| þ | ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Financial Statements: |
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| 12 | ||||||||
| Consent of Registered Independent Public Accounting Firm | ||||||||
| 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 been included in the financial statements or notes thereto. |
| December 31, | ||||||||
| 2005 | 2004 | |||||||
Assets |
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Investments, at fair value: |
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Participant directed: |
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Shares of registered investment companies: |
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Mutual funds |
$ | 12,840,898 | $ | 10,058,141 | ||||
Pooled separate accounts |
9,515,079 | 7,341,431 | ||||||
Common collective trusts |
2,862,258 | 2,407,726 | ||||||
Participant loans |
582,809 | 543,367 | ||||||
Common stock, Crescent Real Estate Equities
Company |
4,129,883 | 3,269,463 | ||||||
Non-Participant directed: |
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Common stock, Crescent Operating, Inc. |
— | 185 | ||||||
| 29,930,927 | 23,620,313 | |||||||
Participant contributions receivable |
87,371 | — | ||||||
Company contributions receivable |
590,490 | 562,607 | ||||||
Total Assets |
30,608,788 | 24,182,920 | ||||||
Liabilities |
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Excess contributions payable |
42,409 | 2,771 | ||||||
Net assets available for benefits |
$ | 30,566,379 | $ | 24,180,149 | ||||
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| Year Ended December 31, | ||||||||
| 2005 | 2004 | |||||||
Additions to net assets: |
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Investment income: |
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Net realized and unrealized gains on investments |
$ | 1,964,288 | $ | 1,871,395 | ||||
Interest and dividends |
909,958 | 586,415 | ||||||
Total investment income |
2,874,246 | 2,457,810 | ||||||
Contributions: |
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Participants |
2,887,140 | 2,692,992 | ||||||
Company |
1,854,625 | 1,769,806 | ||||||
Rollovers |
573,173 | 427,689 | ||||||
Total contributions |
5,314,938 | 4,890,487 | ||||||
Total additions |
8,189,184 | 7,348,297 | ||||||
Deductions from net assets: |
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Benefits paid to participants |
1,704,010 | 1,030,301 | ||||||
Fund management expenses |
98,944 | 107,327 | ||||||
Total deductions |
1,802,954 | 1,137,628 | ||||||
Net increase in net assets available for benefits |
6,386,230 | 6,210,669 | ||||||
Net assets available for benefits beginning of year |
24,180,149 | 17,969,480 | ||||||
Net assets available for benefits end of year |
$ | 30,566,379 | $ | 24,180,149 | ||||
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| 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 into the Plan is 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 401(k) Trustee Committee (the “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 subject to the maximum deferral amount established by the Internal Revenue Service ($14,000 for 2005 and $13,000 for 2004). | |||
| 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, as defined within the Plan document. | |||
| Years of | Percentage | |||
| Service | Matched | |||
Less than 2
|
25 | % | ||
2
|
50 | % | ||
3
|
75 | % | ||
4
|
100 | % | ||
| Discretionary: | |||
| In addition to the matching contribution, the Company may make a discretionary contribution, which is determined and approved by the Board of Trust Managers annually. No discretionary contribution was made for the years ended December 31, 2005 and 2004. All Company discretionary contributions are invested based upon participant elections. | |||
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| 1. | Description of the Plan — continued | |
| 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 are held in the forfeiture account for twelve months, after which forfeiture balances attributed to the Company’s matching contributions can be applied to pay expenses under the Plan. Forfeitures not used to pay expenses shall be applied to reduce future Company contributions. Forfeitures during the years ended December 31, 2005 and 2004, were $43,073 and $32,062, respectively. Forfeitures used to pay plan expenses for the years ended December 31, 2005 and 2004, were $4,596 and $14,251, respectively. Company forfeitures used to reduce Company contributions for the years ended December 31, 2005 and 2004, were $18,746 and $12,591, 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 Years of | Vesting | |||
| 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. | ||
| 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. A list of available investment options into which a participant may direct their employee and employer contributions is contained in the supplemental schedule to this report titled “Form 5500, Schedule H, Line 4i — Schedule of Assets (Held at Year End).” |
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| 1. | Description of the Plan — continued | |
| 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. 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 five 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 2%. 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, 2005 and 2004 were 9.00% and 7.00%, respectively. Principal and interest have a defined 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, 2005 and 2004, there were no unpaid benefit payment requests. | ||
| 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”). | ||
| 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 these estimates. |
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| 2. | Summary of Significant Accounting Policies — continued | |
| Investment Valuation and Income Recognition | ||
| The Plan’s investments are stated at fair value as of the end of the Plan year. 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 funds in which the Plan invests utilize various 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 such derivative investments. | ||
| 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. |
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| 3. | Investments | |
| Individual investments with market values greater than 5% of net assets available for benefits at December 31, are as follows: |
| 2005 | ||||
T. Rowe Price Mid-Cap Growth |
$ | 4,812,199 | ||
Crescent Real Estate Equities Company |
4,129,883 | |||
Vanguard Wellington |
3,698,354 | |||
Vanguard U.S. Growth Fund |
3,222,985 | |||
Principal Stable Value Fund |
2,862,258 | |||
Principal Small Company Blend Account |
2,210,375 | |||
Principal Bond & Mortgage Account |
1,815,219 | |||
Principal Large Cap Stock Index |
1,582,416 | |||
Principal Int Stock Account |
1,544,019 | |||
| 2004 | ||||
T. Rowe Price Mid-Cap Growth |
$ | 3,710,116 | ||
Crescent Real Estate Equities Company |
3,269,463 | |||
Vanguard Wellington |
3,136,375 | |||
Vanguard U.S. Growth Fund |
2,484,313 | |||
Principal Stable Value Fund |
2,407,726 | |||
Principal Small Company Blend Account |
1,837,613 | |||
Principal Bond & Mortgage Account |
1,620,027 | |||
Principal Large Cap Stock Index |
1,255,638 | |||
| At December 31, 2005 and 2004, the percentage of the Plan’s net assets held in the Company’s common stock was approximately 13.5%. The Plan holds 208,369 allocated shares of the Company’s common stock on December 31, 2005, which represents approximately 0.21% of the 101,442,063 Crescent Real Estate Equities Company common shares outstanding on that date. | ||
| During 2005 and 2004, the net realized and unrealized gains on investments were as follows: |
| 2005 | 2004 | |||||||
Mutual Funds |
$ | 616,015 | $ | 772,540 | ||||
Pooled Separate Accounts |
956,098 | 835,197 | ||||||
Common Collective Trusts |
92,363 | 71,300 | ||||||
Common Stock |
299,812 | 192,358 | ||||||
| $ | 1,964,288 | $ | 1,871,395 | |||||
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| 4. | Non-participant Directed Investments | |
| Information about the net assets available for benefits and significant components of the changes in net assets available for benefits relating to the non participant-directed investments is as follows: |
| 2005 | 2004 | |||||||
Net Assets: |
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Crescent Operating, Inc. common stock |
$ | — | $ | 185 | ||||
Changes in Net Assets: |
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Interfund transfers and distributions |
$ | (191 | ) | $ | (6 | ) | ||
Gain on sales of common stock |
6 | 38 | ||||||
| $ | (185 | ) | $ | 32 | ||||
| 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 has been amended since receiving the determination letter (see Note 8). The Plan Sponsor believes that the Plan, as amended, 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, 2005. | ||
| 7. | Related Party Expenses | |
| Some administrative expenses and accounting fees of the Plan are paid by the Company. The Company paid $21,476 and $19,230 for administrative and accounting fees on behalf of the Plan during the years ended December 31, 2005 and 2004, respectively. Under the terms of the Plan, the Plan is not responsible for reimbursing the Company for any fees paid by the Company. |
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| 8. | Plan Amendment | |
| Effective March 28, 2005, the mandatory distribution provisions of the Plan were amended. The amendment allows for the automatic rollover to an individual retirement account established in the name and for the benefit of the participant of a terminated participant’s account if the vested account balance exceeds $1,000 but is less than $5,000. These automatic rollovers are completed only if the participant does not request a distribution from the Plan in a timely manner following their termination. Terminated participants with vested account balances of less than $1,000 are subject to an involuntary lump-sum distribution if they do not submit distribution instructions in a timely manner. | ||
| The Plan was also amended, effective February 26, 2004, to allow participants to withdraw any part of their vested account which results from any or all contributions in the event of hardship due to an immediate and heavy financial need. |
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| (c) Description | (e) Current | |||||||||
| (a) | (b) Identity of Issuer | of Investments | (d) Cost | Value | ||||||
| T. Rowe | Mutual Fund — T. Rowe Price Mid-Cap Growth | ** | $ | 4,812,199 | ||||||
| Vanguard | Mutual Fund — Vanguard Wellington | ** | 3,698,354 | |||||||
| Vanguard | Mutual Fund — Vanguard U.S. Growth Fund | ** | 3,222,985 | |||||||
*
|
Principal | Principal Stable Value Fund | ** | 2,862,258 | ||||||
*
|
Principal | Pooled Separate Account — Small Company Blend Account | ** | 2,210,375 | ||||||
*
|
Principal | Pooled Separate Account — Bond & Mortgage Account | ** | 1,815,219 | ||||||
*
|
Principal | Pooled Separate Account — Large Cap Stock Index | ** | 1,582,416 | ||||||
*
|
Principal | Pooled Separate Account — Principal Int Stock Account | ** | 1,544,019 | ||||||
*
|
Principal | Pooled Separate Account — International Emerging Markets Account | ** | 1,205,460 | ||||||
*
|
Principal | Mutual Fund — American Century Value Investment Fund | ** | 769,119 | ||||||
*
|
Principal | Pooled Separate Account — Bond Emphasis Balanced Account | ** | 699,800 | ||||||
| Putnam | Mutual Fund — Putnam Equity Income A Fund | ** | 338,241 | |||||||
*
|
Principal | Pooled Separate Account — Principal Financial Group, Inc. | ** | 317,556 | ||||||
*
|
Principal | Pooled Separate Account — Principal Govt. Securities Account | ** | 140,234 | ||||||
*
|
Crescent Real Estate | |||||||||
Equities Company
|
Common shares (par value $.01) | ** | 4,129,883 | |||||||
*
|
Participant loans | Participant loans (6.00% to 11.00%) | -0- | 582,809 | ||||||
| $ | 29,930,927 | |||||||||
| * | Indicates a party-in-interest to the Plan. | |
| ** | Cost not necessary because participant directed investments. |
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| Dated: June 2, 2006 | CRESCENT REAL ESTATE EQUITIES, LTD. 401(k) PLAN | ||||
| By: | /s/ Christopher T. Porter | ||||
Christopher T. Porter |
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Trustee |
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| EXHIBIT | ||
| NUMBER | DESCRIPTION OF EXHIBIT | |
32.01
|
Consent of Registered Independent Public Accounting Firm |