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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                               -------------------

                                  FORM 10-K/A
                                (Amendment No. 1)

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

 (Mark one)

   X      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
          SECURITIES EXCHANGE ACT OF 1934
          For the fiscal year ended December 31, 1998

                                       OR

          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
          SECURITIES EXCHANGE ACT OF 1934
          For the transition period from _____________ to _____________

                          Commission file number 1-2262

                             COMMERCIAL ASSETS, INC.

             (Exact Name of Registrant as Specified in Its Charter)

                Maryland                                          84-1240911

    (State or Other Jurisdiction of                            (I.R.S. Employer
     Incorporation or Organization)                          Identification No.)

     3410 Galena Street, Suite 210                                  80231
            Denver, Colorado                                      (Zip Code)

(Address of Principal Executive Offices)

       Registrant's telephone number, including area code: (303) 614-9410

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

   Title of Each Class               Name of Each Exchange on Which Registered
      Common Stock,                        American Stock Exchange, Inc.

 par value $.01 per share

        Securities registered pursuant to section 12(g) of the Act: None

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

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

As of March 5, 1999, 10,364,029 shares of common stock were outstanding, and the
aggregate market value of the shares (based upon the closing price of the Common
Stock on that date as reported on the  American  Stock  Exchange,  Inc.) held by
non-affiliates was approximately $43,070,000.

                       Documents Incorporated by Reference

Portions of the proxy  statement  for the  Registrant's  1999 Annual  Meeting of
Stockholders are incorporated by reference into Part III of this Annual Report.

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                             COMMERCIAL ASSETS, INC.

                                Table of Contents

                           Annual Report on Form 10-K

                   For the Fiscal Year Ended December 31, 1998

Item                                                                        Page

                                     PART I

1.    Business...............................................................  1
           Company Background................................................  1
           Industry Background...............................................  2
           Financial Information about Industry Segments.....................  2
           Growth and Operating Strategies...................................  3
           Manager...........................................................  5
           Competition.......................................................  6
           Taxation of the Company...........................................  6
           Regulations.......................................................  7
           Insurance.........................................................  7
           Capital Resources.................................................  8
           Dividend Reinvestment Plan........................................  8
           Restrictions on and Redemptions of Common Stock...................  8
           Employees.........................................................  9

2.    Properties.............................................................  9

3.    Legal Proceedings...................................................... 11

4.    Submission of Matters to a Vote of Security Holders.................... 11

                                     PART II

5.    Market for Registrant's Common Equity and Related Stockholder Matters.. 11

6.    Selected Financial Data................................................ 12

7.    Management's Discussion and Analysis of Financial Condition and
        Results of Operations................................................ 12
           Results of Operations............................................. 12
           Liquidity and Capital Resources................................... 15
           Funds From Operations............................................. 15
           Year 2000 Compliance.............................................. 16

7a.   Quantitative and Qualitative Disclosures About Market Risk............. 17

8.    Financial Statements and Supplementary Data............................ 18

9.    Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure................................................. 18

                                 PART III

10.   Directors and Executive Officers of the Registrant..................... 18

11.   Executive Compensation................................................. 19

12.   Security Ownership of Certain Beneficial Owners and Management......... 19

13.   Certain Relationships and Related Transactions......................... 19

                                  PART IV

14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K....... 20


                                      (i)
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                                     PART I

Introduction

The Private  Securities  Litigation  Reform Act of 1995 provides a "safe harbor"
for  forward-looking  statements in certain  circumstances.  Certain information
included in this report,  our Annual Report to Stockholders and our filings with
the Securities Exchange Commission under the Securities Act of 1933, as amended,
and the  Securities  Exchange Act of 1934,  as amended,  as well as  information
communicated  orally  or in  writing  between  the  dates of such  SEC  filings,
constitute  "forward-looking  statements"  within  the  meaning  of the  Private
Securities   Litigation   Reform  Act  of  1995.  Such  statements  may  include
projections of our cash flow,  dividends and anticipated  returns on real estate
investments.  Such  forward-looking  statements involve known and unknown risks,
uncertainties  and other factors that may cause our actual results,  performance
or achievements to be materially different from any future results,  performance
or achievements  expressed or implied by the  forward-looking  statements.  Such
factors  include:  general  economic  and  business  conditions;  interest  rate
changes;  financing and refinancing  risks; risks inherent in owning real estate
or  debt  secured  by  real  estate;   future  development  rate  of  homesites;
competition;  the  availability  of real estate  assets at prices which meet our
investment  criteria;  our  ability to reduce  expense  levels,  implement  rent
increases, use leverage and other risks set forth in our SEC filings.

In this  report,  the  words  "the  Company,"  "we,"  "our"  and  "us"  refer to
Commercial  Assets,  Inc., a Maryland  corporation and, where  appropriate,  our
subsidiaries.

Item 1.  Business.

Company Background

We are a Maryland  corporation  formed in August 1993, and we have elected to be
treated  for  United  States  federal  income  tax  purposes  as a  real  estate
investment  trust or  "REIT".  We are  engaged  in the  ownership,  acquisition,
development and expansion of manufactured home communities. Initially, we were a
wholly-owned   subsidiary  of  Asset  Investors  Corporation.   Asset  Investors
contributed  $75  million to our  initial  capital  and in October  1993,  Asset
Investors distributed 70% of our common stock to Asset Investors'  stockholders.
Asset Investors  currently owns 27% of our outstanding common stock and provides
management services to us. Our shares of common stock are listed on the American
Stock Exchange, Inc. ("AMEX") under the symbol "CAX."

Prior to 1998,  we owned  subordinate  classes  of  Commercial  Mortgage  Backed
Securities  ("CMBS bonds").  CMBS bonds generally are debt  instruments that are
backed by mortgage loans on commercial  real estate.  The principal and interest
payments  on the  underlying  mortgage  assets are  allocated  among the several
classes or "tranches"  of a series of CMBS bonds.  Our  subordinate  tranches of
CMBS bonds included "first-loss" tranches, which bore the most risk in the event
of a default on the  underlying  mortgages and provided  credit  support for the
more senior  tranches.  In 1997,  we decided to  redeploy  our assets into other
types of real estate  investments  in order to reduce the risk of our portfolio.
We  restructured  our CMBS bonds in  November  1997 by  selling,  redeeming  and
resecuritizing  our various CMBS bonds from which we received  $77.7  million in
cash and a small  residual  interest in two CMBS bonds.  During most of 1998, we
invested our funds in  short-term  government  securities  and other  short-term
investments  pending our decision as to the type of real estate  assets in which
we would invest.

In the third  quarter of 1998, we decided to acquire  interests in  manufactured
housing communities. As of December 31, 1998, we held interests as owner, ground


                                     - 1 -
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lessor  or  mortgage   lender   (including   participating   mortgages)  in  six
manufactured  home  communities  with a total of 640 developed  homesites (sites
with homes in place),  50 sites  ready for homes and 1,180 sites  available  for
future  development.  We expect to continue acquiring  interests in manufactured
home communities during 1999.

Our principal executive offices are located at 3410 S. Galena Street, Suite 210,
Denver, Colorado 80231 and our telephone number is (303) 614-9410.

Industry Background

A manufactured home community is a residential subdivision designed and improved
with sites for the placement of manufactured homes and related  improvements and
amenities.  Manufactured  homes  are  detached,  single-family  homes  which are
produced  off-site by manufacturers and installed on sites within the community.
Manufactured  homes are  available  in a variety  of  designs  and floor  plans,
offering many amenities and custom options.

Modern   manufactured  home  communities  are  similar  to  typical  residential
subdivisions containing centralized entrances,  paved streets, curbs and gutters
and  parkways.  The  communities  frequently  provide  a  clubhouse  for  social
activities and recreation and other  amenities,  which may include golf courses,
swimming  pools,  shuffleboard  courts and  laundry  facilities.  Utilities  are
provided by or arranged for by the owner of the community. Community lifestyles,
primarily  promoted  by  resident  managers,  include a wide  variety  of social
activities  that promote a sense of  neighborhood.  The  communities  provide an
attractive and affordable  housing  alternative for retirees,  empty nesters and
start-up or single-parent families.  Manufactured home communities are primarily
characterized  as "all  age"  communities  and  "adult"  communities.  In  adult
communities,  as least 80% of the tenants  must be at least 55 years old, and in
all age communities there is no age restriction on tenants.

The owner of a home in our communities leases from us the site on which the home
is located. Typically, the leases are on a month-to-month or year-to-year basis,
renewable upon the consent of both parties or, in some instances, as provided by
statute. In some circumstances,  we offer a 99-year lease to tenants in order to
enable the tenant to have some of the benefits an owner of real property enjoys,
including  creditor  protection  laws  in  some  states.  These  leases  can  be
cancelled,  depending  on state  law,  for  non-payment  of rent,  violation  of
community rules and regulations or other specified defaults.  Generally,  rental
rate  increases  are made on an  annual  basis.  The size of these  rental  rate
increases depends upon the policies that are in place at each community.  Rental
increases may be based on fixed dollar amounts,  percentage  amounts,  inflation
indexes,  or they  may  depend  entirely  on  local  market  conditions.  We own
interests  in the  underlying  land,  utility  connections,  streets,  lighting,
driveways,  common  area  amenities  and  other  capital  improvements  and  are
responsible  for  enforcement  of community  guidelines  and  maintenance.  Each
homeowner  within the  manufactured  home  communities  is  responsible  for the
maintenance  of his or her home and  leased  site,  including  lawn care in some
communities.

The ownership of manufactured home communities, once fully occupied, tends to be
a stable,  predictable asset class. The cost and effort involved in relocating a
home to another  manufactured home community  generally  encourages the owner of
the home to resell it within the community.

Financial Information about Industry Segments

We operate in one industry segment, the ownership and management of real estate.
See the  consolidated  financial  statements  including their notes in Item 8 of
this Report on Form 10-K.

                                     - 2 -
<PAGE>

Growth and Operating Strategies

We measure our economic  profitability  based on Funds From Operations  ("FFO"),
less an  annual  capital  replacement  reserve  of at  least  $50 per  developed
homesite.  This reserve is  management's  estimate  based on its  experience  in
owning,  operating and managing  manufactured home communities.  We believe that
the  presentation  of FFO when  considered with the financial data determined in
accordance  with generally  accepted  accounting  principles,  provides a useful
measure of our performance. However, FFO does not represent cash flow and is not
necessarily  indicative of cash flow or liquidity available to us, nor should it
be  considered  as an  alternative  to net income as an  indicator  of operating
performance.  The Board of Governors of the National  Association of Real Estate
Investment  Trusts  (also  known as NAREIT)  defines  FFO as net income  (loss),
computed in accordance with generally accepted accounting principles,  excluding
gains and losses from debt restructuring and sales of property, plus real estate
related  depreciation  and  amortization  (excluding  amortization  of financing
costs),  and  after  adjustments  for  unconsolidated   partnerships  and  joint
ventures.  We calculate FFO  beginning  with the NAREIT  definition  and include
adjustments for:

   o   fees incurred in connection with property acquisitions; and
   o   nonrecurring costs related to discontinued classes of investments.

We believe that the  presentation  of FFO provides  investors with  measurements
which help facilitate an understanding of our ability to make required  dividend
payments,  capital  expenditures  and principal  payments on our debt. Since FFO
excludes  unusual and  nonrecurring  expenses as well as depreciation  and other
real estate related expenses,  FFO may be materially  different from net income.
Therefore,  FFO should not be considered as an  alternative to net income or net
cash flows from operating activities, as calculated in accordance with generally
accepted accounting principles, as an indication of our operating performance or
liquidity.

FFO is not  necessarily  indicative  of cash  available  to fund our cash needs,
including  our  ability  to  make  distributions.  We use FFO in  measuring  our
operating  performance  because  we  believe  that the  items  that  result in a
difference  between  FFO and net  income do not  impact  the  ongoing  operating
performance  of a real estate  company.  Also, we believe that other real estate
companies,  analysts and investors  utilize FFO in analyzing the results of real
estate companies.  Our basis of computing FFO is not necessarily comparable with
that of other REITs.

Our primary objective is to maximize  stockholder value by increasing the amount
and  predictability  of our FFO on a per share basis, less a reserve for capital
replacements. We seek to achieve this objective primarily by:

   o   improving   net   operating   income  from  our  existing   portfolio  of
       manufactured home communities; and
   o   acquiring  additional  communities  at values that are accretive on a per
       share basis.

Management  has  adopted  specific  policies  to  accomplish  our  objective  of
increasing the amount and predictability of our FFO on a per share basis, less a
reserve for capital replacements. These policies include:

   o   selectively  acquiring  manufactured home communities that have potential
       long-term  appreciation  of  value  through,  among  other  things,  rent
       increases, expense efficiencies and in-park homesite development;


                                     - 3 -
<PAGE>

   o   developing and  maintaining  resident  satisfaction  and a reputation for
       quality  communities through maintenance of the physical condition of our
       communities   and  providing   activities   that  improve  the  community
       lifestyle;
   o   improving  the  profitability  of  our  communities   through  aggressive
       management  of  occupancy,  community  development  and  maintenance  and
       expense controls;
   o   using debt leverage to increase our financial returns;
   o   reducing  our  exposure  to  interest  rate   fluctuations  by  utilizing
       long-term,  fixed-rate,  fully-amortized  debt  instead  of higher  cost,
       short-term debt;
   o   ensuring the  continued  maintenance  of our  communities  by providing a
       minimum $50 per developed homesite per year for capital replacements;
   o   seeking to reduce our  exposure  to  downturns  in  regional  real estate
       markets by diversifying our portfolio of communities since  substantially
       all of our properties are in Florida and Arizona; and
   o   recruiting and retaining capable community management personnel.

Future Acquisitions

In 1998, when we decided to enter the manufactured home community  business,  we
began to  implement  a business  plan which  called  for the  investment  of our
capital in the acquisition of manufactured home communities.  We have focused on
identifying  acquisition  opportunities that we believe provide returns that are
accretive to our  stockholders.  We plan on continuing this business plan during
1999,  and hope to have  largely  invested  our  capital  in  manufactured  home
communities during this year.

Our acquisition of interests in manufactured  home communities takes many forms.
In many cases we acquire  fee title to the  community.  When a  community  has a
significant  number of  unleased  homesites,  we seek a stable  return  from the
community  during the  development  and  lease-up  phase  while also  seeking to
participate in future increased  earnings after development is completed and the
sites are leased. We seek to accomplish this goal by making loans to development
companies in return for  participating  mortgages that are  non-recourse  to the
borrowers and secured by the property.  In general, our participating  mortgages
earn  interest at fixed rates and, in  addition,  participate  in the profits or
revenues from the community.  This profit participation right generally entitles
us to 50% of the net  income and cash flow  generated  by the  community.  As an
alternative,  we sometimes enter into ground leases with  development  companies
having similar terms to our participating mortgages.

We believe that acquisition  opportunities for manufactured home communities are
attractive at this time because of:

   o   the increasing  acceptability  of and demand for  manufactured  homes, as
       shown by the growth in the number of individuals  living in  manufactured
       homes; and
   o   the  continued  constraints  on  development  of  new  manufactured  home
       communities.

We are actively  seeking to acquire  additional  communities  and are  currently
engaged in various stages of negotiations  relating to the possible  acquisition
of  a  number  of  communities.  The  acquisition  of  interests  in  additional
communities could also result in our becoming increasingly leveraged as we incur
debt in connection with these transactions.

In 1998, we invested $23 million to acquire  interests in six manufactured  home
communities  that  are  located  in  Arizona,  Florida  and  California.   These
communities have a total of 640 developed homesites (sites with homes in place),
50 sites ready for homes and 1,180 sites available for future development.

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<PAGE>

When evaluating potential acquisitions, we consider such factors as:

   o   the location and type of property;
   o   the value of the homes located on the leased land;
   o   the  improvements,  such as  golf  courses  and  swimming  pools,  at the
       property;
   o   the current and  projected  cash flow of the  property and our ability to
       increase cash flow;
   o   the potential for capital appreciation of the property;
   o   the terms of tenant leases, including the potential for rent increases;
   o   the tax and regulatory environment of the community in which the property
       is located;
   o   the potential  for  expansion of the physical  layout of the property and
       the number of sites;
   o   the occupancy and demand by residents for properties of a similar type in
       the vicinity;
   o   the credit of the residents in a community;
   o   the prospects for liquidity through sale, financing or refinancing of the
       property;
   o   the competition from existing manufactured home communities;
   o   the potential for the construction of new communities in the area; and
   o   the replacement cost of the property.

Expansion of Existing Communities

We will seek to  increase  the number of  homesites  and the amount of  earnings
generated from our existing  portfolio of manufactured home communities  through
marketing campaigns aimed at increasing  occupancy.  We will also seek expansion
through future  acquisitions  and expanding the number of sites  available to be
leased to residents if justified  by local market  conditions  and  permitted by
zoning and other  applicable laws. As of December 31, 1998, we held interests in
six  communities  with 50 sites  ready for homes and 1,180 sites  available  for
future development.

Manager

Our daily  operations  are  performed  by a  manager  pursuant  to a  management
agreement  currently in effect through December 31, 1999. The manager identifies
and performs due diligence on potential  manufactured home community investments
for us. Since November 1997,  Asset Investors has been our manager.  In addition
to being our manager and a principal  stockholder,  Asset  Investors  separately
owns, acquires,  develops and manages  manufactured home communities,  including
providing property management services on our communities.  Consequently, we and
Asset Investors are involved in the same industry. The two companies have agreed
we shall invest at least $50 million in  manufactured  home  communities  before
Asset  Investors  makes  any  additional   acquisitions  of  manufactured   home
communities.  Thereafter,  the two  companies  will  make a  determination  with
respect to each acquisition on a case-by-case basis.

The management  agreement was approved by our  independent  directors and may be
terminated  by either  party  with our  without  cause at any time upon 60 days'
written  notice.  The  manager  provides  all  personnel  and  related  overhead
necessary to conduct our regular  business,  and in return,  the manager is paid
the following fees:

   o   Acquisition  Fees  equal to 0.5% of the cost of each real  estate-related
       asset acquired by us;
   o   Base  Fees  equal  to 1% per  year  of the net  book  value  of our  real
       estate-related assets;
   o   Incentive  Fees  equal  to 20% of the  amount  by which  our REIT  income
       exceeds (a) our average net worth, multiplied by (b) 1% over the ten year
       United States Treasury rate.

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<PAGE>

During 1998,  we paid $87,000 in Base Fees and $124,000 in  Acquisition  Fees to
Asset  Investors.  We did not pay any  Incentive  Fees in 1998.  For  1999,  the
management  agreement  relating to the Incentive Fee has been amended to provide
that such fee is calculated the same way as in 1998 except that our FFO, less an
annual  capital  replacement  reserve  of at least $50 per  developed  homesite,
replaces  REIT  income in the  calculation  because we believe  this is a better
measure  of  our  economic  profitability  and  would,   therefore,  be  a  more
appropriate  incentive for Asset  Investors  even if increased  management  fees
result.

In order to allocate  investments between us and Asset Investors,  the companies
have agreed that we will  invest at least $50 million of our cash  resources  in
the  acquisition of communities  before Asset Investors will invest further cash
in the  acquisition  of  communities.  Thereafter,  the  companies  will  make a
determination  with respect to  acquisitions  on a  case-by-case  basis.  In the
ordinary course of our business,  we are engaged in discussions and negotiations
with a number of manufactured  home community  owners  regarding the purchase of
communities or interests in communities.

Asset  Investors may acquire  communities if a material  portion of the purchase
price is paid for in units of limited  partnership in Asset Investors  Operating
Partnership ("OP Units") or Asset Investors' common stock.

We  indemnify  the  manager and its  affiliates  with  respect to all  expenses,
losses,  damages,  liabilities,  demands,  charges  or claims  of any  nature in
respect of acts or omissions of the manager made in good faith and in accordance
with the standards set forth in the management agreement.

Competition

There are numerous housing  alternatives that compete with our manufactured home
communities in attracting  residents.  Our properties compete for residents with
other  manufactured  home communities,  multifamily  rental  apartments,  single
family homes and  condominiums.  The number of competitors in a particular  area
could have a material  effect on our ability to attract and  maintain  residents
and on the rents we are able to charge for homesites.  In acquiring  assets,  we
compete  with  other  REITs,  pension  funds,  insurance  companies,  and  other
investors,  many of  which  have  greater  financial  resources  than we do.  In
addition,  Asset  Investors  is also  involved in  acquiring  manufactured  home
communities.

Taxation of the Company

We have elected to be taxed as a REIT under the  Internal  Revenue Code of 1986,
as amended (the  "Code"),  and we intend to operate in a manner which will allow
us to avail ourselves of the beneficial tax provisions  applicable to REITs. Our
qualification  as a REIT  depends on our  ability to meet  various  requirements
imposed  by the  Code,  such as  specifications  relating  to  actual  operating
results, distribution levels and diversity of stock ownership.

If we  qualify  for  taxation  as a REIT,  we will  generally  not be subject to
Federal corporate income tax on our net income that is currently  distributed to
stockholders.  This treatment substantially eliminates the "double taxation" (at
the corporate and stockholder  levels) that generally results from investment in
a  corporation.  If we fail to qualify as a REIT in any taxable year, we will be
subject to Federal income tax at regular  corporate  rates on our taxable income
(including  any  applicable  alternative  minimum tax).  Even if we qualify as a
REIT, we may be subject to certain state and local income and other taxes and to
Federal income and excise taxes on our undistributed income.

If in any taxable year we fail to qualify as a REIT and as a result, incur a tax
liability,  we might need to borrow funds or liquidate  certain  investments  in
order to pay the applicable tax. In this situation, we would not be compelled to
make distributions as required for entities claiming REIT status under the Code.


                                     - 6 -
<PAGE>

Moreover,  unless  we  would be  entitled  to  relief  under  certain  statutory
provisions,  we  would be  disqualified  from  treatment  as a REIT for the four
taxable years following the year during which qualification is lost. Although we
currently  intend to operate in a manner  designed  to qualify as a REIT,  it is
possible that future economic,  market,  legal, tax or other  considerations may
cause us to fail to qualify as a REIT,  or may cause the Board of  Directors  to
revoke the REIT election.

We and our  stockholders  may be subject to state or local  taxation  in various
state  or local  jurisdictions,  including  those  in which we or they  transact
business or reside. The state and local tax treatment  conferred upon us and our
stockholders may not conform to the Federal income tax treatment.

Regulations

General

Manufactured home communities,  like other housing alternatives,  are subject to
various laws,  ordinances and  regulations,  including  regulations  relating to
recreational  facilities  such as swimming  pools,  clubhouses  and other common
areas.  We believe that we have obtained the necessary  permits and approvals to
operate each of our properties in conformity with these laws.

Americans with Disabilities Act

Our current  properties and any newly acquired  communities must comply with the
Americans with  Disabilities  Act (the "ADA").  The ADA generally  requires that
public  facilities  such as clubhouses,  swimming pools and recreation  areas be
made accessible to people with disabilities. As we previously mentioned, many of
our  communities  have  public  facilities.   In  order  to  comply  with  these
requirements  we have made  improvements  at our  communities in order to remove
barriers to access.  If we should ever fail to comply with ADA  regulations,  we
could be fined or we could be forced to pay  damages  to private  litigants.  We
have made those  changes  required by the ADA which we believe are  appropriate,
and we believe that our properties are in compliance  with the  requirements  of
the ADA. We believe  that any further  costs  related to ADA  compliance  can be
covered by cash flow from the individual properties without causing any material
adverse  effect.  If  ongoing  changes  involve  a greater  expenditure  than we
currently anticipate, or if the changes must be made on a more accelerated basis
than  we  anticipate,  our  ability  to make  expected  distributions  could  be
adversely affected.

Rent Control Legislation

State and local  laws,  principally  in  Florida,  might  limit our  ability  to
increase  rents on some of our  properties,  and  thereby,  limit our ability to
recover increases in operating  expenses and the costs of capital  improvements.
Enactment  of  rent  control  laws  has  been  considered  from  time to time in
jurisdictions in which we operate. We presently expect to maintain  manufactured
home  communities  and may purchase  additional  properties  in markets that are
either subject to rent control laws or in which such legislation may be enacted.

Insurance

We believe that our properties are covered by adequate fire,  flood and property
insurance  policies.  It is our  policy to  purchase  insurance  policies  which
contain commercially  reasonable deductibles and limits from reputable insurers.
We also believe that we have obtained adequate title insurance policies insuring
fee title to properties we have acquired.

                                     - 7 -
<PAGE>

Capital Resources

We have used our available cash balances, our FFO and our short-term investments
to provide working  capital to support our  operations,  to pay dividends and to
acquire assets.  Future  acquisitions  will be financed by the most  appropriate
sources  of  capital,  perhaps  including  our  available  cash  and  short-term
investment  balances;  undistributed FFO; long-term,  secured debt;  short-term,
secured debt; and the issuance of additional equity securities. This flexibility
allows us to offer more choices of "acquisition  currency" to potential  sellers
of manufactured home communities,  including the ability to defer some or all of
the tax  consequences  of a sale.  We believe  that this  flexibility  may offer
sellers an incentive to enter into transactions with us on favorable terms.

Without  further  stockholder  approval,  we  are  authorized  to  issue  up  to
75,000,000  shares of common stock.  As of March 5, 1999,  10,364,029  shares of
common stock were issued and  outstanding.  Future offerings of common stock may
result in the reduction of the net tangible book value per outstanding share and
a reduction in the market price of the common  stock.  We are unable to estimate
the amount, timing or nature of such future offerings as any such offerings will
depend on general market conditions or other factors.

In addition,  the Board of Directors is authorized to issue 25,000,000 shares of
preferred  stock,  par value $.01 per share.  Depending  on the terms set by the
Board of  Directors,  the  authorization  and issuance of preferred  stock could
adversely  affect existing  stockholders.  The effects on existing  stockholders
could include, among other things, dilution of ownership interests, restrictions
on dividends to be issued on common  stock and  preferences  to holders of a new
class  of  stock in the  distribution  of  assets  upon  liquidation.  We do not
presently  intend to issue  preferred stock during 1999. As of March 5, 1999, we
have not authorized or issued additional classes of stock.

Dividend Reinvestment Plan

In 1998,  we  terminated  our Automatic  Dividend  Reinvestment  Plan due to the
administrative costs related to the plan.

Restrictions on and Redemptions of Common Stock

To  qualify  to be  taxed  as a REIT,  we must  comply  with  certain  ownership
limitations  with  respect to shares of our common  stock.  Our  Certificate  of
Incorporation provides that shares of common stock generally may not be owned by
a person if the  ownership  of shares by such  person  would  exceed 9.8% of our
outstanding  shares or would result in the  imposition of a tax on us. The Board
of  Directors  has waived  this  restriction  with  respect to Asset  Investors'
ownership of 27% of our common stock.

Our  Certification  of  Incorporation  empowers the Board of  Directors,  at its
option,  to redeem shares of common stock or to restrict  transfers of shares to
comply with the requirements  described above. The redemption price we would pay
if the Board of Directors  exercises  this option to redeem  shares would be the
fair market value of the common stock as reflected in the latest  quotations  on
the American Stock Exchange. Our Certificate of Incorporation also provides that
if anyone  acquires  shares of our common  stock in a manner or in a volume that
would result in our  disqualification as a REIT under the Code, that acquisition
is deemed void to the fullest  extent  permitted  under the law and the acquirer
will be deemed  never to have had an interest in the shares.  Furthermore,  if a
transaction  is determined to be void or invalid,  the acquirer may be deemed to
have acted as agent on our behalf in acquiring  such shares and may be deemed to
hold such shares on our behalf.

                                     - 8 -
<PAGE>

Each stockholder is required, upon demand, to disclose to the Board of Directors
in writing any information with respect to the direct and indirect  ownership of
shares of our common stock as the Board of Directors  deems necessary or prudent
in order to protect our tax status.

Employees

Pursuant  to the  management  agreement,  the  manager  provides  all  personnel
necessary to conduct our regular business.  Consequently,  we have no employees.
Certain employees of the manager serve as our officers.

Item 2.  Properties.

The  manufactured  home  communities  in which we have  interests  are primarily
located in Arizona and Florida. We hold interests in these communities as owner,
ground  lessor or  mortgage  lender  (including  participating  mortgages).  The
following  table sets forth the states in which the communities in which we held
an interest on December 31, 1998 are located:

<TABLE>
<CAPTION>

                                                         Number of Sites
                                  ----------------------------------------------------------
                                                                            Available for
               Number of                                    Ready for           Future
              Communities            Developed                Homes          Development
             ----------------     -----------------     ---------------   ------------------
<S>                <C>                    <C>                    <C>            <C>
Arizona            3                      337                    --               206
Florida            2                      305                    46               942
California         1                       --                    --                30
                 ---                    -----                 -----            ------
   Total           6                      642                    46             1,178
                 ===                    =====                 =====            ======

</TABLE>

The following  table sets forth  information  regarding each  manufactured  home
community in which we own an interest:

<TABLE>
<CAPTION>

                                                             Average
                                                             Monthly     Sites          Sites
                                      Developed                Rent      Ready      Available for     Year(s)
Community           Location          Homesites   Occupancy  per Site  for Homes     Development     Developed
-------------------------------------------------------------------------------------------------------------------
Owned Communities
<S>               <C>                    <C>        <C>         <C>        <C>          <C>            <C>
Cypress Greens (1)Lakeland, FL            85        100%        $184       22            --            1984
Riverside (1)     Ruskin, FL             220        100          418       24           942            1981
                                     -----------------------------------------------------------
    Subtotal                             305        100          353       46           942
                                     -----------------------------------------------------------
Participating Mortgage and
  Joint Venture Communities
Fiesta Village    Mesa, AZ               175         98          273       --           206 (2)        1962
Casa Encanta      Mesa, AZ               111         87          350       --           -- (2)         1970
Southern Palms    Mesa, AZ                51        100          203       --           -- (2)         1961
Cannery Village   Newport Beach, CA       --         --           --       --            30              -- (3)
                                     -----------------------------------------------------------
    Subtotal                             337         95          288       --           236
                                     -----------------------------------------------------------
Total Communities                        642         97%        $319       46         1,178
                                     ===========================================================

<FN>

   (1) We have leased this community to a third party under a long-term lease in
       which we receive a base rent plus 50% of any profits from the community.
   (2) We intend to redevelop the Fiesta  Village,  Casa  Encanta,  and Southern
       Palms   communities  along  with  adjoining  vacant  land.  The  combined
       redevelopment will result in the additional 206 spaces.
   (3) Property is expected to be redeveloped in 1999.
</FN>
</TABLE>

Owned Properties. At December 31, 1998, we owned one manufactured home community
which exceeded 10% of our total assets. This property,  known as Riverside Club,
is located in the Tampa,  Florida region and was purchased in November 1998. The
property has 220 developed homesites which are 100% occupied, 24 sites ready for


                                     - 9 -
<PAGE>

homes and approximately 940 sites available for future development. The property
offers residents a range of amenities including:

   o   a 9-hole golf course,
   o   swimming pool,
   o   tennis courts,
   o   clubhouse, and
   o   marina.

The  developed  homesites  are  leased to the owner of the home  located on each
homesite. The leases are annual leases and can be renewed by the tenant provided
that he or she complies with the rules and  regulations of the property and pays
the required rent. At December 31, 1998, the average monthly rent for a homesite
was  approximately  $420. We can increase rent based on either (a) rents charged
by comparable  properties in the surrounding  area or (b) increases in our costs
associated  with the  property.  The cost of the property has been  allocated as
follows:

   o   $3,558,000 to land and
   o   $7,744,000 to buildings and land improvements.

We depreciate  buildings and land  improvements over 25 years using the straight
line method.  For federal income tax purposes,  we depreciate  buildings over 40
years and land  improvements  over 15 years using the  straight  line method for
both  categories.  At December 31, 1998, our net book value in this property was
$11,268,000  which is  approximately  the same as our basis in the  property for
federal   income  taxes.   Annual  real  estate  taxes  for  this  property  are
approximately  $180,000 at a 2.5%  realty tax rate.  Estimated  realty  taxes on
future improvements are expected to have a similar tax rate.

Effective  November 1998, we leased this property for 50 years to a third party,
Riverside Golf Course Community, L.L.C. The lease provides for an initial annual
rent payment of $890,000,  increasing by 4% per annum.  As additional  homesites
are developed,  the annual lease payment  increases by an amount equal to 10% of
the costs  incurred  in  developing  the  homesites.  In  addition,  we  receive
additional rent equal to 50% of the lessee's net cash flow from the property and
50% of any sales proceeds in excess of our  historical  cost of the property and
subsequent improvements.

We intend to further develop this property over the next five to ten years.  The
development is expected to include  development of the sites ready for homes and
the sites  available  for future  development  plus the  completion  of the golf
course into an 18-hole course.  The estimated cost to fully develop the property
is $8 million.  We expect to finance the development  with our existing cash and
short-term  investments,  proceeds from secured  long-term  notes payable on our
various properties and cash flow from our operations.

Properties  Involving  Participating  Mortgages.  At December 31,  1998,  we had
$8,033,000  of  participating   mortgages   involving  three  manufactured  home
communities  and  adjoining  land.  The  mortgages  were  secured  by the  three
properties  and land  plus  two  additional  manufactured  home  communities,  a
recreational  vehicle park and  commercial  real estate.  The  mortgages  accrue
interest  at 15% and pay  interest  at 9% during  the first  year.  The pay rate
increases by 1% each year to a maximum of 12% per year and the mortgages  mature
in 2007. We receive additional interest equal to 50% of the profits and net cash
flows from the three  properties  and  adjoining  land in excess of the interest
rate.  Also, we receive 50% of any net sales proceeds in excess of the amount of
our participating  mortgages. The mortgages may be prepaid at any time; however,
we  continue  to  receive  50% of any  profits  and net cash  flows  from  these
properties until they are sold.

                                     - 10 -
<PAGE>

Item 3.  Legal Proceedings.

At  March  5,  1999,  there  were no  material  legal  proceedings,  pending  or
threatened,  to  which  we  were a  party  or to  which  any  of our  respective
properties were subject.

Item 4.  Submission of Matters to a Vote of Security Holders.

No  matters  were  submitted  to a vote of our  stockholders  during  the fourth
quarter of 1998.

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

Our common stock is listed on the AMEX under the symbol  "CAX." The high and low
closing  sales  prices of the shares of common  stock as reported  in  published
financial  sources and certain  dividend  information for the periods  indicated
were as follows:

<TABLE>
<CAPTION>

                                                                    Regular           Special        Capital Gain
                                                                   Dividends         Dividends        Dividends
                                  High              Low             Declared         Declared          Declared
                                  ----              ---             --------         --------          --------
1998
----
<S>                              <C>             <C>                 <C>               <C>                <C>
   First Quarter                 $   7           $   6-7/16          $   --            $   --             $  --
   Second Quarter                    7                6-1/4             .13                --                --
   Third Quarter                     6-7/8           5-9/16             .13                --                --
   Fourth Quarter                    6-1/4            5-1/8             .13                --                --

1997
----
   First Quarter                 $   7           $    6-3/8          $  .17            $   --            $   --
   Second Quarter                  6-11/16           6-3/16             .17                --                --
   Third Quarter                    7-3/16            6-5/8             .17                --                --
   Fourth Quarter                  7-11/16           6-9/16             .17               .26               .17

</TABLE>

As of March  5,  1999,  10,364,029  shares  of  common  stock  were  issued  and
outstanding  and were held by 1,375  stockholders  of record.  We estimate there
were an additional 8,000  beneficial  owners on that date whose shares were held
by banks, brokers or other nominees.

We, as a REIT, are required to distribute  annually to stockholders at least 95%
of our  "REIT  taxable  income,"  which,  as  defined  by the Code and  Treasury
regulations,  is generally equivalent to net taxable ordinary income. We measure
our  economic   profitability  and  intend  to  pay  regular  dividends  to  our
stockholders  based on FFO,  less an annual  capital  replacement  reserve of at
least $50 per developed homesite, during the relevant period. The future payment
of dividends,  however,  will be at the discretion of the Board of Directors and
will depend on numerous  factors  including,  our financial  condition,  capital
requirements,  the annual distribution  requirements under the provisions of the
Code  applicable to REITs and such other factors as the Board of Directors deems
relevant.

On April 21, 1998,  22,020  shares of common stock were issued to  non-executive
directors  in  lieu  of  annual  director  fees as a  private  placement  of our
securities.  The $6.81 per share value was equal to the  closing  stock price on
the date of issuance.

                                     - 11 -
<PAGE>

Item 6.  Selected Financial Data.

Our selected  financial data, set forth below,  has been derived from and should
be read in  conjunction  with  our  audited  consolidated  financial  statements
including  their notes.  Financial data as of December 31, 1998 and 1997 and for
each of the three  years in the period  ended  December  31,  1998,  is included
elsewhere in this report on Form 10-K.

Balance Sheet and Operating Data (in thousands, except per share data):

<TABLE>
<CAPTION>

                                                                              December 31,
                                                    -----------------------------------------------------------------
                                                      1998         1997           1996          1995          1994
                                                    ---------    ----------     ---------     ---------     ---------
<S>                                                 <C>          <C>            <C>           <C>           <C>
Real estate, before accumulated depreciation        $ 12,678     $     --       $     --      $     --      $     --
Investments in participating mortgages and joint
Cash equivalents and short-term investments           48,358       74,153          8,277           598        12,367
CMBS bonds                                             1,739        1,981         61,460        69,503        74,046
Total assets                                          78,234       78,148         72,406        71,590        87,604
Total stockholders' equity                            77,254       77,705         71,919        70,465        74,672

                                                                        Year Ended December 31,
                                                    -----------------------------------------------------------------
                                                      1998         1997           1996          1995          1994
                                                    ---------    ---------      ---------     ---------     ---------
RENTAL PROPERTY OPERATIONS:
Income from participating mortgages and leases      $    587     $     --       $     --      $     --      $     --
Depreciation                                             (50)          --             --            --            --
                                                    --------     --------       --------      --------      --------
                                                         537           --             --            --            --
                                                    --------     --------       --------      --------      --------

CMBS bonds revenues                                                 9,172          9,838         8,980         5,938
Interest and other income                              3,874          945            319           189         1,126
General and administrative expenses                     (420)        (519)          (805)       (1,393)       (1,220)
Management fees paid to manager                         (211)      (1,678)        (1,425)       (1,151)         (598)
Gain on sale of bonds                                     --        5,786             --            --            --
Net income                                             3,441       13,706          6,959         6,376         4,927

Per share amounts:
   Basic and diluted earnings                       $    .33     $   1.32       $    .68      $    .63      $    .49
   Regular dividends                                $    .39     $    .68       $    .68      $    .68      $    .50
   Special dividends                                $     --     $    .26       $    .04      $     --      $    .03
   Capital gain dividends                           $     --     $    .17       $     --      $     --      $     --

Weighted-average common shares outstanding            10,357       10,332         10,247        10,104        10,047
Weighted-average common shares and common share
   equivalents outstanding                            10,372       10,371         10,254        10,108        10,048


</TABLE>

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations.

                          RESULTS OF OPERATIONS FOR THE
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

The following  discussion and analysis of consolidated results of operations and
financial  condition  should  be  read  in  conjunction  with  our  consolidated
financial  statements  included elsewhere in this report. In 1998, we decided to
change our business from the ownership of high-risk CMBS bonds to the ownership,
acquisition,  development and management of manufactured home communities.  This
decision  helped us to avoid the  volatility  incurred by other  owners of these
securities  following  the capital  market  crisis in the third quarter of 1998.


                                     - 12 -
<PAGE>

Since our capital has not yet been entirely invested into this new business, our
financial  performance,  and  consequently  our stock price,  has been adversely
affected during this period.  During the last few months we have been focused on
the  investment  of  our  capital  in  the  acquisition  of  manufactured   home
communities. We believe that the investment of our capital will be substantially
completed  during  1999,  and we are  hopeful  that this will result in improved
performance.

Comparison of Year Ended December 31, 1998 to Year Ended December 31, 1997

In 1997, we decided to cease to invest in commercial  mortgage backed securities
bonds.  In  November  1997,  we  resecuritized,  sold or redeemed  our  existing
portfolio of commercial  mortgage backed  securities bonds and had substantially
ceased to be involved in the investment in commercial mortgage backed securities
bonds. In August 1998, we decided to invest in manufactured home communities. In
the interim period,  we temporarily  invested our cash resources in money market
and other short-term  investments  while we were  determining  which real estate
asset  class  we would  re-deploy  our  capital  into.  Results  of 1998 are not
comparable  to 1997  results  because  during  1997,  we were in the business of
investing in commercial  mortgage  backed  securities  bonds.  During 1998,  our
operations were primarily the result of investments in money market accounts and
other short-term investments. During the latter half of 1998, we began to invest
in manufactured home communities.  Accordingly, 1998 activities are unrelated to
1997 activities.

Rental Property

During 1998,  income from rental properties  totaled $537,000,  arising from our
initial investments in manufactured home communities.

Inflation

We do not believe that changes in inflation rates would have a material  adverse
effect on our business. In fact, we believe that inflation may positively impact
our business,  in light of the fact that manufactured home communities represent
a more  affordable  housing  choice  for many  people  than  other  alternatives
available,  increased  inflation  rates may allow us to demand  increased  rents
without losing tenants.

Interest and Other Income

Interest and other income  during 1998 was  $3,874,000  compared to $945,000 for
1997.  The increase is due to our  temporary  investment of the $77.7 million of
cash  proceeds  received in  November  1997 from the  restructuring  of the CMBS
bonds. The average  interest rates earned on these  short-term  investments were
5.40% and 5.44% during 1998 and 1997, respectively.

CMBS Bonds

Income from CMBS bonds was $161,000 during 1998 compared to $9,172,000 for 1997.
The earnings  figures for 1998  represent the income from the retained  residual
interest of the  resecuritization  of two CMBS bonds.  All other income from the
CMBS bonds ceased after the sale of the CMBS bonds in November 1997.

General and Administrative Expenses

Our general  and  administrative  expenses  were  $420,000  in 1998  compared to
$519,000 in 1997. General and administrative expenses decreased in 1998 compared
to 1997  primarily due to lower  accounting  and other  expenses  related to the
ownership of CMBS bonds.

                                     - 13 -
<PAGE>

Management Fees

During 1998, we incurred  Base Fees of $87,000 on  investments  in  manufactured
home   communities,   the   retained   equity   interest   from  the  CMBS  bond
resecuritization  and the  investment  in Westrec  Marina  Management,  Inc.  We
incurred no Incentive  Fees or  Administrative  Fees in 1998.  During  1997,  we
incurred  management  fees of  $1,678,000,  consisting of Base Fees of $598,000,
Incentive Fees of $1,024,000 and Administrative  Fees of $56,000. We experienced
a large  decrease in  management  fees during 1998  because we do not incur such
fees on cash equivalents and short-term investments of our cash resources.

Acquisition Fees

During  1998,  we  incurred  Acquisition  Fees of  $124,000  as a result  of our
investments  in  manufactured  home   communities.   During  1997,  we  incurred
Acquisition  Fees of $23,000 on acquisitions of CMBS bonds. The Acquisition Fees
incurred in 1997 were  capitalized  as part of the cost of acquiring CMBS bonds.
Acquisition  Fees were expensed in 1998 because the manager is Asset  Investors,
owner of 27% of our common  stock.  If these fees had been paid to an  unrelated
third party,  then they would have been  capitalized  under  generally  accepted
accounting  principles.  For  this  reason,  such  fees are  capitalized  in our
calculation of FFO.

Costs Related to Potential Marina Investments

During the third  quarter of 1998,  we decided  that we would no longer  seek to
acquire  interests  in  marinas,  and we expensed  $500,000 of costs  related to
previously considered marina investments.

Comparison of Year Ended December 31, 1997 to Year Ended December 31, 1996

Interest Income

Interest  income in 1997 and 1996 was $945,000 and $319,000,  respectively.  The
increase in interest income in 1997 as compared to 1996 is due to our investment
of  the  proceeds  from  the  restructuring  of the  CMBS  bonds  in  short-term
investments. The average interest rate earned on these funds was 5.44% and 5.14%
in 1997 and 1996, respectively.

CMBS Bonds

Income from CMBS bonds was  $9,172,000  during 1997  compared to  $9,838,000  in
1996.  Earnings from CMBS bonds  decreased by  $1,138,000  because there were no
earnings in November or December 1997 after the sale of the CBMS bond portfolio.
This  decrease was  partially  offset by higher  income  prior to the sale.  The
income from the CMBS bonds  prior to the sale was higher due to the  prepayments
made in August 1997 on one bond and the earnings on bonds acquired in March 1997
offset  by  income  from  the  early  redemption  of two  bonds  in May 1996 and
prepayments made on another bond in 1996.

General and Administrative Expenses

Our  general  and   administrative   expenses   were   $519,000  and   $805,000,
respectively,  for 1997 and 1996. General and administrative  expenses decreased
in 1997 compared to 1996 primarily due to lower stockholder  relations expenses,
lower  consulting and accounting  expenses and the  elimination of expenses from
dividend equivalent rights pursuant to the amendment to our stock option plan.

                                     - 14 -
<PAGE>

Management Fees

Management fee expenses were $1,678,000 and $1,425,000,  respectively,  for 1997
and 1996. The increase in management fees during 1997 compared with 1996 was due
to an increase of $311,000 in Incentive Fees, offset by a decrease of $58,000 in
Base Fees and  Administrative  Fees. Prior to the restructuring of the CMBS bond
portfolio,  our manager received an Administrative Fee of up to $10,000 per year
for each CMBS bond. The increase in Incentive Fees was due to higher REIT income
before  Incentive Fees partially  offset by an increase in the average  Ten-Year
U.S.  Treasury  Rate  between  1996 and 1997.  The  increase  in REIT income was
primarily a result of gains associated with the  restructuring of the CMBS bonds
and  nonrecurring  expenses  incurred in 1996 while the  increase in the average
Ten-Year U.S.  Treasury Rate had the effect of raising the threshold above which
Incentive  Fees are paid.  The  decrease in Base Fees was due to the decrease in
average invested assets as a result of the restructuring of our CMBS bonds.

Dividend Distributions

During 1998,  we declared  regular  dividends of $.39 per share.  During each of
1997 and 1996, we declared regular dividends of $.68 per share. In addition,  we
declared  special  dividends  of $.26 per  share  and $.04 per share in 1997 and
1996, respectively, and a capital gains dividend of $.17 per share in 1997.

                         LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 1998,  we had cash and cash  equivalents  of  $3,292,000  and
short-term  investments of  $45,066,000.  Our principal  activities  that demand
liquidity  include our normal  operating  activities,  payments of principal and
interest on  outstanding  debt,  acquisitions  of or additional  investments  in
properties and payments of dividends to stockholders.

In 1998, the net cash provided by operating  activities was $3,705,000  compared
to $4,428,000  during 1997.  The decrease was primarily a result of lower income
from  both  short-term   investments   and  investments  in  manufactured   home
communities in 1998 than income from CMBS bonds in 1997.

Net cash used in investing  activities was  $70,524,000  during 1998 compared to
net cash provided by investing  activities of  $72,892,000 in 1997. The net cash
in 1998 was primarily used to acquire short-term  investments and investments in
manufactured home communities. Investing activities in 1997 included $77,693,000
of net cash provided from the restructuring of the bonds.

Net cash used in financing  activities  decreased to $4,042,000 in 1998 compared
to $11,444,000 in 1997, primarily due to lower dividends.

We expect to meet our long-term  liquidity  requirements  in excess of 12 months
through  our  cash  balances,   short-term   investments,   long-term,   secured
borrowings, cash generated by operations and issuance of equity securities.

                              FUNDS FROM OPERATIONS

We measure  our  economic  profitability  based on FFO,  less an annual  capital
replacement reserve of at least $50 per developed homesite.  We believe that the
presentation  of FFO,  when  considered  with the financial  data  determined in
accordance  with generally  accepted  accounting  principles,  provides a useful
measure of our performance. However, FFO does not represent cash flow and is not
necessarily  indicative of cash flow or liquidity available to us, nor should it
be  considered  as an  alternative  to net income as an  indicator  of operating
performance.  The Board of Governors of NAREIT defines FFO as net income (loss),


                                     - 15 -
<PAGE>

computed in accordance with generally accepted accounting principles,  excluding
gains and losses from debt restructuring and sales of property, plus real estate
related  depreciation  and  amortization  (excluding  amortization  of financing
costs),  and  after  adjustments  for  unconsolidated   partnerships  and  joint
ventures.  We calculate FFO  beginning  with the NAREIT  definition  and include
adjustments for:

   o   fees incurred in connection with property acquisitions; and
   o   nonrecurring costs related to discontinued classes of investments.

We believe that the  presentation  of FFO provides  investors with  measurements
which help facilitate an understanding of our ability to make required  dividend
payments,  capital  expenditures  and principal  payments on our debt. Since FFO
excludes  unusual and  nonrecurring  expenses as well as depreciation  and other
real estate related expenses,  FFO may be materially  different from net income.
Therefore,  FFO should not be considered as an  alternative to net income or net
cash flows from operating activities, as calculated in accordance with generally
accepted accounting principles, as an indication of our operating performance or
liquidity.  FFO is not necessarily indicative of cash available to fund our cash
needs,  including our ability to make distributions.  Commercial Assets uses FFO
in measuring its operating  performance  because it believes that the items that
result in a  difference  between  FFO and net income do not  impact the  ongoing
operating performance of a real estate company. Also, we believe that other real
estate companies, analysts and investors utilize FFO in analyzing the results of
real estate companies.  Our basis of computing FFO is not necessarily comparable
with that of other REITs.

For 1998, our FFO was as follows (in thousands):

                                                                      1998
                                                                      ----

  Net income                                                       $    3,441
  Real estate depreciation                                                 50
  Acquisition fees                                                        124
  Costs related to potential marina investments                           500
                                                                   ----------
  Funds From Operations (FFO)                                      $    4,115
                                                                   ==========

  Weighted average common shares outstanding                           10,357
                                                                   ==========

For 1998, our net cash flows were as follows (in thousands):

                                                                      1998
                                                                      ----

  Cash provided by operating activities                            $    3,705
  Cash used in investing activities                                   (70,524)
  Cash used in financing activities                                    (4,042)

                              YEAR 2000 COMPLIANCE

Year 2000  issues  have arisen  because  many  existing  computer  programs  and
chip-based  embedded technology systems use only the last two digits to refer to
a year,  and  therefore do not  properly  recognize a year that begins with "20"
instead of the familiar "19." If not corrected, many computer applications could
fail or create erroneous results.  The following disclosure provides information
regarding the current status of our Year 2000 compliance program.

Our  hardware and  software  systems are  currently  Year 2000  compliant.  Upon
failure of any system,  data included in critical  software  (such as rent-rolls
and  certain  record-keeping   systems)  could  be  transferred  to  alternative
commercially  available  software at a  reasonable  cost and within a reasonable
time period. Consequently,  we would be able to continue our business operations
without any material interruption or material effect on our business, results of
operations or financial condition.  In addition, we anticipate that any hardware


                                     - 16 -
<PAGE>

or software that we acquire (including upgrades to existing systems) between now
and December 31, 1999 will be Year 2000 compliant.

Disruptions in the economy generally  resulting from Year 2000 issues could also
materially adversely affect us. Moreover,  because a large number of our tenants
may be dependent on social  security  payments to pay their rents,  a failure of
the  Social  Security  Administration  to cause  their  systems  to be Year 2000
compliant may result in a material adverse effect on our operations.  The Social
Security  Administration  has  announced  that they will have their systems Year
2000  compliant  before  January 1, 2000. We have received oral  representations
from our third party vendors  indicating that they are  substantially  Year 2000
compliant.

We believe that the cost of  modification  or  replacement of our less essential
accounting and reporting  software and hardware that is not currently  compliant
with Year 2000  requirements,  if any,  will not be  material  to our  financial
position or results of operations.

Our worst  case  scenario  would be in the event that the U.S.  Social  Security
Administration  were unable to process their  payments to our tenants,  in which
case large  numbers of our  tenants may be unable to pay their rent when due. If
this were to  occur,  we may be unable to  continue  to  service  our debt as it
becomes due and  foreclosure  proceedings  on our affected  properties  could be
commenced by our lenders.  We have no contingency plan with respect to potential
Year 2000  related  problems.  We note,  however,  that on  December  28,  1998,
President   Clinton   publicly   announced   that  the  U.S.   Social   Security
Administration would be fully Year 2000 compliant before the end of 1999.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

Our principal exposure to market risk is through our short-term  investments and
our various debt  instruments and  borrowings.  The following is a list of these
short-term investments, debt instruments and borrowing arrangements.

We  invest  funds  primarily  in  government  securities  and  other  short-term
investments  with  interest  rates  of  approximately  0.25%  above  the  London
Interbank Offered Rate ("LIBOR").  Accordingly,  changes in interest rates could
affect the returns from such investments.  If LIBOR decreased immediately by 1%,
our  annual  net  income  would  decrease  by  $451,000,  based on the amount of
short-term  investments at December 31, 1998. Because we intend to re-deploy our
short-term  investments by acquiring  manufactured home communities during 1999,
our primary objective with respect to our short-term  investments is to minimize
the  risk  that  the  principal  amount  of these  investments  could  decrease.
Therefore,  we have short-term investments whose principal amount is expected to
be less affected by changes in interest rates than other potential  investments.
The timing and amount of future  investments in  manufactured  home  communities
will  depend  on a number of  factors.  See  "Business  - Growth  and  Operating
Strategies - Future Acquisitions."

We do not  currently  have any notes  payable  but  expect to borrow  amounts in
connection with acquisitions of communities.  We intend to borrow  non-recourse,
secured, fixed rate, fully amortizing debt in connection with such acquisitions.
Accordingly,  such debt  would not cause us  significant  exposure  to  changing
interest rates.

                                     - 17 -
<PAGE>

Item 8.  Financial Statements and Supplementary Data.

The  independent  auditor's  reports,   consolidated  financial  statements  and
schedules listed in the accompanying  index are filed as part of this report and
incorporated  herein by reference.  See "Index to Financial  Statements" on page
F-1.

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.

We have had no changes in nor any disagreements with our accountants relating to
accounting or financial disclosure.

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.

The information set forth under the caption "Board of Directors and Officers" in
the proxy  statement in connection  with our 1999 Annual Meeting of Stockholders
which is to be filed  after the date this report on Form 10-K is filed is hereby
incorporated by reference.

Executive Officers of the Registrant

The Executive Officers of the Company as of December 31, 1998 are:

     Name         Age             Position with the Company
--------------------------------------------------------------------------------
Terry Considine   51    Chairman of the Board of Directors and
                        Chief Executive Officer
Thomas L. Rhodes  59    Vice Chairman of the Board of Directors
Bruce E. Moore    56    President and Chief Operating Officer
David M. Becker   39    Chief Financial Officer, Secretary and Treasurer

Terry  Considine  has been our  Chairman  of the  Board of  Directors  and Chief
Executive  Officer  since April 1998.  From  September  1996 to April 1998,  Mr.
Considine  served as our  Co-Chairman  of the Board of  Directors  and  Co-Chief
Executive  Officer.  Mr.  Considine  also  serves  as  Chairman  of the Board of
Directors and Chief Executive  Officer of Asset Investors.  He is the sole owner
of Considine Investment Co, and since July 1994, he has been the Chairman of the
Board of  Directors  and Chief  Executive  Officer of Apartment  Investment  and
Management Company.

Thomas L.  Rhodes has been our Vice  Chairman  of the Board of  Directors  since
April 1998.  From September 1996 to April 1998, Mr. Rhodes served as Co-Chairman
of the Board of Directors and Co-Chief Executive Officer. From September 1996 to
April 1998, Mr. Rhodes also served as Asset Investors'  Co-Chairman of the Board
of Directors and Co-Chief  Executive  Officer.  Since April 1998, Mr. Rhodes has
also served as Vice Chairman of the Board of Directors of Asset  Investors.  Mr.
Rhodes has also been a Director of AIMCO since July 1994.  Mr. Rhodes has served
as the President and a Director of National  Review  magazine  since 1992.  From
1976 to 1992, he held various positions at Goldman,  Sachs & Co. and was elected
a General Partner in 1986. He currently serves as a Director of Delphi Financial
Group, Inc. and its subsidiaries, Delphi International, Ltd., Oracle Reinsurance
and The  Lynde and Harry  Bradley  Foundation.  Mr.  Rhodes  is  Trustee  of The
Heritage Foundation.

Bruce E. Moore has been our President and Chief Operating  Officer since October
1998.  He also  serves  as  President  and  Chief  Operating  Officer  of  Asset
Investors.  Mr.  Moore is the  founder  and was the Chief  Executive  Officer of
Brandywine  Financial  Services  Corporation and its affiliates,  a private real
estate  firm  specializing  in  various  aspects  of the  real  estate  industry
including  asset  management,  consulting,   development,  property  management,


                                     - 18 -
<PAGE>

brokerage and capital formation. He is a certified public accountant and holds a
Masters in  Accounting  and a Bachelor of Science in Economics  from the Wharton
School of the  University  of  Pennsylvania.  Mr.  Moore is a Director  and past
President of the Media Youth Center,  and a past  advisory-board  member for the
Department of Recreation  and  Intercollegiate  Athletics for the  University of
Pennsylvania.  In addition, Mr. Moore is a member of the National Association of
Real Estate Investment Trusts and the International Council of Shopping Centers.

David M. Becker has  functioned as our Chief  Financial  Officer,  Secretary and
Treasurer since December 1997 and was appointed to such positions in April 1998.
Since  December  1997,  Mr. Becker has also served as Chief  Financial  Officer,
Secretary and Treasurer of Asset  Investors and was appointed to such  positions
in February  1998.  From  September 1995 until joining us, he was both the Chief
Financial   Officer   of   Westfield   Development   Company,   Inc.   and  Vice
President-Finance  of The  Frederick  Ross Co.,  related  companies  involved in
commercial real estate development, brokerage and management. Prior to September
1995,  he held  various  executive  positions  with  CONCORD  Services,  Inc., a
privately-held  company  involved  in  multiple  businesses  including  trading,
manufacturing  and  finance.  CONCORD  Services,  Inc.  declared  bankruptcy  in
February 1995. In addition,  Mr. Becker was Chief Financial  Officer and General
Counsel of Ramtron  International  Corporation,  a  publicly-held  semiconductor
manufacturer,  from October 1989 until July 1994.  Mr. Becker is an attorney and
certified public accountant.  He received a B.A. from the University of Northern
Iowa and a J.D. from the University of Denver.

There  are no  family  relationships  between  any of  the  executive  officers,
directors or persons nominated or chosen by us to become a director or executive
officer and there are no arrangements or understandings pursuant to which any of
them were selected as directors or officers.  Except as described above, none of
the persons  nominated  to become  directors  or  executive  officers  have been
involved in any legal  proceedings  during the past five years that are material
to an evaluation of the ability or integrity of such persons.

The  information set forth under the caption  "Compliance  with Section 16(a) of
the Exchange Act" in the proxy statement is hereby incorporated by reference.

Item 11.  Executive Compensation.

The  information  set forth under the  captions  "Summary  Compensation  Table",
"Options/SAR Grants in Last Fiscal Year" and "Aggregate  Option/SAR Exercises in
Last Fiscal Year and Fiscal Year-end  Options/SAR Values" in the proxy statement
is hereby incorporated by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.

The  information  set forth under the  caption  "Security  Ownership  of Certain
Beneficial Owners and Management" in the proxy statement is hereby  incorporated
by reference.

Item 13.  Certain Relationships and Related Transactions.

The information set forth under the caption "Certain  Relationships  and Related
Transactions" in the proxy statement is hereby incorporated by reference.

                                     - 19 -
<PAGE>

                                     PART IV

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

(a)(1)   The financial statements listed in the Index to Financial Statements on
         Page F-1 of this report are filed as part of this report.

(a)(2)   The  financial  statement  schedules  listed in the Index to  Financial
         Statements on Page F-1 of this report are filed as part of this report.
         All other  schedules  are omitted  since they are not  applicable,  not
         required,  or the  information  required  to be set  forth  therein  is
         included in the financial statements, or in notes thereto.

(a)(3)   The Exhibit Index is included on page 18 of this report.

(b)      Reports on Form 8-K for the quarter ended December 31, 1998:

Current report on Form 8-K, dated November 20, 1998,  reporting the  acquisition
of manufactured  housing community assets which included the Statement of Excess
Revenues   Over  Specific   Operating   Expenses  of  the  Moorings  of  Manatee
Manufactured  Home  Community for the Year Ended December 31, 1997 (audited) and
the Period from January 1, 1998 to September 30, 1998 (unaudited).




                                     - 20 -
<PAGE>





                          INDEX TO FINANCIAL STATEMENTS

COMMERCIAL ASSETS, INC.                                                    Page


Financial Statements:

   Report of Independent Auditors..........................................  F-2
   Consolidated Balance Sheets as of December 31, 1998 and 1997............  F-3
   Consolidated Statements of Income for the years ended December 31,
     1998, 1997 and 1996...................................................  F-4
   Consolidated Statements of Stockholders' Equity for the years ended
     December 31, 1998, 1997 and 1996......................................  F-5

   Consolidated Statements of Cash Flows for the years ended December 31,
     1998, 1997 and 1996...................................................  F-6
   Notes to Consolidated Financial Statements..............................  F-7

Financial Statement Schedules:

   Schedule III--Real Estate and Accumulated Depreciation.................. F-18
   Schedule IV - Mortgage Loans on Real Estate............................. F-20






                                     F - 1
<PAGE>




                         REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Commercial Assets, Inc.
Denver, Colorado

We have  audited the  accompanying  consolidated  balance  sheets of  Commercial
Assets,  Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income,  stockholders' equity and cash flows for each
of the three  years in the period  ended  December  31,  1998.  Our audits  also
included  the  consolidated   financial   statement   schedules  listed  in  the
accompanying   index.   These   financial   statements  and  schedules  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Commercial  Assets,  Inc. and subsidiaries as of December 31, 1998 and 1997, and
the  consolidated  results of their  operations and their cash flows for each of
the three  years in the  period  ended  December  31,  1998 in  conformity  with
generally  accepted  accounting  principles.  Also, in our opinion,  the related
financial  statement  schedules,  when  considered  in  relation  to  the  basic
consolidated  financial  statements  taken as a whole,  presents  fairly  in all
material respects the information set forth therein.

                                                            /s/ERNST & YOUNG LLP
Denver, Colorado
January 29, 1999




                                     F - 2
<PAGE>



                    COMMERCIAL ASSETS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                      (In thousands, except per share data)

<TABLE>
<CAPTION>

                                                                     December 31,
                                                             ---------------------------------
                                                                  1998                1997
                                                             ---------------    --------------
ASSETS

<S>                                                             <C>                <C>
Cash and cash equivalents                                       $    3,292         $   74,153
Short-term investments                                              45,066                 --
Real estate, net of accumulated depreciation of $50                 12,628                 --
Investments in participating mortgages                               9,328                 --
Investment in real estate joint venture                              1,280                 --
Investment in and note receivable from Westrec                       4,011              1,710
CMBS bonds                                                           1,739              1,981
Other assets, net                                                      890                304
                                                                ----------         ----------
      Total Assets                                              $   78,234         $   78,148
                                                                ==========         ==========

LIABILITIES

Accounts payable and accrued liabilities                        $      872         $      368
Management fees payable to related parties                             108                 75
                                                                ----------         ----------
                                                                       980                443
                                                                ----------         ----------

STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share,  25,000
  shares authorized;  no shares outstanding                             --                 --

Common stock, par value $.01 per share, 75,000 shares
  authorized; 10,364 and 10,342 shares isued and
  outstanding, respectively                                            104                104

Additional paid-in capital                                          76,874             76,724
Retained earnings                                                      276                877
                                                                ----------         ----------
                                                                    77,254             77,705
                                                                ----------         ----------
      Total Liabilities and Stockholders' Equity                $   78,234         $   78,148
                                                                ==========         ==========

</TABLE>



                 See Notes to Consolidated Financial Statements.



                                     F - 3
<PAGE>

                    COMMERCIAL ASSETS, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                      (In thousands, except per share data)

<TABLE>
<CAPTION>

                                                                         Year Ended December 31,
                                                                --------------------------------------
                                                                  1998            1997          1996
                                                                ---------      ---------      --------
RENTAL PROPERTY OPERATIONS
<S>                                                             <C>            <C>            <C>
Income from participating mortgages and leases                  $     587      $     --       $     --
Depreciation                                                          (50)           --             --
                                                                ---------      --------       --------
Income from property operations                                       537            --             --
                                                                ---------      --------       --------

Interest and other income                                           3,874           945            319
CMBS bonds revenue                                                    161         9,172          9,838
General and administrative expenses                                  (420)         (519)          (805)
Management fees paid to manager                                       (87)       (1,678)        (1,425)
Interest expense                                                       --            --             (2)
Elimination of dividend equivalent rights                              --            --           (966)
Acquisition fees paid to manager                                     (124)           --             --
Costs related to potential marina investments                        (500)           --             --
Gain on sale of bonds                                                  --         5,786             --
                                                                ---------      --------       --------

NET INCOME                                                      $   3,441      $ 13,706      $  6,959
                                                                =========      ========      =========

BASIC AND DILUTED EARNINGS PER SHARE                            $     .33      $   1.32      $     .68
                                                                =========      ========      =========

DIVIDENDS DECLARED PER SHARE:
   Regular dividends                                            $     .39      $    .68      $     .68
   Special dividends                                                   --           .26            .04
   Capital gain dividends                                              --           .17             --
                                                                ---------      --------      ---------
                                                                $     .39      $   1.11      $     .72
                                                                =========      ========      =========

Weighted-Average Common Shares Outstanding                         10,357        10,332         10,247

Weighted-Average Common Shares and Common Share
  Equivalents Outstanding                                          10,372        10,371         10,254

</TABLE>


                 See Notes to Consolidated Financial Statements.


                                     F - 4
<PAGE>



                    COMMERCIAL ASSETS, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

              For the Years Ended December 31, 1998, 1997 and 1996

                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                       Retained
                                                                                       Earnings
                                                                                     (Dividends In    Accumulated
                                                    Common Stock      Additional       Excess of        Other          Total
                                                    ------------       Paid-In        Accumulated    Comprehensive  Stockholders'
                                               Shares      Amount      Capital         Earnings)        Income         Equity
                                               ------      ------      -------          ---------       ------          ------
<S>                                            <C>         <C>       <C>               <C>              <C>            <C>
BALANCES - DECEMBER 31, 1995                   10,142      $  102    $  75,523         $   (915)        $(4,245)       $  70,465

Comprehensive Income

    Net income                                     --          --           --            6,959              --            6,959
    Unrealized appreciation of CMBS bonds          --          --           --               --             856              856
                                              -------      ------    ---------         --------         -------        ---------
       Comprehensive Income                        --          --           --            6,959             856            7,815
                                              -------      ------    ---------         --------         -------        ---------
Issuance of common stock                          174           1        1,036               --              --            1,037
Dividends                                          --          --           --           (7,398)             --           (7,398)
                                              -------      ------    ---------         --------         -------        ---------
BALANCES - DECEMBER 31, 1996                   10,316         103       76,559           (1,354)         (3,389)          71,919

Comprehensive Income

    Net income                                     --          --           --           13,706              --           13,706
    Reversal of unrealized holding losses upon
      restructuring of bonds
       Comprehensive Income                        --          --           --           13,706           3,389           17,095
                                              -------      ------    ---------         --------         -------        ---------
Issuance of common stock                           26           1          165               --              --              166
Dividends                                          --          --           --          (11,475)             --          (11,475)
                                              -------      ------    ---------          -------         -------        ---------
BALANCES - DECEMBER 31, 1997                   10,342         104       76,724              877              --           77,705
Issuance of common stock                           22          --          150               --              --              150
Net income                                         --          --           --            3,441              --            3,441
Dividends                                          --          --           --           (4,042)             --           (4,042)
                                              -------      ------    ---------         --------         -------        ---------
BALANCES - DECEMBER 31, 1998                   10,364      $  104    $  76,874         $    276         $    --        $  77,254
                                              =======      ======    =========         ========         =======        =========

</TABLE>



                 See Notes to Consolidated Financial Statements.

                                     F - 5
<PAGE>

                    COMMERCIAL ASSETS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                  Year Ended December 31,
                                                                      ------------------------------------------
                                                                         1998             1997            1996
                                                                      -----------      -----------     ---------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                   <C>              <C>             <C>
Net income                                                            $  3,441         $ 13,706        $  6,959
Adjustments to reconcile net income to net cash flows from
   operating activities:
   Amortization of premium/discount on CMBS bonds and short-term
      investments                                                          274           (2,381)         (2,155)
   Accrued income on participating mortgages and leases                   (443)              --              --
   Depreciation                                                             50               --              --
   Gain on sale of bonds                                                    --           (5,786)             --
   Issuance of common stock for dividend equivalent rights                  --               --             941
   Increase in accounts payable and accrued liabilities                    537              216             157
   Decrease (increase) in other assets                                    (154)          (1,327)             18
                                                                      --------         --------        --------
     Net cash provided by operating activities                           3,705            4,428           5,920
                                                                      --------         --------        --------

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of short-term investments                                 (91,946)              --              --
Collections on short-term investments                                   30,313               --              --
Proceeds from sale of short-term investments                            16,085               --              --
Investments in participating mortgages, net                             (8,959)              --              --
Purchases of real estate                                               (12,671)              --              --
Capital replacements                                                        (7)              --              --
Investments in Westrec                                                  (2,301)              --              --
Investment in real estate joint venture                                 (1,280)              --              --
Proceeds from restructuring of bonds                                        --           77,693              --
Collections on CMBS bonds                                                  242               --           9,857
Acquisitions of CMBS bonds                                                  --           (4,801)             --
                                                                      --------         --------        --------
     Net cash provided by (used in) investing activities               (70,524)          72,892           9,857
                                                                      --------         --------        --------

CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid                                                          (4,042)         (11,475)         (7,398)
Proceeds from the issuance of Common Stock                                  --               31              --
Paydowns on short-term financing                                            --               --            (700)
                                                                      --------         --------        --------
     Net cash used in financing activities                              (4,042)         (11,444)         (8,098)
                                                                      --------         --------        --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                   (70,861)          65,876           7,679

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                          74,153            8,277             598
                                                                      --------         --------        --------

CASH AND CASH EQUIVALENTS AT END OF YEAR                              $  3,292         $ 74,153        $  8,277
                                                                      ========         ========        ========

</TABLE>

                See Notes to Consolidated Financial Statements.

                                     F - 6
<PAGE>



                    COMMERCIAL ASSETS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.       Organization

Commercial  Assets,  Inc.  ("CAX"  and,  together  with  its  subsidiaries,  the
"Company") is a Maryland  corporation  that has interests in  manufactured  home
communities  and has  elected  to be taxed  as a real  estate  investment  trust
("REIT").  The Company's  common stock,  par value $.01, (the "Common Stock") is
listed on the American Stock Exchange under the symbol "CAX."

Prior to 1998,  the Company owned  subordinate  classes of  Commercial  Mortgage
Backed  Securities  ("CMBS  bonds").  The CMBS bonds were  issued in  commercial
mortgage loan securitizations involving multi-class issuances of debt securities
which were secured and funded as to the payment of  principal  and interest by a
specific  group of  mortgage  loans on  multi-family  or other  commercial  real
estate. In 1997, the Company decided to resecuritize its asset base and cease to
invest in subordinate  CMBS bonds.  In November 1997, the Company  resecuritized
its  subordinate  CMBS bond  portfolio by selling or redeeming  its various CMBS
bonds. The sale resulted in the Company receiving $77,693,000 cash and retaining
a  residual  interest  in an  owner  trust  arising  from  the  resecuritization
transaction  (see Note H). The Company  temporarily  invested the proceeds  from
such sale in government securities and short-term  investments until the Company
decided what class of assets to reinvest such funds in.

In the third quarter of 1998, the Company decided to invest in manufactured home
communities and as of December 31, 1998 has invested $23 million in interests in
manufactured  home communities and adjoining land with 640 developed  homesites,
50 sites ready for homes and 1,180 sites available for future development.

The  Company's  daily  operations  are  performed  by a manager  pursuant  to an
agreement   currently  in  effect   through   December  1999  ("the   Management
Agreement").  Prior to October 1996, the Company was managed by  subsidiaries of
MDC  Holdings,  Inc.  ("MDC").  In  September  1996,  MDC sold  Financial  Asset
Management  LLC ("FAM"),  the manager at such time, to an investor  group led by
Terry  Considine,  Thomas L. Rhodes and Bruce D. Benson.  In November  1997, the
assets of FAM,  including  the  Management  Agreement,  were  acquired  by Asset
Investors  Corporation  ("AIC"  and  together  with  its  subsidiaries,   "Asset
Investors"),  the current  manager.  Mr.  Considine  is Chairman of the Board of
Directors and Chief Executive  Officer of both the Company and Asset  Investors.
Mr.  Rhodes is Vice  Chairman  and Mr.  Benson is a director of both  companies.
Asset  Investors owns 27% of the Company's  Common Stock.  No change was made to
the Management  Agreement during 1998 other than an extension.  During 1999, the
Incentive  Fee has been  amended to provide  that such fee is based on  Adjusted
Funds From Operations ("AFFO") instead of REIT income.  Generally,  AFFO is book
net income plus  depreciation,  amortization and acquisition fees less an annual
capital replacement reserve equal to $50 per developed homesite.

The  Management  Agreement  is subject  to the  approval  of a  majority  of the
Company's  independent  directors and can be terminated by either party, without
cause,  with 60 days'  notice.  Since  the  Company  has no  employees,  certain
officers of Asset Investors are also officers of the Company.

                                     F - 7
<PAGE>

B.       Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its  majority-owned  subsidiaries.  All  significant  intercompany  balances and
transactions have been eliminated in consolidation.

Real Estate and Depreciation

Rental  properties are recorded at cost less  accumulated  depreciation,  unless
considered  impaired.  If events or  circumstances  indicate  that the  carrying
amount of a property may be impaired, the Company will make an assessment of its
recoverability  by  estimating  the future  undiscounted  cash flows,  excluding
interest charges, of the property.  If the carrying amount exceeds the aggregate
future cash flows,  the Company would recognize an impairment loss to the extent
the carrying  amount exceeds the fair value of the property.  As of December 31,
1998,  management  believes  that no  impairment  losses exist based on periodic
reviews. No impairment losses were recognized in 1998.

Depreciation is computed using the straight line method over an estimated useful
life of 25 years for land  improvements and buildings.  Significant  renovations
and  improvements,  which  improve or extend the useful  life of the asset,  are
capitalized and  depreciated  over the remaining  estimated  life.  Maintenance,
repairs and minor improvements are expensed as incurred.

Investments in Participating Mortgages

The Company has loans  secured by real estate which provide for an interest rate
return plus up to 50% of net  profits,  cash flows and sales  proceeds  from the
underlying real estate. The Company accounts for these investments as loans when
(a) the Company  does not have an interest  in the  borrower  and either (b) the
borrower has a substantial  equity  investment in the real estate  collateral or
(c) the  Company  has  recourse  to other  substantial  tangible  assets  of the
borrower.  As  such,  the  Company  records  interest  income  based on the rate
provided  for in the loan and records its share of any net profits or gains from
the sale of the underlying real estate when realized.  If the above requirements
are not met,  then the loan is  accounted  for as an equity  investment  in real
estate under the equity method of accounting.

Investment in Real Estate Joint Venture

An  investment  in a real estate  joint  venture in which the  Company  does not
control the joint venture's  activities is accounted for under the equity method
of accounting.

Investment in and Note Receivable from Westrec

The Company  classifies  its investment in and note  receivable  from Westrec as
available-for-sale  and carries  this at estimated  fair value in the  financial
statements.  The Company  believes that the contractual  amounts provided for in
the note  receivable  and the  agreement  under  which the  Company can sell its
shares of Westrec common stock approximates fair value at December 31, 1998.

Revenue Recognition

Interest on participating  mortgages is recorded based upon outstanding balances
and interest  rates per the terms of the  mortgages.  In  addition,  the Company
evaluates the  collectibility  of any unpaid  interest and provides  reserves as


                                     F - 8
<PAGE>

necessary. As of December 31, 1998, there is no reserve for uncollected interest
on the participating mortgages.  Rent on ground leases is recognized when earned
and due from lessee.

CMBS Bonds

Earnings from CMBS bonds was comprised of coupon  interest and the  amortization
of the purchase  discount.  Amortization of the purchase discount was recognized
by the interest method using a constant effective yield and assumed an estimated
rate of future  prepayments,  defaults and credit  losses which was adjusted for
actual experience. The allowance for credit losses was equal to the undiscounted
total of future estimated  credit losses.  In the event the Company adjusted the
estimate of future credit losses,  such adjustments would be included in current
period earnings.

The Company classifies its CMBS bonds as  available-for-sale.  Accordingly,  the
CMBS bonds are  carried at fair value in the  financial  statements.  Unrealized
holding  gains and losses on  available-for-sale  securities  are excluded  from
earnings and reported as a net amount in stockholders' equity until realized. If
the fair value of a CMBS bond declines  below its  amortized  cost basis and the
decline is considered to be "other than temporary," the amount of the write-down
would  be  included  in the  Company's  income.  The  decline  in fair  value is
considered  to be other than  temporary  if the cost basis  exceeds  the related
projected cash flow from the CMBS bond discounted at a risk-free rate of return.

Fair Value of Financial Instruments

The fair value of the  Company's  financial  instruments  generally  approximate
their carrying basis or amortized cost.

Income Taxes

CAX intends to operate in a manner that will permit it to qualify for the income
tax treatment  accorded to a REIT. If it so qualifies,  CAX's REIT income,  with
certain limited  exceptions,  will not be subject to federal or state income tax
at the corporate level. Accordingly, no provision for taxes has been made in the
financial statements.

In order to maintain its status as a REIT, CAX is required,  among other things,
to distribute  annually to its  stockholders at least 95% of its REIT income and
to meet certain asset,  income and stock  ownership  tests.  Regular and special
dividends declared in 1998, 1997 and 1996 represented ordinary taxable income to
the stockholders.  In addition, the Company declared a capital gains dividend of
$.17 per share in 1997.

Earnings Per Share

Basic  earnings  per  share  for  1998,   1997  and  1996  are  based  upon  the
weighted-average  number of shares of Common Stock outstanding  during each such
year.  Diluted  earnings per share  reflect the effect of dilutive,  unexercised
stock options of 15,000, 39,000 and 7,000 in 1998, 1997 and 1996, respectively.

Statements of Cash Flows

For purposes of reporting cash flows,  cash  maintained in bank accounts,  money
market funds and  highly-liquid  investments  are considered to be cash and cash
equivalents.  The Company paid interest  expense in cash of $8,000 in 1996.  The
Company paid no interest expense in 1998 or 1997.

                                     F - 9
<PAGE>

Non-cash  investing and  financing  activities  for 1998,  1997 and 1996 were as
follows (in thousands):

<TABLE>
<CAPTION>

                                                                     1998              1997             1996
                                                                   --------          --------         ------
Principal collections on CMBS bonds transferred to restricted
<S>                                                                 <C>               <C>              <C>
    cash                                                            $    --           $ 6,227          $ 1,214
Unrealized holding gains and losses on CMBS bonds                        --             3,389              856
Issuance of Common Stock for services                                   150               135               --
Distributions of Common Stock pursuant to dividend equivalent
    rights                                                               --                --               96
Issuance of Common Stock as consideration for the elimination
    of dividend equivalent rights                                        --                --              941

</TABLE>

Use of Estimates

The  preparation  of the  financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from those estimates.

Reclassifications

Certain  reclassifications  have  been  made in the 1997  and 1996  consolidated
financial  statements  to conform to the  classifications  currently  used.  The
effect of such reclassifications on amounts previously reported is immaterial.

C.       Short-term Investments

During  1998,  the  Company  acquired  short-term   investments   consisting  of
mortgage-backed  bonds guaranteed by Federal Home Loan Mortgage  Corporation and
Federal  National  Mortgage  Association.  These  investments  are classified as
available-for-sale,  and the fair market value at December 31, 1998 approximates
the carrying  value of  $45,066,000.  During 1998, the Company had no unrealized
gains  (losses) on these  investments.  The Company had  $16,085,000 in proceeds
from the sale of  short-term  investments  during  1998  and  realized  no gains
(losses)  from such  sales.  The  Company  determined  its  basis in these  sold
investments  using the  specific  identification  method.  At December 31, 1998,
these investments had the following maturities:

                         Amount              Maturity
                    ------------------    ---------------
                      $10,548,000              2000
                      $14,971,000              2003
                      $19,547,000              2022

D.       Investments in Manufactured Home Communities

During  1998,  the Company paid  $12,671,000  to acquire two  manufactured  home
communities with approximately 300 developed homesites, 50 sites ready for homes
and 940 sites available for future  development.  These investments are recorded
as real estate.

The Company also made  $8,959,000 of  participating  mortgages  involving  three
manufactured  home  communities  and adjacent land involving  approximately  340
developed  homesites  and 210 sites  available  for  future  development.  These
non-recourse  mortgages are secured by the three  manufactured home communities,
adjacent  land,  commercial  real  estate,  two  additional   manufactured  home
communities and one recreational vehicle park. These investments are recorded as
participating mortgages.

                                     F - 10
<PAGE>

Finally,  the  Company  invested  $1,280,000  in a  real  estate  joint  venture
involving a  manufactured  home  community  with 30 sites  available  for future
development. The Company accounts for this as an investment in real estate joint
venture  since the other party to the venture  controls  the  activities  of the
venture.

The following  unaudited  pro-forma  information has been prepared  assuming the
acquisition  of  the  interests  in  manufactured   home   communities  and  the
restructuring of the Company's CMBS bonds had been completed at the beginning of
the periods  presented.  The unaudited  pro-forma  information  is presented for
informational purposes only and is not necessarily indicative of what would have
occurred if the  restructurings  and the  acquisitions  had been completed as of
those dates.  In addition,  the  pro-forma  information  is not intended to be a
projection of future results. The unaudited, pro-forma results of operations for
1998 and 1997 are as follows (in thousands, except per share data):

<TABLE>
<CAPTION>

                                                                                     1998                    1997
                                                                                   ----------             ----------
Revenues (income from participating mortgages and leases, interest
<S>                                                                                <C>                    <C>
    income and CMBS bonds revenues)                                                $    5,375             $    6,693
                                                                                   ==========             ==========

Income before gain on restructuring of bonds                                       $    3,724             $    5,529
Gain on restructuring of CMBS bonds                                                        --                  6,069
                                                                                   ----------             ----------
Net income                                                                         $    3,724             $   11,598
                                                                                   ==========             ==========

Basic and diluted earnings per share                                               $      .36             $     1.12
                                                                                   ==========             ==========
</TABLE>

The Company is actively seeking to acquire additional  communities and currently
is engaged in negotiations  relating to the possible  acquisition of a number of
communities.   At  any  time,  these  negotiations  are  at  various  stages  of
completion,   which  may  include  outstanding   contracts  to  acquire  certain
manufactured  home  communities,  subject  to  satisfactory  completion  of  the
Company's due diligence review.

E.       Investments in Participating Mortgages

As of December 31, 1998, the Company has investments in participating  mortgages
secured  by  three   manufactured  home  communities  and  adjoining  land.  The
non-recourse  notes accrue  interest at 15% per annum and pay interest at 9% per
annum through August 1999,  with the pay rate increasing 1% each year thereafter
to a maximum of 12% per annum.  The loans mature in September  2007. The Company
also receives  additional interest of 50% of the net profits and cash flows from
the  properties.  In  addition,  as  of  December  31,  1998,  the  Company  has
investments  in  participating  mortgages  secured by individual  homes and home
sites within two manufactured home communities.  These mortgages accrue interest
at 10% and pay interest from the cash flows from the homesites. The Company also
receives  additional  interest of 50% of the net profits and cash flows from the
homesites. As of December 31, 1998, the Company had investments in participating
mortgages of $9,328,000 and income of $451,000 from these mortgages during 1998.

                                     F - 11
<PAGE>

The following  table provides  unaudited  summary  financial  information of the
borrower  with  respect to these  participating  mortgages  for the period  from
August  1998  (date  of  participating  mortgages)  to  December  31,  1998  (in
thousands):

                                                                     (unaudited)
Rental and other property revenues                                   $      458
Property operation expenses                                                (234)
Depreciation expense                                                        (31)
                                                                     ----------
Income from rental property operations                                      193
                                                                     ----------
Net loss                                                                   (108)

F.       Real Estate

Real estate at December 31, 1998, is as follows (in thousands):

Land                                                                 $    3,798
Land improvements and buildings                                           8,880
                                                                     ----------
                                                                         12,678
Less accumulated depreciation                                               (50)
                                                                     ----------

Investment in real estate, net                                       $   12,628
                                                                     ==========

Land  improvements and buildings  consist  primarily of  infrastructure,  roads,
landscaping,  clubhouses,  maintenance  buildings and common amenities.  The two
manufactured  home communities  involving the above real estate have been leased
to a third party.  The first lease involves a community  acquired by the Company
at a cost of $1.4  million and is for a term of 50 years.  The Company  receives
initial annual lease payments equal to 9% of its cost. The annual lease payments
increase by 4% per annum over the prior year's lease  payments  until the annual
lease  payment  equals 13% of the  Company's  cost.  In  addition,  the  Company
receives  additional  rent equal to 50% of the  lessee's  net cash flow from the
property.  In the event of a sale of the  property,  the  Company  receives  all
proceeds  until it has realized its total  purchase price of the property plus a
13% per  annum  rate of  return.  The  Company  then  receives  50% of any sales
proceeds in excess of such amount.

The other  community  acquired by the Company  involves  two phases and has been
leased  to the same  third  party  for 50  years.  Phase  One has 220  developed
homesites and 24 sites ready for homes.  Phase Two involves 940 sites  available
for future development.  Initial annual lease payments on Phase One is $890,000,
increasing by 4% per annum.  There are no lease  payments on Phase Two until the
sites are ready for homes, at which time, the annual lease payments on Phase Two
will be equal to 10%  times the costs  incurred  in  developing  Phase  Two.  In
addition,  the lessee  pays to the Company  additional  rent equal to 50% of the
lessee's net cash flow from the  property.  In the event of a sale,  the Company
receives 50% of any sales proceeds in excess of the Company's cost.

G.     Investment in Real Estate Joint Venture

In November 1997, the Company invested  $1,280,000 in a joint venture  involving
the  development  of 30 homesites near Newport  Beach,  California.  The Company
receives a priority  return from the venture  until the Company has  received an
amount equal to 9% times  $1,250,000 for 1999. The Company's  subsequent  annual
priority return increases by 5% over the prior year's amount. The other venturer
then  receives a similar  percentage  return on its $300,000  investment  in the
venture.  In the event the property is sold,  the Company  receives all proceeds
until it has received its investment plus 20% per annum. The other venturer then
receives all proceeds until it has received its  investment  plus 20% per annum.


                                     F - 12
<PAGE>

Any excess sales  proceeds are then shared  equally.  The Company did not record
any income from this real estate joint venture in 1998.

H.     CMBS Bonds

In November 1997, the Company  resecuritized its portfolio of retained interests
in prior  securitizations  that are in the form of CMBS  bonds.  Nine bonds were
sold, one bond was redeemed and the remaining two CMBS bonds were  resecuritized
by transferring the bonds and related restricted cash to an owner trust in which
the Company retained a residual interest. In a private placement, the trust then
sold debt securities  representing  senior interests in the trust's assets.  The
Company  recorded the  resecuritization  of its portfolio as a sale. The Company
received  $77,693,000  in cash proceeds and recorded a $5,786,000  gain from the
sale.  The Company  determined  its basis in the CMBS bonds  using the  specific
identification  method.  The  Company  paid  $426,000 in  incentive  fees to its
manager in connection  with the sale.  These  incentive fees were netted against
the gain.

The estimated  fair value of the residual  interest  retained by the Company was
$2,000,000.  During 1998,  the Company  received  $403,000 of which $242,000 was
recorded as a reduction in the net book value of the retained residual interest,
resulting  in a  net  book  value  of  $1,739,000  which  the  Company  believes
approximates  fair  market  value at  December  31,  1998.  The  Company  had no
unrealized  gains  (losses) on its CMBS bonds at December 31, 1998 and 1997. The
maturity  dates of the CMBS bonds range from 2001 to 2004 and the Company had no
sales of CMBS bonds during 1998 or 1996.

In 1997,  three  mortgages  underlying  one of the  Company's  CMBS  bonds  were
prepaid.  As a result of the  prepayment,  the  Company  recognized  $482,000 of
income  from a  prepayment  penalty  received  and  $2,305,000  of  income  from
accelerated discount amortization.

I.       Investment in and Note Receivable from Westrec

Prior  to  deciding  to  acquire  manufactured  home  communities,  the  Company
evaluated  acquiring interests in marinas and, in connection with this, acquired
a 12% interest in Westrec Marina  Management Inc.  ("Westrec") for approximately
$2,500,000 in March 1998. In the third quarter of 1998,  the Company  decided to
invest in manufactured  housing  communities  and not to invest in marinas.  The
Company has valued its  investment in Westrec common stock at the price at which
the Company can re-sell such stock to Westrec. The Company has expensed $500,000
for the portion of its  investment  in Westrec in excess of the sales price plus
additional due  diligence,  legal,  and other costs incurred in connection  with
investigating  investments  in marinas.  The Company also has a note  receivable
from an affiliate of Westrec.  The  outstanding  balance of the note  receivable
(including  interest  receivable)  is $1,883,000  and $1,710,000 at December 31,
1998 and 1997, respectively.  In May 1998, the Company issued to an affiliate of
Westrec  warrants to purchase 322,000 shares of Common Stock at $6.60 per share.
These warrants were cancelled in 1998.




                                     F - 13
<PAGE>




J.       Stock Option Plan

The Company has a Stock Incentive Plan for the issuance of  non-qualified  stock
options to its  directors and officers,  employees and  consultants  which as of
December  31,  1998,  permitted  the issuance of up to an aggregate of 3,000,000
shares of Common  Stock,  of which  454,000 and 717,000  related to  outstanding
stock options as of December 31, 1998 and 1997, respectively. The exercise price
for stock  options  may not be less than  100% of the fair  market  value of the
shares of Common Stock at the date of the grant.  The stock options have various
terms ranging up to 10 years.

Prior to May 30,  1996,  stock  options  granted  under  the Stock  Option  Plan
automatically  accrued  dividend  equivalent  rights  ("DERs") based on: (i) the
number  of  shares  underlying  the  unexercised  portion  of the  option;  (ii)
dividends  declared on the outstanding  shares of the Company between the option
grant  date and the option  exercise  date;  and (iii) the  market  price of the
shares on the dividend record date. DERs were paid in shares of Common Stock (or
in other  property that  constituted  the dividend) at the time of each dividend
distribution.  During 1996, the Company  incurred  $96,000 of expenses from DERs
covering  16,000 shares of Common Stock which were subject to issuance  pursuant
to options  granted under the plan. On May 30, 1996, the Company's  stockholders
approved the issuance of Common  Stock in exchange for the  elimination  of DERs
for such options and, as a result, the Company recorded a $966,000 charge during
1996.

Presented below is a summary of the changes in stock options for the three years
ended December 31, 1998. As of December 31, 1998, the  outstanding  options have
exercise   prices   ranging   from   $5.625  to  $6.875  and  have  a  remaining
weighted-average life of 2.3 years.

                                                    Weighted
                                                     Average
                                                  Exercise Price        Shares
                                                  --------------        ------

Outstanding - December 31, 1995                     $ 6.94             574,000
     Granted                                          5.86              83,000
     Forfeited                                        6.68              (9,000)
                                                    ------          ----------
Outstanding - December 31, 1996                       6.80             648,000
     Granted                                          6.30              87,000
     Forfeited                                        7.30             (13,000)
     Exercised                                        6.12              (5,000)
                                                    ------          ----------
Outstanding - December 31, 1997                       6.74             717,000
     Granted                                          6.62              38,000
     Forfeited                                        7.50            (290,000)
     Expired                                          7.25             (11,000)
                                                    ------          -----------
Outstanding - December 31, 1998                     $ 6.23             454,000
                                                    ======          ==========

Options  granted  to date vest  over  various  periods  up to two  years.  As of
December 31, 1998, 1997 and 1996, 445,000, 660,000 and 454,000, respectively, of
the  outstanding  options were  exercisable.  As of December 31, 1998,  1997 and
1996, the weighted  average  exercise  price of  exercisable  options was $6.22,
$6.78 and $6.78, respectively.

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  rather than the  alternative  fair
value  accounting  provided for under SFAS No. 123,  "Accounting for Stock-Based
Compensation."  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.

                                     F - 14
<PAGE>

Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been  determined  as if the Company had  accounted for its
employee stock options under the fair value method of that  Statement.  The fair
value  for  these   options  was  estimated  at  the  date  of  grant  using  an
option-pricing model with the following weighted average assumptions:

<TABLE>
<CAPTION>

                                                                 1998                 1997                 1996
                                                           ----------------     ----------------     ----------------
<S>                                                          <C>                   <C>                 <C>
Range of risk free interest rate                                 6.0%                 6.2%             6.1% to 7.2%
Expected dividend yield                                          8.0%                 8.0%                 9.8%
Volatility factor of the expected market price of the
   Company's common stock                                       0.280               0.156                 0.150
Weighted average expected life of options                    10.0 years            4.2 years            4.2 years

</TABLE>

Option  valuation  models  require  the input of highly  subjective  assumptions
including  the expected  stock price  volatility.  Because the  Company's  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  single  measure  of the fair value of its
employee stock options.

During 1998,  1997 and 1996,  the estimated  weighted-average,  grant-date  fair
value of options  granted  was $.76,  $.42 and $.45,  respectively.  The Company
assumed  lives of five to ten years and  risk-free  interest  rates equal to the
Five- or  Ten-Year  U.S.  Treasury  rate on the date the  options  were  granted
depending on option term. In addition,  the expected stock price  volatility and
dividend growth rates were estimated based upon historical averages over the two
years ended  December 31, 1998,  adjusted for changes  based upon the  Company's
investment in manufactured home community assets.

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 follows (in thousands except for per share data):

<TABLE>
<CAPTION>

                                                                              1998            1997           1996
                                                                          ------------    ------------    -----------
<S>                                                                         <C>             <C>            <C>
Pro forma net income                                                        $3,402          $ 13,670       $  6,932
Pro forma basic and diluted earnings per share                              $ 0.33          $   1.32       $   0.68

</TABLE>

K.       Management Fees

The Company operates under a management agreement, pursuant to which the manager
advises the Company on its business and oversees its daily  operations,  subject
to the supervision of the Company's Board of Directors. Asset Investors has been
the manager since  November  1997.  Prior to November 1997, FAM was the manager.
The  Management  Agreement  provides that the manager  receives a "Base Fee," an
"Acquisition  Fee" and an "Incentive Fee." The Base Fee is payable  quarterly in
an amount equal to 1% per annum of the Company's  average net book value of real
estate-related  assets. The Acquisition Fee equals 0.5% of the cost of each real
estate asset  acquired.  The Incentive Fee equals 20% of the amount by which the
Company's REIT taxable income exceeds the amount  calculated by multiplying  the
Company's "average net worth" by the "Ten-Year United States Treasury rate" plus
1%. In 1997 and 1996,  the manager also received  "Administrative  Fees" on each
CMBS bond  outstanding.  Administrative  Fees were terminated in connection with
the November 1997 restructuring of the CMBS bond portfolio.

                                     F - 15
<PAGE>

Fees paid to the manager during 1998, 1997 and 1996 were (in thousands):

<TABLE>
<CAPTION>

                                      1998               1997               1996
                                  --------------    ---------------     --------------
<S>                                  <C>               <C>                <C>
Base Fees                            $   87            $    598           $    654
Acquisition Fees                        124                  23                 --
Incentive Fees                           --               1,024                713
Administrative Fees                      --                  56                 58
                                     ------            --------           --------
                                     $  211            $  1,701           $  1,425
                                     ======            ========           ========
</TABLE>

Acquisition  Fees  incurred  in 1997  were  capitalized  as part of the  cost of
acquiring CMBS bonds. In addition,  the Company  incurred  $426,000 of Incentive
Fees in 1997  relating  to the  gain on the  restructuring  of the  CMBS  bonds.
Acquisition  Fees incurred in 1998 were expensed  because such fees were paid to
Asset Investors, owner of 27% of the Company's Common Stock.

The Management  Agreement has been extended  through  December 31, 1999.  During
1999,  the  Incentive  Fee has been amended to provide that such fee is based on
CAX's Funds From Operations,  less an annual capital  replacement  reserve of at
least $50 per developed homesite, instead of REIT income. In general, Funds From
Operations  is equal to book net  income  plus  depreciation,  amortization  and
acquisition fees.

L.       Commitments

In connection with the acquisition of a manufactured home community, the Company
entered into an earn-out agreement with respect to 154 unoccupied homesites. The
Company will pay $17,000 to the former owner for each newly occupied homesite.

The Company has agreed to acquire  from time to time  ground  leases  related to
individual  homesites.  The  purchase  price for each lease will be equal to the
base  annual rent  provided  for in each such  ground  lease  divided by 9%. The
Company is not required to acquire such leases in groups of less than 10 leases.
The maximum number of leases the Company might purchase is approximately 500 for
total consideration of approximately $20 million.

M.       Operating Segments

The Company has recently begun  investing in manufactured  home  communities and
management assesses the performance of the Company as one operating segment.

N.       Other Matters

The  Company's  Charter  authorizes  the Board of Directors to issue  25,000,000
shares,  par value $.01 per share, of Preferred Stock. The Board of Directors is
authorized  to fix the  terms of the  Preferred  Stock,  including  preferences,
powers and rights (including voting rights) senior to the Common Stock. To date,
the Company has not issued any shares of Preferred Stock.

                                     F - 16
<PAGE>

O.       Selected Quarterly Financial Data (unaudited)

Presented  below  is  selected  quarterly  financial  data for the  years  ended
December 31, 1998 and 1997 (in thousands, except per share data).

<TABLE>
<CAPTION>

                                                                           Three Months Ended,
                                                    -----------------------------------------------------------------
                                                     December 31,     September 30,      June 30,         March 31,
                                                     ------------     -------------  --------------  ---------------
1998
--------------------------------------------------- -------------- ----------------- --------------- ----------------
<S>                                                   <C>              <C>              <C>              <C>
Income from rental property operations                $     390        $    147         $     --         $     --
CMBS bonds                                                   37              40               44               40
Interest and other income                                   767           1,012            1,042            1,053
Net income                                                  967             486              986            1,002
Per share amounts:
   Basic and diluted earnings                               .09             .05              .09              .10
   Regular dividends                                        .13             .13              .13               --
   Stock prices 1
     High                                                 6-1/4           6-7/8                7                7
     Low                                                  5-1/8          5-9/16            6-1/4           6-7/16
Weighted-average common shares outstanding               10,364          10,364           10,359           10,342
Weighted-average common shares and common share
   equivalents outstanding                               10,366          10,373           10,387           10,378

1997
--------------------------------------------------- -------------- ----------------- --------------- ----------------
CMBS bonds revenue                                    $   1,512        $  3,423        $   2,193         $  2,044
Interest and other income                                   734              51               49              111
Gain on restructuring of bonds                            5,786              --               --               --
Net income                                                7,677           2,484            1,810            1,735
Per share amounts:
   Basic and diluted earnings                               .74             .24              .17              .17
   Regular dividends                                        .17             .17              .17              .17
   Special dividends                                        .26              --               --               --
   Capital gains dividends                                  .17              --               --               --
   Stock prices 1
     High                                               7-11/16          7-3/16          6-11/16                7
     Low                                                 6-9/16           6-5/8           6-3/16            6-3/8
Weighted-average common shares outstanding               10,342          10,342           10,326           10,316
Weighted-average common shares and common share
   equivalents outstanding                               10,408          10,381           10,348           10,351
---------------------------------------------------
<FN>
1     Daily closing prices as reported on the AMEX Composite Tape.
</FN>
</TABLE>




                                     F - 17
<PAGE>







                             Commercial Assets, Inc.

                                  SCHEDULE III

                    Real Estate and Accumulated Depreciation

                                December 31, 1998

                         (In Thousands Except Site Data)

<TABLE>
<CAPTION>

                                                                                                     December 31, 1998
                                                                                    ------------------------------------------------
                                                                           Cost                                     Total
                                                                         Capital-                                    Cost
                                                           Initial Cost    ized        Total Cost                   Net of
                                                        ---------------- Subsequ- ----------------------  Accumu-  Accumu-
                                                 Number       Buildings    uent         Buildings          lated    lated
                 Date                     Year     of           and         to             and            Depreci- Depreci- Encum-
 Property Name Acquired  Location      Developed Sites Land Improvements Acquis. Land Improvements Total   ation    ation  brances
 ---------------------------------------------------------------------------------------------------------------------------------
<S>             <C>                     <C>    <C>   <C>      <C>         <C>   <C>     <C>      <C>       <C>   <C>       <C>
Cypress Greens  1998   Lakeland, FL     1986    107  $  240   $1,129      $7    $  240  $1,136   $1,376    $16   $  1,360  $ --

Riverside       1998   Ruskin, FL       1984  1,186   3,558    7,744      --     3,558   7,744   11,302     34     11,268    --
                                             ------  ------  --------   ------- ------- ------  -------   ----   -------- -------
           Total                              1,293  $3,798   $8,873      $7    $3,798  $8,880  $12,678    $50    $12,628  $ --
                                             ======  ======  ========   ======= ======= ======  ========  ====   ======== =======

</TABLE>



                                     F - 18
<PAGE>




                             COMMERCIAL ASSETS, INC.

                    REAL ESTATE AND ACCUMULATED DEPRECIATION

                For the Years Ended December 31, 1998, 1997, 1996

                                 (in thousands)
<TABLE>
<CAPTION>

                                                                                     Year Ended December 31,
                                                                           ---------------------------------
                                                                             1998              1997             1996
                                                                           --------          -------          ------
Real Estate

<S>                                                                       <C>               <C>               <C>
    Balance at beginning of year                                          $       --        $      --         $    --
    Additions during the year:
       Real estate acquisitions                                               12,671               --              --
       Additions                                                                   7               --              --
    Dispositions                                                                  --               --              --
                                                                          ----------        ---------         -------
    Balance at end of year                                                $   12,678        $      --         $    --
                                                                          ==========        =========         =======


Accumulated Depreciation

    Balance at beginning of year                                          $       --        $      --         $    --
    Additions during the year:
       Depreciation                                                              (50)              --              --
    Dispositions                                                                  --               --              --
                                                                          ----------        ---------         -------
    Balance at end of year                                                $      (50)       $      --         $    --
                                                                          ==========        =========         =======


</TABLE>

See  Report of  Independent  Auditors  and  accompanying  notes to  consolidated
financial statements.




                                     F - 19
<PAGE>




                             COMMERCIAL ASSETS, INC.

                                   SCHEDULE IV

                          MORTGAGE LOANS ON REAL ESTATE

                                December 31, 1998

                                 (in thousands)

<TABLE>
<CAPTION>

                                                                                                            Principal
                                                                                                            Amount of
                                                                                                              Loans
                                                                                                            Subject to
                                        Final      Periodic                  Face           Carrying        Delinquent
                        Interest       Maturity    Payment     Prior       Amount of        Amount of      Principal or
    Description           Rate          Date        Terms      Liens       Mortgages        Mortgages        Interest
---------------------  ------------  ----------  ----------  ---------  --------------  ---------------  ---------------
<S>                        <C>          <C>           <C>     <C>         <C>             <C>                <C>
Fiesta Village             (1)          9/2007        (1)     $   --      $   8,033       $    8,462         $      --
Savanna Club               10%          9/2018        (2)         --            822              828                --
Sun Lake                   10%          9/2018        (2)         --             38               38                --
                                                             ---------  --------------  ---------------  ---------------
                                                              $   --      $   8,893       $    9,328         $      --
                                                             =========  ==============  ===============  ===============
<FN>

(1)    The Fiesta  Village loan is comprised of five  mortgage  loans secured by
       three  manufactured home communities and adjoining land. The notes accrue
       interest at 15% per annum and pay interest at 9% per annum through August
       1999,  with the pay rate  increasing 1% each year thereafter to a maximum
       of 12% per annum.

(2)      Interest is paid from any cash flows from the property.

</FN>
</TABLE>



                                     F - 20
<PAGE>




                             COMMERCIAL ASSETS, INC.

                                   SCHEDULE IV

                          MORTGAGE LOANS ON REAL ESTATE

                                December 31, 1998

                                 (in thousands)

<TABLE>
<CAPTION>

                                                                                     Year Ended December 31,
                                                                           -------------------------------------------
                                                                             1998              1997             1996
                                                                           --------          -------          --------
<S>                                                                       <C>               <C>               <C>
    Balance at beginning of period                                        $       --        $      --         $    --

    Additions during period:
       Investments in participating mortgages                                  8,913               --              --
       Accrued interest                                                          371               --              --
       Loan costs                                                                 70               --              --
    Deductions during period:
       Collections of principal                                                  (20)              --              --
       Collections of interest                                                    (2)              --              --
       Amortization of loan costs                                                 (4)              --              --
                                                                          ----------        ---------        --------

    Balance at close of period                                            $    9,328        $      --         $    --
                                                                          ==========        =========         =======


</TABLE>



                                     F - 21
<PAGE>




                                  EXHIBIT INDEX

          Exhibit No.       Description

               3.1          Amended and Restated  Charter of Commercial  Assets,
                            Inc.  (the  "Registrant"),  (incorporated  herein by
                            reference to Exhibit 3.1 to  Amendment  No. 1 to the
                            Registrant's  Registration  Statement on Form 10 (as
                            amended,   the   "Form   10")  of  the   Registrant,
                            Commission  File No.  1-22262,  filed on August  31,
                            1993).

               3.2          By-laws of the Registrant,  (incorporated  herein by
                            reference to Exhibit 3.2 to  Amendment  No. 1 to the
                            Form  10 of  the  Registrant,  Commission  File  No.
                            1-22262, filed on August 31, 1993).

               3.3          Amendment to the By-laws of the Registrant  dated as
                            of  January   14,  1997   (incorporated   herein  by
                            reference to Exhibit 3.3 to the Registrant's  Annual
                            Report on Form 10-K for the year ended  December 31,
                            1996,  Commission File No.  1-22262,  filed on March
                            24, 1997).

               4.1          Form of certificate representing common stock of the
                            Registrant  (incorporated  herein  by  reference  to
                            Exhibit  4.2 to the Form 10-Q for the  period  ended
                            March 31, 1994, of the  Registrant,  Commission File
                            No. 1-22262, filed on May 16, 1994).

               4.2          Automatic Dividend Reinvestment Plan relating to the
                            common stock of the Registrant  (incorporated herein
                            by reference  to Exhibit 4.2 to  Amendment  No. 1 to
                            the Form 10 of the  Registrant,  Commission File No.
                            1-22262, filed on August 31, 1993).

               10.1         Contribution Agreement, dated as of August 20, 1993,
                            between   the   Registrant   and   Asset   Investors
                            (incorporated herein by reference to Exhibit 10.1 to
                            Amendment  No. 1 to the  Form 10 of the  Registrant,
                            Commission  File No.  1-22262,  filed on August  31,
                            1993).

               10.2         Registration  Rights  Agreement,  dated as of August
                            20, 1993, between the Registrant and Asset Investors
                            (incorporated herein by reference to Exhibit 10.2 to
                            Amendment  No. 2 to the  Form 10 of the  Registrant,
                            Commission File No. 1-22262,  filed on September 15,
                            1993).

               10.3*        Management  Agreement,  dated as of January 1, 1995,
                            between   the   Registrant   and   Financial   Asset
                            Management   Corporation   (incorporated  herein  by
                            reference  to Exhibit  10.3(b)  to the  Registrant's
                            Quarterly  Report on Form 10Q,  Commission  filed on
                            May 12, 1995).

               10.3(a)*     Amendment to the  Management  Agreement  dated as of
                            January 1, 1996 between the Registrant and Financial
                            Asset Management Corporation (incorporated herein by
                            reference  to Exhibit  10.3(a)  to the  Registrant's
                            Quarterly  Report on Form 10-Q for the period  ended
                            March 31, 1996,  Commission File No. 1-22262,  filed
                            on May 15, 1996).

                                     - 21 -
<PAGE>

               10.3(b)*     Assignment of the Management  Agreement  dated as of
                            April 1, 1996  between  Financial  Asset  Management
                            Corporation  and  Financial  Asset   Management  LLC
                            (incorporated herein by reference to Exhibit 10.3(b)
                            to the  Registrant's  Quarterly Report on Form 10-Q,
                            Commission File No. 1-22262, filed on May 15, 1996).

               10.3(c)*     Amendment to the  Management  Agreement  dated as of
                            January  1,  1997,   between  the   Registrant   and
                            Financial Asset Management LLC (incorporated  herein
                            by reference to Exhibit 10.3(c) to the  Registrant's
                            Annual  Report  on  Form  10-K  for the  year  ended
                            December  31,  1996,  Commission  File No.  1-22262,
                            filed on March 24, 1997).

               10.4*        1998  Stock   Incentive   Plan  of  the   Registrant
                            (incorporated herein by reference to Exhibit 10.4 to
                            the  Registrant's  Quarterly  Report  on Form  10-Q,
                            Commission  File  No.  1-22262,  filed  on July  31,
                            1998).

               10.7*        Form  of   Indemnification   Agreement  between  the
                            Registrant  and  each  Director  of  the  Registrant
                            (incorporated herein by reference to Exhibit 10.5 to
                            Amendment  No. 1 to the  Form 10 of the  Registrant,
                            Commission  File No.  1-22262,  filed on August  31,
                            1993).

               10.8         Trust  Agreement,  dated  as of  November  3,  1997,
                            between CAX DTR Securitization  Corp. and Wilmington
                            Trust Company  (incorporated  herein by reference to
                            Exhibit 10.9 to the  Registrant's  Current Report on
                            Form 8-K dated November 3, 1997, Commission File No.
                            1-22262, filed on November 14, 1997).

               10.8(a)      Note  Purchase  Agreement,  dated as of  November 3,
                            1997,  among Structured  Mortgage Trust 1997-2,  CAX
                            DTR    Securitization    Corp.,    and   PaineWebber
                            Incorporated   Company   (incorporated   herein   by
                            reference  to Exhibit  10.9(a)  to the  Registrant's
                            Current  Report on Form 8-K dated  November 3, 1997,
                            Commission File No.  1-22262,  filed on November 14,
                            1997).

               10.8(b)      Trust Indenture and Security Agreement,  dated as of
                            November 3, 1997, between Structured  Mortgage Trust
                            1997-2  and  LaSalle  National  Bank,  as  Indenture
                            Trustee Company (incorporated herein by reference to
                            Exhibit 10.9(b) to the  Registrant's  Current Report
                            on Form 8-K dated November 3, 1997,  Commission File
                            No. 1-22262, filed on November 14, 1997).

               10.8(c)      Contribution  Agreement,  dated  as of  November  3,
                            1997, between  Commercial  Assets,  Inc. and CAX DTR
                            Securitization Corp. Company (incorporated herein by
                            reference  to Exhibit  10.9(c)  to the  Registrant's
                            Current  Report on Form 8-K dated  November 3, 1997,
                            Commission File No.  1-22262,  filed on November 14,
                            1997).

               10.8(d)      Securitization  Cooperation  Agreement,  dated as of
                            November  3,  1997,  among  CAX  DTR  Securitization
                            Corp.,  Commercial Assets, Inc., Structured Mortgage
                            Trust 1997-2, and PaineWebber  Incorporated  Company
                            (incorporated herein by reference to Exhibit 10.9(d)
                            to the Registrant's Current Report on Form 8-K dated
                            November 3, 1997, Commission File No. 1-22262, filed
                            on November 14, 1997).

                                     - 22 -
<PAGE>

               10.8(e)      Side Letter Agreement, dated as of November 3, 1997,
                            between  Commercial  Assets,  Inc.  and  PaineWebber
                            Incorporated   Company   (incorporated   herein   by
                            reference  to Exhibit  10.9(e)  to the  Registrant's
                            Current  Report on Form 8-K dated  November 3, 1997,
                            Commission File No.  1-22262,  filed on November 14,
                            1997).

               10.9         Asset  Purchase  Agreement  effective as of November
                            20, 1998, between The Moorings of Manatee,  Inc. and
                            Community    Acquisition   &    Development    Corp.
                            (incorporated  herein by reference to Exhibit  10.10
                            to the Registrant's Current Report on Form 8-K dated
                            November  20,  1998,  Commission  File No.  1-22262,
                            filed on December 4, 1998).

               10.9(a)      Assignment of Agreement effective as of November 20,
                            1998,  between  Community  Acquisition & Development
                            Corp. and CAX Riverside, L.L.C. (incorporated herein
                            by reference to Exhibit 10.10(a) to the Registrant's
                            Current  Report on Form 8-K dated November 20, 1998,
                            Commission  File No.  1-22262,  filed on December 4,
                            1998).

               10.9(b)      Agreement for  Assignment of Contracts and Convenant
                            not to Compete  effective  as of November  20, 1998,
                            between    Moorings    Development   and   Marketing
                            Corporation, Riverside Sod and Supply Company, Barry
                            Spencer  and  Community  Acquisition  &  Development
                            Corp.  (incorporated  herein by reference to Exhibit
                            10.10(b) to the Registrant's  Current Report on Form
                            8-K dated  November  20, 1998,  Commission  File No.
                            1-22262, filed on December 4, 1998).

               10.9(c)      Assignment of Agreement effective as of November 20,
                            1998,  between  Community  Acquisition & Development
                            Corp. and CAX Riverside, L.L.C. (incorporated herein
                            by reference to Exhibit 10.10(c) to the Registrant's
                            Current  Report on Form 8-K dated November 20, 1998,
                            Commission  File No.  1-22262,  filed on December 4,
                            1998).

               10.9(d)      Riverside  Master  Lease  Agreement,   dated  as  of
                            November 20, 1998, between CAX Riverside,  L.L.C. as
                            lessor and Riverside Golf Course  Community,  L.L.C.
                            as lessee.

               10.10        Securities Purchase Agreement, dated as of March 26,
                            1998,   between   Registrant   and  Westrec   Marina
                            Management,  Inc.  (incorporated herein by reference
                            to Exhibit 10.1 to the Registrant's Quarterly Report
                            on Form 10-Q dated March 31, 1998,  Commission  File
                            No. 1-22262, filed on May 14, 1998).

               10.10(a)     Put and  Call  Agreement  dated as of  November  30,
                            1998,  between the  Registrant  and  Westrec  Marina
                            Management,  Inc. and Michael M. Sachs (incorporated
                            herein  by  reference  to  Exhibit  10.10(a)  to the
                            Registrant's Annual Report on Form 10-K for the year
                            ended  December  31,  1998,   Commission   File  No.
                            1-22262, filed on March 24, 1999).

               10.10(b)     Secured  Promissory  Note dated as of  November  30,
                            1998,  between the  Registrant  and Michael M. Sachs
                            (incorporated   herein  by   reference   to  Exhibit


                                     - 23 -
<PAGE>

                            10.10(b) to the  Registrant's  Annual Report on Form
                            10-K  for  the  year  ended   December   31,   1998,
                            Commission  File No.  1-22262,  filed  on March  24,
                            1999).

               10.11        Form of Amended and Restated Promissory Note entered
                            into in connection with  investments in mortgages on
                            three  manufactured  home  communities and adjoining
                            land  (incorporated  herein by  reference to Exhibit
                            10.11 to the Registrant's Annual Report on Form 10-K
                            for the year ended  December  31,  1998,  Commission
                            File No. 1-22262, filed on March 24, 1999).

               10.11(a)     Amended  and  Restated  Combination  Deed of  Trust,
                            Assignment of Rents,  Security Agreement and Fixture
                            Financing  Statement entered into in connection with
                            investments in mortgages on three  manufactured home
                            communities and adjoining land (incorporated  herein
                            by reference to Exhibit 10.11(a) to the Registrant's
                            Annual  Report  on  Form  10-K  for the  year  ended
                            December  31,  1998,  Commission  File No.  1-22262,
                            filed on March 24, 1999).

               21.1         List  of   Subsidiaries   (incorporated   herein  by
                            reference  to Exhibit  10.11(a) to the  Registrant's
                            Annual  Report  on  Form  10-K  for the  year  ended
                            December  31,  1998,  Commission  File No.  1-22262,
                            filed on March 24, 1999).

               23.1         Independent Auditors' Consent - Ernst & Young LLP.

               27.1         Financial Data Schedule.

* Management contract or compensatory plan or arrangement.


                                    SIGNATURE

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

                                                    OMMERCIAL ASSETS, INC.
                                                    Registrant)



Date: March 8, 2000                                 By   /s/David M. Becker
                                                      ---------------------
                                                       David M. Becker
                                                       Chief Financial Officer





                                     - 24 -