SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
[x] ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
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Commission File No. 1-13038
CRESCENT REAL ESTATE EQUITIES, LTD. 401(k) PLAN
(Full title of plan)
CRESCENT REAL ESTATE EQUITIES COMPANY
777 Main Street, Suite 2100
Fort Worth, Texas 76102
(Name of issuer and address of principal executive offices)
CRESCENT REAL ESTATE EQUITIES, LTD.
401(k) PLAN
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
TABLE OF CONTENTS
Report of Independent Auditors ......................................... 1
Financial Statements:
Statements of Net Assets Available for Benefits ............... 2
Statements of Changes in Net Assets Available for Benefits .... 3
Notes to Financial Statements .......................................... 4
Supplemental Schedule:
Form 5500, Schedule H, Line 4i - Schedule of Assets Held for
Investment Purposes at End of Year ................... 10
NOTE: All other schedules required by the Department of Labor's Rules
and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974 have been omitted since
they are either not applicable or the information required therein
has not been included in the financial statements or notes
thereto.
REPORT OF INDEPENDENT AUDITORS
To the Trustees of
Crescent Real Estate Equities, Ltd. 401(k) Plan
We have audited the accompanying statements of net assets available for
benefits of the Crescent Real Estate Equities, Ltd. 401(k) Plan (the
"Plan") as of December 31, 2002 and 2001 and the related statements of
changes in net assets available for benefits for the years then ended.
These financial statements are the responsibility of the Plan's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on 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 net assets available for benefits of Crescent
Real Estate Equities, Ltd. 401(k) Plan as of December 31, 2002 and 2001,
and the changes in its net assets available for benefits for the years then
ended in conformity with accounting principles generally accepted in the
United States of America.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental schedule of
Form 5500, Schedule H, Line 4i - Assets Held for Investment Purposes at End
of Year is presented for the purpose of additional analysis and is not a
required part of the basic financial statements but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act
of 1974 ("ERISA"). The supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, is fairly stated in all material respects in relation
to the financial statements taken as a whole.
/s/ WHITLEY PENN
Fort Worth, Texas
May 16, 2003
CRESCENT REAL ESTATE EQUITIES, LTD.
401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31,
2002 2001
----------- -----------
ASSETS
Investments, at fair value:
Participant directed:
Shares of registered investment companies:
Mutual Funds $ 4,361,389 $ 4,567,449
Pooled separate accounts 3,437,172 2,851,895
Common collective trusts 1,647,414 919,363
Participant loans 240,303 166,142
Common stock, Crescent Real Estate Equities Company 2,206,591 1,980,835
Non-Participant directed:
Common stock, Crescent Operating, Inc. 174 29
----------- -----------
11,893,043 10,485,713
Receivables:
Contributions receivable - Company -- 55,321
----------- -----------
Total assets 11,893,043 10,541,034
LIABILITIES
Excess contributions -- 3,504
----------- -----------
Net assets available for benefits $11,893,043 $10,537,530
=========== ===========
The accompanying notes are an integral part of these financial statements.
2
CRESCENT REAL ESTATE EQUITIES, LTD.
401(k) PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31,
2002 2001
------------ ------------
Additions in net assets attributed to:
Investment income:
Net realized and unrealized losses on investments $ (1,585,961) $ (871,079)
Interest and dividends 225,199 246,615
------------ ------------
(1,360,762) (624,464)
Contributions:
Participants 2,082,829 1,917,395
Company 1,173,308 878,251
Rollovers 99,770 269,293
------------ ------------
3,355,907 3,064,939
------------ ------------
Total additions 1,995,145 2,440,475
Deductions from net assets attributed to:
Benefits paid to participants 567,837 405,366
Fund management expenses 71,795 71,777
------------ ------------
639,632 477,143
------------ ------------
Net increase 1,355,513 1,963,332
Net assets available for benefits beginning of year 10,537,530 8,574,198
------------ ------------
Net assets available for benefits end of year $ 11,893,043 $ 10,537,530
============ ============
The accompanying notes are an integral part of these financial statements.
3
CRESCENT REAL ESTATE EQUITIES, LTD. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
1. DESCRIPTION OF THE PLAN
The following description of the Crescent Real Estate Equities, Ltd. 401(k)
Plan (the "Plan") provides only general information. The Plan is sponsored
by Crescent Real Estate Equities, Ltd. (the "Company"). Participants should
refer to the Adoption Agreement or Summary Plan Description for a more
complete description of the Plan's provisions. The Principal Financial
Group ("Principal") serves as the asset custodian and record keeper for the
Plan.
GENERAL
The Plan, which was adopted effective July 1, 1994, and restated effective
January 1, 1997, is a defined contribution plan covering substantially all
employees of the Company who have reached 21 years of age and completed 30
days of service. Entry dates into the plan are on the first day of the
month after the first 30 days of service.
The Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA").
The Plan is administered by the Executive Compensation Committee
("Committee") and the plan administrator, who are appointed by the Board of
Directors of the Company.
CONTRIBUTIONS
PARTICIPANT ELECTIVE DEFERRALS:
Participants may elect to contribute from 1% up to 25% of their
salary tax-deferred up to the maximum deferral amount established
by the Internal Revenue Service ($11,000 for 2002 and $10,500 for
2001).
COMPANY MATCH:
Company matching contributions are equal to the percentage shown
in the schedule below based on the number of years in service,
not to exceed 7% of the employee's salary deferral, as defined
within the Plan document.
Years of Percentage
Service Matched
------- -------
Less than 2 25%
2 50%
3 75%
4 100%
4
CRESCENT REAL ESTATE EQUITIES, LTD. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DISCRETIONARY:
In addition to the matching contribution, the Company may make a
discretionary contribution, which is determined and approved by
the board of directors annually. No discretionary contribution
payment was made for the years ended December 31, 2002 and 2001.
All Company contributions are invested based upon participant
account elections.
PARTICIPANT ACCOUNTS
Each participant account is credited with the participant's contributions
and allocations of (a) the Company's contributions and (b) Plan earnings.
Allocations are based on participant contributions or account balances, as
defined. The benefit to which a participant is entitled is the benefit that
can be provided from the participant's vested account.
FORFEITED ACCOUNTS
Forfeiture balances attributed to the Company's matching contributions
shall be first applied to pay expenses under the Plan. Forfeitures not used
to pay expenses shall be applied to reduce future Company contributions.
Forfeitures for the years ended December 31, 2002 and 2001, were $23,026
and $22,270, respectively. Company forfeitures used to pay plan
administrative expenses for the years ended December 31, 2002 and 2001,
were $11,921 and $9,956, respectively.
VESTING
The participants' voluntary contributions to the Plan plus actual earnings
or losses thereon are fully vested at all times. The participants' share of
the Company's matching contributions and earnings or losses thereon vest in
accordance with the following schedule:
Number of Completed Vesting
Years of Service Percentage
------------------- ----------
1 20%
2 40%
3 60%
4 80%
5 100%
Company contributions become fully vested in the event of retirement at age
65, disability, or death of a participant.
5
CRESCENT REAL ESTATE EQUITIES, LTD. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INVESTMENT OPTIONS
Upon enrollment in the Plan, a participant may direct employer and employee
contributions of any percentage in a variety of investment options, which
vary in degree of risk. Participants may change their investment options
daily.
PARTICIPANT LOANS
Participants may borrow from their fund accounts, a minimum of $1,000 and a
maximum equal to the lesser of $50,000 or 50% of their vested account
balance. Loans are available to all participants only after Principal has
evaluated the applicant's credit worthiness and purpose and the terms of
the loan. Loan transactions are treated as a transfer to (from) the
investment fund from (to) the Participant Loan Fund. Loan terms range from
one to five years or a reasonable period of time greater than 5 years for
the purchase of a principal residence. The loans are secured by the balance
in the participant's account and bear interest at the prime rate listed in
the Wall Street Journal plus 1%. The interest rate must be one that a bank
or other professional lender would charge for making a loan in a similar
circumstance. The interest rates at December 31, 2002 and 2001, were 6.25%
and 7.0%, respectively. Principal and interest have a definite repayment
period, which provides for payments to be made not less frequently than
quarterly.
PAYMENT OF BENEFITS
On termination of service due to death, disability, retirement or
termination of employment, a participant or designated beneficiary is
entitled to receive in a lump sum the value of the participant's vested
interest in his or her account as defined by the Plan. Payment shall be
made as soon as practicable following the participant's normal retirement
date, disability, termination of employment or death, as the case may be.
Payment of benefits to participants with balances less than $5,000 will be
made in a lump-sum distribution.
As of December 31, 2002, there were no unpaid benefit payment requests.
Benefit payments requested at year end, but not paid were approximately
$6,000 at December 31, 2001.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements of the Plan are presented on the accrual basis of
accounting in conformity with accounting principles generally accepted in
the United States of America ("GAAP").
6
CRESCENT REAL ESTATE EQUITIES, LTD. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
the plan administrator to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly, actual results may
differ from those estimates.
INVESTMENT VALUATION AND INCOME RECOGNITION
The Plan's investments are stated at fair value. Shares of registered
investment companies are valued at quoted market prices, which represent
the net asset value of shares held by the Plan at year end. The Company
shares are valued using quoted prices. Participant loans are valued at
cost, which approximates fair value.
The net realized and unrealized gains and losses on investments includes
realized gains and losses on sales of investments during the year and
unrealized increases or decreases in the market value of investments held
at year end.
Certain of the funds in which the Plan invests utilize several investment
strategies including the use of derivative investments. Derivatives are
used to hedge against currency and interest rate fluctuations. Derivative
investments underlying funds are stated at fair market value. The Plan's
exposure is limited to the fund(s) utilizing the derivative investment.
Purchases and sales of investments are reflected on a trade-date basis.
Interest income is accrued when earned. Dividend income is recorded on the
ex-dividend date. Capital gain distributions are included in dividend
income. The Plan's investments are generally subject to market or credit
risks customarily associated with debt and equity investments.
CONTRIBUTIONS
Contributions from the participants and the Company are accrued in the
period in which they are deducted in accordance with salary deferral
agreements and become obligations of the Company, as determined by the
Plan's administrator.
PAYMENT OF BENEFITS
Benefits are recorded when paid.
PLAN EXPENSES
Employees of the Company perform certain administrative functions with no
compensation from the Plan. To the extent possible, Plan administrative
costs are paid by any available forfeitures. Any remaining expenses will be
paid by the Company (See Note 7). These administrative expenses are not
reflected in the accompanying financial statements. Under the terms of the
Plan, the Plan is not responsible for reimbursing the Company for any fees
paid by the Company.
7
CRESCENT REAL ESTATE EQUITIES, LTD. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
Individual investments with market values greater than 5% of net assets
available for benefits at December 31, are as follows:
2002 2001
---------- ----------
Principal Stable Value Fund $1,647,414 $ 919,363
Bond & Mortgage Account 991,418 561,037
Small Company Blend Account 766,381 700,568
T. Rowe Price Mid-Cap Growth 1,563,301 1,659,753
Vanguard U.S. Growth Fund 1,257,619 1,682,055
Vanguard Wellington 1,539,452 1,225,641
Crescent Real Estate Equities Company 2,206,591 1,980,835
During 2002 and 2001, the Plan's investments net realized and unrealized
gains/(losses) were as follows:
2002 2001
----------- -----------
Mutual Funds $(1,201,503) $ (645,352)
Pooled Separate Accounts (253,926) 189,124
Common Collective Trusts 55,114 41,766
Common Stock (185,646) (456,617)
----------- -----------
$(1,585,961) $ (871,079)
=========== ===========
4. NON-PARTICIPANT DIRECTED INVESTMENTS
Information about the net assets and significant components of the changes
in net assets relating to the non participant-directed investments is as
follows:
2002 2001
--------------- ---------------
NET ASSETS:
Crescent Operating Stock $ 174 $ 29
=============== ===============
CHANGES IN NET ASSETS:
Interfund Transfers $ (3) $ (14)
Gain (Loss) on Sales 148 (699)
--------------- ---------------
$ 145 $ (713)
=============== ===============
8
CRESCENT REAL ESTATE EQUITIES, LTD. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of Plan
termination, participants will become 100% vested in their entire account
balance.
6. TAX STATUS
The Plan has received a determination letter from the Internal Revenue
Service dated October 18, 2002, stating that the Plan is qualified under
Section 401(a) of the Internal Revenue Code (the "Code") and, therefore,
the related trust is exempt from taxation. Once qualified, the Plan is
required to operate in conformity with the Code to maintain its
qualification. The Plan Sponsor believes that the Plan is being operated in
compliance with the applicable requirements of the Code and, therefore,
believes that the Plan is qualified and the related trust is tax exempt as
of December 31, 2002.
7. RELATED PARTY EXPENSES
Some administrative expenses and accounting fees of the Plan are paid by
the Company. The Company paid approximately $20,720 and $23,630 for
administrative and accounting fees on behalf of the Plan during the fiscal
years 2002 and 2001, respectively (see Note 1). Under the terms of the
Plan, the Plan is not responsible for reimbursing the Company for any fees
paid by the Company.
9
CRESCENT REAL ESTATE EQUITIES, LTD.
401(k) PLAN
FORM 5500, SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS HELD
FOR INVESTMENT PURPOSES AT YEAR END
DECEMBER 31, 2002
EIN: 75-2526839
PLAN: 001
(c) DESCRIPTION (e) CURRENT
(a) (b) IDENTITY OF ISSUER OF INVESTMENTS (d) COST VALUE
----------------------- ------------------------------------------------------------------ --------------- ----------------
* Principal Principal Stable Value Fund $ -- $ 1,647,414
* Principal Pooled Separate Account - Bond & Mortgage Account -- 991,418
* Principal Pooled Separate Account - Bond Emphasis Balanced Account -- 470,462
* Principal Pooled Separate Account - Small Company Blend Account -- 766,381
* Principal Pooled Separate Account - Large Cap Stock Index -- 416,921
* Principal Pooled Separate Account - Principal Int Stock Account -- 391,923
* Principal Pooled Separate Account - Principal Financial Group, Inc. -- 270,581
* Principal Pooled Separate Account - International Emerging Markets Account -- 128,488
* Principal Pooled Separate Account - Principal Govt. Securities Account 998
* Principal Mutual Fund - American Century Value Investment Fund 1,017
T. Rowe Mutual Fund - T. Rowe Price Mid-Cap Growth -- 1,563,301
Vanguard Mutual Fund - Vanguard U.S. Growth Fund -- 1,257,619
Vanguard Mutual Fund - Vanguard Wellington -- 1,539,452
* Crescent Real Estate
Equities Company Common Shares (Par Value $.01) -- 2,206,591
* Crescent Operating, Inc. Common Shares (Par Value $.01) 16,998 174
* Participant Loans Participant loans (6.25% to 11.50%) -- 240,303
--------------- ----------------
$ 16,998 $ 11,893,043
=============== ================
* Indicates a party-in-interest to the Plan.
10
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the trustees (or other persons who administer the Plan) have duly caused
this annual report to be signed on its behalf by the undersigned hereunto duly
authorized.
Dated: June 27, 2003 CRESCENT REAL ESTATE EQUITIES, LTD. 401(k) PLAN
By: /s/ Christopher T. Porter
-------------------------------
Christopher T. Porter
Trustee
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
32.01 Consent of Independent Accountant
99.01 Certification of Chief Executive Officer
Certification of Chief Financial Officer