)

Mortgage Capital Funding, Inc.
  Series 1998-MC2                              8.7%             8.7%

Weighted Average                               9.7%(3)         10.1%(3)

</TABLE>

----------

(1) Represents the anticipated weighted average unleveraged yield over the
expected average life of the Company's Subordinated CMBS portfolio as of the
date of acquisition and December 31, 1998, respectively, based on management's
estimate of the timing and amount of future credit losses and prepayments. As
discussed in (4) below, these yields may decrease as a result of certain
adversarial actions taken by the Company's lenders.

(2) Unless otherwise noted, changes in the December 31, 1998 anticipated 
yield to maturity from that originally anticipated are primarily the result 
of changes in prepayment assumptions relating to mortgage collateral.

(3) CRIIMI MAE, through CMSLP, performs servicing functions on a total CMBS 
pool of approximately $ 30.0 billion. Of the $30.0 billion of mortgage loans, 
approximately $195.4 million are currently being specially serviced, of which 
approximately $45.0 million are being specially serviced due to payment 
default and the remainder are being specially serviced due to nonfinancial 
covenant default. Despite the volatility in the capital markets, the mortgage 
assets underlying the Company's portfolio of CMBS experienced no losses of 
principal from default. See Note 5 for a discussion of the transfer of 
special servicing.

(4) On October 6, 1998, Morgan Stanley and Co. International Limited ("Morgan 
Stanley") advised CRIIMI MAE that it was exercising alleged ownership rights 
over certain classes of CMBS it held as collateral. Subsequent to year end, 
the Company 


                                      F-18

<PAGE>

agreed to cooperate on selling two classes of investment grade CMBS issued by
CRIIMI MAE Commercial Mortgage Trust Series 1998-C1 (CBO-2 BBB Bonds) and to
suspend litigation with Morgan Stanley with respect to these CMBS. CRIIMI MAE
and Morgan Stanley also agreed to a standstill period, now extended through
April 15, 1999, regarding seven classes of subordinated CMBS issued by Morgan
Stanley Capital I Inc. Series 1998-WF2 (the "Wells Fargo Bonds"). On March 5,
1999, the CBO-2 BBB Bonds with $205.8 million face amount and with a coupon 
rate of 7% were sold in a transaction that will be accounted for as a 
financing by the Company rather than a sale. Of the $159.0 million in net 
sale proceeds, $141.2 million was used to repay borrowings under the 
agreement with Morgan Stanley, and $17.8 million was paid to CRIIMI MAE.

(5) The increase in the anticipated yield resulted from the reallocation of 
CBO-1 asset basis in conjunction with the CBO-2 resecuritization.

The aggregate investment by the underlying rating of the Subordinated CMBS is as
follows:

<TABLE>
<CAPTION>

                                                                              Range of          Amortized        Amortized 
                                 Weighted                                     Discount            Cost             Cost
                  Face Amount     Average      Weighted       Fair Value    Rates Used to         as of           as of
                     as of         Pass-       Average      as of 12/31/98  Calculate Fair       12/31/98        12/31/97
Security Rating    12/31/98    Through Rate    Life(2)     (In Millions)(1)    Value (1)       (In Millions)   (In Millions)
---------------    --------    ------------    --------    ---------------  --------------     -------------   -------------
<S>                <C>             <C>         <C>            <C>             <C>              <C>              <C>       
                                                                                                              
AA-                $     --          --             --        $       --               --         $    --           $  5.6
                                                                                                              
A (5)                  62.6        7.0%         7 years             57.2             8.7%            57.0               --
                                                                                                             
BBB (5)(6)            150.6        7.0%        13 years            121.9             9.7%           126.9              4.0
                                                                                                               
BBB-(6)               115.2        7.0%        13 years             85.6            10.7%            92.8               --
                                                                                                              
BB+                   394.6        6.9%        14 years            286.8       9.3%-11.5%           317.9              8.6
                                                                                                              
BB                    275.8        6.9%        15 years            212.7      10.3%-12.3%           259.1            445.0
                                                                                                              
BB-                    89.1        6.8%        15 years             58.0      11.1%-13.3%            72.6             89.8
                                                                                                              
B+                    128.7        6.7%        17 years             72.9      12.1%-14.0%            93.0               --
                                                                                                              
B                     300.2        6.6%        17 years            159.7      12.1%-15.3%           208.9            357.4
                                                                                                              
B-                    198.7        6.7%        18 years             87.4      15.1%-18.8%           106.7             44.6
                                                                                                              
CCC                    92.0        6.8%        20 years             22.8            25.0%            36.0             10.9
                                                                                                              
Unrated               478.1        6.7%        21 years            109.2      27.0%-33.0%           159.0            113.2
                   --------        ---         --------       ----------                       ----------       ----------
Total (3)(4)       $2,285.6        6.8%        16 years       $  1,274.2                       $  1,529.9       $  1,079.1
                   --------        ---         --------       ----------                       ----------       ----------
                   --------        ---         --------       ----------                       ----------       ----------

</TABLE>

(1) The estimated fair values of Subordinated CMBS represent the carrying 
value of these assets. Due to the Chapter 11 filing, the Company's lenders 
were not willing to provide fair value quotes for the 1998 portfolio. As a 
result, the Company calculated the estimated fair market value of its 
Subordinated CMBS portfolio as of December 31, 1998. The Company used a 
discounted cash flow methodology to estimate the fair value of its 
Subordinated CMBS portfolio. The projected cash flows used by the Company 
were the same collateral cash flows used to calculate the anticipated 
weighted average unleveraged yield to maturity. (See Note 5.) The cash flows 
were then discounted using a discount rate that, in the Company's view, was 
commensurate with the market's perception of risk and value. The Company used 
a variety of sources to determine its discount rate including: (i) 
institutionally-available research reports, (ii) a relative comparison of 
dealer provided discount rates from the previous quarter to those disclosed 
in recent research reports and incorporating adjustments to reflect changes 
in the market as they relate to each of the Company's CMBS from September 30, 
1998 to December 31, 1998, and (iii) communications with dealers and active 
Subordinated CMBS investors regarding the year-end valuation of comparable 
securities. Since the Company calculated the estimated fair market value of 
its Subordinated CMBS portfolio as of December 31, 1998, it has disclosed in 
the table the range of discount rates by rating category used in determining 
these fair market values.

         The CMBS market was adversely affected by the turmoil which occurred 
in the capital markets commencing in late summer of 1998 that caused spreads 
between CMBS yields and the yields on U.S. Treasury securities with 
comparable maturities to widen, resulting in a decrease in the value of CMBS. 
As a result, the creation of new CMBS and the trading of existing CMBS came 
to a near standstill. In late November 1998, buying and trading activity in 
the CMBS market began to recover, increasing liquidity in the CMBS market; 
however, these improvements mostly related to investment grade CMBS. New 
issuances of CMBS also returned in late November 1998. The market for 
Subordinated CMBS has, however, been slower to recover and trading in this 
market is less liquid. It is difficult, if not impossible, to predict when or 
if the CMBS market and, in particular, the Subordinated CMBS market, will 
fully recover. Therefore management's estimate of the value of its securities 
could vary significantly from the value that could be realized in a current 
transaction between a willing buyer and a willing seller in other than a 
forced sale or liquidation.

(2) Weighted average life represents the weighted average expected life of the
Subordinated CMBS prior to consideration of losses, extensions or prepayments
other than those factored in the assumed prepayment rate used at the time of
acquisition.

(3) Refer to Note 8 for additional information regarding the total face amount
and purchase price of Subordinated CMBS for tax purposes. 


                                      F-19

<PAGE>

(4) Similar to the Company's other sponsored CMO's, CMO-IV, as described in 
Note 6, resulted in the creation of CMBS, of which the Company sold certain 
tranches. Since the Company retained call options on the sold bonds, the 
Company did not surrender control of the assets for purposes of FAS 125 and 
thus the entire transaction is accounted for as a financing and not a sale. 
Since the transaction is recorded as a financing, the Subordinated CMBS are 
not reflected in the Company's Subordinated CMBS portfolio and the mortgage 
assets are reflected in Investment in Originated Loans on the balance sheet.

(5) In connection with CBO-2, $62.6 million (A rated) and $60.0 million (BBB 
rated) face amount of investment grade securities were issued with call 
options and $345 million (A rated) face amount were issued without call 
options. Since the Company retained call options on certain sold bonds, the 
Company did not surrender control of those assets pursuant to the 
requirements of FAS 125 and thus these securities are accounted for as a 
financing and not a sale. Since the transaction is recorded as a partial 
financing and a partial sale, CRIIMI MAE has retained the securities with 
call options in its Subordinated CMBS portfolio reflected on its balance 
sheet.

(6) In connection with CBO-2, the Company retained $90.6 million (BBB rated) and
$115.2 million (BBB- rated) face amount of securities, with the intention to
sell the securities at a later date. Such sale occurred March 5, 1999. See below
for further discussion.

         As of December 31, 1998, the mortgage loans underlying CRIIMI MAE's
Subordinated CMBS portfolio were secured by properties of the types and at the
locations identified below:

<TABLE>
<CAPTION>

                  1998              1997                                     1998              1997
                  ----              ----                                     ----              ----
Property Type     Percentage(1)     Percentage(1)  Geographic Location(2)    Percentage(1)     Percentage(1)
-------------     -------------     -------------  ----------------------    -------------     -------------

<S>                   <C>             <C>          <S>                           <C>               <C>
Multifamily.....       31%             37%         California...............      16%               14%
Retail..........       28%             28%         Texas....................      12%               15%
Office..........       15%             10%         Florida..................       7%                9%
Hotel...........       13%             14%         New York.................       6%                4%
Other...........       13%             11%         Other(3).................      59%               58%
                      ----            ----                                       ----              ----
    Total......       100%            100%            Total.................     100%              100%
                      ----            ----                                       ----              ----
                      ----            ----                                       ----              ----
</TABLE>

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

(2)      No significant concentration by region.

(3)      No other individual state makes up more than 5% of the total.

         The Subordinated CMBS tranches owned by CRIIMI MAE provide credit
support to the more senior tranches of the related commercial securitization.
Cash flow from the underlying mortgages generally is allocated first to the
senior tranches, with the most senior tranche having a priority right to cash
flow. Then, any remaining cash flow is generally allocated among the other
tranches in order of their relative seniority. To the extent there are defaults
and unrecoverable losses on the underlying mortgages, resulting in reduced cash
flows, the subordinate tranche will bear this loss first. To the extent there
are losses in excess of the most subordinate tranche's stated right to principal
and interest, then the remaining tranches will bear such losses in order of
their relative subordination.

         The accounting treatment under GAAP requires that the income on
Subordinated CMBS be recorded based on the effective interest method using the
anticipated yield over the expected life of these mortgage assets. This method
can result in GAAP income recognition which is greater than or less than cash
received. For the years ended December 31, 1998, 1997 and 1996, the amount of
income recognized (less than) or in excess of cash received due to the effective
interest rate method was approximately $(200,000), $1,014,000 and $909,000,
respectively.

         Since the Petition Date, CRIIMI MAE and certain secured creditors have
disagreed about the effect of the stay provisions of the Bankruptcy Code on such
secured lenders and the subject assets. A summary of material litigation, and
agreements that have been reached with certain creditors, is disclosed in Note
18 Litigation - Bankruptcy Related Litigation. In addition, the Company has been
in discussions with certain other creditors not in litigation with the Company.
See Note 18 Litigation - Discussions with Other Creditors.

         Subsequent to year end, the Company agreed to cooperate on selling the
CBO-2 BBB Bonds and suspend litigation with Morgan Stanley with respect to these
CMBS. On March 5, 1999, Morgan Stanley sold the $205.8 million face amount of
CMBS with a coupon of 7%. The proceeds of $159.0 million were used to pay off 
$141.2 million of the related short-term, variable-rate debt due Morgan Stanley
and the remaining net proceeds of $17.8 million were remitted to CRIIMI MAE.
CRIIMI MAE retained the right to call each CMBS when the outstanding


                                      F-20

<PAGE>

principal balance amortizes to 15% of its original face balance. The 15% call
option prevents CRIIMI MAE from surrendering control of the assets pursuant to
the requirements of FAS 125 and thus the transaction will be accounted for as a
secured borrowing and not a sale. This means that CRIIMI MAE will recognize a
liability for these bonds during the first quarter of 1999 in the amount of the
gross proceeds received.

         CRIIMI MAE and Morgan Stanley also agreed to a standstill period
through March 31, 1999 regarding seven classes of Subordinated CMBS known as
Morgan Stanley Capital I, Inc. Series 1998-WF2. The Company and Morgan Stanley
subsequently agreed to extend the standstill period with respect to these bonds
through April 15, 1999.

         The Company's CMBS portfolio currently generates monthly cash flow. 
As of March 31, 1999, certain lenders have withheld payment to CRIIMI MAE of 
approximately $14.3 million, including approximately $8.3 million owed to 
CRIIMI MAE as of December 31, 1998 with respect to its CMBS portfolio 
(excluding those securities that are match-funded). (Refer to Note 6 for 
payments due the Company in connection with CMO-IV). The realizeability of 
these receivables is uncertain and is dependent upon reaching successful 
agreements with the Company's lenders that does not result in the loss of any 
collateral. A loss could occur if the lender fails to remit interest payments 
to the Company. Furthermore, it is possible that CRIIMI MAE may have to 
record impairment losses as a result of future adverse actions taken against 
CRIIMI MAE by its lenders.

         CMSLP did not file for protection under Chapter 11. However, because of
the related party nature of its relationship with CRIIMI MAE, CMSLP has been
under a high degree of scrutiny from servicing rating agencies. As a result of
CRIIMI MAE's Chapter 11 filing, CMSLP was declared in default under certain
credit agreements with First Union National Bank ("First Union"). In order to
repay all such credit agreement obligations and to increase its liquidity, CMSLP
arranged for Banc One Mortgage Capital Markets, LLC ("BOMCM") to succeed it as
master servicer on two commercial mortgage pools on October 30, 1998. BOMCM paid
the Company $6.9 million for these master servicing rights resulting in a loss
of approximately $1.4 million from the recorded value of the rights, of which
substantially all of the loss flowed through to CRIIMI MAE through equity in
earnings in the fourth quarter of 1998. In addition, in order to allay rating
agency concerns stemming from CRIIMI MAE's Chapter 11 filing, in November 1998,
CRIIMI MAE designated BOMCM as special servicer on 33 separate CMBS
securitizations totaling approximately $29 billion, subject to certain
requirements contained in the respective servicing agreements. CMSLP will
continue to perform special servicing as sub-servicer for BOMCM on all but five
of these securitizations. CRIIMI MAE remains the owner of the lowest rated
tranche of the related Subordinated CMBS and, as such, retains all rights
pertaining to ownership, including the right to replace the special servicer.
CMSLP lost the right to specially service the DLJ MAC 95 CF-2 securitization
when the majority holder of the lowest rated tranches replaced CMSLP as special
servicer.


6.       LOAN ORIGINATION PROGRAM

         Prior to the petition date, the Company originated mortgage loans 
principally through mortgage loan conduit programs with major financial 
institutions for the primary purpose of pooling such loans for 
securitization. At the time it filed for bankruptcy, the Company had a 
mortgage loan conduit program with Citibank (the "Citibank Program") and a 
loan conduit program with Prudential Securities Incorporated and Prudential 
Securities Credit Corporation (the "Prudential Program") (together the 
"Programs").

         In June 1998, the Company securitized $496 million face amount of 
commercial mortgage loans (a majority of which were no-lock) originated or 
acquired through the Citibank Program, and through CRIIMI MAE CMBS Corp., 
issued Commercial Mortgage Loan Trust Certificates, Series 1998-1 ("CMO-IV"). 
The original basis of the loans on the balance sheet includes approximately 
$8 million of deferred loan and securitization costs that are amortized over 
the life of the securitization and recognized against income using the 
effective interest rate method.

         Through this securitization, CRIIMI MAE sold $397 million face amount
of fixed-rate investment grade securities (see also Note 9). CRIIMI MAE retained
the remaining principal and interest cash flows from the mortgage loans that
collateralize the securitization. CRIIMI MAE has call rights on each of the
issued and sold securities and therefore has not surrendered control of the 
collateral, thus requiring the transaction to be accounted for as a financing 
of the mortgage loans collateralizing the investment grade CMBS sold in the 
securitization.

                                      F-21

<PAGE>

         Although CMO-IV is accounted for as a financing, economically, the 
Company currently generates monthly cash flow from the subordinated CMBS 
tranches created in the transaction. As of March 31, 1999, payments of 
approximately $5.3 million were withheld by certain lenders, including 
approximately $2.7 million which was owed as of December 31, 1998 with 
respect to certain tranches of CMO-IV (excluding those securities that are 
match-funded).

         As of December 31, 1998, the originated loans were secured by
properties of the types and at the locations identified below:

<TABLE>
<CAPTION>

Property Type            Percentage(1)  Geographic Location(2)     Percentage(1)
-------------            -------------  ----------------------     -------------

<S>                          <C>        <S>                            <C>
Multifamily.............     38%        Michigan...............        20%
Hotel...................     26%        Texas..................         8%
Retail..................     20%        Illinois...............         7%
Office..................     11%        Connecticut............         6%
Other...................      5%        California.............         6%
                            ----        Maryland...............         6%
    Total...............    100%        Other(3)...............        47%
                            ----                                      ----
                            ----          Total................       100%
                                                                      ----
                                                                      ----

</TABLE>

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

(2)      No significant concentration by region.

(3)      No other individual state makes up more than 5% of the total.

         Descriptions of the originated loans categorized by unpaid principal
balances as of December 31, 1998, are as follows:

<TABLE>
<CAPTION>

                                                      As of December 31, 1998
                                                      -----------------------
                                                                     Weighted
                                                                     Average
                                 Number of         Face              Effective        Weighted Average
Unpaid Principal Balance (2)       Loans       Value(1)(4)(5)        Interest Rate    Remaining Term
----------------------------       -----       --------------        -------------    --------------

<S>   <C>                            <C>      <C>                          <C>            <C>      
$ 0 - $  4.99 million                130       $278,252,990                 7.45%         9.9 years
$ 5 - $  9.99 million                 18        131,974,592                 7.35%         9.6 years
$10 - $ 14.99 million                  5         63,821,315                 7.21%         9.6 years
$15 - $ 20  million                    1         17,242,738                 7.15%        10.9 years
                                     ---       ------------                 -----        ----------
                                     154       $491,291,635                 7.38%         9.8 years
                                     ---       ------------                 -----        ----------
                                     ---       ------------                 -----        ----------
</TABLE>

(1)      All originated loans are collateralized by first or second liens on
         multifamily, hotel, retail, office or other commercial properties.
         Approximately 79% of the loans in the securitization are No-Lock loans.

(2)      Principal and interest on originated loans is payable at level amounts
         over the term of the loan. Approximately 91.8% of the loans in the
         portfolio have balloon payment structures. Total annual debt service
         payable to CRIIMI MAE's financing subsidiaries for the originated loans
         held as of December 31, 1998 is approximately $44.9 million.

(3)      A reconciliation of the carrying amount of CRIIMI MAE's originated 
         loans for the year ended December 31, 1998, follows:


                                      F-22

<PAGE>

<TABLE>
<CAPTION>

                                                                         For the year ended
                                                                          December 31, 1998
                                                                          -------------
<S>                                <C>                                    <C>          

            Balance at beginning of year                                  $        --
            Additions during the year:
              Securitized Originated Loans                                  504,357,929
            Deductions during the year:
              Principal payments                                          $  (4,526,939)
              Amortization of deferred loan costs                              (754,960)
                                                                          -------------
            Balance at end of year (6)                                    $ 499,076,030
                                                                          -------------
                                                                          -------------

</TABLE>

(4)      Principal amount of mortgage securities subject to delinquent principal
         or interest is not presented since all required payments with respect
         to CRIIMI MAE's consolidated originated loans are current, and none of
         these mortgage securities are delinquent as of December 31, 1998.

(5)      The fair value of the originated loans at December 31, 1998 is
         $480,485,570.

(6)      The carrying amount of the originated loans of $499,076,030 is
         comprised of $491,291,635 face amount of loans plus $7,784,395 of
         deferred loan costs.

         The agreements for both Programs provided that during the warehouse
period, the respective financial institution will fund and originate in its name
all mortgage loans under the Program, and CRIIMI MAE is required to deposit a
portion of each loan amount in a reserve account. In both facilities, the
respective financial institution is responsible for executing an interest rate
hedging strategy.

         The Citibank Program provided for CRIIMI MAE to pay to Citibank the
face value of the loans originated through the Program, which were funded by
Citibank and not otherwise securitized, plus or minus any hedging loss or gain
on December 31, 1998. To secure this obligation CRIIMI MAE was required to
deposit a portion of the principal amount of each originated loan in a reserve
account. At December 31, 1998, this reserve account was approximately $31.8
million.

         Under the Prudential Program, the Company has an option to pay to
Prudential the face value plus or minus any hedging loss or gain, at the earlier
of June 30, 1999, or the date by which a stated quantity of loans for
securitization has been made. Under the Prudential program, the Company was
required to fund a reserve account, which was approximately $2 million at
December 31, 1998. If CRIIMI MAE is unable to exercise its option, the Company
will forfeit the amount of the reserve account.

         On October 5, 1998, Citibank sent the Company a letter alleging that
the Company was in default under the Citibank Program and that it was
terminating the Citibank Program. The Company and Citibank negotiated a
Stipulation and Consent Order (the "Order"), entered by the Bankruptcy Court on
April 5, 1999, regarding the Citibank Program. The Order provides that Citibank
will, with CRIIMI MAE's cooperation, sell the loans originated under the
Citibank Program provided that the sale results in CRIIMI MAE receiving minimum
net proceeds of not less than $3.5 million, after satisfying certain amounts due
to Citibank under the Citibank Program from the amount held in the reserve
account. The minimum net proceeds provision may be waived by agreement of the
Company, the Official Committee of Unsecured Creditors in the Company's Chapter
11 case (the "Unsecured Committee") and the Official Committee of Equity
Security Holders in the Company's Chapter 11 case (the "Equity Committee").
CRIIMI MAE is also negotiating with Prudential to sell the loan originated under
the Prudential Programs. There can be no assurance that an agreement will be
reached with Prudential or, if reached, that such agreement would be approved by
the Bankruptcy Court.

         As of September 30, 1998, the Company's obligation under the Citibank
Program was $14.8 million in excess of the fair value of the loans and the
Company's option under the Prudential Program was $2.8 million in excess of fair
value of the loan principally because of the turmoil in the capital markets. As
a result CRIIMI MAE recorded a $17.6 million unrealized loss related to the
programs as of September 30, 1998. The Company calculated


                                      F-23

<PAGE>

the unrealized losses based upon an estimated value of the loans (based on
proceeds that could be raised in a securitization of the loans using market
spreads for bonds that would be issued if such a transaction occurred on
September 30, 1998) as well as hedging losses as of that date.

         Subsequent to the Chapter 11 filing, CRIIMI MAE decided to sell the 
loans originated in conjunction with the Programs. As a result of the 
Company's decision to sell the loans and because a sale of the loans will 
result in less proceeds than would ordinarily be realized in a securitization 
(which was the Company's original intent), the Company recorded, during the 
fourth quarter, additional unrealized losses of $ 12.7 million and wrote off 
net deferred loan costs of approximately $3.3 million in 1998.

7.       INSURED MORTGAGE SECURITIES

         CRIIMI MAE's consolidated portfolio of mortgage securities is comprised
of FHA-Insured Certificates and GNMA Mortgage-Backed Securities. Additionally,
mortgage securities include Federal Home Loan Mortgage Corporation (Freddie Mac)
participation certificates which are collateralized by GNMA Mortgage-Backed
Securities, as discussed below. As of December 31, 1998, approximately 18% of
CRIIMI MAE's investment in mortgage securities were FHA-Insured Certificates and
82% were GNMA Mortgage-Backed Securities (including certificates which
collateralize Freddie Mac participation certificates). FHA-Insured Certificates
and GNMA Mortgage-Backed Securities are collectively referred to herein as
"mortgage securities."

         CRIIMI MAE owns the following mortgages directly or indirectly through
its wholly-owned subsidiaries:

<TABLE>
<CAPTION>

                                                                  As of December 31, 1998
                                                                  -----------------------
                                                                                   Weighted
                                          Number of                                Average
                                          Mortgage       Fair          Amortized   Effective        Weighted Average
                                          Securities   Value(1)          Cost      Interest Rate    Remaining Term
                                          ----------   ----------     -----------  -------------    ---------------
<S>                                         <C>       <C>            <C>               <C>          <C>     

CRIIMI MAE (3)                                1       $  5,511,707   $   5,455,114     8.00%        36 years
CRIIMI MAE Financial Corporation(2)          40        161,382,142     158,832,182     8.26%        30 years
CRIIMI MAE Financial Corporation II(2)       55        232,560,966     231,973,794     7.18%        28 years
CRIIMI MAE Financial Corporation III(2)      27         88,640,406      87,376,578     8.00%        30 years
                                           ----       ------------    ------------     -------      --------
                                            123       $488,095,221   $ 483,637,668     7.69%(4)     29 years(4)
                                           ----       ------------    ------------     -------      --------
                                           ----       ------------    ------------     -------      --------

</TABLE>




<PAGE>



<TABLE>
<CAPTION>

                                                                  As of December 31, 1997
                                                                  -----------------------
                                                                                   Weighted
                                          Number of                                Average
                                          Mortgage       Fair          Amortized   Effective        Weighted Average
                                          Securities   Value(1)          Cost      Interest Rate    Remaining Term
                                          ----------   ----------     -----------  -------------    ---------------
<S>                                         <C>       <C>            <C>               <C>          <C>     

CRIIMI MAE                                    5       $ 18,888,883    $ 18,447,382     8.09%        34 years
CRIIMI MAE Financial Corporation             48        196,619,210     189,759,543     8.39%        31 years
CRIIMI MAE Financial Corporation II          59        252,208,500     247,614,722     7.19%        29 years
CRIIMI MAE Financial Corporation III         37        154,535,482     148,850,593     8.05%        31 years
                                            ---        -----------    ------------     --------     ---------
                                            149       $622,252,075    $604,672,240     7.81%(4)    30 years(4)
                                            ---        -----------    ------------     --------     ---------
                                            ---        -----------    ------------     --------     ---------

</TABLE>

----------
(1) The fair value of the mortgage securities is based on quoted market prices.
At December 31, 1997, CRIIMI MAE mortgage securities were classified as
Available for Sale and carried at fair value on the balance sheet, the remaining
mortgage securities were carried at amortized cost. As of December 31, 1998, all
mortgage securities are classified as Available for Sale and carried at fair
value on the balance sheet.


                                      F-24

<PAGE>

(2) During the year ended December 31, 1998, there were 22 prepayments of
mortgage securities held by CRIIMI MAE's financing subsidiaries. These
prepayments generated net proceeds of approximately $104.0 million and resulted
in net financial statement gains of approximately $666,000, which are included
in gains on mortgage securities dispositions on the accompanying consolidated
statement of income for the year ended December 31, 1998.

(3) During the year ended December 31, 1998, CRIIMI MAE sold four mortgage
securities and a portion of a fifth mortgage security. This sale generated net
proceeds of $13.4 million and resulted in net financial statement gains of
$531,000.

(4) Weighted Average was computed using total face value of the mortgage
securities.

         As a result of the CBO-2 transaction (see Note 5), the Company, in
accordance with GAAP, no longer classifies its mortgage securities as Held to
Maturity. The Company's mortgage securities are now classified as Available for
Sale. As a result, the Company now carries its mortgage securities at fair
value. The difference between the amortized cost and the fair value of mortgage
assets recorded at fair value represents the net unrealized gains on those
mortgage securities, which is reported as a separate component of shareholders'
equity as of December 31, 1998 and 1997.

         Descriptions of the mortgage securities owned, directly or indirectly
by CRIIMI MAE, which exceed 3% of the total carrying value of the consolidated
mortgage securities as of December 31, 1998, summarized information regarding
other mortgage securities and mortgage securities income earned in 1998, 1997
and 1996, including interest earned on the disposed mortgage securities, are as
follows:


                                      F-25
<PAGE>

<TABLE>
<CAPTION>

                                       Face                Fair                                Effective
                                     Value of            Value of           Amortized           Interest
                                     Mortgage            Mortgage             Cost             Income Rate
                                   Securities(2)      Securities(5)(3)       (1)(4)               Range 
                                   ------------       ----------------      --------           ---------
<S>                                <C>                 <C>                 <C>                 <C>

CRIIMI MAE
----------

GNMA MORTGAGE-
BACKED SECURITIES
-----------------

Other/Total
 (1 mortgage security)             $  5,455,114        $  5,511,707        $  5,455,114               8.00%
                                   ------------        ------------        ------------         
CRIIMI MAE FINANCIAL     
--------------------     
  CORPORATION            
  -----------            

FHA-INSURED CERTIFICATES 
------------------------ 

Other                    
  (24 mortgage securities)           89,347,192          90,422,553          89,147,563        7.35%-11.00%
                          
GNMA MORTGAGE-            
  BACKED SECURITIES:      
  ------------------      
                          
Other                                                                                        
  (16 mortgage securities)           69,294,079          70,959,589          69,684,619        7.93%-8.78%
                                   ------------        ------------        ------------         
Subtotal                            158,641,271         161,382,142         158,832,182      
                                   ------------        ------------        ------------         

<CAPTION>

                                      Mortgage        Mortgage        Mortgage                     Final           
                                       Income          Income         Maturity                   Maturity       
                                       Earned          Earned          Earned                      Date           
                                       in 1998         in 1997         in 1996                     Range          
                                    ------------    ------------     ----------                ---------
<S>                                 <C>             <C>              <C>                        <C>

CRIIMI MAE
----------

GNMA MORTGAGE-
BACKED SECURITIES
-----------------

Other/Total
 (1 mortgage security)              $    577,393    $    589,078           --                February 2035
                                    ------------    ------------     ----------  
CRIIMI MAE FINANCIAL
--------------------
  CORPORATION
  -----------

FHA-INSURED CERTIFICATES
------------------------

Other
  (24 mortgage securities)            7,755,402       7,811,938       7,863,966   February 2019-April 2034


GNMA MORTGAGE-
  BACKED SECURITIES:
  ------------------

Other
  (16 mortgage securities)            5,603,987       5,647,180       5,687,630    November 2017-June 2034
                                    ------------    ------------     ----------    
Subtotal                             13,359,389      13,459,118      13,551,596
                                    ------------    ------------     ----------    

</TABLE>


                                      F-26

<PAGE>

<TABLE>
<CAPTION>

                                       Face                Fair                                Effective
                                     Value of            Value of           Amortized           Interest
                                     Mortgage            Mortgage             Cost             Income Rate
                                   Securities(2)      Securities(5)(3)       (1)(4)               Range 
                                   ------------       ----------------      --------           ---------
<S>                                <C>                 <C>                 <C>                 <C>

CRIIMI MAE FINANCIAL  
  CORPORATION II      
  --------------      
GNMA MORTGAGE-        
BACKED SECURITIES:    
------------------    
                      
San Jose South                       28,400,466          28,716,391          28,631,436              7.66%
Somerset Park                        29,080,455          29,393,452          29,600,886              7.41%
Yorkshire Apartments                 14,735,762          14,892,304          14,804,318              7.21%
Other                                                                                            
(52 mortgage securities)            157,837,963         159,558,819         158,937,154        7.14%-8.02%
                                   ------------        ------------        ------------         
Subtotal                            230,054,646         232,560,966         231,973,794      
                                   ------------        ------------        ------------         
CRIIMI MAE FINANCIAL 
  CORPORATION III    
  ---------------    
                     
GNMA MORTGAGE-       
BACKED SECURITIES    
-----------------    
                     
Other                
  (27 mortgage securities)           87,058,629          88,640,406          87,376,578        7.11%-10.94%
                                   ------------        ------------        ------------         
Subtotal                             87,058,629          88,640,406          87,376,578         
                                   ------------        ------------        ------------      
Total mortgage securities           481,209,660         488,095,221         483,637,668         
                                   ------------        ------------        ------------         
Mortgage security dispositions:                                                                
           1998                            --                  --                  --          7.05%-10.49%
                                                                                             
           1997                            --                  --                  --          7.59%-10.17%
                                                                                             
           1996                            --                  --                  --          8.70%-11.31%

<CAPTION>

                                      Mortgage        Mortgage        Mortgage          Final           
                                       Income          Income         Maturity         Maturity       
                                       Earned          Earned          Earned            Date           
                                       in 1998         in 1997         in 1996           Range          
                                    ------------    ------------     ----------       ---------
<S>                                 <C>             <C>              <C>          <C>

CRIIMI MAE FINANCIAL
  CORPORATION II

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

GNMA MORTGAGE-
BACKED SECURITIES:

San Jose South                        2,064,876       2,090,665      2,114,560                 October 2023
Somerset Park                         2,130,465       2,149,005      2,166,226                    July 2028
Yorkshire Apartments                  1,033,985       1,041,158      1,047,835                    July 2031
Other                                                                                              
(52 mortgage securities)             11,534,078      11,649,436      11,756,870        May 2021-April 2035

                                   ------------    ------------    -----------
Subtotal                             16,763,404      16,930,264     17,085,491
                                   ------------    ------------    -----------

CRIIMI MAE FINANCIAL
  CORPORATION III

GNMA MORTGAGE-
BACKED SECURITIES

Other
  (27 mortgage securities)            7,024,665       7,075,555      7,127,115   August 2015-February 2035
                                   ------------    ------------    ----------- 
Subtotal                              7,024,665       7,075,555      7,127,115
                                   ------------    ------------    -----------

Total mortgage securities            37,724,851      38,054,015     37,764,202
                                   ------------    ------------    -----------
Mortgage security dispositions:
           1998                       5,337,892       9,587,672      10,148,775

           1997                            --         1,783,714       6,890,233

           1996                            --              --         2,108,460

</TABLE>


                                      F-27
<PAGE>

<TABLE>
<CAPTION>

                                       Face                Fair                                Effective
                                     Value of            Value of           Amortized           Interest
                                     Mortgage            Mortgage             Cost             Income Rate
                                   Securities(2)      Securities(5)(3)       (1)(4)               Range 
                                   ------------       ----------------      --------           ---------
<S>                                <C>                 <C>                 <C>                 <C>

Mortgage securities                $481,209,660        $488,095,221        $ 483,637,668     
                                   ------------        ------------        -------------
                                   ------------        ------------        -------------
Investment in                                                                                
  Limited Partnerships                                                     $       --        
                                                                           -------------
                                                                           -------------

<CAPTION>

                                      Mortgage        Mortgage        Mortgage          Final           
                                       Income          Income         Maturity         Maturity       
                                       Earned          Earned          Earned            Date           
                                       in 1998         in 1997         in 1996           Range          
                                    ------------    ------------     ----------       ---------
<S>                                 <C>             <C>              <C>          <C>

Mortgage securities                 $ 43,062,743    $ 49,425,401    $56,911,670
                                    ------------    ------------    -----------
                                    ------------    ------------    -----------
Investment in
  Limited Partnerships              $       --      $     42,976    $   253,292
                                    ------------    ------------    -----------
                                    ------------    ------------    -----------

</TABLE>



<PAGE>

(1) All mortgages are collateralized by first or second liens on residential
apartment, retirement home, nursing home or townhouse complexes which have
diverse geographic locations and are FHA-Insured Loans or GNMA Mortgage-Backed
Securities. Payment of the principal and interest on FHA-Insured Certificates is
insured by HUD pursuant to Title 2 of the National Housing Act. Payment of the
principal and interest on GNMA Mortgage-Backed Securities is guaranteed by GNMA
pursuant to Title 3 of the National Housing Act.
The investment in limited partnerships is not federally insured or guaranteed.

(2) Principal and interest on mortgage securities is payable at level amounts
over the life of the mortgage asset. Total annual debt service payable to CRIIMI
MAE and its financing subsidiaries for the mortgage securities held as of
December 31, 1998 is approximately $42 million.


(3) The fair value of the mortgage securities is based on quoted market prices.

(4) Principal amount of mortgage securities subject to delinquent principal or
interest is not presented since all required payments with respect to CRIIMI
MAE's consolidated mortgage securities are current, and none of these mortgage
securities are delinquent as of December 31, 1998.

(5) Reconciliations of the carrying amount of CRIIMI MAE's mortgage securities
for the years ended December 31, 1998 and 1997, follow:

                                      F-28
<PAGE>

<TABLE>
<CAPTION>

                                                                     For the year ended              For the year ended
                                                                      December 31, 1998               December 31, 1997
                                                               ------------------------------    -------------------------------
<S>                                                            <C>              <C>              <C>               <C>

Balance at beginning of year                                                    $ 605,113,741                      $ 691,109,722
                                                                                                                   
Additions during the year:                                                                                         
  Purchases and advances on construction                                                                           
   loans                                                                                 --                              285,430
  Amortization of discount                                                             28,082                             28,376
  Adjustment to net unrealized gains on mortgage securities                         4,016,052                               --
                                                                                                                   
                                                                                                                   
Deductions during the year:                                                                                        
  Principal payments                                           $  (4,743,972)                    $  (4,930,080)    
  Mortgage dispositions                                         (116,218,027)                      (66,148,925)    
  Adjustment to net unrealized gains
    on mortgage securities (a)                                          --                         (15,125,929)
  Accretion of premium                                              (100,655)    (121,062,654)        (104,853)      (86,309,787)
                                                               -------------    -------------    -------------     -------------
Balance at end of year                                                          $ 488,095,221                      $ 605,113,741
                                                                                -------------                      -------------
                                                                                -------------                      -------------

</TABLE>

(a)  This adjustment is primarily due to a subsidiary's dispositions of 
     mortgage securities in 1997.

                                      F-29

<PAGE>

8.       RECONCILIATION OF FINANCIAL STATEMENT NET INCOME TO TAX BASIS INCOME

         Reconciliations of the financial statement net income to the tax basis
income for the years ended December 31, 1998, 1997 and 1996, are as follows:

<TABLE>
<CAPTION>

                                                                       1998             1997             1996
                                                                   ------------     ------------     ------------
<S>                                                                <C>              <C>              <C>         

Consolidated financial statement
  net income                                                       $ 42,368,593     $ 54,187,616     $ 35,239,857
Gain on sale of collateralized bond obligation                      (28,800,408)            --               --
Reamortization of Subordinated CMBS                                  41,291,138        6,496,641        1,918,841
Unrealized losses on warehouse purchase obligations                  30,378,173             --               --
Reorganization costs                                                  7,149,828             --               --
Interest expense adjustments for collateralized bond obligation     (22,748,840)            --               --
Amortization of assets acquired in the Merger                         2,877,576        2,877,564        2,881,824
Equity in earnings from investments                                   5,413,761          492,355         (138,772)
Amortization and other interest expense
  adjustments                                                        (2,842,613)      (1,537,367)      (1,245,122)
Mortgage dispositions                                                   549,180          165,284          307,704
Adjustment due to accounting for subsidiary
  as a pooling for financial statement
  purposes and a purchase for tax purposes                                 --         (2,132,613)       2,520,569
Capital gain on installment sale                                           --               --          1,214,091
Other                                                                   177,100           (7,947)        (165,835)
                                                                   ------------     ------------     ------------

Tax basis income                                                   $ 75,813,488     $ 60,541,533     $ 42,533,157
                                                                   ------------     ------------     ------------

Dividends paid or accrued on preferred shares                        (6,997,859)      (6,472,540)      (3,526,451)
                                                                   ------------     ------------     ------------
Tax basis income available to common
  shareholders                                                     $ 68,815,629     $ 54,068,993     $ 39,006,706
                                                                   ------------     ------------     ------------
                                                                   ------------     ------------     ------------
Tax basis income per share:
Income before gains from CRI Liquidating                           $       1.42     $       1.24     $       1.00
Capital gain from CRI Liquidating                                          --               0.21             0.27
                                                                   ------------     ------------     ------------
                                                                   ------------     ------------     ------------
Total  tax basis income per share                                  $       1.42     $       1.45     $       1.27
                                                                   ------------     ------------     ------------
                                                                   ------------     ------------     ------------
Tax basis shares outstanding                                         48,502,522       37,334,034       30,773,621
                                                                   ------------     ------------     ------------
                                                                   ------------     ------------     ------------

</TABLE>

         Differences between financial statement net income and the tax basis
income available to common shareholders principally relate to differences in the
methods of accounting for the sale of securities and trustee servicing rights in
conjunction with the CBO-2 transaction, Subordinated CMBS (see also Note 5),
unrealized losses on warehouse purchase obligations, a portion of reorganization
costs not deductible for tax purposes, amortization of certain deferred costs,
merger of the CRI Mortgage Businesses, and prior to 1998, the merger of CRIIMI
funds.

         The entire CBO-2 transaction was accounted for as a financing for tax
purposes. As such, the Company will recognize income for tax purposes from the
entire group of mortgage securitization pools (35 total) with an aggregate face
amount of $2.8 billion and purchase price of $2.0 billion and receive a
deduction for the interest expense on the outstanding debt.


                                      F-30

<PAGE>

         As a result of the foregoing, the nature of the dividends for income
tax purposes on a per share basis is as follows:

<TABLE>
<CAPTION>

                                    1998(1)        1997(1)        1996(1)
                                   --------       --------       --------

<S>                                <C>            <C>            <C>     
Ordinary income                    $   1.09       $   1.21       $   0.91
Long-term capital gains                0.08           0.21           0.31
                                   --------       --------       --------
                                   $   1.17       $   1.42       $   1.22
                                   --------       --------       --------
                                   --------       --------       --------

</TABLE>

----------
(1) In 1998, 1997 and 1996, CRIIMI MAE generated $0.1456 and $0.0977 and $0.003
per common share, respectively, of excess inclusion income from CBO-1 and for
1998 from CBO-2. The excess inclusion income is taxable at the shareholder level
as CRIIMI MAE intends to distribute substantially all of its taxable income.
Excess inclusion cannot be offset by a net operating loss and is considered
unrelated taxable business income under Section 511.


9.       OBLIGATIONS UNDER FINANCING FACILITIES

         DEFAULT DECLARATIONS

         As a result of the bankruptcy petition filed on October 5, 1998, 
certain lenders have declared defaults or otherwise taken action against the 
Company with respect to a number of CRIIMI MAE's financing facilities. See 
Note 18 for a discussion of material litigation between the Company and 
various creditors and agreements the Company has reached with certain of 
these creditors.

         The following table summarizes CRIIMI MAE's debt outstanding as of
December 31, 1998 and 1997:


                                      F-31

<PAGE>
<TABLE>
<CAPTION>
                                                                                        Year Ended December 31, 1998  
                                                                                        ----------------------------  
                                                                                                             Stated
                                          Balance          Eff. Rate         Average         Average       Maturity   
Type of Debt                            At Year End       At Year End        Balance        Eff. Rate        Date (9) 
------------                           ------------       -----------      ---------        ---------     ----------- 
<S>                  <C>               <C>                  <C>           <C>                 <C>         <C>    

Securitized Mortgage
  obligations:
  FHLMC Funding Note (1)               $220,822,380         7.4%          $229,137,117        7.4%        Sept 2031   
  FNMA Funding Note (2)                  84,750,764         7.3%           119,316,182        7.3%        March 2035  
  CMO (3)                               150,528,576         7.4%           166,408,357        7.4%        Jan 2033    
  CMO-Loan Originations (6)             386,752,951         6.5%           222,114,163        6.5%        Oct 2001 -  
                                                                                                          May 2008
  Subordinated CMBS  (7)                117,831,435         7.7%           122,861,289        7.6%        Nov 2006 -  
                                                                                                          Nov 2011

Variable-Rate Secured borrowings -                                                                        April 1998 -
  Subordinated CMBS (8)                 932,236,674         7.2%           802,562,377        6.8%        Sept 2000   
Bank term loans (5)                       3,050,000         1.8%             3,000,238        3.9%        Dec 1998    
Working capital line of credit           40,000,000         7.2%            21,918,727        7.3%        Dec 1998    
Bridge Loan                              49,749,522         7.8%            19,765,489        7.7%        Feb 1999    
Senior unsecured notes                  100,000,000         9.1%            99,902,312        9.1%        Dec 2002    
                                     --------------
   Total                             $2,085,722,302                                                                   
                                     --------------
                                     --------------

<CAPTION>
                                                       Year Ended December 31, 1997       
                                                       ----------------------------       
                                            Balance             Average           Average 
Type of Debt                                At Year End         Balance          Eff. Rate
------------                                -----------       ---------          ---------
<S>                                      <C>                 <C>                    <C>   
Securitized Mortgage                                                                      
  obligations:                                                                            
  FHLMC Funding Note (1)                 $235,773,439        $236,752,371           7.4%  
  FNMA Funding Note (2)                   145,527,438         150,431,262           7.3%  
  CMO (3)                                 178,062,444         187,986,472           7.4%  
  CMO-Loan Originations (6)                        --                  --             --  
  Subordinated CMBS  (7)                  137,061,676(4)      141,382,710           7.7%  

Variable-Rate Secured borrowings -                                                        
  Subordinated CMBS (8)                   585,379,360         280,516,984           7.0%   
Bank term loans (5)                         3,250,000           5,006,078           2.2%  
Working capital line of credit             30,000,000           1,032,609           7.2% 
Bridge Loan                                        --                  --             --  
Senior unsecured notes                     99,877,695          10,869,565           9.1% 
                                        -------------                                     
   Total                               $1,414,932,052                                     
                                        -------------                                     
                                        -------------                                     
</TABLE>

                                      F-32

<PAGE>

(1) As of December 31, 1998 and December 31, 1997, the face amount of the note
was $229,005,558 and $244,429,739, respectively, with unamortized discount of
$8,183,178 and $8,656,300, respectively. During the year ended December 31, 1998
and 1997, discount amortization of $473,122 and $343,529, respectively, was
recorded as interest expense.

(2) As of December 31, 1998 and December 31, 1997, the face amount of the note
was $86,620,792 and $147,927,688, respectively, with unamortized discount of
$1,870,028 and $2,400,250, respectively. During the year ended December 31, 1998
and 1997, discount amortization of $530,222 and $242,759, respectively, was
recorded as interest expense.

(3) As of December 31, 1998 and December 31, 1997, the face amount of the note
was $154,840,829 and $182,848,907, respectively, with unamortized discount of
$4,312,253 and $4,786,463, respectively. During the year ended December 31, 1998
and 1997, discount amortization of $474,210 and $343,048, respectively, was
recorded as interest expense.

(4) Balance represents face amount of notes, as the issuance did not include any
bond discount.

(5) The effective interest rate as of December 31, 1998 and December 31, 1997
includes the impact of a rate reduction agreement which was in place from July
1995 through December 31, 1998, providing for a reduction in the rate on a
portion of the loans based on balances maintained at the bank.

(6) As of December 31, 1998, the face amount of the debt was $392,752,908 with
unamortized discount of $5,999,957. During the year ended December 31, 1998
discount amortization of $591,817 was recorded in interest expense.

(7) As of December 31, 1998, the face amount of the debt was $122,612,000 with
an unamortized discount of $4,780,565. During the year ended December 31, 1998
discount, amortization of $156,823 was recorded in interest expense.

(8) On October 6, 1998, Morgan Stanley and Co. International Limited ("Morgan 
Stanley") advised CRIIMI MAE that it was exercising alleged ownership rights 
over certain classes of CMBS it held as collateral. Subsequent to year end, 
the Company agreed to cooperate on selling two classes of investment grade 
CMBS issued by CRIIMI MAE Commercial Mortgage Trust Series 1998-C1 (CBO-2 BBB 
Bonds) and to suspend litigation with Morgan Stanley with respect to these 
CMBS. CRIIMI MAE and Morgan Stanley also agreed to a standstill period, now 
extended through April 15, 1999, regarding seven classes of subordinated CMBS 
issued by Morgan Stanley Capital I Inc. Series 1998-WF2. On March 5, 1999, 
the CBO-2 BBB Bonds with $205.8 million face amount and a coupon rate of 7% 
were sold in a transaction accounted for as a financing by the Company rather 
than a sale. Of the $159.0 million of net sale proceeds, $141.2 million was 
used to repay borrowings under the agreement with Morgan Stanley and 
$17.8 million was paid to CRIIMI MAE.

(9) Stated maturities per respective loan agreements.

         The maturities of CRIIMI MAE's debt are as follows:

<TABLE>
<S>                                                 <C>

                  1999                              $1,198,355,141
                  2000                                  80,621,678
                  2001                                 106,419,680
                  2002                                  96,894,251
                  2003                                  88,325,311
                  Beyond                               515,106,241
                                                    --------------
                  Total (1)                         $2,085,722,302
                                                    --------------
                                                    --------------

</TABLE>

(1)  Payments of principal on the securitized mortgage obligations are required
     to the extent mortgage principal is received on the related collateral. The
     projected principal paydown on the securitized mortgage obligations is
     based upon the stated terms of the underlying mortgages.

                                      F-33

<PAGE>

COLLATERIZED BOND OBLIGATIONS - CMBS

         In May 1998, CRIIMI MAE, through its wholly-owned subsidiary CRIIMI MAE
CMBS Corp., issued an aggregate of $468 million of longer-term, fixed-rate
investment grade debt securities to reduce an equivalent amount of short-term,
variable rate secured borrowings used to initially fund CMBS acquisitions.
The transaction was structured with a total of $468 million in investment grade
securities of which $345 million were non-callable securities and $123 million
were callable securities.

         FAS 125 provides guidance as to whether a transfer of financial assets,
such as in a securitization, will qualify for sales treatment or secured
borrowing treatment. This distinction is made by concluding as to whether a
transferor relinquishes control over the transferred assets. If the transferor
is considered to no longer control the assets, the securities receive sales
treatment which calls for the de-recognition of all assets surrendered and
liabilities settled, the recognition of all assets received and liabilities
incurred and the recognition of a gain or loss through earnings. If the
transferor maintains control over the transferred assets, the assets remain on
the balance sheet and a corresponding amount of debt is recognized for all
securities not held by the transferor. The determination of control is made on a
security by security basis.

         As a result of this transaction, control as of December 31, 1998 was
retained over $123 million of the securities because CRIIMI MAE has the right to
call the securities. The $345 million of non-callable investment grade
securities were treated as a sale, the corresponding assets and debt were
de-recognized from the balance sheet and a gain of $28.8 million was recognized
through earnings. The $123 million of callable investment grade securities and
the corresponding amount of debt are recorded on the balance sheet.

COLLATERALIZED MORTGAGE OBLIGATIONS - INSURED MORTGAGE SECURITIES

         During late 1995, CRIIMI MAE, through three wholly owned financing
subsidiaries, issued approximately $664 million (face amount) of long-term,
fixed-rate debt in order to refinance short-term, variable-rate debt. Changes in
interest rates will have no impact on the cost of funds or the collateral
requirements on this debt. Proceeds from the issuance of this long-term debt,
net of original issue discount, were originally applied as follows:
approximately $557 million was used to pay down short-term, variable-rate debt
facilities, approximately $8 million was used to pay transaction costs and
approximately $80 million was used to purchase Subordinated CMBS.

         The refinancings were completed through three separate transactions.
GNMA Mortgage-Backed Securities with a fair value of approximately $233 million
as of December 31, 1998, are pledged as security for a funding note payable to
Freddie Mac (the FHLMC Funding Note). The Collateralized Mortgage Obligations
(CMOs) are collateralized by FHA-Insured Loans and GNMA Mortgage-Backed
Securities with a fair value of approximately $161 million as of December 31,
1998. GNMA Mortgage-Backed Securities with a fair value of approximately $89
million as of December 31, 1998, are pledged as security for a funding note
payable to the Federal National Mortgage Association (the FNMA Funding Note).

         Each of the above-mentioned transactions has been accounted for as a
financing in accordance with FASB Technical Bulletin 85-2. The discount on the
CMOs and the Funding Notes is being amortized on a level yield basis.
Transaction costs were capitalized and are included in deferred costs on the
accompanying balance sheet as of December 31, 1998 and 1997.

COLLATERALIZED MORTGAGE OBLIGATIONS - ORIGINATED LOANS

         In the June 1998 CMO-IV transaction, through the securitization of $496
million of originated or acquired commercial mortgage loans, CRIIMI MAE sold
$397 million face amount of fixed-rate investment grade debt securities. CRIIMI
MAE retained call options on all of the securities such that control was not
relinquished. Therefore, the mortgage loans remain on CRIIMI MAE's balance sheet
as assets for accounting purposes along with these collateralized mortgage
obligations for all securities sold by CRIIMI MAE.

         The securities were issued at a discount of approximately $6.6 million.
Such discount, as well as approximately $6.7 million of deferred costs and
securitization transaction costs are amortized on a level yield basis over the
expected life of the related security. The securities not sold to third parties
were partially financed with 


                                      F-34

<PAGE>

secured borrowings. The lending agreements are secured by certain of the CMO-IV
securities with an aggregate fair value of approximately $92.9 million as of
December 31, 1998.

         The Company intended to sell certain of the CMO-IV securities that were
not initially sold to third parties ("CMO-IV BBB Bonds"). In anticipation of
this sale, the Company entered into a transaction to hedge the value of those
securities in June 1998. As a result, CRIIMI MAE borrowed and then sold a
10-year Treasury Note in the amount of $44 million. Economically, CRIIMI MAE
would gain on this transaction if the price of the 10-year Treasury Note
declines (i.e. the yield on the 10-year Treasury Note increases). CRIIMI MAE
would lose on this transaction if the price of the 10-year Treasury Note
increases (i.e. the yield on the 10-year Treasury Note decreases). The
transaction was expected to offset the change in value of the securities.
However, this transaction did not qualify for hedge accounting because (1) it
involved the purchase and sale of a cash instrument and (2) it had not been
effective in offsetting changes in the value of the hedged security. Therefore
it was required to be recorded at market ("marked to market") with unrealized
gains or losses reflected in the Company's income statement. The Company was
informed by Citibank that the position was closed on October 8, 1998. Because
Treasury prices increased from the initial transaction date, the Company's
liability was approximately $4.5 million in excess of the initial sales proceeds
received from the transaction as of October 8, 1998. Therefore, the Company
recognized a $4.5 million realized loss through earnings in 1998, of which,
approximately $4.1 million of the loss was recognized as of September 30, 1998
with the remaining $400,000 loss recognized in the fourth quarter.

VARIABLE RATE SECURED BORROWINGS-CMBS

         As previously discussed, when CRIIMI MAE purchased Subordinated CMBS,
it initially financed (generally through secured borrowings) a portion of the
purchase price of the Subordinated CMBS. These secured borrowings were either
provided by the issuer of the CMBS pool or through master secured borrowing
agreements, as discussed below. As of December 31, 1998, the secured borrowings
on Subordinated CMBS have stated maturity dates ranging from March 1999 to
September 2000 and have interest rates that are generally based on the one-month
London Interbank Offered Rate (LIBOR), plus a spread ranging from 0.5% to 1.5%.

         The secured borrowing agreements are secured by certain rated CMBS
security tranches with an aggregate fair value of approximately $1.1 billion as
of December 31, 1998 and $891 million as of December 31, 1997. CRIIMI MAE's
short-term variable rate financing facilities require that the value of the
collateral securing the facilities meet a minimum loan-to-value ratio. If the
value of the collateral is perceived such that the minimum loan-to-value ratio
is not met, then the lender may require the Company to post cash or additional
collateral with sufficient value to cure the perceived value deficiency. At
December 31, 1998, CRIIMI MAE had secured borrowing agreements with German
American Capital Corporation, Lehman ALI, Inc. First Union National Bank of
North Carolina, Morgan Stanley, Merrill Lynch and Citicorp Securities, Inc.
("Citicorp"). These secured borrowing agreements qualify as financings under FAS
125 because CRIIMI MAE is required to purchase the same securities
collateralizing the borrowing before their maturity. Citicorp and Morgan Stanley
have each taken the position that CMBS that were pledged to them by the Company
were instead sold to them by the Company because the transactions between the
parties were documented using Bond Market Association Master Repurchase
Agreement forms. The Company disputes the positions of both Citicorp and Morgan
Stanley and has filed two complaints contesting their claims of ownership. If,
however, Citicorp and Morgan Stanley prevail, the portfolio value of the
Company's owned securities would decrease by the amount of bonds that are deemed
to have been sold to Citicorp or Morgan Stanley and the corresponding
obligations would also decrease.
(See Note 18 ).

SENIOR UNSECURED NOTES

         In November 1997, CRIIMI MAE issued senior unsecured notes ("Notes")
due on December 1, 2002 in an aggregate principal amount of $100 million. The
Notes are effectively subordinated to the claims of any secured lender to the
extent of the value of the collateral securing such indebtedness. Interest on
the Notes is payable semi-annually in arrears on June 1 and December 1,
commencing June 1, 1998 at a fixed annual rate of 9.125%. The Notes are
redeemable at any time, in whole or in part, at the option of CRIIMI MAE.

         The Indenture contains certain covenants which, among other things,
restricted the ability of the Company and its subsidiaries to incur additional
indebtedness, pay dividends, or make distributions in respect of the

                                      F-35

<PAGE>

Company's or such subsidiaries' capital stock, make other restricted payments,
enter into transactions with affiliates or related persons, or consolidate,
merge or sell all or substantially all of their assets. These covenants were
subject to exceptions and qualifications.

         Under the terms of the Indenture, the Company could not incur
additional indebtedness (except for Permitted Debt, which included secured
borrowings, working capital lines of credit, borrowings under facilities in
place as of November 21, 1997), unless at the time of such incurrence either (a)
the ratio of Adjusted Earnings Available for Fixed Charges to Adjusted Fixed
Charges giving proforma effect for the new borrowings is greater than 1.75 to
1.0 or (b) the Adjusted Debt to Capital Ratio on a proforma basis after giving
effect to the incurrence of the new debt is less than 2.0 to 1.0.

BANK TERM LOANS

         In connection with the Merger, CM Management assumed certain debt of
certain mortgage businesses affiliated with C.R.I., Inc. in the principal amount
of $9.1 million (the "Bank Term Loan"). The Bank Term Loan is secured by certain
cash flows generated by CRIIMI MAE's direct and indirect interests in the AIM
Funds and is guaranteed by CRIIMI MAE. The loan required quarterly principal
payments of $650,000 and matured on December 31, 1998. The amount outstanding as
of December 31, 1998 and December 31, 1997 was $1.3 million and $3.2 million,
respectively. Interest on the loan is based on CRIIMI MAE's choice of one, two
or three-month LIBOR, plus a spread of 1.25%.

         In addition, in connection with a Real Estate Owned Property, CRIIMI
MAE has a loan secured by the Real Estate Owned Property and guaranteed by
CRIIMI MAE. The loan requires monthly interest payments and a balloon principal
payment at maturity. The loan was made January 22, 1998 and matures August 1,
1999. The amount outstanding as of December 31, 1998 was $1.75 million. Interest
on the loan is based on LIBOR, plus a spread of 1.5%.

WORKING CAPITAL LINE OF CREDIT

         In late 1996, CRIIMI MAE entered into an unsecured working capital line
of credit provided by two lenders with a termination date of December 31, 1998,
which provides for up to $40 million in borrowings. Outstanding borrowings under
this line of credit are based on interest at one-month LIBOR, plus a spread of
1.75%. As of December 31, 1998 and December 31, 1997, $40 million and $30
million, respectively, in borrowings were outstanding under this facility.

BRIDGE LOAN

         In August 1998, CRIIMI MAE entered into a bridge loan for $50 million
provided by a lender. The total unpaid principal balance and accrued interest
was due in February 1999. Outstanding borrowings under this facility based on
interest at one-month LIBOR, plus a spread of 2.25%. As of December 31, 1998,
approximately $50 million in borrowings was outstanding under this loan.


                                      F-36

<PAGE>

OTHER DEBT RELATED INFORMATION

         Changes in interest rates will have no impact on the cost of funds or
the collateral requirements on CRIIMI MAE's fixed-rate debt, which approximates
51% of CRIIMI MAE's consolidated debt as of December 31, 1998. Fluctuations in
interest rates will continue to impact the value of that portion of CRIIMI MAE's
mortgage assets which are not match-funded and could impact potential returns to
shareholders through increased cost of funds on the variable-rate debt in place.
CRIIMI MAE has a series of interest rate cap agreements in place in order to
partially limit the adverse effects of rising interest rates on the remaining
variable-rate debt. When CRIIMI MAE's cap agreements expire, CRIIMI MAE will
have interest rate risk to the extent interest rates increase on any
variable-rate borrowings unless the caps are replaced or other steps are taken
to mitigate this risk. Furthermore, CRIIMI MAE has interest rate risk to the
extent that the LIBOR interest rate increases between the current rate, as of
December 31, 1998, of 5.06% and the cap rate. However, CRIIMI MAE's investment
policy requires that at least 75% of variable-rate debt be hedged. As of
December 31, 1998, 79% of CRIIMI MAE's variable-rate debt is hedged.

         For the year ended December 31, 1998, CRIIMI MAE's weighted average
cost of borrowing, including amortization of discounts and deferred financing
fees of approximately $6.5 million, was approximately 7.37%. This does not
include the write-off of costs and discounts related to liabilities subject to
Chapter 11. As of December 31, 1998, CRIIMI MAE's debt-to-equity ratio was
approximately 6.8 to 1.0 and CRIIMI MAE's non-match-funded debt-to-equity ratio
was approximately 3.7 to 1.0. Under certain of CRIIMI MAE's existing debt
facilities, CRIIMI MAE's debt-to-equity ratio, as defined, may not exceed 5.0 to
1.0, among other requirements.

10.      INTEREST RATE PROTECTION AGREEMENTS

         CRIIMI MAE has entered into interest rate protection agreements to
partially limit the adverse effects of rising interest rates on its
variable-rate borrowings. Interest rate caps ("caps"), as shown below, provide
protection to CRIIMI MAE to the extent interest rates, based on a readily
determinable interest rate index, increase above the stated interest rate cap,
in which case, CRIIMI MAE will receive payments based on the difference between
the index and the cap. All of the caps qualify for hedge accounting treatment.
Therefore the related cost, as well as gains or losses on terminated positions,
have been deferred as a component of the related debt. At December 31, 1998,
CRIIMI MAE held caps with a notional amount of $810 million and the caps are
used to hedge $810 million of the Company's variable rate debt.

<TABLE>
<CAPTION>
Notional
Amount            Effective Date        Maturity Date (2)     Cap(2)     Index
-----------       ---------------       ----------------      -------    --------
<S>               <C>                   <C>                   <C>        <C>     
$  35,000,000     February 2, 1994      February 2, 1999      6.1250%    1M LIBOR
  100,000,000     April 8, 1997         April 10, 2000        6.6875%    1M LIBOR
  100,000,000     September 22, 1997    September 22, 2000    6.6563%    1M LIBOR
  100,000,000     December 7, 1997      November 7, 2000      6.6563%    1M LIBOR
   50,000,000     December 23, 1997     December 23, 2000     6.9688%    1M LIBOR
  100,000,000     March 11, 1998        March 10, 2001        6.6875%    1M LIBOR
  100,000,000     March 31, 1998        March 31, 2001        6.6875%    1M LIBOR
  100,000,000     June 4, 1998          June 4, 2001          6.6563%    1M LIBOR
  100,000,000     June 26, 1998         June 26, 2001         6.6563%    1M LIBOR
   25,000,000     September 6, 1998     August 6, 2001        6.6523%    1M LIBOR
------------
$810,000,000 (1)
------------
------------
</TABLE>

----------
(1) CRIIMI MAE's designated interest rate protection agreements hedge CRIIMI
MAE's variable-rate borrowing costs.

(2) The weighted average strike price is approximately 6.6% and the weighted
average remaining term for these interest rate cap agreements is approximately 2
years.

                                      F-37

<PAGE>

         CRIIMI MAE is exposed to credit loss in the event of non-performance by
the counterparties to the interest rate protection agreements should interest
rates exceed the caps. However, management does not anticipate non-performance
by any of the counterparties. All of the counterparties have long-term debt
ratings of A+ or above by Standard and Poor's and A1 or above by Moody's.
Although none of CRIIMI MAE's caps 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.


11.       COMMON STOCK

SHELF REGISTRATION STATEMENT

         The Company has on file with the Securities and Exchange Commission 
a Shelf Registration Statement on Form S-3 registering for sale of Debt 
Securities, Preferred Shares, Warrants, and Common Shares. CRIIMI MAE may, 
from time to time, offer in one or more series the securities in amounts, at 
prices and on terms set forth in supplements to the Registration Statement. 
As of December 31, 1998, a total amount of approximately $340 million remains 
available under the Shelf Registration Statement.

         CRIIMI MAE had common shares issued and outstanding as of December 31,
1998 and 1997 of 52,898,100 and 40,131,551, respectively. The following material
transactions occurred during the year.

         In January 1998, CRIIMI MAE completed an offering of 2.389 million
         common shares at a price of $15 1/8 per share, resulting in net
         proceeds of approximately $34 million. These proceeds were used to
         paydown a working capital line, to purchase Subordinated CMBS and to
         fund a portion of the loan origination program.

         In March 1998, CRIIMI MAE completed an offering of 2.6 million common
         shares at an offering price of $15 5/16 per share, which resulted in
         net offering proceeds of approximately $38 million. Net proceeds of the
         offering were used to fund a portion of the loan origination program
         and to purchase Subordinated CMBS.

         In July 1998, the Company's Articles of Incorporation were amended at a
         special shareholders' meeting to increase the number of common shares
         authorized from 60 million shares to 120 million shares.

STOCK PURCHASE PLAN

         In December 1997, CRIIMI MAE registered with the Securities and
Exchange Commission up to 3 million shares of CRIIMI MAE common stock ("Common
Shares") in connection with a new Dividend Reinvestment and Stock Purchase Plan
(the "Plan"). Subsequently, in May 1998, the shareholders approved the issuance
of up to 4.7 million common shares in connection with the Plan. The Plan allows
investors the opportunity to purchase additional CRIIMI MAE Common Shares
through the reinvestment of CRIIMI MAE's dividends, optional cash payments and
initial cash investments. Participants in the Plan and interested investors may:

-  Invest by making optional cash payments at any time up to a maximum of
   $10,000 per month, regardless of whether the participants' dividends
   are being reinvested.

-  Make an initial cash investment up to a maximum of $10,000.

-  Invest by making an initial cash investment in excess of $10,000 or
   optional cash payment in excess of $10,000 per month, subject to
   permission of the Company, regardless of whether the participants'
   dividends are being reinvested.

-  Automatically reinvest cash dividends on all or a portion of their
   Common Shares.


                                      F-38
<PAGE>

     To fulfill Plan requirements, Common Shares may be, at CRIIMI MAE's option,
purchased in the open market or in privately negotiated transactions or from the
Company. The price to participants of Common Shares purchased with reinvested
dividends or with optional cash payments that do not exceed $10,000 will reflect
a discount, initially, of 2% from the market price. Common shares purchased with
optional cash payment exceeding $10,000 (as approved by the Company) may reflect
a discount ranging from 0% to 5%. No discount will be offered on Common Shares
purchased under the Plan with initial cash investments. All costs of
administering the Plan are paid by CRIIMI MAE. There are no brokerage fees,
commissions or service charges associated with the purchase of Common Shares
through the Plan.

     During the year ended December 31, 1998, 2,764,063 Common Shares were newly
issued under the Dividend Reinvestment and Stock Purchase Plan resulting in net
proceeds of $39 million. In October 1998, due to the filing under Chapter 11,
the Company suspended the initial cash investment and optional cash payment
portion of the Plan until further notice.

DIVIDENDS

     The Company paid the following common share dividends:

<TABLE>
<CAPTION>
                          1998                     1997               1996
                        Dividends                Dividends           Dividends
Quarter Ended           Per Share                Per Share           Per Share
-------------           ---------                ---------           ---------
<S>                     <C>                      <C>                 <C>     
March 31                $   0.37                 $    0.35           $   0.30
June 30                     0.40                      0.35               0.30
September 30                0.40                      0.35               0.30
December 31                   --(1)                   0.37               0.32
                        --------                 ---------            -------

                        $   1.17                 $    1.42            $  1.22
                        --------                 ---------            -------
                        --------                 ---------            -------
</TABLE>



(1) During the pendency of the bankruptcy proceedings, the Company is prohibited
from paying dividends without first obtaining Bankruptcy Court approval. (See
Note 1-Effect of Chapter 11 Filing on REIT Status and other Tax Matters).

TREASURY SHARES

     In March 1998, approximately 540,000 treasury shares were retired.


12.       PREFERRED STOCK

     Additionally, CRIIMI MAE's charter authorizes the issuance of up to 
25,000,000 shares of preferred stock, of which 150,000 shares have been 
designated as Series A Cumulative Convertible Preferred Shares, 3,000,000 
shares have been designated as Series B Cumulative Convertible Preferred 
Shares, 300,000 shares have been designated as Series C Cumulative 
Convertible Preferred Shares and 300,000 shares have been designated as 
Series D Cumulative Convertible Preferred Shares as of December 31, 1998.

SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK

     In July 1996, CRIIMI MAE completed a public offering of 75,000 shares of
Series A Cumulative Convertible Preferred stock, with a par value of $0.01 per
share (the "Series A Preferred Shares"), at an aggregate offering price of
$7,500,000. The Series A Preferred Shares paid a dividend based on a fixed
premium over three-month LIBOR and, subject to the terms of CRIIMI MAE's
Articles of Incorporation, as amended and supplemented, are (i) convertible at
the option of the holders, (ii) subject to mandatory conversion by CRIIMI MAE
and (iii) subject to redemption by CRIIMI MAE. The number of common shares
deliverable upon conversion of a Series A Preferred Share is equal to a fraction
(i) the numerator of which is 100 and (ii) the denominator of which is 94% of
the average of the closing trade prices reported on the New York Stock Exchange
of CRIIMI MAE's common shares 

                                     F-39

<PAGE>


for the 21 days prior to the date notice of conversion is received. The
liquidation preference and the redemption price on the Series A Preferred Shares
equals $100 per share, together with accrued but unpaid dividends. The Series A
Preferred Shares were purchased by a single European institutional investor.
CRIIMI MAE also acquired a put option to sell up to an additional 75,000 Series
A Preferred Shares, at a price of $100 per share, to such investor at any time
prior to July 1, 1997.

     In late 1996, the holder of the Series A Preferred Shares elected to
exercise its right to convert the initial 75,000 Series A Preferred Shares into
744,512 shares of common stock. In December 1996, CRIIMI MAE exercised its put
option to sell an additional 75,000 Series A Preferred shares to such investor
at an aggregate offering price of $7,500,000. On January 15, 1997, the holder of
the Series A Preferred Shares elected to exercise its right to convert 25,000
Series A Preferred Shares into 208,011 shares of common stock. On February 3,
1997, the holder converted an additional 25,000 Series A Preferred Shares into
190,212 shares of common stock. On March 16, 1997, the holder of the Series A
Preferred Shares converted the remaining 25,000 Series A Preferred shares into
190,212 shares of common stock. Accordingly, as of December 31, 1998 and 1997
there were no Series A Preferred shares outstanding. Dividends paid and accrued
on Series A Preferred shares totaled $0 and $50,848 for the years ended December
31, 1998 and 1997, respectively.

SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK

     In August 1996, CRIIMI MAE completed a public offering of 2,415,000 shares
of Series B Cumulative Convertible Preferred Shares , with a par value of $0.01
per share (the "Series B Preferred Shares"), at an aggregate offering price of
$60,375,000. The Series B Preferred Shares pay a dividend in an amount equal to
the sum of (i) $0.68 per share per quarter plus (ii) the product of the excess
over $0.30, if any, of the quarterly cash dividend declared and paid with
respect to each share of common stock times a conversion ratio of 2.2844 times
one plus a conversion premium of 3%, subject to adjustment upon the occurrence
of certain events. The Series B Preferred Shares are (i) convertible at the
option of the holders and (ii) subject to redemption at CRIIMI MAE's sole
discretion after the tenth anniversary of issuance. Each Series B Preferred
Share is convertible into 2.2844 shares of common stock, subject to adjustment
upon the occurrence of certain events. The liquidation preference and the
redemption price on the Series B Preferred Shares equals $25 per share, together
with accrued but unpaid dividends. As of December 31, 1997, 1,679,376 Series B
Preferred Shares were outstanding. During the year ended December 31, 1998,
85,394 Series B Preferred Shares were converted into 195,072 shares of common
shares, resulting in 1,593,982 Series B Preferred Shares outstanding as of
December 31, 1998. Dividends paid and accrued on Series B Preferred Shares
totaled $5,428,766 (of which, $1,083,908 was accrued, but not paid to date as a
result of the Chapter 11 filing) and $6,152,143 for the years ended December 31,
1998 and 1997, respectively.

SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK

     In March 1997, CRIIMI MAE entered into an agreement with an institutional
investor pursuant to which the Company has the right to sell, and such investor
is obligated to purchase, up to 300,000 shares of Series C Cumulative
Convertible Preferred Stock, par value $.01 per share, through June 1998 at a
price of $100 per share. The Series C Cumulative Convertible Preferred stock
pays a dividend at an annual rate equal to the sum of (i) 75 basis points plus
(ii) LIBOR as of the second LIBOR Market Day preceding the commencement of the
calendar quarter which includes such quarterly dividend payment. The preferred
stock will be convertible into shares of common stock at the option of the
holders and is subject to redemption by CRIIMI MAE. Each Series C Preferred
Share is convertible into common shares based on the following formula: the
numerator is $100 and the denominator is a closing trade price within the
conversion period on the average of the closing trade price or the applicable
twenty-one day period immediately preceding the date of delivery, whichever is
mutually acceptable. The liquidation preference and redemption price on the
Series C Preferred Shares equals $100 and $106, respectively, per share plus an
amount equal to all dividends accrued and unpaid thereon. On September 23, 1997,
150,000 shares were issued under this agreement, resulting in net proceeds of
approximately $15 million. On February 23, 1998, 150,000 Series C Preferred
Shares were issued under this agreement, resulting in net proceeds of
approximately $15 million. These proceeds were used to fund purchases of
Subordinated CMBS (as discussed in Note 5). As of December 31, 1997, 150,000
Series C Preferred Shares were outstanding. During the year ended December 31,
1998, 177,000 Series C Preferred Shares were converted into 4,751,341 common
shares of which 4,046,154 common shares were converted in the fourth quarter,
resulting in 123,000 Series C Preferred Shares outstanding at December 31, 1998.
Dividends paid and accrued on Series C Preferred Shares totaled $1,305,082 (of

                                     F-40

<PAGE>


which $259,139 was accrued, but not paid to date as a result of the Chapter 11
filing) and $269,531 for the year ended December 31, 1998 and 1997,
respectively.

SERIES D CUMULATIVE CONVERTIBLE PREFERRED STOCK

     In July 1998, CRIIMI MAE entered into an agreement with an institutional
investor pursuant to which the Company had the right to sell, and such investor
was obligated to purchase, up to 300,000 shares of Cumulative Convertible
Preferred Stock par value $.01 per share at price of $100 per share. The Series
D Cumulative Convertible Preferred Stock pays a dividend at an annual rate equal
to the sum of (i) 75 basis points plus (ii) LIBOR as of the second LIBOR Market
Day preceding the commencement of the calendar quarter which includes such
quarterly dividend payment. The preferred stock will be convertible into shares
of common stock at the option of the holders and is subject to redemption by
CRIIMI MAE. Each Series D Preferred Share is convertible into common shares
based on the following formula: the numerator is $100 and the denominator is a
closing trade price within the conversion period on the average of the closing
trade price or the applicable twenty-one day period immediately preceding the
date of delivery, whichever is mutually acceptable. The liquidation preference
and redemption price on the Series D Preferred Shares equals $100 and $106,
respectively, per share plus an amount equal to all dividends accrued and unpaid
thereon. On July 31, 1998, 100,000 Series D Preferred Shares were issued under
this agreement, resulting in net proceeds of approximately $10 million. There
were no shares converted to common shares during the year, resulting in 100,000
shares outstanding at December 31, 1998. Dividends paid and accrued on Series D
Preferred Shares totaled $264,011 (of which, $154,931 was accrued, but not paid
to date as a result of the Chapter 11 filing) for the year ended December 31,
1998.

                                     F-41

<PAGE>

13.       EARNINGS PER SHARE

     The following table reconciles basic and diluted earnings per share under
FAS 128 for the years ended December 31, 1998, 1997 and 1996.

<TABLE>
<CAPTION>
                 For the year ended 1998                 For the year ended 1997                 For the year ended 1996
                 -----------------------                 -----------------------                 -----------------------
                                            Income                                   Income                                Income
                                            Per Share                                Per Share                             Per Share
                 Income       Shares        Amount       Income        Shares        Amount      Income       Shares       Amount
                 ------       ------        ------       ------        ------        ------      ------       ------       ------
<S>              <C>          <C>           <C>          <C>           <C>           <C>         <C>          <C>          <C>    
Net Income
Available to
Common
Shareholders     $35,370,734  47,280,371    $  0.75      $47,715,076   36,993,130    $  1.29     $31,713,406  30,665,052   $  1.03

Effect of
Dilutive
Securities

Net effect of
assumed
exercise of
stock options             --     302,390                          --    1,024,400                         --     188,459
                                                                                                         

Convertible
Preferred
Stock (1)
Diluted EPS          264,011     622,748                     320,379      334,110                    128,546     155,132
                     -------     -------                     -------      -------                    -------     -------

Income
available to
Common
Shareholders
and assumed
conversions      $35,634,745  48,205,509    $  0.74      $48,035,455   38,351,640     $  1.25    $31,841,952  31,008,643   $  1.03
                 -----------  ----------    -------      -----------   ----------     -------    -----------  ----------   -------
                 -----------  ----------    -------      -----------   ----------     -------    -----------  ----------   -------
</TABLE>


---------------------------
(1) 1,593,982, 1,679,376 and 2,415,000 shares of Series B Preferred Shares were
outstanding at the end of 1998, 1997 and 1996, respectively; 123,000 shares of
Series C and 100,000 shares of Series D were outstanding at December 31, 1998.
The common stock equivalents for these shares were not included in the
calculation of diluted EPS because the effect would be anti-dilutive.

                                     F-42

<PAGE>

14.       STOCK BASED COMPENSATION PLANS

     CRIIMI MAE has two stock option plans, the Stock Option Plan for Key
Employees ("Key Employee Plan") and the 1996 Non-Employee Director Stock Plan
("Director Plan"). In addition, as discussed in Note 16, CRIIMI MAE has granted
to each of Messrs. Dockser and Willoughby options to purchase common stock under
separate stock option agreements (the "Agreements") resulting from the Merger.
CRIIMI MAE accounts for these Agreements and Plans under APB Opinion No. 25,
under which no compensation cost has been recognized. The value of option shares
granted as part of the Merger was capitalized as a component to goodwill.
Accordingly, the pro forma information below excludes option shares granted at
the time of the Merger. During 1996, FASB Statement No. 123 became effective.
This Statement requires pro forma disclosure of the impact on net income and
earnings per share as if the options were recorded at their estimated fair value
at the issuance date and amortized over the options' vesting period. Had
compensation cost for these Plans been determined consistent with FASB Statement
No. 123, CRIIMI MAE's net income and earnings per share would have been recorded
at the following pro forma amounts:

<TABLE>
<CAPTION>
                                                          1998                   1997                1996
                                                       ----------            ----------           ----------
<S>                         <C>                        <C>                   <C>                  <C>        
Net Income
available to                As Reported                $35,370,734           $47,715,076          $31,713,406
common shareholders         Pro Forma                   34,739,667            47,553,237           31,695,973

Basic EPS:                  As Reported                $      0.75           $      1.29           $      1.03
                            Pro Forma                         0.73                  1.29                  1.03
Diluted EPS:                As Reported                       0.74                  1.25                  1.03
                            Pro Forma                         0.73                  1.25                  1.03
</TABLE>

     CRIIMI MAE may grant options for up to 2,000,000 common shares under the 
Key Employee Plan. CRIIMI MAE has granted options on 1,657,500 shares through 
December 31, 1998. Under the Key Employee Plan, options granted prior to July 
28, 1995, have an option price of $9.77, and options granted after July 28, 
1995, must have an option price of not less than fair market value of a share 
of common stock on the date of grant. Options vest in equal installments on 
either the first three or four anniversaries of the date of grant and expire 
after eight years.

     CRIIMI MAE may grant options for up to 500,000 common shares under the 
Director Plan. CRIIMI MAE has granted options on 6,000 common shares through 
December 31, 1998. Under the Director Plan, the option exercise price is 
equal to the market price of a share of common stock on the date of grant, 
the options vest immediately, and the options expire after ten years.

     Under the Agreements, each of the Principals received from CRIIMI MAE
options to purchase 1,000,000 common shares at an exercise price equal to $1.50
per share more than the aggregate average of the high and low sales prices of
common shares on the New York Stock Exchange during the 10 trading days
preceding the Closing Date, which average sales price was calculated at $8.27
per share the (Trading Price) and 400,000 common shares at an exercise price
equal to $4.00 per share more than the Trading Price. These options vest in
equal installments on the first five anniversaries of the Closing Date. The
Principals also received options to purchase 100,000 common shares exercisable
at $5.00 more than the Trading Price that vest on the fifth anniversary of the
Closing Date. The options expire on the eighth anniversary of the Closing Date.

                                     F-43

<PAGE>

     A summary of the status of CRIIMI MAE's three stock option plans, and
shares granted at the time of the Merger, at December 31, 1998, 1997 and 1996,
and changes during the years then ended is presented in the table below:

<TABLE>
<CAPTION>
                                     1998                               1997                         1996
                           -------------------------         ----------------------------     --------------------
                                           Wtd Avg                              Wtd Avg                   Wtd Avg
                              Shares       Ex Price             Shares          Ex Price        Shares    Ex Price
                           --------        ---------         -----------      -----------     -------     -------
<S>                       <C>                <C>               <C>                <C>         <C>         <C>     
Outstanding at
  beginning of year       3,487,676          $  11.40          3,091,500          $ 10.62     3,230,000   $  10.54
    Granted                 776,000             15.75            514,500            15.58       133,000      10.88
    Exercised               (69,699)             9.94            (73,741)            9.79      (230,668)      9.77
    Forfeited              (104,331)            15.29            (44,583)           13.44      (40,832)      10.04
    Expired                      --               --                  --             --            --           --
                           ---------          --------          ---------         -------     ---------    -------
Outstanding at end
  of year                  4,089,646          $  12.15          3,487,676         $ 11.34     3,091,500    $ 10.62
                           ---------          --------          ---------         -------     ---------    -------
                           ---------          --------          ---------         -------     ---------    -------

Exercisable at end
  of year                  1,752,982          $  10.85          1,073,059         $ 10.93       447,999    $ 10.89
                           ---------          --------          ---------         -------     ---------    -------
                           ---------          --------          ---------         -------     ---------    -------
Weighted average fair
  value of options granted
  during the year                             $   1.33                            $  1.55                  $   .81
                                              --------                            -------                  -------
                                              --------                            -------                  -------
</TABLE>

     The 4,089,646 options outstanding at December 31, 1998 have exercise prices
between $9.77 and $15.9375, with a weighted average exercise price of $12.15 and
a weighted average remaining contractual life of 3.9 years.

     The fair value of the 1998, 1997 and 1996 option grants was estimated on
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants in 1998, 1997 and 1996,
respectively: risk-free interest rate of 4.95%, 6.10% and 6.16%; expected life
of 8.00, 2.60 and 2.05 years; expected volatility of 26.6%, 25.2% and 22.5%;
dividend yield of approximately 9.4%, 9% and 9%.

15.       EMPLOYEE RETENTION PLAN

     On December 18, 1998, the Company obtained Bankruptcy Court approval to 
adopt and implement an employee retention program ("the Employee Retention 
Plan") with respect to all employees of the Company other than certain key 
executives. On February 28, 1999 the Company received Bankruptcy Court 
approval authorizing it to extend the Employee Retention Plan to the key 
executives initially excluded, including modifying existing employment 
agreements and entering into new employment agreements with such key 
executives. The Employee Retention Plan provides for retention payments 
aggregating approximately $4.6 million, including payments to certain 
executives. Retention payments are payable semiannually over a two-year 
period. The first retention payment vested on April 5, 1999 and will be paid 
on April 15, 1999. The entire unpaid portion of the retention payments will 
become immediately due and payable (i) upon the effective date of a plan 
reorganization and, with respect to certain key executives, court approval or 
(ii) upon termination without cause. William B. Dockser, Chairman of the 
Board of the Company, and H. William Willoughby, President, are not currently 
entitled to receive any retention payments. Subject to the terms of their 
respective employment agreements, certain key executives will be entitled to 
severance benefits if they resign or their employment is terminated following 
a change of control. The other employees will be entitled to severance 
benefits if they are terminated subsequent to a change of control of the 
Company, but only, with the exception of certain key executives, if such 
change of control results in the successful emergence of the Company and CM 
Management from Chapter 11. In addition, all options granted by the Company 
after October 5, 1998 shall immediately become exercisable upon a change of 
control.

                                     F-44

<PAGE>

16.       MERGER OF CRI MORTGAGE BUSINESSES

     On June 30, 1995, CRIIMI MAE consummated the Merger in order to become
self-administered and self-managed. Certain mortgage businesses affiliated with
C.R.I., Inc. ("the CRI Mortgage Businesses") were affiliated because they were
primarily owned by the Chairman and the President of CRIIMI MAE (the
"Principals"). The CRI Mortgage Businesses performed mortgage advisory,
origination, underwriting, investment and related activities to CRIIMI MAE and
other entities. The Merger was approved by a majority of CRIIMI MAE's
shareholders and all of the Company's independent directors. In reaching the
decision to merge, the independent advisor obtained a fairness opinion from Duff
& Phelps and financial advisory assistance from Merrill Lynch.

     The consideration paid by CRIIMI MAE (measured on the Closing Date of June
30, 1995) for the CRI Mortgage Businesses was approximately $32.9 million.
Additionally, CRIIMI MAE incurred costs of approximately $3.3 million to execute
the Merger. As part of the consideration paid in the Merger, CRIIMI MAE issued,
on the Closing Date, 1,325,419 shares of common stock ("Common Shares"), which
vested immediately, to each of the Principals. On the Closing Date, CRIIMI MAE
issued, for services rendered in connection with the Merger, to certain
executive officers (collectively, the "Executive Officers") a total of 110,452
common shares. The common shares issued to the Executive Officers vested in
three equal installments on the first three anniversaries of the Closing Date.
As a result of these transactions, the Principals and Executive Officers held
approximately 10% of the 30,407,024 common shares issued and outstanding as of
December 31, 1995. Pursuant to the Merger Agreement, CM Management became liable
for certain debt of the CRI Mortgage Businesses in the principal amount of $9.1
million, as discussed in Note 9.

     CRIIMI MAE allocated the purchase price to the fair value of the assets
acquired, and the excess of the purchase price over the fair value of the net
assets acquired is allocated to goodwill. CRIIMI MAE determined the fair values
based on the present value of the cash flow streams discounted at a rate
commensurate with the associated risk of investing in and owning those assets.
The allocation of the purchase price is as follows:

<TABLE>
<CAPTION>
                                                                                Amortization
                                                                                   Period
                                                              Amount               (Years)
                                                              ----------        ----------
<S>                                                           <C>               <C>
AIM subadvisory contracts and certain
  mortgage servicing contracts (1)                            $  7,409,000             10
Mortgage servicing assets (2)                                 $    881,000             10
Terminated contract and workforce (3)                         $ 23,900,000             10
Goodwill (4)                                                  $  4,079,839             10
</TABLE>

(1) The fair value of the AIM subadvisory contracts and of certain mortgage
servicing contracts was determined based on the projected discounted cash flows
over the estimated life of the assets. These assets have been contributed to
Services Inc. and CMSLP as follows: 

Services Inc.: CRIIMI MAE made an investment in Services Inc., which is 
represented by 100% of the non-voting common stock. Services Inc. issued 
installment notes to purchase certain intangible assets. Services Inc. 
contributed those intangible assets to the CMSLP for an initial 92% limited 
partnership interest. These intangible assets consisted of the AIM 
subadvisory contracts and certain other mortgage servicing contracts valued 
at $6,871,000. 

CMSLP: CRIIMI MAE also made an investment in CMSLP by contributing certain 
mortgage servicing contracts valued at $538,000 for an initial 8% general 
partnership interest.

(2) Represents the fair value of the remaining intangible assets that CRIIMI MAE
acquired from the CRI Mortgage Businesses.

(3) Represents CRIIMI MAE's acquisition of the work force and intellectual
property of the CRI Mortgage Businesses. The benefits of these services were
previously provided to CRIIMI MAE through the Adviser. The expected future
benefit of such services was the basis for the determination of the fair value.

(4) Reflects the allocation of the purchase price to goodwill. Goodwill is
represented by the excess of purchase price over the fair value of the net
assets acquired.

                                     F-45

<PAGE>

17.       TRANSACTIONS WITH RELATED PARTIES

     Below is a summary of the related party transactions which occurred during
the years ended December 31, 1998, 1997 and 1996. These items are described
further in the text which follows:

<TABLE>
<CAPTION>
                                                                  For  the years ended December 31,
                                                                1998            1997              1996
                                                              ---------         -------          --------
<S>                                                        <C>             <C>               <C>         
Amounts received or accrued from related parties:
CRIIMI Inc.
  Income(3)                                                $  1,340,730    $  1,624,666      $  1,836,288
  Return of Capital(9)                                        3,774,817       2,643,029         2,292,804
                                                           ------------    ------------      ------------
    Total                                                  $  5,115,547    $  4,267,695      $  4,129,092
                                                           ------------    ------------      ------------
                                                           ------------    ------------      ------------
CRI/AIM Investment Limited Partnership(3)                  $    552,121    $    666,921      $    765,050
                                                           ------------    ------------      ------------
                                                           ------------    ------------      ------------
CRIIMI MAE Services Limited Partnership (11)               $  3,114,000    $         --      $         --
                                                           ------------    ------------      ------------
                                                           ------------    ------------      ------------
Expense reimbursements to CRIIMI Management:
  AIM Funds and CRI Liquidating (2)(7)                     $    211,793    $    350,239      $    363,669
  CMSLP (2)(9)                                                   76,621          12,616         1,944,974
                                                           ------------    ------------      ------------
    Total                                                  $    288,414    $    362,855      $  2,308,643
                                                           ------------    ------------      ------------
                                                           ------------    ------------      ------------
Payments to CRI:
  Expense reimbursement - CRIIMI MAE(2)(6)                 $    352,471    $    399,162      $    674,674
                                                           ------------    ------------      ------------
                                                           ------------    ------------      ------------
Payments to the Adviser:
  Annual fee - CRI Liquidating(1)(5)                       $         --    $     11,468      $    382,050
  Incentive fee - CRI Liquidating(5)(4)                              --              --           568,638
                                                           ------------    ------------      ------------
    Total                                                  $         --    $     11,468      $    950,688
                                                           ------------    ------------      ------------
                                                           ------------    ------------      ------------
  Capital Hotel Group(8)                                   $      4,691    $     36,180      $         --
                                                           ------------    ------------      ------------
                                                           ------------    ------------      ------------
Other(10)                                                  $         --    $        --       $         --
                                                           ------------    ------------      ------------
                                                           ------------    ------------      ------------
</TABLE>

-------------------
(1) Included in the accompanying consolidated statements of income as fees to
related party.

(2) Included in general and administrative expenses on the accompanying
consolidated statements of income.

(3) Included as equity in earnings from investments on the accompanying
consolidated statements of income.

(4) Netted with gains on mortgage dispositions on the accompanying consolidated
statements of income.

(5) The Adviser under the CRI Liquidating Advisory Agreement received an annual
fee for managing CRI Liquidating's portfolio of mortgages and the Adviser was
also entitled to certain incentive fees in connection with the disposition of
certain mortgage investments. Due to the final liquidation of CRI Liquidating in
1997, no annual fees were paid for 1998. 

                                     F-46

<PAGE>

(6) Prior to CRIIMI MAE becoming a self-administered REIT, amounts were paid to
C.R.I., Inc. as reimbursement for expenses incurred by the Adviser on behalf of
CRIIMI MAE. In connection with the Merger, on June 30, 1995, CRIIMI MAE was no
longer required to reimburse the Adviser, as these expenses are now directly
incurred by CRIIMI MAE. However, pursuant to an agreement between CRIIMI MAE and
C.R.I., Inc. (the "CRI Administrative Services Agreement"), C.R.I., Inc.
provides CRIIMI MAE with certain administrative and office facility services and
other services, at cost, with respect to certain aspects of CRIIMI MAE's
business. CRIIMI MAE uses the services provided under the C.R.I., Inc.
Administrative Services Agreement to the extent such services are not performed
by CM Management or provided by another service provider. The CRI Administrative
Services Agreement is terminable on 30 days notice at any time by CRIIMI MAE.

(7) Prior to CRIIMI MAE becoming a self-administered REIT, amounts were paid to
C.R.I., Inc. as reimbursement for expenses incurred by the Adviser on behalf of
CRI Liquidating and the AIM Funds. The transaction in which CRIIMI MAE became a
self-administered REIT had no impact on CRI Liquidating's or the AIM Funds'
financial statements except that the expense reimbursements previously paid to
C.R.I., Inc. are, effective June 30, 1995, paid to CM Management. Additionally,
effective June 30, 1995, CM Management is reimbursed for its employees' time and
expenses incurred on behalf of CMSLP.

(8) Included as a reduction of net income earned from Real Estate Owned property
which is included in other investment income on the accompanying consolidated
statements of income.

(9) Included as a reduction of equity investments on the accompanying
consolidated balance sheets.

(10) The Principals have certain management interests and equity investments in
two borrowers whose mortgage loans have an aggregate balance of approximately
$22 million which were included in CMO-IV. These two mortgage loans were
originated and underwritten by Citicorp Real Estate, Inc. and were made to CRI
Hotel Income Partners, L.P. (the "CRI Hotel Loan") and Arboretum Village, L.P.
(the "Arboretum Village Loan"). The Principals are the Chairman and President,
respectively, of, and holders of a 100% equity interest in C.R.I., Inc., which
is the general partner of CRICO Hotel Associates I, L.P., the general partner of
CRI Hotel Income Partners, L.P. C.R.I., Inc. is also the managing general
partner of Capital Realty Investors III Limited Partnership which is a limited
partner in Arboretum Villages, L.P. The Principals are also the Chairman and
President, respectively and holders of a 100% equity interest in C.R.H.C.
Incorporated which is the general partner of Arboretum Villages, L.P.

(11) This is a distribution included on the balance sheet as a decrease in
equity investments.

18.       LITIGATION

BANKRUPTCY PROCEEDINGS

     On the Petition Date, the Debtors each filed voluntary petitions for relief
under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. These cases are
being jointly administered for procedural purposes. None of the cases has been
substantively consolidated. Under the Bankruptcy Code, the Debtors are
authorized to manage their respective affairs and operate their businesses as
debtors-in-possession while they attempt to develop a reorganization plan that
will restructure their financial affairs and allow them to emerge from
bankruptcy. As a debtor-in-possession under the Bankruptcy Code, no Debtor may
engage in any transaction outside the ordinary course of business without the
approval of the Bankruptcy Court. The following discussion describes certain
aspects of the Chapter 11 cases of the Debtors (the "Chapter 11 Cases"), but it
is not intended to be a complete summary.

     Pursuant to the Bankruptcy Code, the commencement of the Chapter 11 Cases
created an automatic stay, applicable generally to creditors and other parties
in interest, but subject to certain limited exceptions, of: (i) the commencement
or continuation of judicial, administrative or other actions or proceedings
against the Debtors that were or could have been commenced prior to the
commencement of the Chapter 11 Cases; (ii) the enforcement against the Debtors
or their property of any judgments obtained prior to the commencement of the
Chapter 11 Cases; (iii) the taking of any action to obtain possession of
property of the Debtors or to exercise control over such property; (iv) the
creation, perfection or enforcement of any lien against the property of the
bankruptcy estates of the Debtors; (v) any act to create, perfect or enforce
against the property of the Debtors any lien that secures a claim that arose
prior to the commencement of the Chapter 11 Cases; (vi) the taking of any action
to collect, assess or recover claims against the Debtors that arose before the
commencement of the Chapter 11 Cases; (vii) the set-off of any debt owing to the
Debtors that arose prior to the commencement of the Chapter 11 Cases against any
claim against the Debtors; or (viii) the commencement or continuation of a
proceeding before the United States Tax Court concerning 

                                     F-47

<PAGE>

the Debtors. Any entity may apply to the Bankruptcy Court, upon appropriate
showing of cause, for relief from the automatic stay.

     As noted above, the Debtors are authorized to manage their respective
properties and operate their respective businesses pursuant to the Bankruptcy
Code. During the course of the Chapter 11 Cases, the Debtors will be subject to
the jurisdiction and supervision of the Bankruptcy Court. The United States
Trustee has appointed (i) an official committee of Unsecured Creditors in the
CRIIMI MAE Chapter 11 case, (ii) an official committee of Unsecured Creditors in
the Management Chapter 11 case and (iii) an official committee of Equity
Security Holders in the CRIIMI MAE Chapter 11 case (collectively, the
"Committees"). The Committees are expected to participate in the formulation of
the plans of reorganization for the respective Debtors. The Debtors are required
to pay certain expenses of the Committees, including professional fees, to the
extent allowed by the Bankruptcy Court.

     Under the Bankruptcy Code, for 120 days following the Petition Date, only
the debtor-in-possession has the right to propose and file a plan of
reorganization with the Bankruptcy Court. If a debtor-in-possession files a plan
of reorganization during this exclusivity period, no other party may file a plan
of reorganization until 180 days following the Petition Date, during which
period the debtor-in-possession has the exclusive right to solicit acceptances
of the plan. If a debtor-in-possession fails to file a plan during the
exclusivity period or such additional exclusivity period as may be ordered by
the Bankruptcy Court or, after such plan has been filed, fails to obtain
acceptance of such plan from impaired classes of creditors and equity security
holders during the exclusive solicitation period, any party in interest,
including a creditors' committee, an equity security holders' committee, a
creditor or an equity security holder may file a plan of reorganization for such
debtor. Additionally, if the Bankruptcy Court were to appoint a trustee, the
exclusivity period, if not previously terminated, would terminate.

     The Debtors did not file a plan of reorganization during the initial
exclusivity period; however, the Bankruptcy Court has entered an order extending
the Company's exclusive right to file a plan of reorganization through May 11,
1999. The Bankruptcy Court has set a hearing for May 11, 1999 with respect to a
further extension of the exclusivity periods through August 2, 1999 for filing a
plan of reorganization and through October 3, 1999 for soliciting acceptances
thereof. A number of parties have indicated potential opposition to any such
extension.

     After a plan of reorganization has been filed with the Bankruptcy Court, it
will be sent, together with a disclosure statement approved by the Bankruptcy
Court after notice and a hearing, to members of all classes of impaired
creditors and equity security holders for acceptance or rejection. Following
acceptance or rejection of any plan by impaired classes of creditors and equity
security holders, the Bankruptcy Court, after notice and a hearing, will
consider whether to confirm the plan. To confirm a plan, the Bankruptcy Court is
required to find among other things: (i) with respect to each class of impaired
creditors and equity security holders, that each holder of a claim or interest
of such class either (A) will, pursuant to the plan, receive or retain property
of a value as of the effective date of the plan, that is at least as much as
such holder would have received in a liquidation on such date of the Debtors or
(B) has accepted the plan, (ii) with respect to each class of claims or equity
security holders, that such class has accepted the plan or is not impaired under
the plan, and (iii) confirmation of the plan is not likely to be followed by the
liquidation or need for further financial reorganization of the Debtors or any
successor unless such liquidation or reorganization is proposed in the plan.

     If any impaired class of creditors or equity security holders does not
accept a plan, the proponent of the plan may invoke the so-called "cramdown"
provisions of the Bankruptcy Code. Under these provisions, the Bankruptcy Court
may confirm a plan, notwithstanding the non-acceptance of the plan by an
impaired class of creditors or equity security holders, if certain requirements
of the Bankruptcy Code are met. These requirements include: (i) the plan does
not discriminate unfairly and (ii) the plan is fair and equitable, with respect
to each class of claims or interests that is impaired under, and has not
accepted, the plan. As used in the Bankruptcy Code, the phrases "discriminate"
and "fair and equitable" have narrow and specific meanings and their use herein
is qualified in its entirety by reference to the Bankruptcy Code.

                                     F-48

<PAGE>

BANKRUPTCY RELATED LITIGATION

     The following is a summary of material litigation matters between the
Company and certain of its secured creditors that was commenced since the
Petition Date. The Company has reached agreement with certain of these
creditors, as set forth in greater specificity below.

     MERRILL LYNCH

     As of the Petition Date, the Company owed Merrill Lynch approximately 
$274.8 million with respect to advances to the Company under an assignment 
agreement pursuant to which the Company pledged Subordinated CMBS. Borrowings 
under this assignment agreement are secured by a first priority security 
interest in certain CMBS issued by CMO-IV, together with all proceeds, 
distributions and amounts realized therefrom (the "Distributions") (the CMBS 
pledged to Merrill Lynch and the Distributions are hereafter referred to 
collectively as the "Merrill Collateral").

     On October 16, 1998, Merrill Lynch filed a motion with the Bankruptcy Court
for relief from the automatic stay or, in the alternative, for entry of an order
directing the Company to provide adequate protection for its interest in the
Merrill Collateral. On October 21, 1998, the Company filed a complaint against
Merrill Lynch for turnover of Distributions remitted to Merrill Lynch on October
2, 1998 by LaSalle National Bank, as well as other relief.

     On December 4, 1998, the Bankruptcy Court approved a consent order 
entered into between the Company and Merrill Lynch. Among other things, 
pursuant to the consent order, the pending litigation with Merrill Lynch was 
dismissed without prejudice. The consent order also preserved the portfolio 
of CMBS pledged as collateral to Merrill Lynch and provided for the Company 
to receive distributions of 50 percent of the monthly cash flow from those 
CMBS net of interest payable to Merrill Lynch. The 50 percent of 
distributions received by Merrill Lynch is to be applied to reduce principal. 
Such arrangement will remain in effect until the earlier of a further order 
of the Bankruptcy Court affecting the arrangement or the effective date of a 
plan of reorganization of the Company.

     MORGAN STANLEY

     As of the Petition Date, the Company owed Morgan Stanley approximately 
$182.4 million with respect to advances to the Company under an agreement 
pursuant to which the Company pledged CMBS. The borrowings under this 
agreement are secured by certain CMBS, including (i) CRIIMI MAE Commercial 
Mortgage Trust, Series 1998-C1, Class B and C Certificates (collectively or 
any portion thereof, the "CBO-2 BBB Bonds") and (ii) Morgan Stanley Capital I 
Inc., Series 1998-W2, Class F, G, H, J, K, L and M Certificates (collectively 
or any portion thereof, the "Wells Fargo Bonds" and, together with the CBO-2 
BBB Bonds, the "Morgan Collateral").

     On October 6, 1998, Morgan Stanley advised the Company that it was
exercising alleged ownership rights over the Morgan Collateral. On October 20,
1998, the Company filed an adversary proceeding against Morgan Stanley alleging,
among other things, that Morgan Stanley violated the automatic stay and seeking
turnover of the Morgan Collateral.

     On January 12, 1999, the Company and Morgan Stanley agreed upon and filed
with the Bankruptcy Court a stipulation and consent order, which was approved by
the Bankruptcy Court and entered on January 26, 1999. The consent order
provided, among other things, for the following: (i) an agreed sale procedure
for the CBO-2 BBB Bonds during a specified sale period; (ii) the payment of a
portion of the sale proceeds of the CBO-2 BBB Bonds to the Company; (iii) a
standstill period relating to the Wells Fargo Bonds through March 31, 1999
unless otherwise extended by the Company and Morgan Stanley, during which time
Morgan Stanley may not sell, pledge, encumber or otherwise transfer the Wells
Fargo Bonds and (iv) the postponement of the litigation with Morgan Stanley
while the parties seek a permanent resolution of their disputes. On March 5,
1999, the CBO-2 BBB Bonds were sold. Of the $159.0 million in net sale proceeds,
$141.2 million was used to repay the Company's borrowings under the agreement
with Morgan Stanley, and $17.8 million was paid to CRIIMI MAE. As a result of
the transaction, CRIIMI MAE's litigation against Morgan Stanley has been
resolved with respect to the CBO-2 BBB Bonds to the satisfaction of both
parties. The Company and Morgan Stanley have agreed to extend the standstill
period with 

                                     F-49

<PAGE>

respect to the Wells Fargo Bonds through April 15, 1999. At the end of this
standstill period, Morgan Stanley has until April 25, 1999 to respond to the
Company's complaint and resume litigation with respect to the Wells Fargo Bonds,
unless the standstill period is further extended by the parties or an 
agreement between the parties is reached.

     CITICORP AND CITIBANK

     In addition to the Citibank Program pursuant to which the Company
originated loans, as previously discussed, the Company also has a financing
arrangement with Citicorp pursuant to which the Company pledged CMBS.

     On October 13, 1998, Citicorp demanded from Norwest Bank Minnesota, N.A. 
("Norwest") the immediate transfer of certain CMBS (the "Retained Bonds") 
issued pursuant to CMO-IV. Norwest served as indenture trustee. The Retained 
Bonds are collateral for amounts advanced to the Company by Citicorp under 
the financing arrangement. As of the Petition Date, the Company owed Citicorp 
$79.1 million under the facility.

     On October 15, 1998, the Company filed an emergency motion to enforce the
automatic stay against Norwest and Citicorp. Pursuant to an Order dated October
23, 1998, the Bankruptcy Court prohibited Citicorp from selling the Retained
Bonds without further order of the Bankruptcy Court. On October 23, 1998,
Citicorp requested an emergency hearing regarding the October 23 Order, and on
November 2, 1998, the Company filed a complaint against Citicorp seeking, among
other things, a declaratory judgment as to whether the automatic stay applies to
actions taken by Citicorp with respect to the Retained Bonds.

     On March 11, 1999, the Company finalized agreements with Citicorp and 
Citibank, pursuant to which the parties agreed to adjourn the pending 
litigation for a four month period. One of the agreements also provides that 
Salomon Smith Barney, in cooperation with CRIIMI MAE, will sell two classes 
of investment grade CMBS from CMO-IV constituting a portion of the collateral 
securing advances under the Citicorp financing arrangements. In addition, 
Citibank, in cooperation with CRIIMI MAE, will sell commercial mortgages 
originated last year under the Citibank Program, provided that the sale 
results in CRIIMI MAE receiving minimum net proceeds of not less than $3.5 
million, after satisfying certain amounts due to Citibank, from the amount 
held in the reserve account. The minimum net proceeds provision may be waived 
by agreement of the Company, the Unsecured Committee and the Equity 
Committee. The agreements with Citicorp and Citibank were approved by the 
Bankruptcy Court by stipulations and consent orders entered on April 5, 1999.

     A related interpleader action between Norwest, the Company and Citicorp,
which was initiated on October 20, 1998 by Norwest to determine whether the
Company or Citicorp is the rightful owner of funds that were to have been paid
by Norwest, as indenture trustee, remains pending before the Bankruptcy Court.
During the pendency of this matter, certain payments on the related bonds are
held in an account controlled by the Bankruptcy Court. No trial date has been
set for this matter.

ARRANGEMENTS WITH OTHER CREDITORS

     In addition to the foregoing, the Company has had discussions with other 
secured creditors against whom the Company was not engaged in litigation. One 
such creditor is German American Capital Corporation ("GACC"). On February 3, 
1999, the Bankruptcy Court approved an Amended Consent Order between the 
Company and GACC that provides for the following: (a) acknowledgement that 
GACC has a valid perfected security interest in its collateral; (b) authority 
for GACC to hedge its loan, subject to a hedge cost cap; and (c) as adequate 
protection, sharing of cash collateral on a 50/50 basis, after payment of 
interest expense, with the percentage received by GACC to be applied to 
reduce principal and pay certain hedge costs, if any. In addition, the 
Company is prohibited from using GACC's cash collateral for certain purposes, 
including loan originations and Subordinated CMBS acquisitions.

     The Company has also had discussions with First Union National Bank ("First
Union"). First Union, a creditor of both the Company and CM Management, is
asserting substantial secured and unsecured claims. On or about March 23, 1999,
First Union filed in each of the Company's and CM Management's Chapter 11 cases

                                     F-50

<PAGE>

a motion for relief from the automatic stay pursuant to section 362(d) of the
United States Bankruptcy Code. On or about March 26, 1999, First Union requested
that the Court dismiss without prejudice both motions. The Company and First
Union continue to have discussions aimed at resolving the open issues between
the parties, including, but not limited to, the validity of First Union's liens,
adequate protection of First Union's interests and an appropriate sharing of
what First Union asserts is its cash collateral. There can, however, be no
assurance that the Company and First Union will reach an agreement.

SHAREHOLDER LITIGATION

     The Company is aware that certain plaintiffs (collectively, the
"Plaintiffs") filed 20 separate class action civil lawsuits (the "Complaints")
in the United States District Court for the District of Maryland (the "District
Court") against certain officers and directors of the Company between October 7,
1998 and November 30, 1998. Two additional complaints filed in other Federal
Courts have been dismissed without prejudice. The Complaints name as defendants
William B. Dockser, as Chairman of the Board of Directors of CRIIMI MAE, and H.
William Willoughby as a member of the Board of Directors and/or an officer of
CRIIMI MAE. In addition, a majority of the Complaints name Cynthia O. Azzara as
a defendant as an officer of CRIIMI MAE. Several of the Complaints also name
Garrett G. Carlson, Sr., G. Richard Dunnells and Robert J. Merrick as defendants
as members of both the Board of Directors and the Audit Committee of CRIIMI MAE.
Although CRIIMI MAE and CM Management have not been named as defendants, both
companies are subject to indemnity obligations to the defendants under the
provisions of their respective constituent documents and applicable state law
and, with respect to Messrs. Dockser and Willoughby and Ms. Azzara, their
employment contracts. CRIIMI MAE has directors and officers liability insurance
policies that have a combined coverage limit of $20 million.

     Each Complaint alleges generally that the named defendants violated Section
10(b) of the Securities and Exchange Act of 1934, as amended (the "Exchange
Act") by, among other things, making false statements of material facts and
failing to disclose certain material facts concerning, among other things,
CRIIMI MAE's ability to meet the earnings estimates of analysts and to meet
collateral calls from lenders. The Complaints also generally allege that the
named defendants violated Section 20(a) of the Exchange Act because each named
defendant was allegedly a "controlling person" as that term is defined under
Section 20(a).

     The relief sought in each Complaint includes all or substantially all of
the following: (i) certification of a class under Rule 23 of the Federal Rules
of Civil Procedure; (ii) certification of the named plaintiff as a class
representative and/or as lead plaintiff and its counsel as lead counsel and/or
class counsel; (iii) entry of a finding that the defendants violated federal
law, including federal securities laws; (iv) award of monetary damages,
including compensatory and rescissionary damages against all defendants jointly
and severally, including punitive damages where appropriate, and pre-judgment
and post-judgment interest running from the date of the wrongs alleged to the
date of judgment; (v) award to the plaintiff of costs, expenses and
disbursements incurred in the action, including reasonable attorneys' fees and
experts' fees; (vi) award to the plaintiff of extraordinary, equitable and/or
injunctive relief as permitted by law, equity, and federal statutory provisions
and state law remedies to attach, impound or otherwise restrict the defendants'
assets; (vii) award to the plaintiff of such other relief as the District Court
deems just and proper or as the District Court otherwise requires; and (viii)
trial by jury.

     A group of putative members of the class of individuals who allegedly
suffered damages, as described in the Complaints, filed a motion requesting the
District Court to appoint a group of 13 individual Plaintiffs as lead plaintiffs
under the Private Securities Litigation Reform Act of 1995 (the "Motion"). The
Motion also requests the District Court, to approve, among other things, certain
law firms as counsel to the lead plaintiffs and the consolidation of the twenty
(20) pending law suits into a single action. Defendants Dockser, Willoughby and
Azzara have opposed the Motion to the extent that it seeks appointment of lead
plaintiffs and approval of their selection of counsel. On March 9, 1999, the
District Court ordered the consolidation of the Complaints. The District Court
deferred a decision on the Motion, to the extent that it seeks the appointment
of lead plaintiffs and approval of their selection of counsel, until a later
date.

     CRIIMI MAE and the defendants are continuing to investigate the allegations
in the Complaints. The defendants intend to defend vigorously the claims
asserted in the Complaints. CRIIMI MAE cannot predict with any degree of
certainty the ultimate outcome of such litigation.

                                     F-51

<PAGE>

EDGE PARTNERS SETTLEMENT

     In February 1996, Edge Partners, L.P. ("Edge Partners"), on behalf of
CRIIMI MAE, filed a First Amended Class and Derivative Complaint (the
"Derivative Complaint") in the United States District Court for the District of
Maryland, Southern Division (the "District Court"). The Derivative Complaint
named as defendants each of the individuals who served on the CRIIMI MAE board
of directors at the time of the Merger and CRIIMI MAE as a nominal defendant.
The Company was subject to indemnity obligations to the directors under
provisions of its constituent documents. In addition, the Company had directors
and officers liability insurance policies with a combined coverage limit of $5
million.

     Count I of the Derivative Complaint alleged violations of Section 14(a) of
the Exchange Act for issuing a materially false and misleading proxy in
connection with the Merger and alleged derivatively on behalf of CRIIMI MAE a
breach of fiduciary duty owed to CRIIMI MAE and its shareholders. Edge Partners
sought, among other relief, that unspecified damages be accounted to CRIIMI MAE,
that the shareholder vote in connection with the Merger be null and void and
that certain salaries and other remuneration paid to the directors be returned
to the Company.

     On June 16, 1998, the District Court approved a settlement agreement (the
"Settlement Agreement"). Under the terms of the Settlement Agreement, the
Company agreed to make certain disclosures relating to alleged conflicts between
two directors and the Company in connection with the Merger transaction and
adopted a non-binding policy relating generally to the approval of certain
interested transactions. Among other things, the non-binding policy adopted by
the Company's board of directors imposes certain conditions on the board's
approval of transactions between the Company and any director, officer or
employee who owns greater than 1% of the outstanding common shares of the
Company. Such conditions generally include: (1) approval by written resolution
of any transaction involving an amount in excess of $5 million in any year
adopted by a majority of the members of the board having no personal stake in
the transaction; and (2) in the case of any such transaction in excess of $15
million in any year, consideration by the board as to the formation of a special
committee of the board, to be comprised of at least two directors having no
personal stake in such transaction.

                                     F-52

<PAGE>

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, 1998, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                             1998
                                                                         Quarter ended
                                               March 31           June 30     September 30       December 31
                                              ---------          --------      -----------       -----------
<S>                                         <C>               <C>              <C>               <C>        
Income (principally
  interest income)                         $ 44,970,292      $ 52,140,944     $ 59,415,552       $57,676,980
Net income (loss)                            12,255,931        43,426,376       (8,651,379)      (11,660,194)
Net income (loss) per share-Basic                  0.29              0.92            (0.18)            (0.23)
Net income (loss) per share-Diluted                0.28              0.85            (0.18)            (0.23)
</TABLE>

<TABLE>
<CAPTION>
                                                                             1997
                                                                        Quarter ended
                                               March 31           June 30     September 30       December 31
                                              ---------          --------      -----------       -----------
<S>                                        <C>               <C>              <C>               <C>         
Income (principally
  interest income)                         $ 31,159,707      $ 30,846,749     $ 34,247,402      $ 39,062,943
Net gain (loss) on mortgage
  dispositions                               17,138,949            95,000          (90,608)          200,141
Net income                                   19,099,541        10,412,185       11,417,024        13,258,868
Net income per share-Basic                         0.54              0.24             0.26              0.29
Net income per share-Diluted                       0.50              0.23             0.26              0.28
</TABLE>

<TABLE>
<CAPTION>
                                                                             1996
                                                                         Quarter ended
                                               March 31           June 30     September 30       December 31
                                              ---------          --------      -----------       -----------
<S>                                        <C>               <C>              <C>               <C>         
Income (principally
  interest income)                         $ 24,935,937      $ 25,405,953     $ 25,348,183      $ 30,265,346
Net gain (loss) on mortgage
  dispositions                                9,420,191           (31,742)        (120,439)          333,350
Net income                                   11,543,125         6,391,525        6,513,152        10,792,055
Net income per share-Basic                         0.38              0.21             0.16              0.29
Net income per share-Diluted                       0.38              0.21             0.16              0.28
</TABLE>

20.       SEGMENT REPORTING

     During 1997, FASB issued SFAS 131 "Disclosures about Segments of an
Enterprise and Related Information" ("FAS 131"). FAS 131 establishes standards
for the way that public business enterprises report information about operating
segments and related disclosures about products and services, geographical areas
and major customers.

     Management assesses Company 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 for the Company.

                                     F-53

<PAGE>

     Portfolio investment primarily includes (i) acquiring non-investment grade
subordinated securities backed by pools of mortgage loans on multifamily, retail
and other commercial real estate and by pools of mortgage-backed securities,
backed, in turn, by loans on such properties ("Subordinated CMBS"), (ii)
originating and underwriting mortgage loans, (iii) securitizing pools of
mortgage loans and pools of commercial mortgage-backed securities ("CMBS") and
to a lesser degree, (iv) direct investments in government insured securities and
entities that own government insured securities. The Company's income is
primarily generated from these investments.

     Mortgage servicing, which consists of all the operations of CMSLP, includes
performing servicing functions with respect to the Company's mortgage loans and
the mortgage loans underlying the Company's Subordinated CMBS. CMSLP performs a
variety of servicing including special, master, direct and loan management as
well as advisory services. 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 interest
income on the investment of escrows held on behalf of borrowers and other income
which includes, among other things, assumption fees and modification fees. CMSLP
is an unconsolidated affiliate of CRIIMI MAE. The results of its operations are
reported in the Company's income statement in equity in earnings from
investments.

     Revenues, expenses and assets are accounted for in accordance with the
accounting policies set forth in Note 3, "Summary of Significant Accounting
Policies". 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.

                                     F-54

<PAGE>

     The following table details the Company's financial performance by these
two lines of business for the years ended December 31, 1998, 1997 and 1996. The
basis of accounting used in the table is GAAP.

<TABLE>
<CAPTION>
                                                                              1998
                                                                             ------
                                                    Portfolio          Mortgage
                                                   Investment         Servicing    Elimination(1)     Consolidated
                                                   ----------         ---------      -----------        ----------
<S>                                            <C>                  <C>              <C>            <C>           
Interest Income - Subordinated CMBS            $  143,656,307       $        --      $       --     $  143,656,307
Interest Income-Insured Mortgage Securities        43,062,743                --               --        43,062,743
Interest Income-Originated Loans                   20,588,112                --               --        20,588,112
Interest Income-Other                                      --         4,058,108       (4,058,108)               --
Servicing Income                                           --         7,293,565       (7,293,565)               --
Gain on Sale of CMBS                               28,800,408                --               --        28,800,408
Gain on mortgage security dispositions              1,196,499                --               --         1,196,499
Other income                                        5,695,194         5,712,017       (4,510,605)        6,896,606
                                               --------------       -----------      -----------    --------------
         Total Revenue                            242,999,263        17,063,690      (15,862,278)      244,200,675
                                               --------------       -----------      -----------    --------------
General and Administrative                        (14,623,407)      (10,518,183)      10,518,183       (14,623,407)
Interest Expense                                 (136,268,431)         (451,938)         451,938      (136,268,431)
Realized loss on reverse repurchase obligation
   and unrealized loss on warehouse obligations   (34,881,350)               --               --       (34,881,350)
Other expenses                                    (16,058,894)       (4,112,365)       4,112,365       (16,058,894)
                                               --------------       -----------      -----------    --------------
         Total Expenses                          (201,832,082)      (15,082,486)      15,082,486      (201,832,082)
                                               --------------       -----------      -----------    --------------
Net Income                                         41,167,181         1,981,204         (779,792)       42,368,593
Preferred Dividends                                (6,997,859)               --               --        (6,997,859)
                                               --------------       -----------      -----------    --------------
Net Income Available to common
  Shareholders                                 $   34,169,322       $ 1,981,204      $  (779,792)   $   35,370,734
                                               --------------       -----------      -----------    --------------
Total Assets                                   $2,414,099,927       $25,954,448      $(2,136,422)   $2,437,917,953
                                               --------------       -----------      -----------    --------------
                                               --------------       -----------      -----------    --------------
</TABLE>


(1) The Company performs the mortgage servicing function through CMSLP which is
accounted for under the equity method. The elimination column reclassifies CMSLP
under the equity method as it is accounted for in the Company's consolidated
financial statements.

                                     F-55

<PAGE>

<TABLE>
<CAPTION>
                                                                                1997
                                                                               ------
                                                    Portfolio          Mortgage
                                                    Investment         Servicing    Elimination(1)    Consolidated
                                                    ----------         ---------    --------------    ------------
<S>                                            <C>                  <C>              <C>              <C>           
Interest Income - Subordinated CMBS            $   79,669,816       $        --      $        --    $   79,669,816
Interest Income - Insured Mortgage securities      49,425,401                                 --        49,425,401
Interest Income - Other                                    --           744,039         (744,039)               --
Servicing Income                                           --         3,981,960       (3,981,960)               --
Gain on mortgage security dispositions             17,343,481                --               --        17,343,481
Other Income                                        4,420,695         2,456,335         (655,446)        6,221,584
                                               --------------       -----------      -----------    --------------
         Total Revenue                            150,859,393         7,182,334       (5,381,445)      152,660,282
                                               --------------       -----------      -----------    --------------

General and Administrative                         (9,610,579)       (4,099,787)       4,099,787        (9,610,579)
Interest Expenses                                 (77,919,414)          (88,391)          88,391       (77,919,414)
Other Expenses                                    (10,942,673)       (1,649,083)       1,649,083       (10,942,673)
                                               --------------       -----------      -----------    --------------
         Total Expenses                           (98,472,666)       (5,837,261)       5,837,261       (98,472,666)
                                               --------------       -----------      -----------    --------------

Net Income                                         52,386,727         1,345,073          455,816        54,187,616
Preferred Dividends                                (6,472,540)               --               --        (6,472,540)
                                               --------------       -----------      -----------    --------------
Net Income Available to common
  shareholders                                 $   45,914,187       $ 1,345,073      $   455,816    $   47,715,076
                                               --------------       -----------      -----------    --------------

Total Assets                                   $1,850,360,445       $29,816,041      $(6,870,998)   $1,873,305,488
                                               --------------       -----------      -----------    --------------
                                               --------------       -----------      -----------    --------------
</TABLE>


(1) The Company performs the mortgage servicing function through CMSLP which is
accounted for under the equity method. The elimination column reclassifies CMSLP
under the equity method as it is accounted for in the Company's consolidated
financial statements.

                                     F-56

<PAGE>

<TABLE>
<CAPTION>
                                                                              1996
                                                                             ------
                                                   Portfolio          Mortgage
                                                   Investment         Servicing    Elimination(1)     Consolidated
                                                   ----------         ---------    --------------     ------------
<S>                                            <C>                   <C>             <C>            <C>           
Interest Income - Subordinated CMBS            $   41,713,126        $       --      $        --    $   41,713,126
Interest Income - Insured Mortgage securities      56,911,670                --               --        56,911,670
Interest Income - Other                                    --            99,956          (99,956)               --
Servicing Income                                           --         4,442,017       (4,442,017)               --
Gain on mortgage security dispositions              9,601,360                --               --         9,601,360
Other Income                                        4,957,628         1,733,176          639,819         7,330,623
                                               --------------        ----------      -----------    --------------
         Total Revenue                            113,183,784         6,275,149       (3,902,154)      115,556,779
                                               --------------        ----------      -----------    --------------

G&A                                                (7,969,944)       (2,468,855)       2,468,856        (7,969,943)
Interest Expense                                  (63,078,767)               --               --       (63,078,767)
Other Expenses                                     (9,268,212)       (1,422,579)       1,422,579        (9,268,212)
                                               --------------        ----------      -----------    --------------
         Total Expenses                           (80,316,923)       (3,891,434)       3,891,435       (80,316,922)
                                               --------------        ----------      -----------    --------------

Net Income                                         32,866,861         2,383,715          (10,719)       35,239,857
Preferred Dividends                                (3,526,451)               --               --        (3,526,451)
                                               --------------        ----------      -----------    --------------
Net Income Available to common
  Shareholders                                 $   29,340,410        $2,383,715      $   (10,719)   $   31,713,406
                                               --------------        ----------      -----------    --------------

Total Assets                                   $1,358,597,941        $9,941,242      ($1,293,885)   $1,367,245,298
                                               --------------        ----------      -----------    --------------
                                               --------------        ----------      -----------    --------------
</TABLE>

(1) The Company performs the mortgage servicing function through CMSLP which is
accounted for under the equity method. The elimination column reclassifies CMSLP
under the equity method as it is accounted for in the Company's consolidated
financial statements.

                                     F-57

<PAGE>

21.       FINANCIAL STATEMENTS FOR THE DEBTOR ENTITIES

     The following are unconsolidated financial statements for CRIIMI MAE, CM
Management and Holdings II:

<TABLE>
<CAPTION>
                                                      CRIIMI MAE Inc.
                                                       BALANCE SHEET
                                                  As of December 31, 1998
                                                      (unconsolidated)

<S>                                                                      <C>
Assets

    Subordinated CMBS, at fair value                                     $   1,071,872,143
    Insured Mortgage security ,at fair value                                     5,511,707
    Receivables and Other Assets                                                74,226,682
    Cash and Cash Equivalents                                                   22,714,828
    Investment in Subsidiaries                                                 246,817,957
                                                                         -----------------
         Total Assets                                                    $   1,421,143,317
                                                                         -----------------
                                                                         -----------------

Liabilities

    Accounts Payable and other Accrued Expenses                          $       7,374,281
    Liabilities Subject to Chapter 11 Proceedings                            1,105,892,131
                                                                         -----------------
           Total Liabilities                                                 1,113,266,412
                                                                         -----------------
                                                                         -----------------

Shareholders' Equity

    Convertible Preferred Stock                                                     18,170
    Common Stock                                                                   528,981
    Additional paid-in capital                                                 525,621,510
    Accumulated Other Comprehensive Income                                    (218,291,756)
                                                                         -----------------
           Shareholders' Equity                                                307,876,905

           Total Liabilities and Shareholders' Equity                    $   1,421,143,317
                                                                         -----------------
                                                                         -----------------
</TABLE>

                                     F-58

<PAGE>

                                 CRIIMI MAE Inc.
                              STATEMENT OF NET LOSS
                            AND COMPREHENSIVE INCOME
                                (unconsolidated)

<TABLE>
<CAPTION>
                                                                    Year to Date*
                                                                  ---------------
<S>                                                               <C>            
Interest Income                                                   $    29,577,886
Interest Expense                                                       17,548,270
                                                                 ---------------- 
       Net Interest Margin                                             12,029,616
                                                                 ---------------- 
Equity in Earnings from Subsidiaries                                    2,769,642
Other Income                                                              320,531
General and Administrative Expenses                                      (100,966)
Amortization of Assets Acquired in Merger                                (680,717)
Realized loss on reverse repurchase obligation                           (411,831)
Unrealized losses on warehouse obligation                             (12,747,783)
Write-off of capitalized loan origination costs                        (3,284,037)
Reorganization Items                                                   (8,500,753)
                                                                 ---------------- 
       Subtotal                                                       (22,635,914)
                                                                 ---------------- 
       Net Loss                                                  $    (10,606,298)
                                                                 ---------------- 
                                                                 ---------------- 
       Other Comprehensive Income                                    (141,543,673)
                                                                 ---------------- 
       Comprehensive Income                                          (152,149,971)
                                                                 ---------------- 
                                                                 ---------------- 

</TABLE>

*    The Debtor filed a petition for relief under Chapter 11 on October 5, 1998.
     These year-to-date figures represent amounts from October 6, 1998 through
     December 31, 1998.

                                     F-59

<PAGE>

                                 CRIIMI MAE Inc.
                          Notes to Financial Statements
                                December 31, 1998
                                (unconsolidated)

1.        BASIS OF PRESENTATION

     Generally Accepted Accounting Principles ("GAAP") requires that certain
entities that meet specific criteria be consolidated with CRIIMI MAE including:
CM Management and Holdings II (Debtors) and CRIIMI MAE Financial Corporation
III, CRIIMI MAE QRS 1, Inc., CRIIMI MAE Holding Inc. (currently inactive),
CRIIMI MAE Holding L.P. (currently inactive), CRIIMI, Inc., and CRIIMI MAE CMBS
Corporation (Non-Debtors). For purposes of this presentation CRIIMI MAE accounts
for all subsidiaries (those consolidated under GAAP and those accounted for
under the equity method under GAAP) using the equity method of accounting.

     All entities that CRIIMI MAE would normally consolidate for GAAP purposes
are being accounted for under the equity method of accounting. The equity method
of accounting consists of recording an original investment in an investee as the
amount originally contributed. Subsequently this balance is
increased/(decreased) for CRIIMI MAE's share of the investee's income/(losses)
and increased for additional contributions and decreased for distributions
received from the investee. CRIIMI MAE's share of the investee's income is
recognized as "Equity in earnings from subsidiaries" on the income statement.

     In management's opinion, with the exception of those matters discussed
above, the financial statements of CRIIMI MAE contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the financial position of CRIIMI MAE as of December 31, 1998, and the
unconsolidated results of its operations for the period October 6, 1998 -
December 31, 1998.

                                     F-60

<PAGE>

                           CRIIMI MAE Management, Inc.
                                  BALANCE SHEET
                             As of December 31, 1998

<TABLE>
<S>                                                                        <C>
Assets

    Note Receivable                                                        $     3,376,468
    Cash and Cash Equivalents                                                      958,175
    Other Assets                                                                 3,332,116
    Equity Investments                                                          19,209,778
                                                                           ---------------

           Total Assets                                                    $    26,876,537
                                                                           ---------------
                                                                           ---------------
Liabilities

    Accounts Payable and other Accrued Expenses                            $     2,367,277
    Liabilities Subject to Chapter 11 Proceedings                                6,150,787
                                                                           ---------------

           Total Liabilities                                                     8,518,064
                                                                           ---------------

Shareholders' Equity                                                            18,358,473
                                                                           ---------------

           Total Liabilities and Shareholders' Equity                      $    26,876,537
                                                                           ---------------
                                                                           ---------------
</TABLE>

                                     F-61

<PAGE>

                           CRIIMI MAE Management, Inc.
                              STATEMENT OF NET LOSS

<TABLE>
<CAPTION>
                                                                          Year to Date*
                                                                         --------------
<S>                                                                      <C>
    Interest Income - Note Receivable and short-term interest income     $     89,020
    Equity in Earnings from investments                                      (121,359) 
                                                                         ------------ 
           Total Revenue                                                      (32,339)
                                                                         ------------ 

    Interest Expense                                                           89,833
    Depreciation and Amortization                                             127,316
    General and Administrative Expenses                                     2,996,531
    Reorganization Items                                                      833,861
                                                                         ------------

           Total Expenses                                                   4,047,541
                                                                         ------------ 

    Net Loss                                                             $ (4,079,880)
                                                                         ------------ 
                                                                         ------------ 
</TABLE>


*    CRIIMI MAE Management, Inc. filed a petition for relief under Chapter 11 on
     October 5, 1998. These year-to-date figures represent amounts from October
     6, 1998 through December 31, 1998.

                                     F-62

<PAGE>

                           CRIIMI MAE Management, Inc.
                          Notes to Financial Statements
                                December 31, 1998

1.        BASIS OF PRESENTATION

     In management's opinion, the accompanying unaudited financial statements of
CM Management contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position of CM Management
on a stand-alone basis as of December 31, 1998 and the results of its operations
for the period October 6, 1998 to December 31, 1998, in accordance with
Generally Accepted Accounting Principles ("GAAP").








                                     F-63

<PAGE>

                                Holdings II, L.P.
                                  BALANCE SHEET
                             As of December 31, 1998


<TABLE>
<S>                                                                          <C>
Assets

    Subordinated CMBS, at fair value                                         $  43,001,454
    Interest Receivable                                                          1,064,071
    Cash                                                                               100
                                                                             -------------
           Total Assets                                                      $  44,065,625
                                                                             -------------
                                                                             -------------
Liabilities
    Other Accrued Expenses                                                   $     209,213
    Liabilities Subject to Chapter 11 Proceedings                               40,132,693
                                                                             -------------
           Total Liabilities                                                    40,341,906

Partners' Equity 
    Contributed Capital                                                          5,927,429
    Accumulated Other Comprehensive Income                                      (2,203,710)
                                                                             -------------
           Partners' Equity                                                      3,723,719
                                                                             -------------
           Total Liabilities and Partners' Equity                            $  44,065,625
                                                                             -------------
                                                                             -------------
</TABLE>


                                     F-64

<PAGE>

                                Holdings II, L.P.
                              STATEMENT OF NET LOSS
                             AND COMPREHENSIVE INCOME


<TABLE>
<CAPTION>
                                                                        Year to Date*
                                                                        -------------
<S>                                                                       <C>
    Interest Income:
      Subordinated CMBS                                                   $   753,860

    Interest Expense:
      Variable rate secured borrowings - CMBS                                (564,635)
                                                                          -----------

    Net Interest Margin                                                       189,225

    Reorganization Expense                                                   (209,213)
                                                                          -----------
    Net Loss                                                              $   (19,988)
                                                                          -----------
                                                                          -----------
    Other Comprehensive Income                                             (1,118,369)
                                                                          -----------
    Comprehensive Income                                                  $(1,138,357)
                                                                          -----------
                                                                          -----------
</TABLE>

*    Holdings II L.P. filed a petition for relief under Chapter 11 on October 5,
     1998. These year-to-date figures represent amounts from October 6, 1998
     through December 31, 1998.

                                     F-65

<PAGE>

                                Holdings II, L.P.
                          Notes to Financial Statements
                                December 31, 1998

1.        BASIS OF PRESENTATION

     Holdings II's CMBS (2 tranches from CMM 98-1) are carried as investments in
loans at cost basis in CRIIMI MAE's December 31, 1998 10-K's consolidated
financial statements. (See Notes 3 and 6 for discussion of this accounting.) On
a stand-alone basis, Generally Accepted Accounting Principles ("GAAP") requires
that Holdings II's investment in CMBS be carried as securities (as opposed to
loans) at fair value.

     In management's opinion, the accompanying unaudited financial statements of
Holdings II contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position of Holdings II
on a stand-alone basis as of December 31, 1998 and the results of its operations
for the period October 6, 1998 to December 31, 1998.





                                     F-66

<PAGE>

                                  EXHIBIT INDEX

3(c)     Amendment to the Articles of Incorporation of CRIIMI MAE Inc.

3(g)     First Amendment to the Limited Partnership Agreement of CRIIMI MAE
         Services Limited Partnership effective as of December 31, 1995 between
         CRIIMI MAE Management Inc. and CRIIMI MAE Services Inc.

3(h)     Second Amendment to the Limited Partnership Agreement of CRIIMI MAE
         Services Limited Partnership effective as of January 2, 1997 between
         CRIIMI MAE Management Inc. and CRIIMI MAE Services Inc.

3(i)     Third Amendment to the Limited Partnership Agreement of CRIIMI MAE
         Services Limited Partnership effective as of December 31, 1997 between
         CRIIMI MAE Management Inc. and CRIIMI MAE Services Inc.

10(p)    Employment and Non-Competition Agreement dated as of July 1, 1998
         between CRIIMI MAE Management, Inc. and Cynthia O. Azzara.

10(q)    First Amendment to Employment and Non-Competition Agreement dated as of
         October 5, 1998, by and among CRIIMI MAE Management Inc., Cynthia O.
         Azzara and CRIIMI MAE Inc.

10(r)    Employment and Non-Competition Agreement dated October 7, 1998 between
         CRIIMI MAE Management, Inc. and David B. Iannarone.

10(s)    First Amendment to Employment and Non-Competition Agreement dated as of
         October 7, 1998 by and among CRIIMI MAE Management, Inc., David B.
         Iannarone and CRIIMI MAE Inc.

10(t)    First Amendment to Employment and Non-Competition Agreement, dated as
         of October 5, 1998, by and among CRIIMI MAE Management, Inc., William
         B. Dockser and CRIIMI MAE Inc.

10(u)    First Amendment to Employment and Non-Competition Agreement, dated as
         of October 5, 1998, by and among CRIIMI MAE Management, Inc., H.
         William Willoughby and CRIIMI MAE Inc.

10(aa)   Amended and Restated Mortgage Loan Origination and Disposition Program
         Agreement made as of May 1, 1998 between Citicorp Real Estate, Inc. and
         CRIIMI MAE Inc.

10(uu)   Certificate of Limited Partnership of CRIIMI MAE Holdings, II L.P.

10(vv)   Limited Partnership Agreement of CRIIMI MAE Holdings II, L.P. effective
         as of June 4, 1998 between CRIIMI MAE Inc. and CRIIMI MAE Services
         Limited Partnership.

27.      Financial Data Schedule

99(d)    Motion for an Order Extending the Debtor's Exclusive Periods to File a
         Plan of Reorganization and Solicit Acceptances Thereof Pursuant to 11
         U.S.C. Sec. 1121(d) filed on January 28, 1999.

99(e)    Stipulation and Consent Order regarding Motion and Adversary Proceeding
         (Merrill Lynch) entered December 4, 1998.

99(f)    Supplement To Stipulation and Consent Order Regarding Motion and
         Adversary Proceeding (Merrill Lynch) entered January 6, 1999.

99(g)    Stipulation and Agreed Order Authorizing Use of Cash Collateral (German
         American Capital Corporation) entered February 2, 1999.

                                     F-67

<PAGE>

99(h)    Stipulation and Consent Order Regarding Adversary Proceeding (Morgan
         Stanley and Co. International Limited) entered on January 26, 1999.

99(i)    Stipulation and Order Regarding Proceeds Received by the Debtor from
         the Sale of the BBB Bonds (Morgan Stanley and Co. International
         Limited) entered on January 26, 1999.

99(j)    Order Upon Motions for Reconsideration of Order Extending Debtors'
         Exclusive Periods entered on February 24, 1999.

99(k)    Stipulation and Consent Order Regarding Sale of Certain Triple B Bonds
         (Citicorp) entered on April 5, 1999.

99(l)    Supplemental Stipulation and Consent Order Regarding Sale of Certain
         Triple B Bonds (Citicorp) entered on April 5, 1999.

99(m)    Stipulation and Order Regarding Proceeds Received by the Debtor from
         the Sale of Certain Triple B Bonds (Citicorp) entered on April 5, 1999.

99(n)    Stipulation and Consent Order Regarding Mortgage Loan Origination
         Agreement with Citicorp Real Estate, Inc. entered on April 5, 1999.

99(o)    Supplemental Stipulation and Consent Order Regarding Mortgage Loan
         Origination Agreement with Citicorp Real Estate, Inc. entered on April
         5, 1999.

99(p)    Stipulation and Order Regarding Proceeds Received by the Debtor from
         Mortgage Loan Sale entered on April 5, 1999.

                                     F-68