DIVERSIFIED REALTY, INC.


                               	ANNUAL REPORT


                                     1998

<PAGE>

                           	DIVERSIFIED REALTY, INC.

                                 ANNUAL REPORT





DESCRIPTION AND LINES OF BUSINESS


Diversified Realty, Inc. (herein referred to as "DRI" or the "Company") is a 
majority-owned subsidiary of M Corp, a financial holding company.  As of 
December 31, 1998, M Corp owned approximately ninety-four percent of the 
outstanding common stock of the Company.

The Company is primarily engaged in the ownership and rental of real 
property. 

Information as of December 31, 1998, concerning the gross carrying amount of 
real property, accumulated depreciation and encumbrances on a property by 
property basis is presented in Note 6, Investments in Real Estate, of the 
Notes to Financial Statements.



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS

Net Income increased $28,460, 102.8%, in 1998 as compared with 1997. The 
increase in net income in 1998 as compared with 1997 was due primarily to 
an increase in gross income.

Rent income increased $2,155, 3.0%, in 1998 as compared with 1997 primarily 
because of a decrease in vacancies. Interest income increased $41,698, 
83.5%, in 1998 as compared with 1997. The increase in interest in 1998 as 
compared with 1997 was primarily due to an increase in interest-bearing 
deposits.




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                        	DIVERSIFIED REALTY, INC.

                            	ANNUAL REPORT




MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS - CONTINUED

Total operating expenses decreased $5,558, 7.1%, in 1998 as compared with 
1997. Property taxes and licenses increased $1,263, 8.6%, in 1998 as 
compared with 1997 due to an increase in the rates of such taxes. The 
provision for depreciation decreased $45 in 1998 as compared with 
1997 due to a decrease in depreciation rates. Other expenses decreased 
$6,652, 13.4%, in 1998 as compared with 1997 primarily due to a decrease 
in maintenance expenses.

Income tax expense increased $16,000, 78.0%, in 1998 as compared with 1997 
due to the increase in pre-tax income. The Company files a consolidated 
federal income tax return with the Company's parent company and other 
affiliates.

Transactions with the Company's parent company and its affiliates during 1998
and 1997 are disclosed in Note 5, Related Party Transactions, of the Notes to
Financial Statements.

The Company is considering acquisitions which would deplete the Company's
available cash and thus affect the liquidity of the Company. 

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                         	DIVERSIFIED REALTY, INC.

                            	FINANCIAL REPORT

                            	DECEMBER 31, 1998





                                	CONTENTS




                                                               	PAGE

AUDITOR'S REPORT                                                 	4


FINANCIAL STATEMENTS

Balance Sheets as of December 31, 1998 and 1997                   5

Statements of Income and Accumulated Deficit for
 the Years Ended December 31, 1998 and 1997                       6

Statements of Cash Flows for the Years
 Ended December 31, 1998 and 1997                                 7

Notes to Financial Statements	                                  8-11


OTHER INFORMATION	                                                12



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                  	Report of Independent Auditors



To The Board of Directors
Diversified Realty, Inc.
Great Falls, MT  59405


We have audited the accompanying balance sheets of Diversified Realty, Inc., 
as of December 31, 1998 and 1997 and the related statements of income and 
accumulated deficit and cash flows for the years then ended. These financial 
statements are the responsibility of the Company's management. Our 
responsiblity is to express an opinion on these financial statements based on 
our audit.

We conducted our audit in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the 
overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, 
in all material respects, the financial position of Diversified Realty, Inc.,
as of December 31, 1998 and 1997 and the results of its operations and its 
cash flows for the years then ended, in conformity with generally accepted 
accounting principles.




DWYER & KEITH, CPA's, P.C.


March 19, 1999
Great Falls, Montana

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                         DIVERSIFIED REALTY, INC.

                            	BALANCE SHEETS
 
                        DECEMBER 31, 1998 and 1997



                                                     1998            1997   

ASSETS
Current Assets
  Cash (Note 2)                                  $ 2,132,849     $ 2,065,193
  Income Tax Prepayments                                  82             182
  Due From Parent Company                              3,000            -
  Current Portion of Contract Receivable (Note 3)      -               2,026 

          Total Current Assets                     2,135,931       2,067,401

Long-Term Contract Receivable, Less Current
  Portion Included Above (Note 3)                      -               9,440

Investments in Property and Property, Plant
  and Equipment (Notes 1 and 6)
  Land                                                14,261          14,261 
  Buildings                                          387,765         392,975 
  Furniture, Fixtures and Equipment                   71,124          71,124 
                                                     473,150         478,360 
     Less Accumulated Depreciation                  (230,458)       (216,499)
                                                     242,692         261,861 

          Total Assets                           $ 2,378,623     $ 2,338,702


LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities-
  Accrued Expenses                               $    29,247     $    29,268   
  Due To Parent Company                                  -            16,200

           Total Current Liabilities                  29,247          45,468


Stockholders' Equity
  Common Stock - $.10 Par Value,
    11,000,000 shares authorized,
    5,375,000 shares issued                          537,500         537,500

  Additional Paid-In-Capital                       1,929,408       1,929,408

  Accumulated Deficit                               (116,901)       (173,043)
  
  Cost of Common Stock in Treasury 
  (2,105 shares in 1998 and 1997)                       (631)           (661)

    Total Stockholder's Equity                     2,349,376       2,293,234 

Total Liabilities and                    
  Stockholders' Equity                           $ 2,378,623     $ 2,338,702
                                                   
                     	See Notes to Financial Statements.

                                   5
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                          DIVERSIFIED REALTY, INC.

               	STATEMENTS OF INCOME AND ACCUMULATED DEFICIT

               	FOR THE YEARS ENDED DECEMBER 31, 1998 and 1997



                                                      1998            1997 
Income
  Rent                                           $    73,951     $    71,796 
  Interest                                            91,634          49,936 
  Other                                                  155           5,106

                                                     165,740         126,838

Expenses
  Salaries and Payroll Costs                             197             321
  Property Taxes and Licenses                         15,888          14,625
  Depreciation                                        13,959          14,004 
  Other Expenses                                      43,054          49,736

                                                      73,098          78,686

Income Before Income Taxes                            92,642          48,182

Income Taxes (Notes 1 and 4)                         (36,500)        (20,500)

     NET INCOME                                       56,142          27,682

Accumulated Deficit, Beginning of Year              (173,043)       (200,725)

Accumulated Deficit, End of Year                 $  (116,901)    $  (173,043)



                     	See Notes to Financial Statements.

                                  6
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                        	DIVERSIFIED REALTY, INC.

                        	STATEMENTS OF CASH FLOWS

             	FOR THE YEARS ENDED DECEMBER 31, 1998 and 1997


                      	INCREASE (DECREASE) IN CASH



                                                      1998           1997   

CASH FLOWS FROM OPERATING ACTIVITIES:
 Cash Received From Customers                     $   73,806     $   78,622
 Cash Paid to Suppliers and Employees                (58,860)       (64,423)
 Interest Received in Cash                            91,634         49,936
 Income Taxes Paid in Cash                           (36,400)       (18,100)

Net Cash Provided By
 Operating Activities                                 70,180         46,035 

CASH FLOWS FROM INVESTING ACTIVITIES:
 Cash Proceeds From Redemptions
   of Property and Equipment                           5,210           -   
 Cash Received on Principal of
  Notes Receivable                                    11,466          1,851 

Net Cash Provided By
 Investing Activities                                 16,676          1,851

CASH FLOWS FROM FINANCING ACTIVITIES:
 Cash Purchases of Treasury Stock                       -                (6)
 Issuance of Common Stock For Cash                      -         1,050,000 
 Net Cash Advances From (To) Parent Company          (19,200)        19,400

Net Cash Provided (Used) By
  Financing Activities                               (19,200)     1,069,394

     NET INCREASE IN CASH                             67,656      1,117,280

     CASH - BEGINNING OF YEAR                      2,065,193        947,913

     CASH - END OF YEAR                           $2,132,849     $2,065,193

	

                 	RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
	                            BY OPERATING ACTIVITIES



Net Income (Loss)                                 $   56,142     $   27,682 

Adjustments to Reconcile Net Income to Net
 Cash Provided By Operating Activities

    Depreciation                                      13,959         14,004 

    Changes in Operating Assets and Liabilities

    Decrease in Income Tax Prepayments                   100          2,400 
    Increase (Decrease) in Accrued Expenses              (21)         1,949

NET CASH PROVIDED BY OPERATING
 ACTIVITIES                                       $   70,180     $   46,035


                	    See Notes to Financial Statements.

                                 7

<PAGE>

                        	DIVERSIFIED REALTY, INC.

                     	NOTES TO FINANCIAL STATEMENTS


1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Nature of Operations, Risks and Uncertainties

The Company is engaged in the ownership and rental of properties located
almost exclusively within Yellowstone County, Montana.The Company's rental 
operations are dependent in large part upon the economy and rental conditions
within Yellowstone County, Montana. The Company leases its properties to 
lessees under non-cancelable operating leases with terms of less than one 
year. 

The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the reported amounts of certain types of assets, liabilities,
revenues and expenses. Such estimates primarily relate to unsettled 
transactions and events as of the date of the financial statements. Actual
results could differ from those estimates.

(b)	Depreciation

Depreciation for the various classifications of rental property, plant and 
equipment is computed using the straight-line and accelerated methods over the
estimated useful lives of the assets as follows:

Buildings						                           15 - 27 Years
Furniture, Fixtures and Equipment	         3 - 10 Years

(c)	Income Taxes

The Company files a consolidated income tax return with its parent company.  
Income taxes are allocated to the Company based upon the ratio of the 
Company's pre-tax income to total consolidated pre-tax income.

(d)	Policy of Cash Equivalents

For the purposes of the statement of cash flows, cash equivalents include time
deposits, certificates of deposit and money market accounts, all with original
maturities of three months or less.

(e) Comprehensive Income

There were no items of other comprehensive income in 1998 or 1997, and net 
income is therefore equal to comprehensive income for each of those years.

f) Retirement Plans

The Company adopted an employees' savings plan under Section 401(k) of the 
Internal Revenue Code (the "Code") during 1998. The Company allows eligible 
employees to contribute the maximum percentage of their 


                                       8
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                           DIVERSIFIED REALTY, INC.

                  NOTES TO FINANCIAL STATEMENTS - (Continued)

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -(continued)

(f) Retirement Plans - Continued

compensation allowed by the Code. The Company matches employee contributions 
in an amount equal to fifty percent of the first six percent of the 
employee's compensation up to a maximum of $1,080. Participants are at all 
times fully vested in their contributions and are gradually vested in the 
Company's contributions. The Company's 401(k) contributions and 
administrative costs were $0 for 1998.

(g) Reclassifications

Certain reclassifications have been made to the prior year amounts to make 
them comparable to the 1997 presentation. These changes had no	impact on 
previously reported results of operations or shareholders'	equity.

2.CASH BALANCES

The Company maintains cash accounts with various financial institutions 
and stock brokerage firms. Cash balances are insured up to $100,000 by 
either the Securities Investor Protection Corporation ("SIPC") or the 
Federal Deposit Insurance Corporation ("FDIC"). At December 31, 1998, cash 
balances totaling $1,832,749 were uninsured by either the SIPC or the FDIC.

3.  CONTRACT RECEIVABLE

The contract receivable at December 31, 1997 consisted of the following:

9% Contract For Deed, due in monthly
 installments of $248 including interest to
 September, 2002                               $  11,466         
 

Less Current Portion                               2,026           

Long-Term Contract Receivable                  $   9,440       
                                                  
4.	INCOME TAXES

Income tax expense consists of the following, all currently payable:

                                                     1998           1997   

U.S. Income Taxes                                $  29,700      $  17,000  

State Income Taxes                                   6,800          3,500  

                                                 $  36,500      $  20,500  


                                    9
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                          DIVERSIFIED REALTY, INC.

                 NOTES TO FINANCIAL STATEMENTS - Continued


4.INCOME TAXES - (continued)

The income tax expense reflected in the financial statements differs from 
the amounts that would normally be expected by applying the U.S. Federal 
income tax rates to income before income taxes. The reasons for these 
differences are as follows:

 						                                              1998           1997     

Computed "Expected" Tax Expense                  $  31,500      $  16,400
State Income Taxes                                   4,500          3,500
Other                                                  500            600
                                                 $  36,500      $  20,500

5.	RELATED PARTY TRANSACTIONS

During 1998 and 1997 the Company received managerial assistance from M Corp, 
its parent company, at no cost to the Company. The Company owns ten of the 
thirty-four developed condominium units of the Cedar Grove Condominiums 
located in Billings, Montana. The Company paid assessments to the Cedar 
Grove Condominium Association, Inc. during 1998 and 1997 in the amounts of 
$12,540 and $12,540, respectively. The Company has accrued a payable to the 
Cedar Grove Condominium Association, Inc. at December 31, 1998 in the amount 
of $20,100. In addition to the foregoing, the Company had transactions with 
its parent company or subsidiaries of its parent company, as follows:

                                                         1998       1997
Net Cash Transfers To (From) Parent                $    51,300   $    - 
Income Tax Allocation                                  (29,700)    (17,000)
3,500,000 Shares Common Stock Issued to
   Parent for Cash                                        -      1,050,000
Was Charged For Insurance                               (2,400)     (2,400)


                                  10
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                       DIVERSIFIED REALTY, INC.

                NOTES TO FINANCIAL STATEMENTS - Continued
<TABLE>
<CAPTION>

6. INVESTMENTS IN REAL ESTATE

                               GROSS AMOUNT CARRIED
                                 ON BALANCE SHEET
                 DATE          AT DECEMBER 31, 1998     ACCUMULATED     AMOUNT OF
DESCRIPTION  CONSTRUCTED    LAND   BUILDINGS   TOTAL    DEPRECIATION   ENCUMBRANCE
<S>                       <C>      <C>        <C>          <C>             <C>
Investment
 Property
 Florida         1988     $   -    $122,000   $122,000     $35,904         $  -

Rental Unit
 Florida         1975      1,500     46,950     48,450      46,950            -

Rental Units
  Montana        Var.         -     218,815    218,815      76,635            -

Miscellaneous 
  Properties              12,761       -        12,761        -               -


Totals                   $14,261   $387,765   $402,026   $ 159,489         $  -
</TABLE>

       
Reconciliations Of Total Real Estate Carrying Value For The Two Years Ended 
December 31, 1998 are as follows:

                                               1998              1997      
Balance, Beginning of Year                  $407,236           $407,236
  Less Retirements                            (5,210)              --
Balance, End of Year                        $402,026           $407,236

Reconciliations Of Accumulated Depreciation For The Two Years Ended 
December 31, 1998 are as follows:

                                               1998              1997   
Balance, Beginning of Year                  $145,709           $131,929 
  Add Provision for Depreciation              13,780             13,780
Balance, End of Year                        $159,489           $145,709


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                          DIVERSIFIED REALTY, INC.


                          DIRECTORS AND OFFICERS





NAME					                           OCCUPATION

R. Bruce Robson                  Data Processing Manager
President                        Sletten Construction Co.
                                 Great Falls, Montana

M. A. Arneson                    Investor,
Director                         Billings, Montana

S. M. McCann			                  Attorney at Law, Investor,
Director				                     San Luis Obispo, California

Charles E. Reed		                Real Estate Broker,
Vice President		                 Butte, Montana
and Director





                           MARKET INFORMATION


The common stock of Diversified Realty, Inc. is not traded on any securities 
exchange, nor are records kept of any quotations by securities dealers or the
National Quotation Bureau, Inc.  To the best knowledge of the Company, bid and
asked quotations for Diversified Realty, Inc., common stock are not reported
in any newspapers.


No dividends were paid in 1998 or 1997.


There are approximately 2,235 holders of record of the Company's common stock.


A copy of the Form 10-KSB Annual Report may be obtained upon written request 
to the Company.



                          DIVERSIFIED REALTY, INC.
                              P.O. Box 2249
                          110 Second Street South
                        Great Falls, MT  59403-2249

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