<PAGE>

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

                       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, 1996    Commission file number 0-18694

                              CATELLUS DEVELOPMENT
                                   CORPORATION
             (Exact name of Registrant as specified in its charter)

                           Delaware                          94-2953477
                (State or other jurisdiction of          (I.R.S. Employer
               Incorporation or organization)            Identification No.)

                               201 Mission Street
                         San Francisco, California 94105
              (Address of principal executive offices and zip code)

               Registrant's telephone number, including area code:
                                 (415) 974-4500

Securities registered pursuant to Section 12(b) of the Act:

                                                     Name of each exchange

       Title of each class                            on which registered
       -------------------                            -------------------
Common Stock, $.01 par value per share          New York, Pacific, Chicago Stock
                                                           Exchanges
  $3.75 Series A Cumulative Convertible              New York Stock Exchange
            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 _

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $846 million on March 24, 1997.

     As of March 24, 1997, there were 89,500,428 issued and outstanding shares
of the Registrant's Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's Proxy Statement for the 1997 Annual Meeting of
Stockholders are incorporated by reference in Part III.

===============================================================================
<PAGE>

                                     PART I


ITEM 1.  BUSINESS

     Catellus Development Corporation (the "Company") is a diversified real
estate operating company that owns, manages and develops real estate for its
account and others. As of December 31, 1996 its portfolio included approximately
837,000 acres of land, 16.4 million square feet of income-producing property,
5,300 acres of land leases and interests in twelve joint ventures. Approximately
76% (by square feet) of the Company's industrial property, 85% of its retail
property and 65% of its office property are located in California, with the
balance mainly concentrated in metropolitan Texas, Illinois and Arizona. In
addition, 30% of the Company's industrial land holdings, and all of its resource
group portfolio and major mixed-use projects are located in California.

     The Company was originally organized in the state of Delaware in 1984 as an
indirect, wholly-owned subsidiary of Santa Fe Pacific Corporation to conduct the
non-railroad real estate activities of Santa Fe Industries and Southern Pacific
Company. The largest single shareholder of the Company is the California Public
Employees' Retirement System ("CALPERS"), which, as of December 31, 1996, owned
approximately 41.7% of the common stock.

     The Company's principal office is located at 201 Mission Street, San
Francisco, California 94105; its telephone number is (415) 974-4500.


COMPANY STRATEGIES -- OVERVIEW

     Prior to 1996, the aggregate cash requirements associated with fixed
charges and leasing costs exceeded the Company's operating income from recurring
sources. The Company relied primarily on proceeds from asset sales and the
issuances of debt and preferred stock to meet its operating deficits. During
1995 and 1996, the Company focused on improving operating income, and, as a
result, the deficits were eliminated in 1996 (see detailed financial results
under Liquidity and Capital Resources section in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of this Form 10-K).
The more significant steps taken were as follows:

o    In October 1995, the Company established a goal to sell $100 million of
non-strategic land assets over the 15-month period ended December 31, 1996.
Total program sales for the 15 months equaled $123.7 million, exceeding the goal
by $23.7 million. In addition, $9.1 million in other non-strategic property
sales occurred in 1996. Proceeds from these sales were used primarily for debt
reduction and to fund the Company's development activities.

o     The Company continued to place a greater emphasis on increasing its
         development activity:
         -    During 1996, the Company commenced construction on 3.3 million
              square feet of new development, compared to 900,000 square feet
              in 1995, and completed 1.6 million square feet
              compared to 600,000 for 1995.
         -    In March 1996, the Company acquired The Akins Companies (now the
              Catellus Residential Group), a residential developer based in
              Southern California, to place the Company in a better position to
              pursue residential opportunities on certain existing land
              holdings. In addition, the Company intends to grow this business
              to opportunities on land not currently owned.
         -    In addition to non-strategic land sales, the Company closed $62.5
              million in property sales related to industrial, residential and
              mixed-use land development. These sales contributed $15.6 million
              to 1996 earnings compared to $1.0 million in 1995.

 o   The Company continued to grow its fee businesses. Development and
     management fee income (net) increased to $3.4 million during 1996 from $1.9
     million in 1995. This increase was primarily from "design build" fee income
     for the 500,000-square-foot Metropolitan Water District's headquarters at
     Los Angeles Union Station, residential development fee income and
     management fees from the Burlington Northern Santa Fe management contract.

                                       2
<PAGE>

o    During 1996, the Company applied $83.3 million of the proceeds from
     non-strategic land sales to debt reduction in order to reduce interest
     expense. In addition, debt increased by $83.9 million which financed the
     construction of primarily pre-leased industrial buildings, residential
     development and the redemption of preferred stock. It is expected that
     future cash flow will be improved by the interest savings on the $83.3
     million of debt reduction, reduced dividend requirements, cash flow from
     completed buildings and residential development, less the interest related
     to the $83.9 million of debt incurred to fund these activities.

o    In order to reduce its preferred dividends, the Company issued two calls
     in 1996 and two calls in early 1997 for the redemption of preferred stock:
         -    In July 1996, the Company called for redemption of 950,000 shares
              or approximately $50 million of its $3.75 Series A Cumulative
              Convertible Preferred Stock (Series A Preferred Stock). The
              redemption date was September 13, 1996. The results were the
              conversion of 441,887 shares into 2,438,641 shares of common stock
              and the redemption of 508,113 shares at a cost of approximately
              $26.7 million.
         -    In December 1996, the Company called for redemption an additional
              475,000 shares or approximately $25 million of its Series A
              Preferred Stock. The redemption date was January 31, 1997. The
              results were the conversion of 471,730 shares into 2,603,168
              shares of common stock and the redemption of the remaining shares
              at a cost of $175,000.
         -    On February 5, 1997, the Company called for redemption an
              additional 1,720,000 shares or approximately $90 million of its
              Series A Preferred Stock. The redemption date was March 24, 1997.
              The results were the conversion of 99.8% of the shares into
              9,469,015 shares of common stock and the redemption of the
              remaining 4,163 shares at a cost of $220,000.
         -    On March 24, 1997, the Company called for redemption of the
              remaining outstanding 250,000 shares, or approximately $13
              million, of its Series A Preferred Stock and 1,470,000 shares, or
              approximately $75 million, of its $3.625 Series B Cumulative
              Convertible Exchangeable Preferred Stock. The redemption date on
              this call is May 1, 1997.
     As a result of these four calls, the Company's annual preferred dividend
     requirement will be decreased by approximately $18.1 million. Assuming the
     market conditions remain favorable, the Company expects to make additional
     redemption calls in 1997.

o    The Company has an ongoing strategy to review its major land development
     projects with the goal of increasing profitability, minimizing up-front
     capital requirements and shortening the time required to develop the
     properties. As a result of these reviews, decisions have been and continue
     to be made to modify certain of the entitlements or abandon or sell
     properties that management believes cannot be developed in a reasonable
     time frame. For a discussion of specific projects, see Portfolio Summary.

     The combination of the above actions and other operating results resulted
in the Company reporting $19.9 million in "Income from property operations,
development and management activities after adjustment for general and
administrative expense, fixed charges and leasing costs" compared to a deficit
of $8.3 million in 1995 and a deficit of $24.5 million in 1994 (see Liquidity
and Capital Resources section in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of this Form 10-K).

     With the elimination of its historic operating deficits, the Company
expects to aggressively pursue development activities beyond those associated
with its current land holdings, as well as other opportunities to increase cash
flow.


PORTFOLIO SUMMARY

     The following tables provide information on the Company's income-producing
assets, land assets, and joint venture investments:

                                       3
<PAGE>

                          PORTFOLIO BY ASSET CATEGORY

INCOME-PRODUCING PROPERTIES
<TABLE>
<CAPTION>

                           AS OF DECEMBER 31,
              -------------------------------------------           PROPERTY
              NUMBER OF PROPERTIES    SQUARE FEET OWNED       OPERATING INCOME(1)
              -------------------    --------------------   -----------------------
                      1996               1996       1995        1996        1995
                      ----               ----       ----        ----        ----
<S>                   <C>               <C>        <C>        <C>         <C>
                                          (IN THOUSANDS)          (IN THOUSANDS)
Industrial.......      53               12,606     11,424     $ 41,851    $ 39,523
Retail...........      12                  928        957        8,839       8,423
Office...........      14                1,683      1,687       15,746      16,483
Land leases......      54                  N/A        N/A        6,705       6,171
                      ---               ------     ------     --------    --------
     Total.......     133               15,217*    14,068     $ 73,141    $ 70,600
                      ===               ======     ======     ========    ========
</TABLE>

     * Does not include approximately 1,200,000 square feet of buildings located
on major mixed-use projects.


LAND DEVELOPMENT AND LAND HOLDINGS
<TABLE>
<CAPTION>

                                                   AS OF DECEMBER 31,
                                  -----------------------------------------------------        Property
                                           Acres              Catellus Net Book Value      Operating Income (1)
                                  ------------------------  ---------------------------  -------------------------
                                        1996         1995         1996           1995          1996         1995
                                  -----------  -----------  ------------  -------------  ------------ ------------
                                                                  (IN THOUSANDS)              (IN THOUSANDS)
<S>                                  <C>          <C>          <C>            <C>             <C>        <C>
Major mixed use projects........       1,171        1,156      $323,134       $317,727        $3,337       $1,578
Industrial development..........       1,838        1,671        93,783         76,170         (964)      (1,111)
Retail and office development
  and other land................       1,209        6,086        61,902         59,647         (459)          391
Residential properties..........       1,955          550        44,939         14,522          (86)        (197)
Resource group portfolio........     789,899      833,844         2,299          1,788         (615)        (936)
Properties held for sale........      41,323       11,863        37,223         84,232       (1,600)      (2,018)
                                     -------      -------      --------       --------       -------    --------
          Total.................     837,395      855,170      $563,280       $554,086        $(387)    $ (2,293)
                                     =======      =======      ========       ========       =======    ========
</TABLE>

JOINT VENTURES
<TABLE>
<CAPTION>
                                    COMPANY
                                SHARE OF INCOME
                                ---------------
                                 1996      1995
                                 ----      ----
                                 (IN THOUSANDS)
<S>                           <C>        <C>
Hotels................         $6,571    $6,355
Land..................            130     1,373
Residential...........            797        --
Office and apartments.          (747)     (693)
                               ------    ------
          Total.......        $6,751    $7,035
                               ======    ======
</TABLE>


Notes:

     (1) Property operating income represents rental revenue less property
operating costs.

                                       4
<PAGE>

     The following summarizes leasing statistics for the Company's operating
properties (square feet in thousands):
<TABLE>
<CAPTION>
                                         DECEMBER 31,
                                   ---------------------
                                   1996    1995     1994
                                   ----    ----     ----
<S>                              <C>     <C>      <C>
Industrial buildings
  Square feet owned..........    12,606  11,424   10,985
  Square feet leased.........    12,345  10,945   10,432
  Percent leased.............     97.9%   95.8%    95.0%
Office buildings
  Square feet owned..........     1,683   1,687    1,687
  Square feet leased.........     1,460   1,553    1,618
  Percent leased.............     86.7%   92.1%    95.9%
Retail buildings
  Square feet owned..........       928     957      837
  Square feet leased.........       874     883      777
  Percent leased.............     94.2%   92.3%    92.8%
Land development*
  Square feet owned..........     1,231     100      100
  Square feet leased.........     1,129     100      100
  Percent leased.............     91.7%  100.0%   100.0%
Total
  Square feet owned..........    16,448  14,168   13,609
  Square feet leased.........    15,808  13,481   12,927
  Percent leased.............     96.1%   95.1%    95.0%
</TABLE>

----------
     * 1996 increase reflects the inclusion of income from Mission Bay which was
previously excluded because of capitalization of revenues and expenses.

     Lease Expiration -- The following table summarizes the lease expirations in
the total portfolio as of December 31, 1996:
<TABLE>
<CAPTION>
                               1997    1998   1999   2000    2001   2002   2003  2004  2005  THEREAFTER
                               ----    ----   ----   ----    ----   ----   ----  ----  ----  ----------
<S>                           <C>     <C>    <C>    <C>     <C>     <C>    <C>   <C>   <C>   <C>

Percent.....................  19.1%    8.3%  10.0%  10.1%   17.4%   5.9%   4.2%  5.6%  6.3%    13.1%
Square feet (in thousands)..  3,026   1,312  1,584  1,602   2,746    930    665   889   991    2,063

</TABLE>
     Of the 3.0 million of leased square feet that is scheduled to expire in
1997, approximately 385,000 square feet represent month-to-month leases.

INDUSTRIAL INCOME-PRODUCING PROPERTIES

     At the end of 1996, the Company's industrial income-producing portfolio
included 12.6 million square feet in 53 properties. At the year-end, these
buildings were 97.9% leased.

     At the end of 1996, the Company also had 2.3 million square feet under
construction and leases signed for an additional 43,000 square feet to be
constructed in 1997.

     Property Operating Income -- Property operating income for the industrial
portfolio increased from $39.5 million in 1995 to $41.9 million in 1996. This
increase resulted primarily from the addition of new industrial buildings
totaling 1.7 million square feet that were completed in late 1995 and 1996. The
increase in 1995 compared to 1994 was due to the completion of six new buildings
totaling 532,000 square feet in 1995 and the

                                       5
<PAGE>

fourth quarter of 1994, and was partially offset by reduced rentals from
existing properties. The following table summarizes property operating income
for the industrial portfolio (in thousands):

<TABLE>
<CAPTION>

                                1996        1995       1994
                                ----        ----       ----
<S>                          <C>          <C>        <C>

Industrial buildings.......   $ 41,851    $ 39,523   $ 38,813
                              ========    ========   ========

</TABLE>

     Location -- The following table summarizes the Company's industrial
buildings by region as of December 31, 1996:
<TABLE>
<CAPTION>

                              NUMBER OF   NUMBER OF
                              BUILDINGS   PROPERTIES   SQUARE FEET
                            ------------  ----------  --------------
                                                      (IN THOUSANDS)
<S>                             <C>          <C>          <C>
Arizona..................         12           5            1,194
Northern California......         20           4            1,727
Southern California......        125          34            7,868
Illinois.................          4           1              791
Oklahoma & Kansas........          4           4              406
Texas....................          7           5              620
                                 ---         ---           ------
          Total..........        172          53           12,606
                                 ===         ===           ======
</TABLE>


     Lease Expiration -- The following table summarizes the lease expirations in
the industrial portfolio as of December 31, 1996:
<TABLE>
<CAPTION>
                                 1997   1998    1999   2000    2001   2002    2003   2004    2005   THEREAFTER
                                 ----   ----    ----   ----    ----   ----    ----   ----    ----   ----------
<S>                             <C>     <C>    <C>     <C>    <C>     <C>     <C>    <C>     <C>     <C>
Percent.......................  17.8%   6.8%   10.6%   11.0%  18.6%   4.8%    4.3%   6.3%    7.3%    12.5%
Square feet (in thousands)....  2,194    836   1,313   1,358  2,301   598     527    776     899     1,543
</TABLE>
     Leases totaling 2.2 million square feet of the Company's total industrial
square footage expire in 1997. Of this, 52% are located in Southern California,
where economic conditions have improved, 16% are located in Arizona, and the
balance is spread throughout the portfolio. Of the 2.2 million of leased square
feet that is scheduled to expire in 1997, approximately 133,000 square feet
represent month-to-month leases.

INDUSTRIAL DEVELOPMENT

     The Company's plans call for continuing to expand industrial development
activity. Approximately 1,866 acres of the Company's industrial land in 15
separate locations would support the development of approximately 26 million
square feet of industrial development.

     In 1996, the Company commenced construction on 3.3 million square feet of
new industrial development and completed approximately 1.6 million square feet
of industrial construction. As of December 31, 1996, the Company had 2.3 million
square feet under construction and had signed leases for 43,000 square feet of
new industrial development. In 1997, the Company intends to seek additional
build-to-suit opportunities and will engage in speculative development, in order
to take advantage of local market conditions.

                                       6
<PAGE>

     Property -- The following table summarizes selected industrial development
properties:
<TABLE>
<CAPTION>
                                                       POTENTIAL
                                                     Square Feet of
                                                      ENTITLEMENTS
LOCATION                                  ACRES       (IN MILLIONS)
                                          -----       -------------
<S>                                    <C>               <C>
Phoenix, Arizona...................       214.3           3.6
Dallas, Texas
  Coppell..........................       171.6           3.0
  Garland..........................        72.8           1.4
Chicago, Illinois
  International Centre, Woodridge..       436.1           5.5
  Romeoville.......................       140.5           2.0
Northern California
  Richmond.........................        50.9           0.6
  Fremont*.........................       134.1           2.3
Southern California
  Anaheim..........................        11.5           0.2
  City of Industry.................        36.2           0.7
  La Mirada (held in joint venture)        30.4           0.6
  Ontario..........................       248.6           4.0
  Rancho Cucamonga.................        32.6           0.6
  Santa Fe Springs.................        12.5           0.2
Oklahoma City, Oklahoma............       274.5           1.2
                                        -------          ----
          Total....................     1,866.6          25.9
                                        =======          ====
</TABLE>
     * Includes estimated industrial development on 127.5 acres of the Company's
840-acre mixed-use project, Pacific Commons in Fremont. The remainder of the
developable acreage at Pacific Commons will be R&D, flex-tech, office and
retail.

     Development -- The following table summarizes the Company's industrial
development activities, in square feet, during the past three years:
<TABLE>
<CAPTION>
                                                       1996        1995        1994
                                                       ----        ----        ----
<S>                                               <C>           <C>         <C>
Under construction, beginning of period......         641,128     337,136     307,000
Construction starts..........................       3,259,308     791,846     381,136
Completion...................................      (1,613,475)   (487,854)   (351,000)
                                                    ---------     -------     -------
Under construction, end of period............       2,286,961     641,128     337,136
                                                    =========     =======     =======
</TABLE>

     Sales -- The following table summarizes the Company's sales of industrial
development property:
<TABLE>
<CAPTION>
                                       1996        1995  1994
                                       ----        ----  ----
Industrial Development Property:          (in thousands)
<S>                                <C>         <C>       <C>
     Sales............             $ 27,375     $ 3,224  $ --
     Cost of sales....               18,596       2,271    --
                                   --------     -------  ----
          Gain........             $  8,779     $   953  $ --
                                   ========     =======  ====
</TABLE>

                                       7
<PAGE>

RETAIL INCOME-PRODUCING PROPERTIES

     As of the end of 1996, the Company's retail income-producing portfolio
totalled 928,000 square feet consisting of 24 buildings at 12 locations,
which were 94.2% leased as of December 31, 1996.

     The Company's retail properties are located primarily in Northern and
Southern California, with one complex in each of Colorado and Oregon. The
largest retail project, East Baybridge Center, is located on 40 acres near San
Francisco in the cities of Emeryville and Oakland. The 269,000-square-foot Phase
I of this project opened in mid-1994 and was pre-leased to such national
retailers as Home Depot, Sportmart, OfficeMax, Safeway's Pak 'n Save, and
CompUSA. A 117,000-square-foot building for Kmart was added to the center in
late 1995.

     Property Operating Income -- Property operating income for the Company's
retail building portfolio rose from $8.4 million in 1995 to $8.8 million in
1996, because of the addition of the Kmart building to East Baybridge Center.
Operating income increased by $3.4 million from 1994 to 1995 primarily because
of the completion of the East Baybridge Center in late 1994. The
following table summarizes property operating income for the retail portfolio
(in thousands):
<TABLE>
<CAPTION>
                              1996     1995     1994
                              ----     ----     ----
<S>                         <C>      <C>      <C>
Retail buildings....        $8,839   $8,423   $5,024
                            ======   ======   ======
</TABLE>

     Location -- The following table summarizes the Company's retail buildings
by region as of December 31, 1996:
<TABLE>
<CAPTION>
                            NUMBER OF  NUMBER OF
                            BUILDINGS  PROPERTIES  SQUARE FEET
                            ---------  ----------  -----------
                                                  (IN THOUSANDS)
<S>                            <C>         <C>         <C>
Northern California.....         9           3           460
Southern California.....        12           7           330
Colorado................         1           1           100
Oregon..................         2           1            38
                                --          --           ---
          Total                 24          12           928
                                ==          ==           ===
</TABLE>

     Lease expirations -- The following table summarizes the lease expirations
in the retail portfolio as of December 31, 1996:
<TABLE>
<CAPTION>


                              1997    1998   1999    2000   2001    2002   2003    2004   2005       THEREAFTER
                              ----    ----   ----    ----   ----    ----   ----    ----   ----       ----------
<S>                           <C>     <C>    <C>     <C>    <C>     <C>    <C>     <C>    <C>
Percent...................    11.9%   6.8%   4.0%   10.8%   6.8%    0.1%   4.0%   10.3%   0.6%        44.7%
Square feet (in thousands)     104     59     35      95     59       1     35      90      5          391
</TABLE>

     Development -- The following table summarizes the Company's retail
development completed during the past three years:
<TABLE>
<CAPTION>
                                    1996      1995     1994
                                    ----      ----     ----
<S>                                 <C>    <C>      <C>
Completed projects (square feet).     --   117,000  269,310
                                    ====   =======  =======
</TABLE>
OFFICE INCOME-PRODUCING PROPERTIES

     At the end of 1996, the Company's office income-producing portfolio
consisted of approximately 1.7 million square feet of office buildings. At
year-end 1996, this portfolio of 34 office buildings was 86.7% leased. The most
significant office projects owned by the Company are the South Bay Center in San
Jose, California (424,192 square feet) and the Railway Exchange Building in
Chicago, Illinois (374,929 square feet).

     Property Operating Income -- The Company experienced a decrease in property
operating income from office buildings in 1996. This decrease is related to an
increase in vacancy primarily in one building. The decrease from 1994 to 1995 is
related primarily to the Railway Exchange Building in Chicago, Illinois. An
increase in property taxes in Chicago and the replacement of a major tenant with
tenants paying lower rates caused

                                       8
<PAGE>

the building to contribute less to office property operating income than in
1994. The following table summarizes property operating income for the office
portfolio (in thousands):
<TABLE>
<CAPTION>
<S>                   <C>       <C>       <C>
                         1996      1995      1994
                         ----      ----      ----
Office buildings...   $15,746   $16,483   $18,399
                      =======   =======   =======
</TABLE>

     Location -- The following table summarizes the Company's office property by
region as of December 31, 1996:
<TABLE>
<CAPTION>
                            Number of   Number of
                            BUILDINGS   PROPERTIES   SQUARE FEET
                            ---------   ----------   -----------
                                                     (IN THOUSANDS)
<S>                            <C>           <C>        <C>
Northern California.....        11            3           521
Southern California.....        14            7           573
Illinois................         2            2           473
Oregon..................         1            1            56
Texas...................         6            1            60
                                --           --         -----
          Totals........        34           14         1,683
                                ===          ==         =====
</TABLE>

     Lease Expirations -- The following table summarizes the lease expirations
in the office portfolio as of December 31, 1996:
<TABLE>
<CAPTION>

<S>                           <C>     <C>    <C>     <C>    <C>     <C>    <C>     <C>    <C>       <C>
                              1997    1998   1999    2000   2001    2002   2003    2004   2005      THEREAFTER
                              ----    ----   ----    ----   ----    ----   ----    ----   ----      ----------
Percent...................    14.6%   8.5%   12.1%   6.0%   20.3%  21.2%   7.0%    1.5%   0.0%        8.8%
Square feet (in thousands)     213    124     177     87     296    309     102     23      0         129
</TABLE>

     Of the 213,000 square feet of leased space that is scheduled to expire in
1997, approximately 2,400 square feet represent month-to-month leases.

LAND LEASES

     As of the end of 1996, the Company's land lease income-producing portfolio
included 54 leases on 5,339 acres.

     Property Operating Income -- Property operating income for the land lease
portfolio has remained stable since 1994. The following table summarizes
operating income for the land lease portfolio (in thousands):
<TABLE>
<CAPTION>
                             1996    1995    1994
                             ----    ----    ----
<S>                        <C>     <C>     <C>
Land leases...........      6,705   6,171   6,377
                            =====   =====   =====
</TABLE>

     Location -- The following table summarizes the Company's land leases by
region as of December 31, 1996:
<TABLE>
<CAPTION>


                                    NUMBER OF
                                     LEASES      ACRES
                                     ------      -----
<S>                                    <C>      <C>
Arizona.........................         4          16
Northern California.............         5          24
Southern California.............        44       5,294
Texas...........................         1           5
                                        --       -----
          Total.................        54       5,339
                                        ==       =====
</TABLE>

                                       9
<PAGE>

LAND DEVELOPMENT -- MIXED USE PROJECTS

         The Company's land portfolio includes four major mixed-use development
sites.

         Mission Bay, San Francisco, CA. The Company owns 166.9 acres of
property in San Francisco which is part of a 313-acre mixed-use development
known as Mission Bay. The balance of the property is primarily owned by various
public entities. The property is subject to easements or other encumbrances in
favor of public utilities or public entities, leases, exchange agreements
between the Company and the various public entities and specific plan and zoning
requirements regarding further development. The Company's property was the
subject of a 1991 Development Agreement between the Company and the City and
County of San Francisco that was terminated by the Company in February 1996. As
a result of this decision, the Company took an $84.8 million charge against
fourth quarter earnings in 1995. (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and Note 6 to the Consolidated
Financial Statements).

         During 1996, the Company reached an agreement in principle with the
City of San Francisco for a 65-acre portion of the 313-acre project. The
entitlement process to implement that agreement in principle is underway and
will continue into 1998. The revised plan for this project will include 2,400
market-rate units, up to 350,000 square feet of entertainment retail and up to
250,000 square feet of neighborhood and community-serving retail. Under this
agreement in principle, incremental tax revenue generated by the project will be
available to finance infrastructure. It is not feasible to estimate the cost of
this development until entitlements have been obtained.

         In March 1997, the University of California at San Francisco ("UCSF")
entered into an exclusive negotiation period with the Company to pursue an
agreement, subject to the receipt of the necessary entitlements and other
conditions, to locate a planned expansion of UCSF's campus on the Mission Bay
project. There can be no assurances, however, that the necessary entitlements
will be obtained, that the timing of entitlements, if obtained, will meet
marketing needs, or that the other conditions will be met. Negotiations are
expected to continue throughout much, if not all, of 1997.

         As of December 31, 1996, approximately one million square feet of
buildings and approximately 20 land leases were held for lease at Mission Bay
and the buildings were approximately 92% occupied. These operating assets
represent interim uses of the property and are not expected to be part of any
final project. Rental revenue from the buildings was $4.5 million during 1996,
resulting in property operating income of $3.2 million. Rental revenue from
these land leases was approximately $1.6 million during 1996, resulting in
property operating income of $600,000. This project is not currently security
for borrowings of the Company.

         Pacific Commons, Fremont, CA. Pacific Commons Business Park is located
on an 840-acre site bordering Interstate 880 in Fremont, California, a part of
the San Jose/Silicon Valley area.

         In September 1996, the Company received entitlements from the City of
Fremont for 8.5 million square feet of development, upon compliance with the
certified environmental impact report and applicable laws. The development would
include 7.8 million square feet of research and development, light industrial,
warehouse-distribution and corporate campus space and 700,000 square feet of
retail. In accordance with the environmental impact report and applicable law,
the Company is working with the City, state and federal government agencies to
address the impact of the park on wetlands and special status species. There can
be no assurances that the necessary government approvals will be obtained, or
that the timing of approvals, if obtained, will meet marketing needs.

         In the fourth quarter of 1996, the Company began construction on its
first build-to-suit development at Pacific Commons. The 375,000-square-foot
warehouse/distribution facility is expected to be completed by the end of 1997.

         Union Station, Los Angeles, CA. The Company owns approximately 47 acres
which surround and include the historic Los Angeles Union Station. The Company
completed acquisition of the site in 1990. In 1996, the City awarded the Company
a flexible entitlement package permitting seven million square feet of
development which could include office, hotel, housing, sports and entertainment
facilities.

                                       10
<PAGE>

         In 1996, the Company sold a 4.2-acre portion of the Union Station
property to Metropolitan Water District ("MWD") as the site of MWD's new
headquarters facility. This sale generated proceeds of $13.2 million and a gain
of $5.0 million. The Company has commenced construction of the
500,000-square-foot, 12-story headquarters facility on behalf of MWD. Completion
is scheduled for late 1998, with occupancy to occur in 1999.

         Santa Fe Depot, San Diego, CA. The Company owns approximately 17 acres
near the waterfront in downtown San Diego, California. The Depot is served daily
by intercity rail lines (Amtrak), a commuter rail line (Coaster), and the City's
growing trolley system. The site is currently entitled for a mixture of office,
hotel, retail and housing development. Management is reevaluating the approved
specific plan in light of current and projected market conditions, and is
working with the U.S. Navy, Port Commission, and City and County agencies on a
master plan for the entire North Embarcadero portion of the waterfront, which
would require additional entitlements. The site is also one of three in the
greater San Diego area under consideration for a new San Diego Padres baseball
stadium, which would require reevaluation of the specific plan, which in turn
would require additional entitlements. There can be no assurances that any
necessary entitlements will be obtained, or that the timing of entitlements, if
obtained, will meet marketing needs.

RESIDENTIAL DEVELOPMENT

         In March 1996, the Company concluded the acquisition of The Akins
Companies, a residential real estate company, consisting of a diversified group
of entities involved in home-building, community development and project
management services. Since 1950, the Akins Companies have developed more than
10,000 homes throughout Southern California.

         The acquired business, now called the Catellus Residential Group
("CRG"), develops the Company's residential land, as well as projects previously
started by Akins, and will undertake new development activities. In addition,
Catellus Residential Group includes an urban housing division formed by the
Company in 1995 to develop rental housing with an affordable component on urban
in-fill locations in California.

         Property -- The following table summarizes the Company's residential
properties, including those acquired as part of the Akins acquisition:
<TABLE>
<CAPTION>
                                                                    POTENTIAL LOTS OR UNITS
                                                                -------------------------------
                                                                COMMUNITY     MERCHANT    URBAN
                                                                DEVELOPMENT   HOUSING    HOUSING    ESTIMATED
                                                                 DIVISION     DIVISION   DIVISION     START
LOCATION                                              ACRES       (LOTS)       (UNITS)    (UNITS)      DATE
--------                                              -----       ------       -------   ---------   --------
<S>                                                    <C>        <C>         <C>        <C>       <C>
Owned Projects
    Texas
       Oak Cliff/Dallas, TX......................       113         400                             After 1998
       Clodine, TX...............................       877       2,100                             After 1998
     Northern California
       Bear Creek/Stockton, CA...................       392         800                             After 1998
       Tracy, CA.................................       445       2,400                             After 1998
       Mission Bay/San Francisco, CA*............        22                               2,400     Mid 1998-Early 1999
       Union City, CA............................        58          86          100                Under development
    Southern California
       Lakeside/Buena Park, CA...................        70         258           92                Late 1997
Joint Venture Projects
       Bridgecourt Apts/Emeryville, CA...........         4                                 220     Under development
       Kentwood Collection/Los Angeles, CA.......        11                       23                Under development
       Signature Collection/Newport Coast, CA....        25                       30                Under development
       Stevenson Ranch/Santa Clarita, CA.........        11                       55                Under development
Management Projects
       University Hills/Irvine, CA...............        22                                 150     Under development
       Canyon Hills/Orange, CA...................         4                       74                Under development
       Ridgemoor/Rowland Heights, CA.............       123                      228                Under development
       Marabella Golf Villas/San Juan
       Capistrano, CA............................         2                       24                Under development
                                                      -----       -----          ---       ----
TOTALS . . . . . . . . . . . . . . . . . . . . .      2,179       6,044          626      2,770
                                                      =====       =====          ===      =====
</TABLE>
* Represents 21.9 acres in the 65-acre portion of Mission Bay located north of
the channel, which the CRG's Urban Housing Division will develop in conjunction
with the Bay Area Development Group.

                                       11
<PAGE>

         Sales - The following table summarizes the Company's sales of
residential development property:
<TABLE>
<CAPTION>
                                               1996     1995      1994
                                               ----     ----      ----
                                                   (IN THOUSANDS)
<S>                                       <C>          <C>       <C>
Residential Development Property:
     Sales..............................   $ 21,945    $  --     $  --
     Cost of sales......................     20,138       --        --
                                           --------    -----     -----
        Gain............................   $  1,807    $  --     $  --
                                           ========    =====     =====
</TABLE>

JOINT VENTURES

         The Company's joint venture interests provided net distributions to the
Company of $10.2 million in 1996. The Company owns an interest in the following
properties:
<TABLE>
<CAPTION>
<S>                           <C>                                     <C>

OPERATING PROPERTIES         LOCATION                           TYPE
--------------------         --------                           ----

New Orleans Hilton           New Orleans, LA                    Hotel
San Diego Embassy Suites     San Diego, CA                      Hotel
Park del Amo                 Torrance, CA                       Office
Seabridge Apartments         San Diego, CA                      Residential
Pacific Design Center        West Hollywood, CA                 Furniture mart

LAND                         TYPE
----                         ----

Dallas, Texas                Industrial development
New Orleans, Louisiana       Hotel development
La Mirada, California        Industrial development
West Hollywood, California   Entertainment/retail development

RESIDENTIAL PROPERTIES       LOCATION                           TYPE
----------------------       --------                           ----

Kentwood Collection          Los Angeles, CA                    Residential
Signature Collection         Newport Coast, CA                  Residential
Stevenson Ranch              Santa Clarita, CA                  Residential
Bridgecourt Apts.            Emeryville, CA                     Residential
</TABLE>

         The Company is engaged in discussions concerning the possible sale of
certain interests. The Company expects to participate in additional joint
ventures in connection with future development opportunities.

CATELLUS RESOURCES GROUP PORTFOLIO

         The Company owns more than 790,000 acres of land in the Southern
California desert regions of Los Angeles, Kern, San Bernardino, Riverside and
Imperial Counties and the state's Central Valley. Because of its location, lack
of contiguity among parcels and other factors, this land is not currently
suitable for traditional development activities. As a result, a new division of
the Company, the Catellus Resources Group, was created in 1995 to explore the
potential for agricultural, minerals, water, telecommunications, energy, and
waste management uses for this property. In addition, Catellus Resources
Group will explore possible exchanges with various governmental agencies. There
can be no assurances that any of these prospects or opportunities will be
realized by the Company.

DEBT SECURED BY PROPERTIES

         Of the Company's $496.7 million in outstanding debt at December 31,
1996, $496.2 million represents loans secured by a majority of the Company's
income-producing properties and certain of its land under development.
Approximately $347 million of the Company's debt secured by income-producing
properties has penalties if paid before maturity. Information regarding interest
rates and principal maturities is provided in Note 3 to the consolidated
financial statements.

                                       12
<PAGE>

DEVELOPMENT AND MANAGEMENT SERVICES

  Development Services

         The Company is currently the developer on a "design build" basis, in
partnership with Charles Pankow Builders, for the Metropolitan Water District
headquarters facility. The Company intends to pursue additional design build
opportunities in order to increase recurring earnings.

  Management Services

         The Company's wholly-owned subsidiary Catellus Management Corporation
("CMC") has entered into a contract with the Burlington Northern Santa Fe
Corporation ("BNSF"), which owns one of the nation's largest railroads, to
provide management and disposition services for BNSF's real property assets. The
assets include approximately 17,000 leases and are located in 27 states and two
Canadian provinces. In November 1996, CMC executed a new contract with BNSF to
provide management services for BNSF's existing portfolio of approximately
115,000 permits and to handle BNSF's issuance of new permits.  The Catellus
Residential Group also generates management fees in regard to its joint venture
developments and third party arrangements.

         The Company intends to pursue additional management service agreements
aggressively to increase recurring earnings.

PROPERTY SALES

         Before 1996, the Company sold land to provide cash for costs associated
with pre-development, operating and holding the Company's substantial real
estate assets and paying interest on debt and dividends on preferred stock.
Sales included mountain, desert, agricultural and other non-strategic lands, as
well as lands that the Company might develop in the future. The Company also
sold income-producing properties to cover such costs. In October 1995, the
Company announced a goal of selling $200 million of non-strategic land assets by
March 1998, including $100 million by December 31, 1996. After announcing this
goal, the Company sold $47.1 million in the fourth quarter of 1995 and $76.6
million in 1996, bringing the total sales to $123.7 million through December 31,
1996. In addition, during 1996 the Company determined that approximately $30
million of assets had residential and other development potential and,
therefore, reduced the goal of $200 million to $170 million. The Company expects
the remaining $46.3 million of non-strategic land assets to be sold during 1997
and 1998. Over the past three years, the Company's sales (in thousands)
consisted of the following:
<TABLE>
<CAPTION>

                                               1996       1995     1994
                                               ----       ----     ----
<S>                                          <C>       <C>       <C>
NON-STRATEGIC LAND AND OTHER ASSETS:
  Non-strategic land:
  Sales....................................   $76,553   $62,199   $32,298
  Cost of sales............................    56,894    29,410    22,024
                                              -------   -------   -------
    Gain...................................    19,659    32,789    10,274
                                              -------   -------   -------
  Other:
  Sales....................................     9,125      --      21,472
  Cost of sales............................     4,379      --      18,439
                                              -------   -------   -------
    Gain...................................     4,746      --       3,033
                                              -------   -------   -------
Total non-strategic land and other assets
  Sales....................................    85,678    62,199    53,770
  Cost of sales............................    61,273    29,410    40,463
                                              -------   -------   -------
    Gain...................................   $24,405   $32,789   $13,307
                                              =======   =======   =======
</TABLE>


ENVIRONMENTAL MATTERS

         Various federal, state, and local laws and regulations covering the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, may affect the Company's operations and costs.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Environmental Matters." Such regulations can increase the cost of
planning, designing, developing, managing and

                                       13
<PAGE>

maintaining the Company's properties. The Company has expended and will continue
to expend significant financial and managerial resources to comply with
environmental regulations and local permitting requirements. While the Company
or outside consultants have evaluated the environmental liabilities associated
with most of the Company's properties, any evaluation necessarily is based upon
then-prevailing law and identified site conditions. In addition, many of the
Company's properties are in the early stages of development, and the
environmental studies and investigations which have been performed are
preliminary. It is possible that significant unknown costs and liabilities may
arise in the future relating to these properties and that certain development
projects may be significantly delayed, modified, or canceled as a result of
associated remediation costs. In addition, other properties presently or
formerly owned by the Company or its corporate predecessors have required or may
require remediation. Although there can be no assurance, the Company does not
believe that such costs will have a material adverse effect on its business,
financial condition or results of operations.

         The Company has been or may be named a defendant or a potentially
responsible party ("PRP") under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"), or analogous
state statutes. With respect to a site in Livermore, California, the Regional
Water Quality Control Board has issued a Tentative Site Cleanup Order naming the
Company as one of eleven responsible parties. In February 1994, the Company
reached a settlement with plaintiffs and all of the other potentially
responsible parties pursuant to which the Company paid $67,650 into a fund
covering certain past and future remediation costs in exchange for a qualified
release of liability. The Company has been named a PRP with respect to several
additional sites. Remediation of those sites has been completed by the Company
or is being completed by third parties at their expense. The Company does not
expect to incur material additional costs with respect to those sites.

COMPETITION

         Real estate markets are regional, and levels of competition vary by
market. The Company encounters significant competition for leasing and sales of
real estate in each of its market areas, but no one competitor is dominant. The
Company is not dependent on any one customer for a significant portion of its
revenues.

EMPLOYEES

         At December 31, 1996, the Company had 304 employees, including 56
employees of the management subsidiary which now manages certain BNSF
properties, and 106 employees of the residential subsidiary.

         The Company engages third parties to manage multi-tenant properties and
properties in locations which are not in close proximity to the Company's
regional or field offices. In addition, the Company engages outside consultants
such as architects and design firms in connection with its pre-development
activities. The Company also employs third party contractors on development
projects for infrastructure and building construction.

RISK FACTORS

         It is the Company's belief that this Annual Report on Form 10-K may
contain statements which, to the extent that they are not recitations of
historical fact, may constitute "forward looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
and Exchange Act of 1934. All forward looking statements involve risks and
uncertainties. The forward looking statements in this document are intended to
be subject to the safe harbor protection provided by Sections 27A and 21E.
Factors that most typically affect the Company's operating results and financial
condition include (i) changes in general economic conditions in regions in which
the Company's projects are located, (ii) supply and demand for office,
industrial, and residential space, (iii) the delay in receipt of or the denial
of government approvals and entitlements for development projects, (iv) other
public and private development activity in the areas in which the Company owns
property, (v) land and building material costs, (vi) the availability and cost
of project financing, (vii) competition from other property owners, (viii)
liability for environmental remediation at the Company's properties, (ix) the
Company's ability to increase development fees, (x) the Company's ability to
sell non-strategic assets, (xi) changes in the capital markets affecting the
ability of the Company to minimize its interest and preferred dividends, (xii)
the Company's ability to control the timing of the recognition of deferred tax
liability, (xiii) the impact of discretionary government actions, (xiv) the
exposure of the Company's assets to natural occurrences, such as earthquakes,
tornadoes, and similar events, and (xv) changes in the legal and regulatory
environment, including the tax treatment of the Company's activities and assets.
For discussions identifying other important factors that

                                       14
<PAGE>

could cause actual results to differ materially from those anticipated in the
forward looking statements, see the Company's Securities and Exchange Commission
filings, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" of this Form 10-K and Note 14 to the Consolidated
Financial Statements included in this Form 10-K.

ITEM 2.  PROPERTIES

         The Company's real estate projects are generally described in Item 1
above, which descriptions are incorporated in this Item by reference. The
Company's principal executive office is located in San Francisco, California,
and it has regional or field offices in seven other locations in the United
States. The Company believes that its property and equipment are generally well
maintained, in good condition, and adequate for its present needs.

ITEM 3.  LEGAL PROCEEDINGS

         The Company, its subsidiaries and other related companies are named
defendants in several lawsuits arising from normal business activities, are
named parties in certain governmental proceedings (including environmental
actions) and are the subject of various environmental remediation orders of
local governmental agencies arising in the ordinary course of its business. The
matters described below may involve substantial claims for damages for which the
Company could be liable. While the outcome of these lawsuits or other
proceedings against the Company and the cost of compliance with any governmental
order cannot be predicted with certainty, management does not expect any of
these matters to have a material adverse effect on the business, financial
condition or liquidity of the Company.

         The Atchison, Topeka, & Santa Fe Railway Co. v. The Testate and
Intestate Successors of Grace Richards, et al. (Superior Court of California,
County of San Diego; filed May 1983) and Herbert Lincoln Hubbard et al. v. The
Atchison, Topeka & Santa Fe Railway Co., Santa Fe Land Improvement Company, et
al. (Superior Court of California, County of San Diego; filed January 1988) are
consolidated cases in which both the Company and the opposing litigants claim
title to a 550 foot by 75 foot strip of property located on the Santa Fe Depot
site in San Diego, CA. The opposing litigants also seek damages for alleged
fraud, interference with prospective economic advantage, and inverse
condemnation.

         After trial and several appellate proceedings, the courts have rejected
the damages claims of the opposing litigants and held that the Company on the
one hand and the opposing litigants on the other each own an undivided one-half
fee interest in the disputed strip of property. The opposing litigants have
filed a petition for review with the California Superior Court, and the outcome
of this petition and any further appeals cannot be predicted.

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

         There were no matters submitted to a vote of security holders during
the quarter ended December 31, 1996.

EXECUTIVE OFFICERS OF THE COMPANY

         The executive officers of the Company are listed below. There were no
family relationships among any executive officers and directors of the Company.
All officers serve at the pleasure of the Board of Directors of the Company,
subject to compliance with various employment agreements to which the Company
and the officers are parties.

                                       15
<PAGE>

<TABLE>
<CAPTION>
Name                 Age  Position
----                 ---  --------
<S>                  <C>  <C>
CORPORATE OFFICERS

Nelson C. Rising     55   President and Chief Executive Officer
Stephen P. Wallace   42   Senior Vice President and Chief Financial Officer
Timothy J. Beaudin   38   Senior Vice President Property Operations
Kathleen Smalley     39   Senior Vice President, General Counsel and Secretary
Paul A. Lockie       38   Vice President and Controller

OPERATING OFFICERS WHO ARE CONSIDERED EXECUTIVE OFFICERS

Ted R. Antenucci     32   Vice President
David B. Friedman    40   President Catellus Resources Group
Don M. Parker        52   Vice President Bay Area Development
Ira E. Yellin        56   Senior Vice President Southern California Development
</TABLE>

         Additional information concerning the business background of each
executive officer of the Company is set forth below:

         MR. RISING has served as President and Chief Executive Officer and a
Director of the Company since September 1994. For more than five years prior to
joining the Company, Mr. Rising was a Senior Partner with Maguire Thomas
Partners, a Los Angeles-based commercial developer with projects in Southern
California, Dallas and Philadelphia.

         MR. WALLACE was elected as Senior Vice President and Chief Financial
Officer in July 1995. Mr. Wallace was previously the Senior Vice President and
Chief Financial Officer at Castle & Cooke Homes, Inc. from May 1993. Before that
Mr. Wallace served as the Chief Financial Officer at A.M. Homes in Newport
Beach, California.

         MR. BEAUDIN was elected Senior Vice President Property Operations in
January 1996. Before this appointment, Mr. Beaudin served as Vice President
Property Operations since February 1995. For more than five years before that,
Mr. Beaudin served as Senior Vice President -- Managing Officer of the Financial
Services Group at CB Commercial Real Estate Group, a national real estate
brokerage firm.

         MS. SMALLEY joined the Company as Senior Vice President, General
Counsel, and Secretary on January 1, 1997. For more than five years before
joining the Company, Ms. Smalley was General Counsel and Investment Manager of
Crow Family Holdings ("CFH"), an investment management company that manages
assets, including real estate and related businesses, throughout the United
States and abroad. Ms. Smalley also currently holds an appointment to Harvard
Law School, where she lectures in the real estate field.

         CFH, during Ms. Smalley's employment, managed investments in thousands
of entities holding real estate. In connection with her duties as General
Counsel and Investment Manager for CFH, Ms. Smalley managed both legal functions
and a number of special assignments. Among those special assignments was the
management of the bankruptcy of approximately 55 affiliated entities in two
jointly administered proceedings. Ms. Smalley was not involved in the ownership
or management (other than as described below) of the properties owned by the
affected debtors before the debt restructuring negotiations and related filing
of bankruptcy petitions. In addition, there were approximately 35 other entities
affiliated with CFH that filed for protection under federal bankruptcy laws. In
connection with her employment by CFH, Ms. Smalley served as an officer of the
direct or indirect general partner of some of these entities.

     MR. LOCKIE joined the Company as Vice President and Controller in February
1996. Before joining the Company, Mr. Lockie served as the Chief Financial
Officer for Kimball Small Properties, Inc. ("KSP"), a San Jose, California real
estate development and management company.

         Mr. Lockie, in connection with his duties as Chief Financial Officer
for KSP, also served as Cheif Financial Officer of several companies affiliated
with KSP, including Techmart Properties, Inc., the indirect

                                       16
<PAGE>

general partner of a real estate partnership that filed for protection under
federal bankruptcy laws in September , 1992. In September, 1995, a final decree
was entered closing the case.

     MR. ANTENUCCI was elected Vice President of the Company in October 1995.
Before joining the Company, Mr. Antenucci served as Vice President at Omnitrax,
a shortline rail carrier, for two years and as Vice President -- Industrial
Sales for CB Commercial Real Estate Group, Inc. for more than seven years.

         DR. FRIEDMAN has served as President of Catellus Resources Group since
February 1996. For more than five years before joining the Company, Dr. Friedman
was an Associate Attorney and Partner in the Los Angeles law firm of Tuttle &
Taylor representing, among other clients, major agriculture and resource
interests and was a consultant specializing in California economic development
research.

     MR. PARKER was elected Vice President Bay Area Development in March 1995.
From January 1994 to March 1995, Mr. Parker was the Executive Director of the
Alameda Reuse and Redevelopment Authority for the conversion of the naval air
station. For more than five years before that, Mr. Parker was a partner and
project director of the Marina Village Mixed-Use Community in Alameda,
California.

         MR. YELLIN joined the Company in February 1996, as the Senior Vice
President, Southern California Development. For more than five years before
joining the Company, Mr. Yellin served as President of the Yellin Company, a Los
Angeles real estate investment, development and management company involved
primarily in the acquisition, restoration and redevelopment of historic
buildings in the Historic Core of Downtown Los Angeles.


                                     PART II

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

         The common stock commenced trading on December 5, 1990 and is traded on
the New York Stock Exchange, the Chicago Stock Exchange, and the Pacific Stock
Exchange under the symbol "CDX." The following table sets forth the high and low
sale prices of the common stock, as reported on the New York Stock Exchange
Composite Tape, during the periods indicated:
<TABLE>
<CAPTION>
<S>                                 <C>             <C>
                                        High           Low
  1995
   First Quarter................      $ 6 1/8        $ 5 1/8
   Second Quarter...............        6 7/8          5 1/2
   Third Quarter................        6 7/8          6 1/8
   Fourth Quarter...............        6 5/8          5 3/8

  1996
   First Quarter................      $ 8 1/4        $ 6 1/8
   Second Quarter...............        9 3/4          7 7/8
   Third Quarter................        9 7/8          8 1/4
   Fourth Quarter...............       11 3/8          9 3/4

</TABLE>

         No cash dividends have been paid on the Company's common stock and the
Company does not anticipate paying any cash dividends on its common stock in the
foreseeable future.

         On March 14, 1996, there were approximately 35,080 holders of record of
the Company's common stock.

                                       17
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)

         The following income statement and selected balance sheet data with
respect to each of the years in the five-year period ended December 31, 1996
have been derived from the annual Consolidated Financial Statements. The
operating data have been derived from the Company's underlying financial and
management records and are unaudited. This information should be read in
conjunction with the Consolidated Financial Statements and related Notes
thereto. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of results of operations for 1996, 1995
and 1994.

<TABLE>
<CAPTION>

                                                                          YEAR ENDED DECEMBER 31,
                                                       ------------------------------------------------------------
                                                       1996          1995          1994        1993        1992
                                                       ----          ----          ----         ----       ----
<S>                                                  <C>           <C>            <C>       <C>          <C>
INCOME PRODUCING PROPERTIES
   Rental revenue.................................   $ 115,886    $ 102,828    $  99,183    $ 107,625    $  96,496
   Property operating costs.......................     (39,408)     (30,650)     (29,609)     (38,708)     (37,670)
   Equity in earnings of joint ventures...........       5,993        5,826        4,240        1,878       (1,991)
                                                     ---------    ---------    ---------    ---------    ---------
                                                        82,471       78,004       73,814       70,795       56,835
                                                     ---------    ---------    ---------    ---------    ---------

DEVELOPMENT ACTIVITIES AND FEE SERVICES
   Gain on development property sales.............      15,623          953         --           --           --
   Development and management fee income, net.....       3,432        1,924        2,151        2,260        1,733
   Equity in earnings of joint ventures...........         758        1,209        3,742          (60)         (25)
   Land holding costs, net........................      (3,724)      (3,871)      (4,891)        (872)      (2,161)
                                                     ---------    ---------    ---------    ---------    ---------
                                                        16,089          215        1,002        1,328         (453)
                                                     ---------    ---------    ---------    ---------    ---------

Interest expense..................................     (42,521)     (25,757)     (24,671)     (43,959)     (53,221)
Depreciation and amortization.....................     (30,561)     (27,990)     (28,577)     (31,117)     (29,437)
General and administrative expense................      (8,019)     (10,924)     (14,818)     (13,143)     (12,876)
Gain on non-strategic land and other asset sales..      24,405       32,789       13,307       33,165       40,204
Adjustment to carrying value of property..........         --       (102,400)     (24,100)    (32,500)        --
Litigation, environmental and restructuring costs.       1,093         (961)      (2,854)     (12,637)      (1,888)
Other, net........................................         (19)       2,504        3,091      (25,292)       3,221
                                                     ---------    ---------    ---------    ---------    ---------
EARNINGS (LOSS) BEFORE INCOME TAXES
                AND EXTRAORDINARY EXPENSE.........      42,938      (54,520)      (3,806)     (53,360)       2,385

Income tax (expense) benefit                           (17,537)      21,518        1,359        8,008       (1,208)
                                                     ---------    ---------    ---------    ---------    ---------

   NET EARNINGS (LOSS) BEFORE
              EXTRAORDINARY EXPENSE...............      25,401      (33,002)      (2,447)     (45,352)       1,177

     Extraordinary expense related to early
       retirement of debt, net of income tax
       benefit (1)................................        --           --           --         (7,401)        --
                                                       ---------    ---------    ---------    ---------    ---------
   NET EARNINGS (LOSS)............................      25,401      (33,002)      (2,447)     (52,753)       1,177

     Preferred stock dividends....................     (22,173)     (23,813)     (23,813)     (16,132)        --
     Premium on redemption of preferred stock.....      (1,334)        --           --           --           --
                                                      ---------    ---------    ---------    ---------    ---------
   NET EARNINGS (LOSS) APPLICABLE TO
               COMMON STOCKHOLDERS................   $   1,894    $ (56,815)   $ (26,260)   $ (68,885)   $   1,177
                                                     =========    =========    =========    =========    =========

   Net earnings (loss) per share of common stock:
     Before extraordinary expense................       $ 0.03      $ (0.78)      $(0.36)     $ (0.87)      $ 0.02

     Extraordinary expense (1)...................         --            --            --        (0.10)          --
                                                     ---------     ---------    ---------   ---------     ---------
   Net earnings (loss) after extraordinary expense       $ 0.03      $ (0.78)       $(0.36)   $ (0.97)       $ 0.02
                                                     ==========    =========    ==========   ========     =========

   Average number of common shares outstanding           74,947       72,967        72,967     70,834        53,976
                                                     ==========     ========     =========   ========      ========

</TABLE>

                                       18
<PAGE>

<TABLE>
<CAPTION>

                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                            1996          1995          1994          1993          1992
                                            ----          ----          ----          ----          ----
<S>                                     <C>           <C>           <C>          <C>             <C>
Earnings before depreciation and
   deferred taxes (EBDDT)............   $  25,852     $  18,254     $  19,665    $  <16,931>     $  <9,466>

NOTE: The Company uses a supplemental performance measure called Earnings Before Depreciation and Deferred Taxes (EBDDT) in order to
better understand its operating results. EBDDT is calculated by taking net earnings (loss) and making various adjustments.
Depreciation, amortization and provision for deferred income taxes are excluded as they represent non-cash charges. In addition,
gains on sale of non-strategic and other assets, adjustments to carrying value of property, and premiums on the redemption of
preferred stock more closely reflect investment activities, not operating activities, and are also excluded from the EBDDT
calculation.
</TABLE>
<TABLE>
<CAPTION>

                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                            1996          1995          1994          1993          1992
                                            ----          ----          ----          ----          ----
<S>                                     <C>           <C>           <C>          <C>             <C>
Balance sheet data:
   Total properties..................   $1,024,102    $1,007,451    $1,087,119    $1,091,832     $1,129,634
   Total assets......................    1,123,118     1,097,604     1,207,363     1,373,827      1,208,887
   Mortgage and other debt...........      496,742       496,180       530,641       663,764        887,185
   Stockholders' equity..............      422,453       442,874       499,689       525,949        145,923
</TABLE>
<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                         -----------------------
                                             1996       1995       1994      1993      1992
                                             ----       ----       ----      ----      ----
<S>                                         <C>        <C>       <C>        <C>       <C>
Operating Data:
     Buildings owned (square feet)(2)..       16,449     14,168     13,609    13,367     14,183
     Leased percentage.................        96.1%      95.1%      95.0%     94.9%      90.4%
</TABLE>

----------
(1)  Net income in 1993 reflects extraordinary expense relating to a redemption
     premium paid to a lender and write-off of deferred financing costs on the
     Company's $388.2 million first mortgage loan.
(2)  Prior to 1996, square feet owned excludes approximately 1.2 million square
     feet of existing buildings, primarily at Mission Bay.

                                       19
<PAGE>

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

OVERVIEW

         Prior to 1996, the aggregate cash requirements associated with fixed
charges and leasing costs exceeded the Company's operating income from recurring
sources. The Company relied primarily on proceeds from asset sales and the
issuances of debt and preferred stock to meet its operating deficits. During
1995 and 1996, the Company focused on improving operating income, and, as a
result, the deficits were eliminated in 1996 (see detailed financial results
under Liquidity and Capital Resources). The more significant steps taken were as
follows:

 .    In October 1995, the Company established a goal to sell $100 million of
     non-strategic land assets over the 15-month period ended December 31, 1996.
     Total program sales for the 15 months equaled $123.7 million, exceeding the
     goal by $23.7 million. In addition, $9.1 million in other non-strategic
     property sales occurred in 1996. Proceeds from these sales were used
     primarily for debt reduction and to fund the Company's development
     activities.

 .    The Company continued to place a greater emphasis on increasing its
     development activity:

         -    During 1996, the Company commenced construction on 3.3 million
              square feet of new development, compared to 900,000 square feet
              in 1995, and completed 1.6 million square feet compared to
              600,000 for 1995.
         -    In March 1996, the Company acquired The Akins Companies (now the
              Catellus Residential Group), a residential developer based in
              Southern California, to place the Company in a better position to
              pursue residential opportunities on certain existing land
              holdings. In addition, the Company intends to grow this business
              to opportunities on land not currently owned.
         -    In addition to non-strategic land sales, the Company closed $62.5
              million in property sales related to industrial, residential and
              mixed-use land development. These sales contributed $15.6 million
              to 1996 earnings compared to $1.0 million in 1995.

 .    The Company continued to grow its fee businesses. Development and
     management fee income (net) increased to $3.4 million during 1996 from $1.9
     million in 1995. This increase was primarily from "design build" fee income
     for the 500,000-square-foot Metropolitan Water District's headquarters at
     Los Angeles Union Station, residential development fee income and
     management fees from the Burlington Northern Santa Fe management contract.

 .   During 1996, the Company applied $83.3 million of the proceeds from
     non-strategic land sales to debt reduction in order to reduce interest
     expense. In addition, debt increased by $83.9 million which financed the
     construction of primarily pre-leased industrial buildings, residential
     development and the redemption of preferred stock. It is expected that
     future cash flow will be improved by the interest savings on the $83.3
     million of debt reduction, reduced dividend requirements, cash flow from
     completed buildings and residential development, less the interest related
     to the $83.9 million of debt incurred to fund these activities.

  .  In order to reduce its preferred dividends, the Company issued two calls
     in 1996 and two calls in early 1997 for the redemption of preferred stock:

      -       In July 1996, the Company called for redemption of 950,000 shares
              or approximately $50 million of its $3.75 Series A Cumulative
              Convertible Preferred Stock (Series A Preferred Stock). The
              redemption date was September 13, 1996. The results were the
              conversion of 441,887 shares into 2,438,641 shares of common stock
              and the redemption of 508,113 shares at a cost of approximately
              $26.7 million.
         -    In December 1996, the Company called for redemption an additional
              475,000 shares or approximately $25 million of its Series A
              Preferred Stock. The redemption date was

                                       20
<PAGE>

              January 31, 1997. The results were the conversion of 471,730
              shares into 2,603,168 shares of common stock and the redemption of
              the remaining shares at a cost of $175,000.
         -    On February 5, 1997, the Company called for redemption an
              additional 1,720,000 shares or approximately $90 million of its
              Series A Preferred Stock. The redemption date was March 24, 1997.
              The results were the conversion of 99.8% of the shares into
              9,469,015 shares of common stock and the redemption of the
              remaining 4,163 shares at a cost of $220,000.
         -    On March 24, 1997, the Company called for redemption of the
              remaining outstanding 250,000 shares, or approximately $13
              million, of its Series A Preferred Stock and 1,470,000 shares, or
              approximately $75 million, of its $3.625 Series B Cumulative
              Convertible Exchangeable Preferred Stock. The redemption date on
              this call is May 1, 1997.
     As a result of these four calls, the Company's annual preferred dividend
     requirement will be decreased by approximately $18.1 million. Assuming the
     market conditions remain favorable, the Company expects to make additional
     redemption calls in 1997.

 .   The Company has an ongoing strategy to review its major land development
     projects with the goal of increasing profitability, minimizing up-front
     capital requirements and shortening the time required to develop the
     properties. As a result of these reviews, decisions have been and continue
     to be made to modify certain of the entitlements or abandon or sell
     properties that management believes cannot be developed in a reasonable
     time frame. Significant entitlement accomplishments in 1996 included:

         -    In the second quarter of 1996, the Company received final approval
              from the City of Los Angeles for its seven million square foot
              mixed-use development at Los Angeles Union Station.
         -    In September 1996, the Company reached an agreement in principle
              with the City of San Francisco on a development proposal for a
              65-acre portion of the Company's Mission Bay project. The
              development proposal contains up to 3,000 housing units, a
              350,000-square-foot retail/entertainment complex adjacent to the
              future San Francisco Giants ball park and neighborhood and
              community-serving retail of up to 250,000 square feet. In March
              1997, the University of California Board of Regents entered into
              an agreement with the Company for a two-month period to negotiate
              exclusively with the Company to locate the proposed expansion
              campus of the University of California at San Francisco on a
              43-acre portion of the project located south of the Mission Creek
              channel. The Company is working with the City and other government
              agencies to obtain final plan approvals, however, there can be no
              assurances that the necessary government approvals will be
              obtained, or that the timing of approvals, if obtained, will meet
              marketing needs.
         -    In September 1996, the Company received approvals from the City of
              Fremont for its 840-acre Pacific Commons Business Park, including
              a general plan amendment, development agreement, tentative tract
              map and a certified environmental impact report. These approvals
              are for 8.5 million square feet of development upon compliance
              with the certified environmental impact report and applicable
              laws. The development would include 7.8 million square feet of
              research and development, light industrial, warehouse,
              distribution and corporate campus space and 700,000 square feet of
              retail. In accordance with the environmental impact report and
              applicable law, the Company is working with the City and federal
              government agencies to address the impact of Pacific Commons on
              wetlands and special status species. There can be no assurances
              that the necessary government approvals will be obtained, or that
              the timing of approvals, if obtained, will meet marketing needs .

         The combination of the above actions and other operating results
resulted in the Company reporting $19.9 million in "Income from property
operations, development and management activities after adjustment for general
and administrative expense, fixed charges and leasing costs" compared to a
deficit of $8.3 million in 1995 and a deficit of $24.5 million in 1994 (see
Liquidity and Capital Resources section).

         With the elimination of its historic operating deficits, the Company
expects to aggressively pursue development activities beyond those associated
with its current land holdings, as well as other opportunities to increase cash
flow.

                                       21
<PAGE>

RESULTS OF OPERATIONS

Comparison of 1996 to 1995

Income Producing Properties
---------------------------

         The changes in rental revenue and property operating costs from 1995 to
1996 are summarized below:
<TABLE>
<CAPTION>
                                                        Increase (Decrease)
                                                     -------------------------
                                                                     Property
                                                       Rental        operating
                                                      Revenue          costs
                                                     ---------       ---------

                                                           (in millions)
<S>                                                   <C>             <C>
Industrial buildings................................  $  5.1          $  2.8
Office buildings....................................    (0.2)            0.5
Retail buildings....................................     1.9             1.5
Land development....................................     5.7             3.9
Land leases.........................................     0.6             0.1
                                                      ------          ------
  Total change......................................  $ 13.1          $  8.8
                                                      ======          ======
</TABLE>

         Of the increase in revenue from industrial buildings, $3.3 million was
attributable to eleven new buildings totaling 1.7 million square feet that were
completed in late 1995 and 1996. Revenues also increased $1.2 million as a
result of higher tenant pass-through charges associated with the new
construction and higher operating costs. Operating costs for the industrial
portfolio increased, in part, because of new buildings completed and higher
overhead, maintenance and repairs.

         Rental revenue for the Company's office portfolio decreased $0.2
million because of a decrease in occupancy, primarily in one building, compared
to the same period in 1995. As of the end of 1996, a majority of this office
space has been leased. Revenue and costs for retail buildings increased
primarily because a 117,000-square-foot building leased to Kmart was acquired in
December 1995 at the East Baybridge shopping center.

         The increase in revenue and costs from land development properties
resulted, in large part, from determination by the Company at the end of 1995,
that Mission Bay and certain other properties no longer qualify for the
capitalization of interest expense. As a result, incremental revenue and
operating costs from interim uses, which had previously also been capitalized to
the project, were included in the consolidated statement of operations effective
January 1, 1996. Rental revenue and property operating cost increases
attributable to Mission Bay and other such properties were $6.1 million and $3.3
million, respectively, in 1996.

Development Activities and Fee Services
---------------------------------------

         The increase in the Company's gain on development property sales from
1995 to 1996 is summarized as follows:
<TABLE>
<CAPTION>
                                                          1996           1995        Difference
                                                      ------------   -----------   --------------
                                                                    (in thousands)
<S>                                                    <C>            <C>            <C>
Development property:
     Sales............................................ $  62,470      $  3,224        $  59,246
     Cost of sales....................................    46,847         2,271           44,576
                                                       ---------      ---------        --------
          Gain. . .................................... $  15,623      $    953        $  14,670
                                                       =========       =======        =========
</TABLE>

         The significant increase in development property sales is attributable
to improved industrial development activity ($24.1 million), residential sales
activity resulting from the acquisition of Akins ($21.9 million) and the sale of
the Metropolitan Water District site at the Company's Los Angeles Union Station
project ($13.2 million).

                                       22
<PAGE>

         Development and management fee income (net) increased to $3.4 million
during 1996 from $1.9 million in 1995. This increase was primarily from "design
build" fee income for the 500,000 square foot Metropolitan Water District's
corporate headquarters at Los Angeles Union Station, residential development fee
income and management fees from the Burlington Northern Santa Fe management
contract.

Other Items on the Statement of Operations
------------------------------------------

         During 1996, the Company capitalized $2.9 million of interest compared
to $23.6 million in 1995 because Mission Bay and certain other properties no
longer qualified for interest capitalization. However, total interest incurred
was $3.9 million lower in 1996 compared to the same period in 1995 because of
debt reduction in 1996 and late 1995. As a result, interest expense increased
$16.8 million.

         In late 1994, the Company experienced significant staff reductions and
realignment of responsibilities. In connection with these changes, the Company
refined its general and administrative expense allocation to align certain
common costs more closely with the underlying activities. This change in
allocations had the result of increasing property operating costs and decreasing
general and administrative expense in 1996 when compared to 1995.

         In October 1995, the Company announced a goal to sell $200 million of
non-strategic land assets by March 1998, including $100 million by December 31,
1996. Since announcing this goal, the Company sold $47.1 million in the fourth
quarter of 1995 and $76.6 million in 1996, bringing the total sales to $123.7
million through December 31, 1996. In addition, during 1996 the Company
determined that approximately $30 million of assets had residential and other
development potential and, therefore, reduced the $200 million goal to $170
million. The Company expects the remaining $46.3 million of non-strategic land
assets to be sold during 1997 and 1998.

         In 1995, the Company took a $102.4 million charge to adjust the
carrying value of certain properties, where the carrying costs exceeded what
management expected to recover through future operations and ultimate sale of
such properties. This charge included $84.8 million resulting from the Company's
decision to terminate the 1991 Development Agreement for its Mission Bay project
in San Francisco.

         Litigation, environmental and restructuring costs decreased $2.1
million. The $1.1 million income in 1996 represents monies received from
settlement proceeds in environmental matters, with no offsetting costs being
incurred. The $1.0 million expense in 1995 represents actual environmental costs
incurred in regard to operating properties, partly offset by income resulting
from the settlement of litigation in favor of the Company.

         Other, net decreased by $2.5 million in 1996 as a result of lower
interest income.

         As discussed above, the Company completed a preferred stock call in
September 1996. As a result, a charge of $1.3 million for the premium on that
redemption, was recognized in 1996. No preferred stock calls occurred in 1995.

                                       23
<PAGE>

Comparison of 1995 to 1994

Income Producing Properties
---------------------------

    The more significant changes in rental revenue and property operating costs
are summarized below:

<TABLE>
<CAPTION>
                                                   INCREASE (DECREASE)
                                                ---------------------------
                                                                 PROPERTY
                                                  RENTAL        OPERATING
                                                  REVENUE         COSTS
                                                ------------   ------------
                                                       (in millions)
<S>                                                 <C>           <C>
Industrial buildings.....................         $ $0.1         $ (0.7)
Office buildings.........................           (1.0)           1.0
Retail buildings.........................            4.0            0.6
Land development.........................            0.7            0.1
Land leases..............................           (0.2)            --
                                                   -----          -----
   Total change..........................          $ 3.6          $ 1.0
                                                   =====          =====
</TABLE>

         The increase in revenue for industrial buildings was due to six new
buildings totaling 532,000 square feet which were completed in 1995 and in the
fourth quarter of 1994; this increase was partially offset by reduced rentals
from existing properties. Operating costs for the industrial portfolio decreased
because of the overhead reductions described below. Rental revenue for the
Company's office portfolio decreased primarily because of the expiration of an
above-market lease in one building and a reduction in occupancy from 96% at the
end of 1994 to 92% at the end of 1995. In addition, the Company's operating
costs for its office portfolio increased $1 million because of increased
property taxes resulting from the reassessment of a building. The increase in
revenue and costs for retail buildings was primarily due to the completion of
the East Baybridge shopping center in late 1994.

         Income-producing joint venture earnings increased $1.6 million. The
increase consists principally of significantly improved operating results from a
hotel joint venture.

Development Activities and Fee Services
---------------------------------------

         The Company sold $3.2 million of development property in 1995, compared
to none in 1994, which resulted in a gain of $1.0 million in 1995. Activity was
zero in 1994 as the Company had a major reorganization.

         Equity in earnings of development joint ventures decreased $2.5 million
in 1995, primarily because of decreased land sales from one joint venture.

         Property operating costs associated with land holdings (primarily
property taxes and overhead) decreased because of the sale of $62.2 million of
non-strategic land assets and lower overhead.

                                       24
<PAGE>

Other Items on the Statement of Operations
------------------------------------------

         Interest expense increased $1.1 million, representing the net effect of
additional borrowings to fund the Company's development activity, offset by a
reduction in interest rates in 1995 as compared to 1994.

         General and administrative costs decreased $3.9 million in 1995 because
of staff reductions. Gross salaries, wages and benefits expense decreased $5.1
million and computer expenses decreased $1.0 million. These decreases were
offset by a lower level of capitalization of overhead costs to development
projects.

         The Company completed sales of non-strategic land and other assets
totaling $62.2 million in 1995 compared to $53.8 million in 1994. Related gains
increased to $32.8 million in 1995 versus $13.3 million in 1994. This increase
was attributable to the Company's 1995 announcement of its goal of selling $100
million of non-strategic land over a fifteen-month period ending December 31,
1996. Non-strategic land sales in the amount of $47.1 million closed in the
fourth quarter of 1995.

         Adjustment to carrying value of property in 1995 was $102.4 million
compared to $24.1 million in 1994. In 1995, the Company took a $102.4 million
charge to adjust the carrying value of certain properties for which the carrying
costs exceeded what management expected to recover through the future operations
and ultimate sale of such properties. This included $84.8 million resulting from
the Company's decision to terminate the 1991 Development Agreement for its
Mission Bay project in San Francisco.

         Litigation, environmental and restructuring costs decreased $1.9
million from 1994 to 1995. This was primarily attributable to the recognition of
$3.1 million in restructuring charges in 1994 with no comparable amount in 1995,
offset by higher charges for environmental costs in 1995.

Variability in Results

         The timing of development sales and non-strategic asset sales have
resulted in significant variability in the Company's historic operating results,
particularly on a quarterly basis. Many of the Company's projects require a
lengthy process to complete the development cycle before they are sold.
Non-strategic asset sales are generally subject to lengthy negotiations and
contingencies that need to be resolved prior to closing. These factors tend to
"bunch" income in particular periods rather than a more even pattern throughout
a year. In addition, gross margins vary significantly as the mix of properties
varies. The cost basis of the properties sold varies because a) a number of
properties have been owned for many decades; b) some properties were acquired
within the last ten to fifteen years; and c) properties are owned in various
geographical locations.

Earnings Before Depreciation and Deferred Taxes

         The Company uses a supplemental performance measure along with net
earnings (loss) to report its operating results. This measure, Earnings Before
Depreciation and Deferred Taxes (EBDDT), is not a measure of operating results
or cash flows from operating activities as defined by generally accepted
accounting principles. Additionally, EBDDT is not necessarily indicative of cash
available to fund cash needs and should not be considered as an alternative to
cash flows as a measure of liquidity. However, the Company believes that EBDDT
provides relevant information about its operations and is necessary, along with
net earnings (loss), for an understanding of its operating results.

         Depreciation, amortization and deferred income taxes are excluded from
EBDDT as they represent non-cash charges. Gains on the sale of non-strategic
land and other assets, adjustments to the carrying value of property, premiums
on the redemption of preferred stock and restructuring costs represent
non-operating, unusual and/or nonrecurring items and are therefore excluded from
EBDDT. EBDDT is reconciled to net earnings (loss) in the Three Year Summary of
Earnings Before Depreciation and Deferred Taxes from Operations and Net Earnings
(Loss) as follows:

                                       25
<PAGE>

<TABLE>
<CAPTION>

                                                                            Year ended December 31,
                                                                        ------------------------------
                                                                          1996      1995        1994
                                                                       --------  ----------  ----------
                                                                              (In thousands)
<S>                                                                    <C>       <C>         <C>
NET EARNINGS (LOSS) APPLICABLE TO COMMON STOCKHOLDERS..........        $  1,894  $ (56,815)  $ (26,260)

        Depreciation and amortization..........................          30,561     27,990      28,577
        Deferred income taxes..................................          16,468    (22,532)     (1,545)
        Gain on non-strategic land and other asset sales.......         (24,405)   (32,789)    (13,307)
        Adjustment to carrying value of property...............              --    102,400      24,100
        Premium on redemption of preferred stock...............           1,334         --          --
        Restructuring costs....................................              --         --       3,100
                                                                       --------  ----------  ----------
EARNINGS BEFORE DEPRECIATION AND DEFERRED TAXES................        $ 25,852  $  18,254   $  14,665
                                                                       ========  ==========  ==========
EARNINGS BEFORE DEPRECIATION AND DEFERRED TAXES
        PER SHARE OF COMMON STOCK..............................        $   0.34  $    0.25   $    0.20
                                                                       ========  ==========  ==========
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING....................          74,947     72,967      72,967
                                                                       ========  ==========  ==========
</TABLE>

         The increase in EBDDT in 1996 was primarily due to improved results
from the Company's income-producing properties and gains on sales of development
property.


LIQUIDITY AND CAPITAL RESOURCES

         Before 1996, the aggregate amount of the Company's general and
administrative expense, interest paid, preferred stock dividend payments and
leasing costs exceeded revenue from property operations, development and
management activities. In addition, the Company's cash requirements were
increased by the funds necessary to support the predevelopment and entitlement
efforts for its major land development projects. The resulting cash flow
deficits were funded by borrowings, the issuance of preferred stock and the sale
of assets in sufficient amount to meet the Company's overall cash requirements.
Through the development and operation of new buildings, reduction of property
and administrative costs, expansion of management and development activities,
preferred stock calls and lower interest cost through debt reduction, as noted
above, the deficits were eliminated in 1996.

         The following table summarizes the Company's "Income (deficit) from
property operations, development and management activities after adjustment for
general and administrative expense, fixed charges and leasing costs". The
Company believes this presentation is meaningful in understanding the
improvement the Company has made in reducing its historical deficits.

                                       26
<PAGE>

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                                --------------------------------
                                                                  1996        1995        1994
                                                                --------    --------    --------
                                                                          (in thousands)
<S>                                                             <C>         <C>         <C>
PROPERTY OPERATIONS, DEVELOPMENT AND MANAGEMENT ACTIVITIES
        Income-producing properties...........................  $ 82,471    $ 78,004    $ 73,814
        Development activities and fee services...............    16,089         215       1,002
        Less: equity in earnings of joint ventures............    (6,751)     (7,035)     (7,982)
        Add: distributions from joint ventures................     8,488       8,332         386
                                                                --------    --------    --------
                                                                 100,297      79,516      67,220
                                                                --------    --------    --------
GENERAL AND ADMINISTRATIVE EXPENSE............................    (8,019)    (10,924)    (14,818)
                                                                --------    --------    --------

FIXED CHARGES - INTEREST AND DIVIDENDS
        Total interest costs, net of interest income..........   (44,165)    (45,547)    (44,981)
        Preferred dividends...................................   (22,173)    (23,813)    (23,813)
        Add: non-cash components of interest expense..........     3,935       2,861       3,559
                                                                --------    --------    --------
                                                                 (62,403)    (66,499)    (65,235)
                                                                --------    --------    --------
LEASING COSTS
        Depreciation on tenant improvements...................    (7,048)     (7,878)     (8,930)
        Amortization of lease commissions.....................    (2,962)     (2,504)     (2,758)
                                                                --------    --------    --------
                                                                 (10,010)    (10,382)    (11,688)
                                                                --------    --------    --------
INCOME (DEFICIT) FROM PROPERTY OPERATIONS, DEVELOPMENT AND
        MANAGEMENT ACTIVITIES AFTER ADJUSTMENT FOR GENERAL
        AND ADMINISTRATIVE EXPENSE, FIXED CHARGES AND
        LEASING COSTS.........................................  $ 19,865    $ (8,289)   $(24,521)
                                                                ========    ========    ========
</TABLE>

         Other factors which may affect liquidity are discussed below. See `Risk
Factors'.

Cash flow from operating activities

         Cash provided by operating activities reflected in the statement of
cash flows in 1996, 1995 and 1994 was $111.1 million, $102.2 million and $60.4
million, respectively. The increase in 1996 is primarily the result of a
significant increase in development property and non-strategic land sales,
offset by an increase in interest expense and increased capital expenditures for
development properties. The increase in 1995 from 1994 is primarily because of a
higher level of non-strategic land sales and lower general and administrative
costs.

         Cash generated from sales of non-strategic land and development
property was $113.1 million, $58.4 million and $28.0 million in 1996, 1995 and
1994, respectively. Cash generated from rental operations increased principally
because of new buildings.

Cash flow from investing activities

         Net cash flow used in investing activities reflected in the statement
of cash flows increased $33.7 million from 1995 to 1996 and decreased $59.0
million from 1994 to 1995. The increase in 1996 resulted primarily from the
decrease in short-term investments and restricted cash. The decrease in 1995
resulted primarily from the conversion of short-term commercial paper and
government securities into cash, offset by lower cash generated by the sale of
other assets. Net cash used in investing activities included the following
capital expenditures:

                                       27
<PAGE>

<TABLE>
<CAPTION>
                                                          1996        1995        1994
                                                        --------    --------    --------
                                                               (in millions)
<S>                                                     <C>         <C>         <C>
Construction and building improvements................  $   32.8    $   14.8    $   31.2
Acquisitions..........................................      12.3         9.3         1.2
Predevelopment........................................      11.1         3.7        (0.9)
Infrastructure and other..............................      11.4         9.6        12.0
Capitalized interest and property taxes...............       2.2        26.1        26.5
                                                        --------    --------    --------
                                                        $   69.8    $   63.5    $   70.0
                                                        ========    ========    ========
</TABLE>

Cash flow from financing activities

         Net cash used in financing activities reflected in the statement of
cash flows in 1996, 1995 and 1994 was $50.8 million, $60.7 million and $100.4
million, respectively. The amount for 1996 is primarily preferred stock
dividends paid and the redemption of preferred stock. The 1995 amount reflects
borrowing and repayment activity relating to operating properties (including
principal amortization) and capital expenditures and preferred stock dividends
paid. The 1994 amount reflects principally the net proceeds from the Series A
and B Preferred Stock offerings and the use of a part of those proceeds to repay
debt.

         At December 31, 1996, the Company had total outstanding debt of $496.7
million, of which 73.2% was non-recourse to the Company and secured by certain
property of the Company, 26.7% was recourse to the Company and also secured by
certain property, and 0.1% was unsecured. During the next twelve months, $24.2
million of debt matures, consisting of construction financing, term loans or
first mortgage loans. All maturing debt is expected to be repaid upon sale of
the property securing it, extended, refinanced, converted into permanent loans
or repaid.

Debt covenants

         Certain loan agreements contain restrictive financial covenants, the
most restrictive of which allow for a maximum funded debt to net worth not
exceed 75%, require stockholders' equity to be no less than $400 million, and
require that the Company maintain certain specified financial ratios. In
addition, certain agreements restrict the level of total leverage for the
Company. The Company was in compliance with all such covenants at December 31,
1996.

Capital Commitments

         At December 31, 1996, the Company had approximately $24.6 million in
capital expenditure commitments. These commitments are primarily to fund the
construction of industrial development projects, predevelopment costs and
re-leasing costs. See comments below regarding the sources of funding for
capital requirements.

Lease Expirations

         For the five years from 1997 through 2001, leases for 19%, 8%, 10%, 10%
and 17% of total square footage are scheduled to expire. The 1997 lease
expirations of 19% includes 2% attributable to month-to-month leases.

Cash balances, available borrowings and capital resources

         At December 31, 1996, cash and cash equivalents totaled $23.6 million.
In addition, the Company had available $121.4 million under its secured
revolving credit facilities, $4.5 million under its development construction
facilities and $25.1 million under its residential construction facilities.

                                       28
<PAGE>

         On October 28, 1996, the Company entered into an agreement for a $240
million secured credit line which replaced six existing credit lines or term
facilities. This credit line is used to fund the Company's development projects,
interim capital requirements and to provide working capital for general
corporate purposes. At December 31, 1996, $121.4 million was available for
future borrowings. The maturity date of this credit line is November 1, 1998.

         In July 1995, the Company entered into a $25 million revolving
construction line of credit which was available to fund new development in
twelve states in the Southwest. In July 1996, the Company elected not to renew
the revolving function of this facility in anticipation of closing the $240
million credit facility (described above). As of December 31,1996, one
construction project was financed under the line and $4.5 million was available
for future borrowings under this facility.

         At December 31, 1996, Catellus Residential Group had six residential
construction loans and mortgage loans outstanding totaling $16.3 million. The
borrowing capacity of these loans totaled $41.4 million, leaving a balance
available for future borrowing of $25.1 million. The maturity dates of these
loans vary between 1997 and 1998.

         The Company's short-and long-term liquidity and capital resources
requirements will essentially be provided from three sources: ongoing operating
income from rental properties, proceeds from asset sales, and fee services
income. As noted above, a $240 million secured revolving line of credit, a
construction line of credit and residential construction loan facilities are
available to the Company for meeting liquidity requirements. Additionally, the
Company will use third-party borrowing for development projects to the extent
practical.

Income Taxes

         At December 31, 1996, the Company's deferred tax liability consisted of
deferred tax assets totaling $121.4 million and deferred tax liabilities of
$228.1 million. Deferred tax assets included $14.3 million relating to net
operating loss carryforwards (NOLs) of $40.2 million. The Company has NOLs of
$16.3 million, $16.9 million, $6.5 million, $.3 million and $.2 million which
expire in 2006, 2007, 2008, 2009 and 2011. The Company's other deferred tax
assets of $107.1 million relate primarily to differences between book and tax
basis of properties. These deferred tax assets are not subject to expiration and
will likely be realized at the time of taxable dispositions of the properties.
Deferred tax liabilities in excess of deferred tax assets are often associated
with the same property, with the result that the deferred tax asset will likely
be realized in a taxable disposition, without regard to other taxable income.
The Company believes it is more likely than not that it will realize the benefit
of its deferred tax assets, and that no valuation allowance is required. In
making this determination, the Company considered: the nature of its deferred
tax assets (and liabilities); the amounts and expiration dates of its NOLs; the
historical levels of taxable income; the significant unrealized appreciation of
its properties, including properties likely to be sold during the NOL
carryforward periods; and its ability in many cases to control the timing of
property sales in order to assure that deferred tax assets will be offset by
deferred tax liabilities or realized appreciation.


ENVIRONMENTAL MATTERS

         Many of the Company's properties are in urban and industrial areas and
may have been leased to or previously owned by commercial and industrial tenants
that may have discharged hazardous materials. The Company incurs on-going
environmental remediation costs, including clean-up costs, consulting fees for
environmental studies and investigations, monitoring costs, and legal costs
relating to clean-up, litigation defense and the pursuit of responsible third
parties. Costs incurred in connection with operating properties and properties
previously sold are expensed. As of December 31, 1996, management has provided a
reserve of $13.6 million for such costs. These costs are expected to be incurred
over an estimated ten-year period, with a substantial portion incurred over the
next five years.

                                       29
<PAGE>

         Costs incurred for properties to be sold are deferred and will be
charged to cost of sales when the properties are sold. Costs relating to
undeveloped properties are capitalized as part of development costs. At December
31, 1996, the Company's estimate of its potential liability for identified
environmental costs relating to properties to be developed or sold ranged from
$14 million to $40 million. These costs generally will be capitalized as they
are incurred over the course of the estimated development period of
approximately 20 years. Environmental costs capitalized for 1996 and 1995
totaled $2.8 million and $1.7 million, respectively.

         While the Company or outside consultants have evaluated the
environmental liabilities associated with most of the Company's properties, any
evaluation necessarily is based upon then prevailing law and identified site
conditions. The Company monitors its exposure to environmental costs on a
regular basis. Although an unexpected event could have a material impact on the
results of operations for any period, the Company does not believe that such
costs for identified liabilities will have a material adverse effect on its
financial condition.


SUPPLEMENTAL CURRENT VALUE

         In 1996, because of the significant cost and limitations involved in
estimating the current value of its real estate assets, the Company decided to
discontinue the voluntary practice of preparing a supplemental current value
balance sheet.


RISK FACTORS

         It is the Company's belief that this annual report on Form 10-K may
contain statements which, to the extent that they are not recitations of
historical fact, may constitute "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
and Exchange Act of 1934. All forward-looking statements involve risks and
uncertainties. Any forward-looking statements in this document are intended to
be subject to the safe harbor protection provided by Section 27A and 21E.
Factors that most typically affect the Company's operating results and financial
condition include (i) changes in general economic conditions in regions in which
the Company's projects are located, (ii) supply and demand for office,
industrial, and residential space, (iii) the delay in receipt of or the denial
of government approvals and entitlements for development projects, (iv) other
public and private development activity in the areas in which the Company owns
property, (v) land and building material costs, (vi) the availability and cost
of project financing, (vii) competition from other property owners, (viii)
liability for environmental remediation at the Company's properties, (ix) the
Company's ability to increase development fees, (x) the Company's ability to
sell non-strategic assets, (xi) changes in the capital markets affecting the
ability of the Company to minimize its interest and preferred dividends, (xii)
the Company's ability to control the timing of the recognition of deferred tax
liability, (xiii) the impact of discretionary government actions, (xiv) the
exposure of the Company's assets to natural occurrences, such as earthquakes,
tornadoes, and similar events, and (xv) changes in the legal and regulatory
environment, including the tax treatment of the Company's activities and assets.

         For discussions identifying other important factors that could cause
actual results to differ materially from those anticipated in the forward-
looking statements, see the Company's Securities and Exchange Commission
filings, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" of this Form 10-K, and Note 14 to the Consolidated
Financial Statements included in this Form 10-K. The Company cautions that the
foregoing list of risk factors is not exclusive. Further, the Company does not
undertake to update any forward-looking statements that may be made from time to
time by or on behalf of the Company.

                                       30
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial statements and schedules required under Regulation S-X
promulgated under the Securities Act of 1933 are identified in Item 14 and are
incorporated herein by reference.

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

         None.



                                   PART III

        Except for the information relating to the executive officers of the
Company set forth in Part I of this Annual Report on Form 10-K, the information
required by the following items in this Part III is hereby incorporated by
reference to the relevant sections contained in the Company's definitive Proxy
Statement ("1997 Proxy Statement") which will be filed with the Securities and
Exchange Commission in connection with the 1997 Annual Meeting of Stockholders.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information in the section caption "Election of Directors" in the
1997 Proxy Statement is incorporated herein by reference. Information concerning
executive officers required by this Item 10 is located under Part I, Item 4 and
pages 15 through page 17 of this Form 10-K.

         The information in the section captioned "Compliance with Section 16(a)
of the Securities Exchange Act of 1934" in the 1997 Proxy Statement is
incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

         The information in the sections captioned "Election of Directors --
Directors' Compensation," "Employment Agreements" and "Compensation Agreements"
and "Compensation of Executive Officers" included in the 1997 Proxy Statement is
incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information in the sections captioned "Security Ownership of
Directors, Nominees and Executive Officers" and "Security Ownership of Certain
Beneficial Owners" in the 1997 Proxy Statement is incorporated herein by
reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information in the section captioned "Certain Transactions" in the
1997 Proxy Statement is incorporated herein by reference.



                                    PART IV

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

         (a)(1) AND (a)(2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
         SCHEDULES

         See Index to Financial Statements and Financial Statement Schedules at

         F-1 herein.

                                       31
<PAGE>

         All other Schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.

         (a)(3) EXHIBITS
<TABLE>
<CAPTION>


    Exhibit
      No.
    -------
      <S>         <C>
      3.1         Form of Restated Certificate of Incorporation of the Registrant(1)

      3.1A        Amendment to Restated Certificate of Incorporation of the Registrant(7)

      3.3         Form of  Certificate  of  Designations,  Preferences  and  Rights  of $3.25  Series A  Cumulative
                  Convertible Preferred Stock(2)

      3.4         By-Laws, as amended(10)

      3.5         Form of  Certificate  of  Designations,  Preferences  and  Rights of $3.625  Series B  Cumulative
                  Convertible Exchangeable Preferred Stock(7)

      4.1         Form of stock certificate representing Common Stock(1)

      4.9         Form of stock certificate representing $3.75 Series A Cumulative Convertible Preferred Stock(2)

      4.10        Form of stock  certificate  representing  $3.625  Series B  Cumulative  Convertible  Exchangeable
                  Preferred Stock(7)

      4.11        Loan  Agreement  dated  as of  February  16,  1994  between  the  Registrant  and The  Prudential
                  Insurance Company of America(8)

      4.12        Loan Agreement  dated as of October 28, 1996 between the Registrant and Bank of America  National
                  Trust and Savings Association*

      10.1        Exploration  Agreement  and Option to Lease dated  December 28, 1989 between the  Registrant  and
                  Santa Fe Pacific Minerals Corporation(1)

      10.4        Registration  Rights  Agreement dated as of December 29, 1989 among the Registrant,  BAREIA,  O&Y
                  and Itel(1)

      10.4A       Letter  Agreement  dated  November  14,  1995  between  the  Registrant  and  California   Public
                  Employees' Retirement System(10)

      10.6        Restated Tax Allocation and Indemnity Agreement dated December 29, 1989 among the Registrant and
                  certain of its subsidiaries and Santa Fe Pacific Corporation ("SFP")(1)

      10.7        State Tax  Allocation  and Indemnity  Agreement  dated December 29, 1989 among the Registrant and
                  certain of its subsidiaries and SFP(1)

      10.13       Registrant's Incentive Stock Compensation Plan(3)

      10.15       Termination,  Substitution  and  Guarantee  Agreement  between  ATSF  and  the  Registrant  dated
                  December 21, 1990(4)
</TABLE>
                                      32
<PAGE>

<TABLE>
      <S>         <C>
      10.16       Registrant's Stock Option Plan(4)

      10.21       Amended and Restated Executive Stock Option Plan(7)

      10.21A      First Amendment to Amended and Restated Executive
                  Stock Option Plan*

      10.26       Form of First Amendment to Registration Rights Agreement among
                  the Registrant, BAREIA, O&Y and Itel(5)

      10.29       Amended and Restated Executive Employment Agreement dated as
                  of November 29, 1995 between the Registrant and Nelson C.
                  Rising(10)

      10.30       Executive Employment Agreement dated February
                  10, 1995 between the Registrant and Timothy J. Beaudin(9)

      10.31       Amended and Restated Stock Option Agreement dated March
                  22, 1996 between the Registrant and Joseph R. Seiger(10)

      10.37       Employment Agreement dated July 24, 1996 between the
                  Registrant and Stephen P. Wallace(10)

      10.38       Letter Agreement dated March 24, 1995 between the
                  Registrant and Donald M. Parker(10)

      10.39       Stock Option Award Agreement dated as of
                  January 1, 1996 between the Registrant and Joseph R.
                  Seiger(10)

      10.40       Revised Memorandum of Understanding dated
                  November 15, 1995 between the Registrant and Theodore L.
                  Tanner(10)

      10.41       Memorandum of Understanding dated February
                  16, 1996 between the Registrant and Jeffrey K. Gwin(10)

      10.42       Consulting Agreement dated February 25, 1996, between the
                  Registrant and Jeffrey K. Gwin(10)

      10.43       1995 Stock Option Plan (11)

      10.44       1996 Performance Award Plan (12)

      10.44A      First Amendment to 1996 Performance Award Plan*

      10.45       Employment Agreement dated February 1, 1996 between the
                  Registrant and David Friedman*

      10.46       Employment Agreement dated February 1, 1996 between the
                  Registrant and Ira Yellin*

      10.47       Letter Agreement dated February 1, 1996 between the Registrant
                  and Ira Yellin*

      10.48       Employment Agreement dated December 3, 1996 between the
                  Registrant and Kathleen Smalley*

      10.49       Letter Agreement dated November 16, 1996 between the
                  Registrant and Steve Wallace*

      10.50       Letter Agreement dated November 16, 1996 between the
                  Registrant and Timothy Beaudin*

      10.51       Office lease dated November 22, 1996 between Bradbury
                  Associated, L.P. and the Registrant*

      21.1        Subsidiaries of the Registrant*

      23.1        Consent of Independent Accountants*
</TABLE>
-----------------------------------
   *Filed with this report on Form 10-K.

                                       33
<PAGE>

<TABLE>
      <S>          <C>
      24.1         Powers of Attorney from directors with respect to the filing
                   of the Form 10-K*

      27           Financial Data Schedule*

      99.1         Report of the Independent Real Estate Appraisers dated March
                   12, 1996(10)
</TABLE>
         The Registrant has omitted instruments with respect to long-term debt
where the total amount of the securities authorized thereunder does not exceed
10 percent of the assets of the Registrant and its subsidiaries on a
consolidated basis. The Registrant agrees to furnish a copy of such instrument
to the Commission upon request.

<TABLE>
      (b)  REPORTS ON FORM 8-K

      <S>         <C>
      (2)         Incorporated by reference to Exhibit of the same number on the
                  Form 8 constituting a Post-Effective Amendment No. 1 to the
                  Form 8-A as filed with the Commission on February 19, 1993.

      (3)         Incorporated by reference to Exhibit of the same number of the
                  Form 8 constituting Post-Effective Amendment No. 1 to the Form
                  10 as filed with the Commission on November 20, 1990.

      (4)         Incorporated by reference to Exhibit of the same number on the
                  Form 10-K for the year ended December 31, 1990.

      (5)         Incorporated by reference to Exhibit of the same number of
                  Amendment No. 2 to Form S-3 as filed with the Commission on
                  February 4, 1993.

      (6)         Incorporated by reference to Exhibit of the same number on the
                  Form 10-Q for the quarter ended September 30, 1993.

      (7)         Incorporated by reference to Exhibit of the same number on the
                  Form 10-K for the year ended December 31, 1993.

      (8)         Incorporated by reference to Exhibit of the same number of
                  Amendment No. 1 to the Form 10-K for the year ended December
                  31, 1993.

      (9)         Incorporated by reference to Exhibit of the same number on the
                  Form 10-K for the year ended December 31, 1994.

      (10)        Incorporated by reference to Exhibit of the same number on the
                  Form 10-K for the year ended December 31, 1995.

      (11)        Incorporated by reference to Exhibit 4.1 of Form S-8 as
                  filed with the Commission on February 26, 1996.

      (12)        Incorporated by reference to Exhibit 4.1 of Form S-8 as
                  filed with the Commission on May 22, 1996.

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

      (1) Incorporated by reference to Exhibit of the same number of the
Registration Statement on Form 10 (Commissiom File No.0-18694) as filed with the
Commission on July 18, 1990 ("Form 10")

                                       34
<PAGE>

                                   SIGNATURES

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

                        CATELLUS DEVELOPMENT CORPORATION

                                    By *
                                      ---------------------------
                                              Nelson C. Rising
                                              President and Chief Executive
                                              Officer

Dated: March 31, 1997

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Catellus
Development Corporation and in the capacities and on the date indicated.

<TABLE>
<CAPTION>
    Signature                               Title                                            Date
    ---------                               -----                                            ----
<S>                                         <C>                                              <C>
/s/  *                                       President, Chief Executive                      March 31, 1997
---------------------------
     Nelson C. Rising                        Officer and Director
                                             Principal Executive Officer


/s/STEPHEN P. WALLACE                        Senior Vice President and                       March 31, 1997
------------------------
     Stephen P. Wallace                      Chief Financial Officer
                                             Principal Financial Officer

/s/PAUL A. LOCKIE                            Vice President and Controller                   March 31, 1997
------------------------------
     Paul A. Lockie                          Principal Accounting Officer
</TABLE>

                                       35
<PAGE>

<TABLE>
  <S>                                      <C>              <C>

      *                                    Director
  ----------------------------
     Joseph F. Alibrandi



      *                                    Director
  ----------------------------
     Daryl J. Carter



     *                                     Director
   ----------------------------
     Christine Garvey



     *                                     Chairman of the
   ----------------------------             Board, Director
     Joseph R. Seiger



     *                                     Director
   ----------------------------
     Jacqueline R. Slater



     *                                     Director
   ----------------------------
     Thomas M. Steinberg




    *                                      Director
   ----------------------------
     Beverly Benedict Thomas



By /s/ PAUL A. LOCKIE
  -----------------------------
     Paul A. Lockie
     Attorney-in-fact
     March 31, 1997
</TABLE>


                                       36
<PAGE>

                       CATELLUS DEVELOPMENT CORPORATION
                         INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>

                                                                                                   PAGE
                                                                                                   ----
<S>                                                                                                <C>
FINANCIAL STATEMENTS

  Report of Independent Accountants dated February 12, 1997,
        except for Note 15, as to which the date is March 24, 1997................................. F-2
  Consolidated Balance Sheet at December 31, 1996 and 1995......................................... F-3
  Consolidated Statement of Operations for the years ended December 31, 1996, 1995 and 1994........ F-4
  Consolidated Statement of Stockholders' Equity for the years ended December 31, 1996, 1995
       and 1994.................................................................................... F-5
  Consolidated Statement of Cash Flows for the years ended December 31, 1996, 1995 and 1994........ F-6
  Notes to Consolidated Financial Statements....................................................... F-7
  Summarized Quarterly Results (Unaudited)......................................................... F-21


  (a)(2) FINANCIAL STATEMENT SCHEDULES

  Report of Independent Accountants dated February 12, 1997........................................ S-1
  Schedule II -- Valuation and Qualifying Accounts................................................. S-2
  Schedule III -- Real Estate and Accumulated Depreciation......................................... S-3
  Attachment A to Schedule III..................................................................... S-4

</TABLE>

                                      F-1
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Stockholders of
Catellus Development Corporation

         In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Catellus Development Corporation and its subsidiaries at December 31, 1996 and
1995 and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. The financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

Price Waterhouse LLP
San Francisco, California
February 12, 1997, except for Note 15,
     as to which the date is March 24, 1997

                                      F-2

<PAGE>

                        CATELLUS DEVELOPMENT CORPORATION
                           CONSOLIDATED BALANCE SHEET
                        (In thousands, except share data)
<TABLE>
<CAPTION>
                                                                              December 31,
                                                                      --------------------------
                                                                         1996            1995
                                                                      ---------      -----------
<S>                                                                   <C>            <C>
Assets
   Properties.....................................................    $ 1,235,440    $ 1,191,679
   Less accumulated depreciation..................................       (211,338)      (184,228)
                                                                      -----------    -----------
                                                                        1,024,102      1,007,451

   Other assets and deferred charges..............................         50,547         44,530
   Notes receivable...............................................         11,924          7,550
   Accounts receivable, less allowance............................         12,965         10,330
   Cash and cash equivalents......................................         23,580         27,743
                                                                      -----------    -----------
           Total..................................................    $ 1,123,118    $ 1,097,604
                                                                      ===========    ===========

Liabilities and stockholders' equity
   Mortgage and other debt........................................    $   496,742    $   496,180
   Accounts payable and accrued expenses..........................         54,178         33,913
   Deferred credits and other liabilities.........................         43,007         34,367
   Deferred income taxes..........................................        106,738         90,270
                                                                      -----------    -----------
           Total liabilities......................................        700,665        654,730
                                                                      -----------    -----------

   Commitments and contingencies (Note 14)

   Stockholders' equity
    Preferred stock...............................................        274,428        322,500
    Common stock - 77,028,099 and 72,967,236 shares issued at
      December 31, 1996 and 1995..................................            770            730
    Paid-in capital...............................................        197,709        196,525
    Accumulated deficit...........................................        (50,454)       (76,881)
                                                                      -----------    -----------
           Total stockholders' equity.............................        422,453        442,874
                                                                      -----------    -----------
              Total...............................................    $ 1,123,118    $ 1,097,604
                                                                      ===========    ===========
</TABLE>
                See notes to consolidated financial statements.

                                      F-3
<PAGE>

                        CATELLUS DEVELOPMENT CORPORATION
                      CONSOLIDATED STATEMENT OF OPERATIONS
                      (In thousands, except per share data)
<TABLE>
<CAPTION>
                                                                            Year ended December 31,
                                                                    -----------------------------------
                                                                      l996          l995         l994
                                                                    ---------     ---------    ---------
<S>                                                                 <C>           <C>          <C>
Income producing properties
    Rental revenue..............................................    $ 115,886     $ 102,828    $  99,183
    Property operating costs....................................      (39,408)      (30,650)     (29,609)
    Equity in earnings of joint ventures........................        5,993         5,826        4,240
                                                                    ---------     ---------    ---------
                                                                       82,471        78,004       73,814
                                                                    ---------     ---------    ---------

Development activities and fee services
    Gain on development property sales..........................       15,623           953           --
    Development and management fee income, net..................        3,432         1,924        2,151
    Equity in earnings of joint ventures........................          758         1,209        3,742
    Land holding costs, net.....................................       (3,724)       (3,871)      (4,891)
                                                                    ---------     ---------    ---------
                                                                       16,089           215        1,002
                                                                    ---------     ---------    ---------

Interest expense................................................      (42,521)      (25,757)     (24,671)
Depreciation and amortization...................................      (30,561)      (27,990)     (28,577)
General and administrative expense..............................       (8,019)      (10,924)     (14,818)
Gain on non-strategic land and other asset sales................       24,405        32,789       13,307
Adjustment to carrying value of property........................           --      (102,400)     (24,100)
Litigation, environmental and restructuring costs...............        1,093          (961)      (2,854)
Other, net......................................................          (19)        2,504        3,091
                                                                    ---------     ---------    ---------

Earnings (loss) before income taxes.............................       42,938       (54,520)      (3,806)
                                                                    ---------     ---------    ---------

Income tax (expense) benefit
    Current.....................................................       (1,069)       (1,014)        (186)
    Deferred....................................................      (16,468)       22,532        1,545
                                                                    ---------     ---------    ---------
                                                                      (17,537)       21,518        1,359
                                                                    ---------     ---------    ---------

    Net earnings (loss).........................................       25,401       (33,002)      (2,447)

      Preferred stock dividends.................................      (22,173)      (23,813)     (23,813)
      Premium on redemption of preferred stock..................       (1,334)           --           --
                                                                    ---------     ---------    ---------

    Net earnings (loss) applicable to common stockholders.......    $   1,894     $ (56,815)   $ (26,260)
                                                                    =========     =========    =========
    Net earnings (loss) per share of common stock...............    $    0.03     $   (0.78)   $   (0.36)
                                                                    =========     =========    =========
    Average number of common shares outstanding.................       74,947        72,967       72,967
                                                                    =========     =========    =========

</TABLE>

                 See notes to consolidated financial statements.

                                      F-4
<PAGE>

               CATELLUS DEVELOPMENT CORPORATION
        CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                       (In thousands)

<TABLE>
<CAPTION>

                                                   Preferred Stock              Common Stock
                                               -------------------------  -------------------------     Paid-In    Accumulated
                                                  Shares       Amount        Shares       Amount        Capital      Deficit
                                               ------------ ------------  ------------ ------------  ------------ ------------
<S>                                            <C>          <C>           <C>          <C>           <C>          <C>
Balance at December 31, 1993................        6,450      $ 322,500        72,967         $730     $244,151      $(41,432)
  Series A preferred stock dividends........           --             --            --           --      (12,938)           --
  Series B preferred stock dividends........           --             --            --           --      (10,875)           --
Net loss....................................           --             --            --           --           --        (2,447)
                                               ------------ ------------  ------------ ------------  ------------ ------------
Balance at December 31, 1994................        6,450        322,500        72,967          730      220,338       (43,879)
  Series A preferred stock dividends........           --             --            --           --      (12,938)           --
  Series B preferred stock dividends........           --             --            --           --      (10,875)           --
  Net loss..................................           --             --            --           --           --       (33,002)
                                               ------------ ------------  ------------ ------------  ------------ ------------
Balance at December 31, 1995................        6,450        322,500        72,967          730      196,525       (76,881)
  Redemption of Series A preferred stock....         (508)       (25,406)           --           --       (1,334)           --
  Conversion of Series A preferred stock....         (453)       (22,666)        2,502           25       22,641            --
  Series A preferred stock dividends........           --             --            --           --      (11,298)           --
  Series B preferred stock dividends........           --             --            --           --      (10,875)           --
  Exercise of stock options and other.......           --             --         1,559           15        2,050         1,026
  Net earnings..............................           --             --            --           --           --        25,401
                                               ============ ============  ============ ============  ============ ============
Balance at December 31, 1996................        5,489      $ 274,428        77,028         $770     $197,709      $(50,454)
                                               ============ ============  ============ ============  ============ ============
</TABLE>













                 See notes to consolidated financial statements.

                                      F-5
<PAGE>

                       CATELLUS DEVELOPMENT CORPORATION
                     CONSOLIDATED STATEMENT OF CASH FLOWS
                                (In thousands)
<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                              -------------------------------------------
                                                                                  1996           1995           1994
                                                                              -------------  -------------  -------------
<S>                                                                           <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings (loss).....................................................        $  25,401       $(33,002)     $  (2,447)
  Adjustments to reconcile net earnings (loss) to net
   cash provided by operating activities:
     Depreciation and amortization........................................           30,561         27,990         28,577
     Deferred income taxes................................................           16,468        (22,392)        (1,667)
     Amortization of deferred loan fees and other costs...................            4,799          2,743          2,940
     Equity in earnings of joint ventures.................................           (6,751)        (7,035)        (7,982)
     Operating contributions/distributions of joint ventures, net.........           10,235          8,332          2,193
     Cost of non-strategic land and development properties sold...........           84,276         23,716         17,683
     Gain on sales of other assets........................................           (4,746)            --         (3,033)
     Expenditures for development properties..............................          (41,978)        (2,761)            --
     Litigation recovery..................................................               --         (6,450)            --
     Adjustment to carrying value of property.............................               --        102,400         24,100
     Other, net...........................................................            2,842          8,674          3,963
   Change in assets and liabilities:
     Accounts and notes receivable........................................           (9,681)         1,306         (2,248)
     Other assets and deferred charges....................................          (13,444)        (5,652)        (8,014)
     Accounts payable and accrued expenses................................           12,341            850          3,145
     Other................................................................              754          3,483          3,155
                                                                              -------------  -------------  -------------
Net cash provided by operating activities.................................          111,077        102,202         60,365
                                                                              -------------  -------------  -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures....................................................          (69,747)       (63,516)       (69,998)
  Tenant improvements.....................................................           (3,613)        (2,246)        (3,902)
  Net proceeds from sale of other assets..................................            8,969             --         21,109
  Contributions to joint ventures.........................................               --             --         (1,807)
  Reduction (investment) in short-term investments and
   restricted cash........................................................               --         35,067        (35,067)
                                                                              -------------  -------------  -------------
Net cash used in investing activities.....................................          (64,391)       (30,695)       (89,665)
                                                                              -------------  -------------  -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings..............................................................          222,052         99,013        328,408
  Repayment of borrowings.................................................         (224,470)      (135,884)      (462,002)
  Dividends paid..........................................................          (23,067)       (23,813)       (24,145)
  Redemption of preferred stock...........................................          (26,739)            --             --
  Contributions/distributions of minority partners........................            1,201             --             --
  Proceeds from issuance of common stock..................................              174             --             --
  Stock issuance costs....................................................               --             --            (55)
  Investment in restricted cash used for reduction of debt................               --             --         67,410
  Redemption premium on early retirement of debt..........................               --             --        (10,000)
                                                                              -------------  -------------  -------------
Net cash used in financing activities.....................................          (50,849)       (60,684)      (100,384)
                                                                              -------------  -------------  -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................           (4,163)        10,823       (129,684)
Cash and cash equivalents at beginning of year............................           27,743         16,920        146,604
                                                                              =============  =============  =============
Cash and cash equivalents at end of year..................................        $  23,580     $   27,743     $   16,920
                                                                              =============  =============  =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid during the year for:
     Interest (net of amount capitalized).................................        $  39,144      $  23,208     $   22,895
     Income taxes.........................................................        $   1,009      $     444     $      324

</TABLE>

                 See notes to consolidated financial statements.

                                      F-6
<PAGE>

                        CATELLUS DEVELOPMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  DESCRIPTION OF BUSINESS

         Catellus Development Corporation (the Company) is a diversified real
estate operating company that manages and develops real estate for its own
account and others. The Company's portfolio of industrial, residential, retail
and office projects, undeveloped land and joint venture interests are located in
major markets in California and 10 other states. The Company's operating
properties consist primarily of industrial facilities, along with a number of
office and retail buildings located in California, Arizona, Illinois, Texas,
Colorado and Oregon. The Company also has substantial undeveloped land holdings
primarily in these same states.

         In March 1996, the Company acquired The Akins Companies (Akins), a
residential real estate company involved in home building, community development
and project management services, primarily in Southern California. Akins was
acquired in exchange for 1,528,421 shares of the Company's common stock in a
transaction that qualifies for the pooling of interest method of accounting.
However, prior year financial statements have not been restated because Akins
was not material to the financial position, results of operations or cash flows
of the Company. Concurrent with this acquisition, Akins changed its legal name
to Catellus Residential Group (Residential Group) and commenced development of
certain of the Company's residential land holdings, projects previously started
by Akins and new development activities on properties owned by others.

NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Principles of consolidation -- The accompanying consolidated financial
statements include the accounts of the Company, its wholly-owned subsidiaries
and investees over 50% owned which are controlled by the Company.
All other investees are accounted for using the equity method.

         Revenue recognition -- Rental revenue, in general, is recognized when
due from tenants; however, revenue from leases with rent concessions is
recognized on a straight-line basis over the initial term of the lease. Direct
costs of negotiating and consummating a lease are deferred and amortized over
the initial term of the related lease.

         The Company recognizes revenue from the sale of properties using the
accrual method. Sales not qualifying for full recognition at the time of sale
are accounted for under the installment method. In general, specific
identification is used to determine the cost of sales. Estimated future costs to
be incurred by the Company after completion of each sale are included in cost of
sales.

         Cash and cash equivalents -- The Company considers all highly liquid
investments with a maturity of three months or less at time of purchase to be
cash equivalents.

         Financial instruments -- The cost bases of the Company's notes
receivable and debt approximate fair value, based upon current market rates for
commercial real estate loans of similar risks and maturities.

         Property and deferred costs -- Real estate is stated at the lower of
cost or estimated fair value. For operating properties and properties held for
long-term investment, a write-down to estimated fair value is recognized when a
property's estimated undiscounted future cash flow, before interest charges, is
less than its book value. For properties held for sale, a write-down to
estimated fair value is recorded when the Company determines that the carrying
cost exceeds the estimated selling price, less cost to sell. This evaluation is
made by management on a property by property basis. The evaluation of fair value
and future cash flows from individual properties requires significant judgment;
it is reasonably possible that a change in estimate could occur.

         The Company capitalizes construction and development costs. Costs
associated with financing or leasing projects are also capitalized and amortized
over the period benefited by those expenditures.

                                      F-7
<PAGE>

         Depreciation is computed using the straight-line method. Buildings and
improvements are depreciated using lives of between 20 and 40 years. Tenant
improvements are depreciated over the primary terms of the leases (generally
3-15 years), while furniture and equipment are depreciated using lives ranging
between 3 and 10 years.

         Maintenance and repair costs are charged to expense as incurred, while
significant improvements, replacements and major renovations are capitalized.

         Allowance for uncollectible accounts -- Accounts receivable are net of
an allowance for uncollectible accounts totaling $2.4 million and $1.8 million
at December 31, 1996 and 1995.

         Environmental costs -- The Company incurs on-going environmental
remediation costs, including clean-up costs, consulting fees for environmental
studies and investigations, monitoring costs, and legal costs relating to
clean-up, litigation defense, and the pursuit of responsible third parties.
Costs incurred in connection with operating properties and properties previously
sold are expensed. Costs relating to undeveloped land are capitalized as part of
development costs. Costs incurred for properties to be sold are deferred and
will be charged to cost of sales when the properties are sold.

         The Company maintains a reserve, included in the caption "deferred
credits and other liabilities", for known, probable costs of environmental
remediation to be incurred in connection with operating properties and
properties previously sold. This reserve was $13.6 million and $13.8 million at
December 31, 1996 and 1995, respectively. When there is a legal requirement for
environmental remediation of developable land, the Company will accrue for the
estimated cost of remediation and capitalize that amount. Where there is no
legal requirement for remediation, costs will be capitalized, as incurred, as
part of the project costs.

         Restructuring Costs -- The Company implemented a major restructuring in
November 1994 to refocus the Company and to improve the Company's long-term cash
position. This restructuring, which was implemented in 1995, resulted in a $3.1
million nonrecurring operating expense in 1994.

         Income taxes -- Income taxes are recorded based on the future tax
effects of the difference between the tax and financial reporting bases of the
Company's assets and liabilities. In estimating future tax consequences,
expected future events are considered except for potential income tax law or
rate changes.

         Net earnings (loss) per share -- Net earnings (loss) per share of
common stock is computed by dividing net earnings (loss), after reduction for
preferred stock dividends and premium on redemption of preferred stock, by the
weighted average number of shares of common stock outstanding during the year.
Fully diluted earnings per share amounts have not been presented because assumed
conversion of the Series A and Series B preferred stock would be anti-dilutive
for all relevant periods.

         Use of estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported amounts of revenue and expenses. Actual results could differ from those
estimates.

         Reclassifications - Rental revenue and certain other prior year amounts
have been reclassified to conform with the current year financial statement
presentation.

                                      F-8
<PAGE>

NOTE 3.  MORTGAGE AND OTHER DEBT

         Mortgage and other debt at December 31, 1996 and 1995 consisted of the
following (in thousands):

<TABLE>
<CAPTION>
                                                                                             1996            1995
                                                                                          ----------      ----------
<S>                                                                                       <C>             <C>
First mortgage loan, interest at an average rate of 8.71%, due at
  various dates through March 1, 2004 (a)...............................................  $  259,063      $  267,260
Secured revolving credit line, interest variable (7.313% at December 31, 1996),
   due November 1, 1998 (b).............................................................     118,600              --
First mortgage loans, interest at 7.625% to 10.05%, due at various
  dates through March 1, 2009 (c).......................................................      67,249          70,770
Assessment district bonds, interest at 5.0% to 10.43%, due at various
  dates through April 10, 2021 (d)......................................................      21,012          23,283
Residential construction loans, interest variable (9.25% to 9.5%
  at December 31, 1996), due at various dates through May 22, 1998 (e)..................      10,105              --
Term loan, secured, interest variable (7.75% at December 31, 1996),
   due May 1, 1997 (f)..................................................................       9,000          14,400
Secured promissory note, interest at prime plus 1.0% (9.0% at December 31, 1996),
   due December 1, 1998 (g).............................................................       6,160              --
Construction loans, interest variable (7.465% at December 31,
  1996), due May 20, 1998 (h)...........................................................       5,028          52,851
Intermediate secured term loans (i).....................................................          --          57,400
Term loan, unsecured, interest variable.................................................          --           7,000
Other loan, interest at 8.0%, due July 15, 1997.........................................         525           3,216
                                                                                          ==========      ==========
                                                                                          $  496,742      $  496,180
                                                                                          ==========      ==========
</TABLE>

-----------

(a)  This loan with The Prudential Insurance Company of America is
     collateralized by certain of the Company's operating properties and by an
     assignment of rents generated by the underlying properties. This loan has a
     penalty if paid prior to maturity.

(b)  On October 28, 1996, the Company entered into an agreement for a $240
     million credit line which replaced six existing credit lines or term
     facilities. This credit line is used to fund the Company's development
     projects, interim capital requirements and to provide working capital for
     general corporate purposes. At December 31, 1996, $121.4 million was
     available for future borrowings. The credit line is collateralized by
     certain of the Company's operating properties, an assignment of rents
     generated by the underlying properties and certain land holdings.

(c)  These first mortgage loans are collateralized by certain of the Company's
     operating properties and by an assignment of rents generated by the
     underlying properties. A majority of these loans have penalties if paid
     prior to maturity.

(d)  The assessment district bonds are issued through local municipalities to
     fund the construction of public infrastructure and improvements which
     benefit the Company's properties. These bonds are secured by certain of the
     Company's properties.

(e)  The Company's residential construction loans are used to finance
     development projects and are secured by the related land and improvements.
     The Residential Group and certain joint venture partners have guaranteed
     $6.1 million of these borrowings. At December 31, 1996, $25.1 million was
     available for future borrowings under these residential construction loans.

(f)  This secured term loan is collateralized by an operating property and by an
     assignment of rents generated by the underlying property.

(g)  This promissory note was used to finance a land purchase for a residential
     development project and is secured by a deed of trust.

                                      F-9
<PAGE>

(h)  In July 1995, the Company entered into a $25 million revolving construction
     line of credit which was available to fund new development in twelve states
     in the Southwest. In July 1996, the Company opted not to renew the
     revolving function of this facility in anticipation of closing the credit
     facility discussed in (b) above. As of December 31, 1996, one construction
     project was financed under the line which is secured by the related land
     and improvements and by an assignment of rents generated by the underlying
     property. At December 31, 1996 $4.5 million was available for future
     borrowings under this facility.

(i)  These secured term loans were repaid in full in October 1996 with proceeds
     from a secured revolving credit line (see (b) above).

         Certain loan agreements contain restrictive financial covenants. The
most restrictive of which allows for a maximum funded debt to net worth not to
exceed 75%, require stockholders' equity to be no less than $400 million, and
that the Company maintain certain specified financial ratios. In addition,
certain agreements restrict the level of total leverage for the Company. The
Company was in compliance with all such covenants at December 31, 1996.

         The maturities of mortgage and other debt outstanding as of December
31, 1996 are summarized as follows (in thousands):

<TABLE>
            <S>                              <C>
            1997...........................  $ 24,221
            1998...........................   154,876
            1999...........................     8,773
            2000...........................     9,540
            2001...........................    10,414
            Thereafter.....................   288,918
                                             --------
                                             $496,742
                                             ========
</TABLE>
         Interest costs incurred during 1996, 1995 and 1994 relating to mortgage
and other debt totaled $41.8 million, $46.5 million and $45.8 million. Total
interest costs, which also includes loan fee amortization and other interest
costs, amounted to $45.4 million, $49.3 million and $48.7 million in 1996, 1995
and 1994. Of these amounts, $2.9 million, $23.6 million and $24 million were
capitalized during 1996, 1995 and 1994.

                                      F-10
<PAGE>

NOTE 4. INCOME TAXES

         Total income taxes (benefit) reflected in the consolidated statement of
operations differs from the amounts computed by applying the federal statutory
rate of 35% to earnings (loss) before income taxes as follows (in thousands):
<TABLE>
<CAPTION>
                                                                    1996       1995        1994
                                                                  -------    --------     -------
<S>                                                               <C>        <C>          <C>
Federal income tax at statutory rate............................  $15,028    $(19,082)    $(1,332)
Increase (decrease) in taxes resulting from:
   State income taxes, net of federal impact....................    2,441      (2,460)         72
   Other........................................................       68          24         (99)
                                                                  -------    --------     -------
                                                                  $17,537    $(21,518)    $(1,359)
                                                                  =======    ========     =======
</TABLE>

         Deferred income taxes are provided for the temporary differences
between the financial reporting basis and the tax basis of the Company's assets
and liabilities and for operating loss and tax credit carryforwards. Significant
components of the Company's net deferred tax liability as of December 31, 1996
and 1995 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                December 31,
                                                                          -----------------------
                                                                            1996           1995
                                                                          --------       --------
<S>                                                                       <C>            <C>
Deferred tax liability:
   Involuntary conversions (condemnations) of property..................  $ 90,074       $ 91,226
   Capitalized interest and taxes.......................................    89,119         93,135
   Like-kind property exchanges.........................................    22,392         20,169
   Investments in partnerships..........................................    20,544         16,599
   Other................................................................     5,999          5,219
                                                                          --------       --------
                                                                           228,128        226,348
                                                                          --------       --------
Deferred tax assets:
   Operating loss carryforwards.........................................    14,345         13,257
   Intercompany transaction (prior to spin-off).........................    16,332         16,522
   Capitalized rent.....................................................    23,469         23,194
   Adjustment to carrying value of property.............................    46,026         63,376
   Depreciation and amortization........................................     8,897          7,028
   Environmental reserve................................................     4,633          4,687
   Other................................................................     7,688          8,014
                                                                          --------       --------
                                                                           121,390        136,078
   Deferred tax assets valuation allowance..............................        --             --
                                                                          --------       --------
                                                                           121,390        136,078
                                                                          --------       --------
   Net deferred tax liability...........................................  $106,738       $ 90,270
                                                                          ========       ========
</TABLE>

         During 1996 and 1994, the Company generated net operating loss
carryforwards of $.2 million and $.3 million for tax purposes which expire in
2011 and 2009. Deferred income tax expense was reduced to reflect the benefit of
these amounts.

NOTE 5. JOINT VENTURE INVESTMENTS

         The Company has investments in a variety of unconsolidated real
estate-oriented joint ventures that are involved in both operation of income
producing properties and development of various other projects. At December 31,
1996, these joint venture investments included two hotels, one office building,
a 900,000 square foot trade mart center for the contract and home furnishing
industries, an apartment complex and other projects in the early stages of
development.

         The Company guarantees a portion of the debt and interest of certain of
its joint ventures. At December 31, 1996, these guarantees totaled $11.9
million.

                                      F-11

<PAGE>

        The condensed combined balance sheets and statements of operations of
these unconsolidated joint ventures, along with the Company's proportionate
share, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                                 Combined                   Proportionate Share
                                                        ----------------------------     --------------------------
                                                            1996           1995             1996          1995
                                                        -------------  -------------     ------------  ------------
<S>                                                     <C>            <C>               <C>           <C>
Assets:
  Income producing properties:
     Property.........................................     $ 233,150      $  240,797        $ 107,656     $ 110,610
     Other............................................        26,506          23,828           13,134        10,700
  Development projects:
     Property.........................................        62,720          18,679            4,461         1,860
     Other............................................        15,647          20,714            1,627         4,011
                                                        ------------   -------------     ------------  ------------
        Total.........................................     $ 338,023      $  304,018        $ 126,878     $ 127,181
                                                        ============   =============     ============  ============

Liabilities and venturers' deficit:
  Income producing properties:
     Notes Payable....................................     $ 401,266      $  396,090        $ 161,748     $ 161,940
     Other............................................        18,984          18,952            5,957         6,116
  Development projects:
     Notes Payable....................................         8,525              --              144            --
     Other............................................           376             733               87           191
                                                        ------------   -------------     ------------  ------------
        Total liabilities.............................       429,151         415,775          167,936       168,247
                                                        ------------   -------------     ------------  ------------
  Venturers' deficit
    Income producing properties.......................      (160,594)       (150,417)         (46,915)      (46,746)
    Development projects..............................        69,466          38,660            5,857         5,680
                                                        ------------   -------------     ------------  ------------
                                                             (91,128)       (111,757)         (41,058)      (41,066)
                                                        ------------   -------------     ------------  ------------
        Total liabilities and venturers' deficit.....      $ 338,023      $  304,018        $ 126,878      $127,181
                                                        ============   =============     ============  ============
</TABLE>

         The Company's proportionate share of venturers' deficit is an aggregate
amount for all ventures. Because the Company's ownership percentage differs from
venture to venture, and certain ventures have accumulated deficits while others
have accumulated equity, the Company's percentage of venturers' deficit is not
reflective of the Company's ownership percentage of the ventures.

<TABLE>
<CAPTION>
                                                     Combined                            Proportionate Share
                                     ------------------------------------       -----------------------------------
                                       1996          1995         1994            1996          1995          1994
                                     --------      --------      --------       -------       -------       -------
<S>                                  <C>           <C>           <C>            <C>           <C>           <C>
Revenue
   Income producing properites.....  $134,144      $127,678      $123,509       $35,527       $33,356       $31,275
   Development projects............    49,235         5,735        15,301         9,516         2,054         5,666
                                     --------      --------      --------       -------       -------       -------
                                      183,379       133,413       138,810        45,043        35,410        36,941
                                     --------      --------      --------       -------       -------       -------
Expenses
  Income producing properties......   122,964       118,670       115,708        29,534        27,530        27,035
  Development projects.............    45,256         5,018        13,362         8,758           845         1,924
                                     --------      --------      --------       -------       -------       -------
                                      168,220       123,688       129,070        38,292        28,375        28,959
                                     --------      --------      --------       -------       -------       -------
Net earnings before income tax.....  $ 15,159      $  9,725      $  9,740       $ 6,751       $ 7,035       $ 7,982
                                     ========      ========      ========       =======       =======       =======
</TABLE>

         The Company had a loan outstanding to one of its joint ventures in the
amount of $1.7 million at December 31, 1995. During 1996, the Company converted
this note to equity in the joint venture.

                                      F-12
<PAGE>

NOTE 6. PROPERTY

         Net book value by property type at December 31, 1996 and 1995 consisted
of the following (in thousands):
<TABLE>
<CAPTION>
                                                               1996           1995
                                                           ------------   ------------
<S>                                                        <C>            <C>
Income producing properties:
  Industrial buildings....................................  $   291,608    $   279,838
  Office buildings........................................      108,184        113,095
  Retail buildings........................................       86,070         84,595
  Land development........................................      323,134        317,727
  Land leases.............................................        6,627         10,069
                                                            -----------    -----------
                                                                815,623        805,324
                                                            -----------    -----------
Land holdings:
  Developable properties..................................      200,624        150,339
  Natural resources.......................................        2,299          1,788
  Properties held for sale................................       37,223         84,232
                                                            -----------    -----------
                                                                240,146        236,359
                                                            -----------    -----------
Other (including proportionate share of joint ventures'
  net deficits of $41,058 and $41,066)....................      (31,667)       (34,232)
                                                            -----------    -----------
                                                            $ 1,024,102    $ 1,007,451
                                                            ===========    ===========
</TABLE>

         During 1995 and 1994, the Company took charges of $102.4 million and
$24.1 million to adjust the carrying value of certain properties. The 1995
charge included $84.8 million resulting from the Company's decision to terminate
the 1991 Development Agreement for its Mission Bay project in San Francisco. The
revised carrying value of the Mission Bay project represents management's best
estimate of its fair value, assuming the Company is successful in re-entitling
the property. During 1996, the Company took a charge of $9.9 million to cost of
sales relating to non-strategic land assets identified for sale.

NOTE 7. LEASES

         The Company, as lessor, has entered into noncancelable operating leases
expiring at various dates through 2052. Rental revenue under these leases
totaled $118.7 million in 1996, $106.8 million in 1995 and $102.3 million in
1994. Included in this revenue are rentals contingent on lease operations of
$2.7 million in 1996, $2.1 million in 1995 and $2.8 million in 1994. Future
minimum rental revenue under existing noncancelable operating leases as of
December 31, 1996 are summarized as follows (in thousands):
<TABLE>
<S>                                                             <C>
 1997.........................................................   $ 76,461
 1998.........................................................     67,903
 1999.........................................................     59,401
 2000.........................................................     51,965
 2001.........................................................     41,462
 Thereafter ..................................................    294,172
                                                                 --------
                                                                 $591,364
                                                                 ========
</TABLE>


    The book value of the Company's properties under operating leases or held
for rent are summarized as follows (in thousands):
<TABLE>
<CAPTION>

                                                             December 31,
                                                      ------------------------
                                                        1996            1995
                                                      --------       ---------
<S>                                                   <C>            <C>
Buildings............................................. $ 527,190      $ 501,030
Land and improvements.................................   173,828        164,492
                                                       ---------      ---------
                                                         701,018        665,522
Less accumulated depreciation.........................  (197,586)      (172,934)
                                                       ---------      ---------
                                                       $ 503,432      $ 492,588
                                                       =========      =========
</TABLE>

                                      F-13
<PAGE>

         The Company, as lessee, has entered into noncancelable operating leases
expiring at various dates through 2023. Rental expense under these leases
totaled $1.6 million in 1996, $1.7 million in 1995, and $2.8 million in 1994.
Future minimum lease payments as of December 31, 1996 are summarized as follows
(in thousands):

<TABLE>
<S>                                              <C>
 1997...........................................  $ 2,056
 1998...........................................    2,029
 1999...........................................    1,787
 2000...........................................    1,361
 2001...........................................    1,046
 Thereafter.....................................    2,911
                                                  -------
                                                  $11,190
                                                  =======
</TABLE>

                                      F-14
<PAGE>

NOTE 8.  REVENUES AND DIRECT COSTS BY ACTIVITY

         Revenues and related costs exclusive of depreciation and amortization,
are summarized by activity as follows (in thousands):

<TABLE>
<CAPTION>
                                                                  Property             Excess
                                                                 Operating          (deficit) of
                                                                  Costs or            Revenues
                                                 Revenues       Cost of Sales        over Costs
                                                 --------       -------------       --------------
<S>                                              <C>            <C>                 <C>
 1996
 Income producing properties:
   Industrial buildings.........................  $ 55,865       $ 14,014            $ 41,851
   Office buildings.............................    28,407         12,661              15,746
   Retail buildings.............................    13,215          4,376               8,839
   Land development.............................    10,589          7,252               3,337
   Land leases..................................     7,810          1,105               6,705
   Equity in earnings of joint ventures.........     5,993             --               5,993
                                                  --------       --------            --------
                                                   121,879         39,408              82,471
                                                  --------       --------            --------
 Development activites and fee services:
   Commercial property sales....................    40,525         26,708              13,817
   Residential property sales...................    21,945         20,139               1,806
   Development and management fees..............    11,945          8,513               3,432
   Equity in earnings of joint ventures.........       758             --                 758
   Land holdings................................     4,874          8,598              (3,724)
                                                  --------       --------            --------
                                                    80,047         63,958              16,089
                                                  --------       --------            --------
                                                  $201,926       $103,366            $ 98,560
                                                  ========       ========            ========
 1995
 Income producing properties:
   Industrial buildings.........................  $ 50,716       $ 11,193            $ 39,523
   Office buildings.............................    28,662         12,179              16,483
   Retail buildings.............................    11,364          2,941               8,423
   Land development.............................     4,886          3,308               1,578
   Land leases..................................     7,200          1,029               6,171
   Equity in earnings of joint ventures.........     5,826             --               5,826
                                                  --------       --------            --------
                                                   108,654         30,650              78,004
                                                  --------       --------            --------
 Development activites and fee services:
   Commercial property sales....................     3,224          2,271                 953
   Development and management fees..............     4,674          2,750               1,924
   Equity in earnings of joint ventures.........     1,209             --               1,209
   Land holdings................................     5,240          9,111              (3,871)
                                                  --------       --------            --------
                                                    14,347         14,132                 215
                                                  --------       --------            --------
                                                  $123,001       $ 44,782            $ 78,219
                                                  ========       ========            ========
1994
Income producing properties:
   Industrial buildings.........................  $ 50,650       $ 11,837            $ 38,813
   Office buildings.............................    29,619         11,220              18,399
   Retail buildings.............................     7,339          2,315               5,024
   Land development.............................     4,161          3,200                 961
   Land leases..................................     7,414          1,037               6,377
   Equity in earnings of joint ventures.........     4,240             --               4,240
                                                  --------       --------            --------
                                                   103,423         29,609              73,814
                                                  --------       --------            --------
 Development activities and fee services:
   Development and management fees..............     5,705          3,554               2,151
   Equity in earnings of joint ventures.........     3,742             --               3,742
   Land holdings................................     5,249         10,140              (4,891)
                                                  --------       --------            --------
                                                    14,696         13,694               1,002
                                                  --------       --------            --------
                                                  $118,119       $ 43,303            $ 74,816
                                                  ========       ========            ========
</TABLE>

                                      F-15
<PAGE>

NOTE 9. SALES

         As part of its development actitivies, the Company constructs and sells
commercial and residential properties. In addition, based on management's
assessment of the maximum value to be derived from its various real estate
holdings, the Company sells certain operating properties, land parcels and other
assets.

         The Company's asset sales consist of the following (in thousands):
<TABLE>
<CAPTION>
                                                             1996           1995           1994
                                                           --------       --------       --------
<S>                                                        <C>            <C>            <C>
DEVELOPMENT PROPERTIES:
     Sales................................................  $ 62,470       $ 3,224        $    --
     Cost of sales........................................    46,847         2,271             --
                                                            --------       -------        -------
       Gain...............................................    15,623           953             --
                                                            --------       -------        -------
NON-STRATEGIC LAND AND OTHER ASSETS:
     Non-strategic land:
     Sales................................................    76,553        62,199         32,298
     Cost of sales........................................    56,894        29,410         22,024
                                                            --------       -------        -------
       Gain...............................................    19,659        32,789         10,274
                                                            --------       -------        -------
     Other:
     Sales................................................     9,125            --         21,472
     Cost of sales........................................     4,379            --         18,439
                                                            --------       -------        -------
       Gain...............................................     4,746            --          3,033
                                                            --------       -------        -------
Total non-strategic land and other assets
     Sales................................................    85,678        62,199         53,770
     Cost of sales........................................    61,273        29,410         40,463
                                                            --------       -------        -------
       Gain...............................................    24,405        32,789         13,307
                                                            --------       -------        -------
Total
     Sales................................................   148,148        65,423         53,770
     Cost of sales........................................   108,120        31,681         40,463
                                                            --------       -------        -------
       Gain...............................................  $ 40,028       $33,742        $13,307
                                                            ========       =======        =======
</TABLE>

NOTE 10. LITIGATION, ENVIRONMENTAL AND RESTRUCTURING COSTS

         Litigation, environmental and restructuring costs are summarized as
follows (in thousands):

<TABLE>
<CAPTION>
                                                   1996           1995           1994
                                                 --------       --------       --------
<S>                                              <C>            <C>            <C>
 Litigation recovery............................  $    --        $ 6,450        $    --
 Environmental (expense) recovery, net..........    1,093         (7,411)           246
 Restructuring costs............................       --             --        (3, l00)
                                                  -------        -------        -------
                                                  $ 1,093        $  (961)       $(2,854)
                                                  =======        =======        =======
</TABLE>

         Environmental costs charged to operations, including amounts charged to
cost of sales, for 1996, 1995 and 1994 totaled $1.1 million, $8.1 million and
$4.6 million. Environmental costs capitalized in 1996, 1995 and 1994 were $2.8
million, $1.7 million and $1.2 million.

         See further discussion regarding litigation and environmental matters
at Note 14.

                                      F-16
<PAGE>

NOTE 11. OTHER, NET

          Other income (expense) is summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                    1996      1995      1994
                                  --------  --------  --------
<S>                               <C>       <C>       <C>
Interest income................... $ 1,212   $ 3,769   $ 3,739
All other, net....................  (1,231)   (1,265)     (648)
                                   -------   -------   -------
                                   $   (19)  $ 2,504   $ 3,091
                                   =======   =======   =======
</TABLE>

NOTE 12. EMPLOYEE BENEFIT AND STOCK OPTION PLANS

         The Company has a profit sharing and savings plan for all employees.
Funding consists of employee contributions along with matching and discretionary
contributions by the Company. Total expense for the Company under this plan was
$0.4 million, $0.2 million and $0.6 million in 1996, 1995 and 1994.

         The Company has various plans through which employees may purchase
common stock of the Company.

         The Incentive Stock Compensation Plan (Substitute Plan) was adopted to
provide substitute awards to employees whose awards under certain plans of the
former parent company, Santa Fe Pacific Corporation (SFP), were forfeited as a
result of the Company's spin-off from SFP in 1990. The number of shares,
exercise price and expiration dates of these awards were set so the participant
retained the full unrealized potential value of the original SFP grant. Options
became exercisable after March 5, 1992 and expire from 1996 through 1999.

         The Company also has four stock option plans under which the Board of
Directors may grant options to purchase up to 8,750,000 shares of common stock
(Stock Option Plan, 1995 Stock Option Plan, Amended and Restated Executive Stock
Option Plan and 1996 Performance Award Plan). The exercise price of options
granted under these plans is generally the fair market value of the common stock
on the date of grant. Options generally are exercisable no earlier than six
months from the date of grant and expire ten years after the date of grant. All
options granted to date are exercisable (a) in installments on a cumulative
basis at a rate of 25% each year commencing on the first anniversary of the date
of grant, (b) in increments based on stock price performance benchmarks, or (c)
in increments based on a combination of stock price performance benchmarks and
time vesting requirements.

         The Company also has various plans through which non-employee directors
may purchase common stock of the Company.

         Under the Amended and Restated Executive Stock Option Plan, each
non-employee director was automatically granted an option, upon initial election
to the Board of Directors, to purchase 5,000 shares of common stock at a price
of 127.63% of the fair market value on the date of grant, increasing 5% on each
anniversary of the grant date commencing on the sixth anniversary. These options
are exercisable in installments on a cumulative basis at a rate of 20% each
year. No further options may be granted to non-employee directors under this
plan.

         Under the 1996 Performance Award Plan, each non-employee director is
automatically granted an option to purchase 5,000 shares of common stock upon
initial election to the Board of Directors and annually thereafter during his or
her term of service. The exercise price of these options is the fair market
value of the common stock on the date of grant and the options are exercisable
based upon stock price performance benchmarks.

         In addition, under the 1996 Performance Award Plan, each non-employee
director may elect to defer receipt of his or her annual retainer fee until
termination of board service and to acquire stock rather than receive the cash
retainer at a purchase price equal to 90% of the fair market value of the common
stock on the date of deferral.

                                      F-17
<PAGE>

         The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (Statement 123) requires use of option valuation models that were
developed for use in valuing publicly traded stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.

         Pro forma information regarding net earnings(loss) and earnings(loss)
per share is required by Statement 123 and has been determined as if the Company
had accounted for its employee stock options under the fair value method. The
weighted-average fair value of options granted during 1996 and 1995 were $3.30
and $2.34. The fair value of options granted was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1995 and 1996, respectively: risk-free interest rates of 6.11%
and 5.82%; zero percent dividend yields; volatility factors of the expected
market price of the Company's common stock of 30.77% and 29.56%, and a weighted-
average expected life of the options of five years.

         The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
measure of the fair value of its employee stock options.

         For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows (in thousands, except earnings (loss) per
share information):
<TABLE>
<CAPTION>
                                                                  1996          1995
                                                               ---------      ---------
<S>                                                            <C>            <C>
Pro forma net earnings (loss) applicable to
  common stockholders.......................................   $     671       $(57,074)
                                                               =========       =========
Pro forma earnings (loss) per share.........................   $    0.01       $  (0.78)
                                                               =========       =========
</TABLE>

         A summary of the Company's stock option activity, and related
information for the years ended December 31 is as follows (in thousands, except
exercise price information):
<TABLE>
<CAPTION>
                                                 1996                      1995                       1994
                                    ---------------------------   ------------------------  -------------------------
                                             Weighted-Average              Weighted-Average          Weighted-Average
                                    Options   Exercise Price     Options    Exercise Price  Options   Exercise Price
                                    -------  ------------------  --------  ---------------  --------  --------------
<S>                                 <C>      <C>                 <C>       <C>              <C>      <C>
Outstanding-beginning of year...     2,877         $ 9.84          1,779       $ 10.69        1,495       $ 11.69
Granted.........................     4,189         $ 8.85          1,305       $  6.04        2,106       $  7.25
Exercised.......................       (68)        $ 7.15             --            --           --            --
Expired.........................        --             --           (207)      $ 14.51       (1,822)      $ 12.25
Forfeited.......................      (637)        $10.81             --            --           --            --
                                  --------                       -------                    -------
Outstanding-end of year.........     6,361         $ 8.13          2,877       $  9.84        1,779       $ 10.69
                                  ========                       =======                    =======
Exercisable at end of year......       404         $ 7.32            277       $  9.08          169       $ 10.15
</TABLE>

         Exercise prices for options outstanding as of December 31, 1996 ranged
from $5.58 to $16.53. The weighted-average remaining contractual life of those
options is 8.78 years.

                                      F-18
<PAGE>

NOTE 13. CAPITAL STOCK

         The Company has authorized the issuance of 150 million shares of $.01
par value common stock. As of December 31, 1996 and 1995, the Company has
77,028,099 and 72,967,236 shares outstanding. The Company has reserved
12,697,000 and 16,556,000 shares of common stock for conversion of the Series A
and Series B preferred stock and 8,875,000 shares pursuant to various
compensation programs.

         The Company has authorized the issuance of 50 million shares of $.01
par value preferred stock. As of December 31, 1996 and 1995, the Company has
outstanding 2,488,560 and 3,449,999 shares of $3.75 Series A Cumulative
Convertible Preferred Stock (Series A preferred stock). The Series A preferred
stock has an annual dividend of $3.75 per share, a stated value of $50 per share
and a liquidation preference of $50 per share plus accrued and unpaid dividends.
It is convertible into common stock at a price of $9.06 per common share,
subject to adjustment in certain events. It is also redeemable, at the option of
the Company, at any time after February 16, 1996, at $52.625 per share and
thereafter at prices declining to $50 per share on or after February 16, 2003.

         In July 1996, the Company called for redemption of approximately $50
million of its Series A preferred stock. In September 1996, of the 950,000
preferred shares called, 441,887 shares were converted into 2,438,641 common
shares and 508,113 shares were redeemed at $52.625 per share plus accrued and
unpaid dividends at a cost of approximately $26.7 million. In October 1996, an
additional 11,439 shares were converted into 63,142 common shares. These
preferred stock conversions and redemptions led to a $1.2 million decrease in
preferred dividends in 1996.

         In December 1996, the Company called for redemption of approximately
$25 million of its Series A preferred stock. In January 1997, of the 475,000
preferred shares called, 471,730 shares were converted into 2,603,168 common
shares and 3,270 shares were redeemed at $52.625 per share plus accrued and
unpaid dividends at a cost of approximately $175,000.

         The Company also has outstanding 3,000,000 shares of $3.625 Series B
Cumulative Convertible Exchangeable Preferred Stock (Series B preferred stock).
The Series B preferred stock has an annual dividend of $3.625 per share, a
stated value of $50 per share and a liquidation preference of $50 per share plus
accrued and unpaid dividends. It is convertible into the Company's common stock
at a price of $9.80 per common share, subject to adjustment in certain events.
The Series B preferred stock is exchangeable, at the Company's option, at any
time after November 15, 1995, into 7.25% Convertible Subordinated Debentures due
November 15, 2018, at a rate of $50 of debentures for each share of Series B
preferred stock. It is also redeemable, at the option of the Company, at any
time after November 15, 1996, at $52.5375 per share and thereafter at prices
declining to $50 per share on or after November 15, 2003.


NOTE 14. COMMITMENTS AND CONTINGENCIES

         As of December 31, 1996, the Company has outstanding standby letters of
credit and surety bonds in the amount of $10.5 million in favor of local
municipalities or financial institutions to guarantee performance on real
property improvements or financial obligations.

         The Company, as a partner in certain joint ventures, has made certain
financing guarantees (Note 5).

         The Company is a party to a number of legal actions arising in the
ordinary course of business. While the Company cannot predict with certainty the
final outcome of these proceedings, considering the substantial legal defenses
available, management believes that none of these actions, when finally
resolved, will have a material adverse effect on the consolidated financial
position, results of operations or cash flows of the Company.


                                      F-19
<PAGE>

        Inherent in the operations of the real estate business is the
possibility that environmental liability may arise from the ownership, or
previous ownership, of real properties owned. The Company may be required in the
future to take action to correct or reduce the environmental effects of prior
disposal or release substances by third parties, the Company, or its corporate
predecessors. Future environmental costs are difficult to estimate because of
such factors as the unknown magnitude of possible contamination, the unknown
timing and extent of the corrective actions which may be required, the
determination of the Company's liability in proportion to that of responsible
parties, and the extent to which such costs are recoverable from insurance.

         At December 31, 1996, management estimates that future costs for
remediation of identified or suspected environmental contamination on operating
properties and properties previously sold approximate $13.6 million, and has
provided a reserve for that amount. It is anticipated that such costs will be
incurred over the next ten years with a substantial portion incurred over the
next five years. Management also estimates that similar costs relating to the
Company's properties to be developed or sold may range from $14 million to $40
million. These amounts will be capitalized as components of development costs
when incurred, which is anticipated to be over a period of twenty years, or will
be deferred and charged to cost of sales when the properties are sold. The
Company's estimates were developed based on extensive reviews which took place
over several years based upon then prevailing law and identified site
conditions. Because of the breadth of its portfolio, the Company is unable to
review extensively each property on a regular basis. Such estimates are not
precise and are always subject to the availability of further information about
the prevailing conditions at the site, the future requirements of regulatory
agencies and the availability of other parties to pay some or all of such costs.

         In April 1991, a lawsuit was brought against the Company alleging
breach of contract for a finder's fee in connection with an August 1990 sale of
land in Fremont, California. On November 1, 1993, the jury returned a verdict in
favor of the plaintiff and made an award of approximately $440,000 which,
together with pre-judgment interest, totaled approximately $600,000.
Additionally, the jury awarded approximately $7.7 million in punitive damages
for what it found was the Company's bad faith denial of an alleged contract.
While the Company was vigorously pursuing an appeal, it recognized an expense of
$8.3 million in the 1993 consolidated statement of operations. In December 1995,
the Company reached a settlement with the plaintiff and $7.5 million of the
expense was reversed in the 1995 consolidated statement of operations.


NOTE 15.  SUBSEQUENT EVENTS

         On February 5, 1997, the Company called for redemption of approximately
$90 million of its Series A preferred stock. On March 24, 1997, of the 1,720,000
preferred shares called, 1,715,837 shares were converted into 9,469,015 common
shares and the remaining shares were redeemed at $52.25 per share plus accrued
and unpaid dividends at a cost of approximately $220,000.

         On March 24, 1997, the Company called for redemption of the remaining
outstanding 250,000 shares, or approximately $13.0 million, of it Series A
preferred stock and 1,470,000 shares, or approximately $75 million, of its
Series B preferred stock. The redemption date on this call is May 1, 1997.

                                      F-20
<PAGE>

SUMMARIZED QUARTERLY RESULTS (UNAUDITED)

         The Company's earnings(loss) and cash flow are determined to a large
extent by property sales. Sales and net earnings have fluctuated significantly
from quarter to quarter, as evidenced by the following summary of unaudited
quarterly consolidated results of operations. Property sales fluctuate from
quarter to quarter, reflecting general market conditions and the Company's
intent to sell property when it can obtain attractive prices. Cost of sales may
also vary widely because it is determined by the Company's historical cost basis
in the underlying land.

<TABLE>
<CAPTION>
                                                            1996                                        1995
                                          -----------------------------------------   -----------------------------------------
                                           FIRST      SECOND     THIRD      FOURTH     FIRST      SECOND      THIRD     FOURTH
                                          --------   --------   --------   --------   --------   --------    --------  --------
                                                                  (In thousands, except per share data)
<S>                                       <C>        <C>        <C>        <C>        <C>        <C>         <C>       <C>
Income producing properties:
  Rental revenue........................  $ 28,034   $ 29,380   $ 28,606    $ 29,866   $ 25,408   $ 25,360   $ 26,139  $ 25,921

  Property operating costs..............    (8,987)    (9,928)    (9,953)    (10,540)    (6,458)    (7,810)    (7,478)   (8,904)

Development activities and fee services:
  Gain on development property sales....        --      6,569      2,746       6,308         --         --         --       953

Development and management fee
 income, net............................       403        410      1,182       1,437        407        576        589       352

Gain on non-strategic land and other
 asset sales............................     3,087      7,358      1,330      12,630      5,574      1,626      1,702    23,887

Interest expense........................   (10,939)   (10,841)   (10,536)    (10,205)    (6,453)    (6,687)    (6,413)   (6,204)

General and administrative expense......    (2,060)    (1,997)    (l,66l)     (2,301)    (3,869)    (2,570)    (2,783)   (1,702)

Depreciation and amortiztion............    (7,672)    (7,432)    (7,550)     (7,907)    (7,053)    (6,810)    (6,766)   (7,361)

Net earnings (loss).....................  $  1,714   $  8,817   $  2,752   $  12,118  $   5,358  $   3,143   $  2,756  $(44,259)
                                          ========   ========   ========   =========  =========  =========   ========  ========
Net earnings (1oss) per common share....  $  (0.06)  $   0.04   $  (0.05)  $    0.09  $   (0.01) $   (0.04)  $  (0.04) $  (0.69)
                                          ========   ========   ========   =========  =========  =========   ========  ========

</TABLE>

                                      F-21
<PAGE>

                     REPORT OF INDEPENDENT ACCOUNTANTS ON
                         FINANCIAL STATEMENT SCHEDULES

The Board of Directors
and Stockholders of Catellus
Development Corporation

         Our audits of the consolidated financial statements referred to in our
report dated February 12, 1997, appearing on page F-2 of this Form 10-K of
Catellus Development Corporation, also included an audit of the Financial
Statement Schedules listed in Item 14(a)(2) of this Form 10-K. In our opinion,
these Financial Statement Schedules present fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements.

Price Waterhouse LLP
San Francisco, California
February 12, 1997

                                      S-1
<PAGE>

                       CATELLUS DEVELOPMENT CORPORATION

               SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                      THREE YEARS ENDED DECEMBER 31, 1996
                                (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                  ADDITIONS
                                                         ------------------------
                                           BALANCE AT    CHARGED TO    CHARGED TO    DEDUCTIONS       BALANCE AT
                                           BEGINNING     COSTS AND       OTHER                        END OF YEAR
                                            OF YEAR       EXPENSES      ACCOUNTS
                                          -----------   -----------   -----------    ----------       -----------
<S>                                       <C>           <C>           <C>            <C>              <C>
Year ended December 31, 1994
  Allowance for doubtful receivables..... $    1,888    $    1,001    $       --     $    1,026 (1)   $    1,863
  Reserve for abandoned projects.........        284           732            --             39 (2)          977
  Reserve for environmental costs........      5,619           890         1,886             --            8,395
Year ended December 31, 1995
  Allowance for doubtful receivables.....      1,863           504            --            616 (1)        1,751
  Reserve for abandoned projects.........        977           407            --             38 (2)        1,346
  Reserve for environmental costs........      8,395         5,389            --              5 (3)       13,779
Year ended December 31, 1996
  Allowance for doubtful receivables.....      1,751         1,053            81            533 (1)        2,352
  Reserve for abandoned projects.........      1,346            --            --             30 (2)        1,316
  Reserve for environmental costs........     13,779            --           200            386 (3)       13,593

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

Notes:
(1)  Balances written off as uncollectible.
(2)  Costs of unsuccessful projects written off.
(3)  Environmental costs incurred.

                                      S-2
<PAGE>

                       CATELLUS DEVELOPMENT CORPORATION

            SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                               December 31, 1996
                            (Dollars in thousands)


<TABLE>
<CAPTION>

                                                            Cost Capitalized         Gross Amount at Which Carried
                                       Initial Cost to        Subsequent                  at Close of Period
                                          Catellus           to Acquisition                  (1)(2)(3)(4)
                                      -------------------  ----------------------    ---------------------------------
                                                  Build-                                        Build-
                                                  ings &                  Car-                  ings &
                          Encumb-                Improve-   Improve-     rying                  Improve-
Description               rances        Land      ments      ments       Costs        Land      ments          Total
-----------               --------    --------    -------    -------     --------    --------   --------    ----------
<S>                       <C>         <C>         <C>        <C>         <C>         <C>        <C>         <C>
Income producing
   properties:
  Mission Bay,
    San Francisco, CA...  $     --    $ 80,587    $ 3,952    $ (2,050)(6)$ 59,764    $ 80,587   $ 61,666    $  142,253
  Other properties
  less than 5% of total.   453,940     160,137     35,492     544,723     131,225     160,137    711,440       871,577
                          --------    --------    -------    --------    --------    --------   --------    ----------
                           453,940     240,724     39,444     542,673     190,989     240,724    773,106     1,013,830
                          --------    --------    -------    --------    --------    --------   --------    ----------
Land holdings...........    42,277     113,396     11,697      88,893      30,305     113,396    130,895       244,291
                          --------    --------    -------    --------    --------    --------   --------    ----------
Total...................  $496,217    $354,120    $51,141    $631,566    $221,294    $354,120   $904,001    $1,258,121
                          ========    ========    =======    ========    ========    ========   ========    ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                          Life on Which
                                                                          Depreciation
                                                                           in Latest
                                              Date of                       Income
                            Accumulated      Completion of       Date      Statement is
Depreciation                Depreciation    Construction      Acquired     Computed
-----------                 ------------    -------------     --------    -------------
<S>                         <C>             <C>               <C>         <C>
Income producing
   properties:
  Mission Bay,
    San Francisco, CA...    $  2,916             N/A            various          (5)
  Other properties
  less than 5% of total.     195,291             N/A            various          (5)
                            --------
                             198,207
                            --------
Land holdings...........       4,145             N/A            various          (5)
                            --------
Total...................    $202,352
                            ========
</TABLE>

--------------------------
Notes:

(1) A reserve of $1,316,000 against predevelopment costs has been established
    for projects to be abandoned.

(2) The aggregate cost for Federal income tax purpose is approximately
    $957,000,000.

(3) See Attachment A to Schedule III for reconciliation of beginning of period
    total to total at close of period.

(4) Excludes investments in joint ventures and furniture and equipment.

(5) Reference is made to Note 2 to the Consolidated Financial Statements for
    information related to depreciation.

(6) Net incremental revenue.



                                      S-3
<PAGE>

                         CATELLUS DEVELOPMENT CORPORATION

                            ATTACHMENT A TO SCHEDULE III
           RECONCILIATION OF COST OF REAL ESTATE AT BEGINNING OF PERIOD
                           WITH TOTAL AT END OF PERIOD
                                  (In thousands)
<TABLE>
<CAPTION>
                                                                       1996         1995          1994
                                                                    ----------   ----------   ----------
<S>                                                                 <C>          <C>          <C>
Balance at January 1............................................... $1,218,995   $1,276,955   $1,259,803
                                                                    ----------   ----------   ----------
  Additions during period:
     Acquisitions..................................................     10,987        9,326           --
     Improvements..................................................    104,646       58,967       71,096
     Reclassification from other accounts..........................         30          270          591
                                                                    ----------   ----------   ----------
          Total additions..........................................    115,663       68,563       71,687
                                                                    ----------   ----------   ----------
   Deductions during period:
     Cost of real estate sold......................................     75,364       23,716       39,883
     Other
       Write-down of properties to estimated net realizable value..         --      102,400       11,800
       Contribution to joint venture...............................         --           --        2,120
       Reclassification to personal property
            and other accounts.....................................      1,173           --           --
       Increase reserve for abandoned projects.....................         --          407          732
                                                                    ----------   ----------   ----------
          Total deductions.........................................     76,537      126,523       54,535
                                                                    ----------   ----------   ----------
Balance at December 31............................................. $1,258,121   $1,218,995   $1,276,955
                                                                    ==========   ==========   ==========
</TABLE>

            RECONCILIATION OF REAL ESTATE ACCUMULATED DEPRECIATION
              AT BEGINNING OF PERIOD WITH TOTAL AT END OF PERIOD
                                (In thousands)

<TABLE>
<CAPTION>
                                                                       1996         1995          1994
                                                                    ----------   ----------   ----------
<S>                                                                 <C>          <C>          <C>
Balance at January 1............................................... $  177,312   $  154,002   $  133,923
                                                                    ----------   ----------   ----------
   Additions during period:
     Charged to expense............................................     25,994       24,342       24,706
                                                                    ----------   ----------   ----------
   Deductions during period:
     Cost of real estate sold......................................      1,190          795        4,549
     Other.........................................................       (236)         237           78
                                                                    ----------   ----------   ----------
           Total deductions........................................        954        1,032        4,627
                                                                    ----------   ----------   ----------
Balance at December 31............................................. $  202,352   $  177,312   $  154,002
                                                                    ==========   ==========   ==========
</TABLE>

                                      S-4