ANNUAL REPORT FOR SMALL BUSINESS ISSUERS SUBJECT
                     TO THE 1934 ACT REPORTING REQUIREMENTS

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
     (Mark One)
        [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                 OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
                                   For the fiscal year ended December 31, 1997

        [ ]       TRANSMISSION REPORT PURSUANT TO SECTION 13 OR 15(d)
                 OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)

                          Commission File No. 33-87024C

                          TAYLOR INVESTMENT CORPORATION
                 (Name of small business issuer in its charter)

      Minnesota                                          41-1373372
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

              43 Main Street S.E., Suite 506, Minneapolis, MN 55414
              (Address of principal executive offices) (Zip Code)

                    Issuer's telephone number: (612)331-6929

        Securities registered pursuant to Section 12(b) of the Act: None

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

Check whether the issuer (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 ___

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year.  $18,281,880

State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days.

                       $1,224,637 as of December 31, 1997

State the number of shares outstanding of each of the issuer's classes of
          common stock, as of the latest practical date. Common Stock,
             $.01 Par Value - 484,129 shares as of December 31, 1997

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of certain exhibits hereto are incorporated by reference to the
Company's Registration Statement on Form SB-2 (No. 33-87024C), effective January
12, 1995.

Transitional Small Business Disclosure Format (check one):Yes ___ No  _X_


<PAGE>



                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                  PART I
<S>        <C>                                                                                                  <C>
ITEM 1.    BUSINESS...............................................................................................1
           General................................................................................................1
           Principal Business.....................................................................................1
           Competition............................................................................................3
           Regulation.............................................................................................3
           Employees..............................................................................................3
ITEM 2.    PROPERTIES.............................................................................................3
ITEM 3.    LEGAL PROCEEDINGS......................................................................................4
ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................................................4

                                     PART II
ITEM 5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...............................................4
ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS..................................................................................5
ITEM 7.    FINANCIAL STATEMENTS..................................................................................12
ITEM 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
           AND FINANCIAL DISCLOSURE..............................................................................26

                                    PART III
ITEM 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
           COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.....................................................26
ITEM 10.   EXECUTIVE COMPENSATION................................................................................28
ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
           MANAGEMENT............................................................................................29
ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........................................................30
ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K......................................................................30
SIGNATURES ......................................................................................................31

</TABLE>

<PAGE>


                                     PART I
ITEM 1.      BUSINESS

             GENERAL

             Taylor Investment Corporation was incorporated in 1979 by its
             president, Philip C. Taylor, who then had 11 years of experience in
             the development and sale of rural recreational properties. The
             Company's principal business is the purchase, development, and sale
             of previously undeveloped tracts of land, principally lakeshore,
             river frontage, and wooded acreage within a reasonable driving
             distance of major metropolitan areas, primarily in Minnesota,
             Wisconsin, and Georgia. Taylor subdivides these tracts into lots
             and markets them through its Four Seasons sales offices for use as
             vacation retreats, retirement residences, and investment. The size
             of lots sold by the Company typically range from 1.5 to 2 acres
             each, but on occasion may be as large as 40 acres. Historically,
             the Company has not participated on a regular basis in the
             construction of homes on the lots which it sells, but has
             contracted for the construction of homes on an isolated basis. The
             Company believes it is the largest developer of waterfront
             properties for the construction of primary and second homes in
             Minnesota and Wisconsin and is not aware of any other major
             developer in its market.

             To simplify and facilitate the purchasing process for its
             customers, the Company offers qualified customers loans
             collateralized by mortgages on the lots. Customers desiring
             financing must submit credit applications to the Sales and
             Marketing Department which then has a credit analysis completed on
             such customers to determine their creditworthiness. Depending on
             the results of this analysis, the Sales and Marketing Department
             approves or disapproves the loan or submits the information to the
             Finance and Accounting Department for further analysis. The number
             of lot purchases financed with Company-originated mortgage loans
             depends on the availability and terms of alternative sources of
             credit to the customer.

             The Company believes it must position itself to take advantage of
             the current and expected future demand for recreational properties
             for building primary and secondary homes for use as vacation
             retreats, retirement residences or investment. The Company's
             strategy is to expand the organization by exploring new markets
             outside of the Midwest.

             PRINCIPAL BUSINESS

             Taylor's operations are organized into four primary departments:
             Acquisitions, Development, Sales and Marketing, and Finance and
             Accounting.

             ACQUISITIONS - To locate potential quality lakefront, river front,
             and wooded properties for purchase, development, and sale, Taylor's
             Acquisition Department reviews plat maps for the areas served by
             its sales offices and identifies undeveloped tracts of land,
             principally lakeshore property and river frontage. The Acquisitions
             Department then obtains additional information regarding the
             property and any nearby amenities from such sources as
             topographical maps and reports from the Department of Natural
             Resources. Other due diligence activities conducted to determine
             the suitability of the property for purchase by the Company may
             include studies of local maps and development ordinances, reviews
             of zoning regulations, soil testing, water testing, trees and
             foliage typing, a study of local road access, and a consideration
             of potential lot layout. The Acquisitions Department also estimates
             the costs of development. If the results of these studies and
             estimates are favorable, an offer is made for the property in
             accordance with established pricing guidelines developed by the
             Company based on its past experience. Negotiations then typically
             commence and, if possible, a purchase agreement is entered into.
             The Company's obligations under a purchase agreement are generally
             conditioned upon Taylor obtaining the necessary plat approval from
             the local governmental authority. Negotiations may take as long as
             a year before a purchase agreement can be concluded.


<PAGE>

             DEVELOPMENT - After purchase negotiations are completed, the
             Company's Development Department is responsible for obtaining
             regulatory approval for the planned development. This process
             typically involves determining the layout of lots, or platting the
             property, attending public hearings, and conducting on-site
             inspections with governmental and regulatory personnel. To date,
             the Development Department has typically been successful in
             obtaining the necessary regulatory and governmental approvals;
             however, there can be no assurance that any particular transaction
             will be approved and ultimately consummated. The Development
             Department also works with a title insurance company in obtaining
             title abstracts, ordering title insurance, and preparing other
             facets of the acquisition for closing. After closing, the property
             is physically developed using road contractors, surveyors, and
             Company work crews. Lots are platted to maximize their
             attractiveness, privacy, and road and water access, taking into
             account view corridors and the layout of trees on the lot. Roads
             are installed, the property is prepared to receive telephone and
             electrical service, trails are cut, underbrush is removed,
             shorelines are cleared, and the property is otherwise prepared for
             marketing and sales to the buying public. The Company then assigns
             prices to each lot based on market prices for similar properties in
             the area. These sales prices generally range from $20,000 - $50,000
             per lot.

             SALES AND MARKETING - Taylor's strategy is to purchase and develop
             high quality lakeshore, river frontage and wooded acreage and then
             market the lots to residents of metropolitan areas. Most properties
             developed by the Company are within reasonable driving distances of
             major metropolitan areas, such as Minneapolis and St. Paul,
             Minnesota; Chicago, Illinois; and Atlanta, Georgia. The Company's
             lots are targeted toward buyers who desire property with many
             attractive features on which to build primary and second homes for
             use as vacation retreats, retirement residences, or investments.
             The primary purchasers of the Company's vacation properties are
             individuals ranging from 30 to 60 years old. The Company's strategy
             for remaining competitive in this market involves building on its
             reputation of offering quality properties; using its own regional
             sales offices and personnel, which offer more control over the
             sales and marketing process and better access to the buyers than
             using independent sales offices and agents; offering "on-the-spot"
             financing for qualified purchasers; and offering properties with
             many appealing features, such as trails, water access, and
             attractive shorelines.

             The Company's sales and marketing activities are conducted
             principally through its Four Seasons subsidiaries in Minnesota,
             Wisconsin and Georgia. A principal element of the Company's
             strategy and success to date has been the establishment and use of
             regional sales offices in general location to the developed
             properties. The Company's five existing Four Seasons regional sales
             offices are located near Brainerd, Minnesota; Spooner, Minocqua,
             and Stevens Point, Wisconsin; and Jasper, Georgia. The Company
             typically acquires land near these offices, and the agents in these
             offices sell only properties owned by Taylor. The Company
             advertises in major metropolitan newspapers and other publications
             and participates in home and garden, outdoors, and sports shows to
             attract potential customers. Sales personnel are compensated based
             on sales performance but are not permitted to use "hard" sales
             techniques or enticements to prospective purchasers (such as free
             products) to visit property sites. To consummate sales, the Company
             relies heavily upon the quality of its properties combined with the
             availability of "on-the-spot" financing for qualified buyers.

             FINANCE AND ACCOUNTING - The Finance and Accounting Department is
             responsible for maintaining records of account for each project
             developed by the Company and managing the Company's trade
             receivables and payables and mortgages receivable. This department
             prepares management information reports, prepares and services
             mortgage loans extended to lot purchasers, projects cash flow and
             capital needs for acquisition and lending activities, and performs
             collection activities.

             The Company regularly offers financing for the purchase of its
             properties. Upon execution of a purchase agreement, a customer may
             submit an application for credit, which, combined with a credit
             report from a credit rating agency, is given to the Sales Manager
             for approval. Applications from customers who have experienced
             credit problems in the past are submitted to the President for
             ultimate approval or rejection. Approved customers execute notes
             secured by first mortgages on the lots purchased.


<PAGE>


             COMPETITION

             The Company operates in a highly competitive environment. It
             competes with other real estate development companies and real
             estate brokers in developing and selling its properties. In
             addition, and to a lesser extent, it competes with banks and other
             financial institutions and with several private companies and
             individual lenders in making mortgage loans. Competitive factors in
             the market for developed lots for vacation retreats, retirement
             residences, and investment include the ability to acquire quality
             inventory and the size and quality of the sales force. The
             principal competitive factor in the mortgage loan market is the
             ability to offer favorable terms, including interest rates. The
             Company believes that it competes successfully in its market
             because of the quality of its product, the size of its acquisition
             capability (which enables it to purchase large tracts at more
             favorable prices than smaller industry participants), its dedicated
             sales staff, its reputation, and its financial strength. Management
             believes that the Company's ability to facilitate and simplify
             purchases by offering competitive financing to qualified lot
             purchasers offers another competitive advantage.

             REGULATION

             The Company's sales personnel, consisting primarily of those based
             in its Four Seasons sales offices, must be registered as real
             estate brokers and maintain such registration with the Minnesota
             Department of Commerce and the Wisconsin Department of Registration
             and Licensing. Minnesota requires registration of subdivisions
             containing more than ten lots. The Minnesota Department of Commerce
             granted a waiver of the Registration and in its stead requires
             notification of the sale of any subdivision containing more than
             ten lots which will be offered to Minnesota residents. No
             registration is required in Wisconsin or Georgia. In addition, the
             development of properties requires compliance with state and local
             zoning laws and regulations and local laws and ordinances regarding
             such matters as the size of lots, the construction of roads, and
             the amount of setback required from roads and bodies of water.

             The Company is subject to the Interstate Land Sales Full Disclosure
             Act, which requires registration with the Department of Housing and
             Urban Development of any project which consists of 100 or more
             lots. The Company has received a Multiple Site Subdivision
             Exemption from the Department of Housing and Urban Development
             allowing it to sell projects consisting of no more than 99 lots in
             any given non-contiguous site without registration.

             The Company is also subject to consumer protection laws, such as
             the Truth in Lending Act, in connection with its mortgage lending
             activities.

             EMPLOYEES

             As of December 31, 1997, the Company has 70 full-time and 4
             part-time employees. None of the Company's employees is represented
             by a labor union or is covered by a collective bargaining
             agreement. The Company has not experienced any work stoppages and
             believes employee relations are good.

ITEM 2.      PROPERTIES

             The Company leases its administrative office located at 43 Main
             Street SE, Suite 506, in Minneapolis, Minnesota, consisting of
             3,276 square feet in an office/residential complex. The lease
             expires March 31, 1999.

             The Company leases regional sales, acquisition and development
             offices at various locations in Minnesota, Wisconsin and Georgia.
             These offices typically range from 1,000 to 2,500 square feet and
             are leased on terms ranging from month-to-month to three years.


<PAGE>


             Management believes that these facilities provide sufficient space
             to support its current activities, and that additional space will
             be available in the future as needed.

ITEM 3.      LEGAL PROCEEDINGS

             None.

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

             There were no matters submitted to a vote of security holders
during the quarter ended December 31, 1997.

                                     PART II

ITEM 5.      MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

             The Company's authorized capital stock consists of 10,000,000
             shares of common stock, $.01 par value, of which 484,129 shares
             were outstanding and held of record by 17 stockholders as of
             December 31, 1997. There is currently no public trading market for
             the Company's capital stock, and the Company does not expect such a
             market to develop in the foreseeable future. Holders of common
             stock have no preemptive or other rights to acquire stock or other
             securities of Taylor. Cumulative voting for directors is not
             permitted. Holders of common stock are entitled to one vote per
             share on matters submitted to a vote of stockholders. All shares of
             common stock presently outstanding are fully paid and
             nonassessable. The Company's Credit Agreement contains a covenant
             requiring the Company to obtain written approval for the
             declaration and payment of cash dividends. Dividends declared and
             paid in the future, if any, are subject to the discretion of the
             Board of Directors and will depend on the Company's earnings,
             financial condition, capital requirements, debt covenant
             limitations, and other relevant factors. In addition, the Board of
             Directors is authorized to issue additional shares of common stock
             and to issue options and warrants for the purchase of such shares,
             the aggregate of which may not exceed the number of shares
             authorized by the Company's Articles of Incorporation.



<PAGE>


ITEM 6.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
             RESULTS OF OPERATIONS

             The following analysis of the consolidated results of operations
             and financial condition of the Company should be read in
             conjunction with the Company's consolidated financial statements
             and notes thereto included elsewhere in this document.

             OVERVIEW

             LAND AND STRUCTURE SALES - The Company's principal business is the
             purchase, development and sale of previously undeveloped tracts of
             land, principally lakeshore and river frontage, and wooded acreage.
             Taylor identifies, acquires and develops raw land inventory through
             its Acquisition and Development departments. Financing for the
             acquisition and development of real estate is provided primarily by
             a network of financial institutions located in proximity to the
             Company's properties as well as by an asset-based credit facility
             (the "Credit Agreement"). On average, 75% of the purchase price of
             the acquired property is financed with loans from financial
             institutions which are secured by mortgages on the acquired
             property. In addition, property sellers may also agree to provide
             financing for up to 70% of the purchase price.

             The Company records its inventory, which consists primarily of land
             held for sale, at the purchase price plus amounts expended for the
             acquisition, development, and improvement of the land. Taylor
             currently attempts to maintain its inventory at a level which, at
             any time, will meet its sales goals for the next twelve months.
             Inventory balances were $12.2 million and $14.1 million as of
             December 31, 1997, and 1996, respectively.

             The Company contracts for the construction of shell homes on its
             Four Season's lots. These lots and structures are eventually sold.
             The Company plans to have 1-3 cabins in inventory, at all times,
             for each Four Seasons office. Structure sales also include the
             proceeds from the sale of condominiums at the Laurentian Resort,
             and proceeds from the sale of townhomes in the Company's
             Alexandria, Minnesota project. The construction of condominiums and
             townhomes are subcontracted through independent builders.

             Revenues from the sale of developed lots, shell homes, townhomes
             and condominiums are recognized upon closing of the sale of the
             property and receipt of at least 10% of the purchase price.

             An environment of increased interest rates may adversely affect the
             Company's ability to successfully market and sell its properties.

             OTHER REVENUES - Other revenues consist primarily of interest
             income from the Company's financing operation. The Company records
             the finance receivables as contracts and mortgages receivable.
             Generally, mortgage loans on lots are originated for terms of up to
             ten years while loans on structures are offered for a maximum term
             of five years. The Company's underwriting parameters require a
             minimum down payment of 10%. Interest rates currently range from
             10.9% to 14.5% depending principally on the amount of the down
             payment. Company-financed sales were 31.8% and 25.9% of sales for
             the years ended December 31, 1997, and 1996, respectively. The
             increase in purchases financed by the Company is due to a change in
             financing programs. The weighted average interest rate on
             outstanding contracts and mortgages receivable was approximately
             12.3% and 12.5% as of December 31, 1997 and 1996, respectively.

             Other revenues also include the following:

             RESORT MANAGEMENT INCOME - The Company managed the Laurentian
             Resort in Biwabik, Minnesota through its wholly owned subsidiary,
             Resort Hospitality, Inc. In this capacity, Resort Hospitality, Inc.

<PAGE>


             retains a percentage of the income generated through the rental of
             condominiums, which have previously been sold by the Company. The
             Company discontinued management of the resort on October 31, 1997.

             CLOSING FEE INCOME - The Company collects a documentation
             preparation fee and a closing fee for each sale.

             COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996.

             The Company reported a 18.8% decrease in sales for the year ended
             December 31, 1997 to $16.8 million, including sales of shell homes,
             condominiums, townhomes and timeshare sales of $1.6 million, or
             9.4% of sales. For the same period in 1996, sales were $20.7
             million, including $3.9 million in sales of shell homes,
             condominiums and townhomes, or 19.0% of sales. The overall sales
             decrease is attributable primarily to poor weather conditions
             throughout the first quarter and into the first half of the second
             quarter of 1997. Structure sales decreased due to management's
             decision to reduce emphasis on structure sales. The Company expects
             sales to increase again in 1998, driven by a focused marketing
             campaign, improved spring weather conditions, and a strong economy.

             The following table sets forth the sales, cost of sales, and gross
             profit information for the years ended December 31, 1997 and 1996.

<TABLE>
<CAPTION>
                 1997                  Land                     Structures                    Total

<S>                                <C>              <C>       <C>               <C>       <C>             <C>
             Sales                 $ 15,247,661     100.0%    $  1,579,701      100.0%      $16,827,362     100.0%
             Cost of sales            9,440,821      61.9%       1,452,347       91.9%       10,893,168      64.7%
                                   ------------   -------     ------------    -------     -------------   -------
             Gross profit          $  5,806,840      38.1%    $    127,354        8.1%    $   5,934,194      35.3%

                 1996                  Land                     Structures                    Total

             Sales                 $ 16,867,334     100.0%    $  3,858,054      100.0%    $  20,725,388     100.0%
             Cost of sales            9,631,032      57.1%       3,410,321       88.4%       13,041,353      62.9%
                                   ------------   -------     ------------   --------     -------------   -------
             Gross profit          $  7,236,302      42.9%    $    447,733       11.6%    $   7,684,035      37.1%
</TABLE>

             For 1997, gross profit was $5.9 million or 35.3% of sales, compared
             to $7.7 million or 37.1% of sales for the same period in 1996.
             Gross profit margin from the sale of lots was 38.1% for 1997 and
             42.9% in 1996. In 1997, gross profit margin from the sale of
             structures (shell homes, condominiums, and townhomes) was 8.1%,
             while for the same period in 1996, gross profit margin from the
             sale of structures was 11.6%. The decline in gross profit for land
             is principally due to continued programs to liquidate lower-margin
             aged inventory and a charge of $277,257 to reduce certain inventory
             to net realizable value. The decrease in gross profit margin for
             structures is due to the discontinuance of timeshare sales.

             Other revenues of $1,454,518 million in 1997 decreased 5.0% from
             $1,531,716 million for the same period in 1996. This decrease was
             due to fewer closing fees and rental revenue collected, partially
             offset by higher interest income. Interest income increased to
             $1,008,379 in 1997 from $946,274 in 1996 as a result of higher
             average balances of Contracts and Mortgages receivable. Rental
             income for the Resort Hospitality decreased from $211,763 in 1996
             to $195,517 in 1997, due to fewer rentals. Closing fees decreased
             37.0% from the prior year due to fewer closing transactions in
             1997. There were 515 closing transactions in 1997, compared to 661
             in 1996.

             Selling, general and administrative expenses for 1997 were $6.1
             million or 36.4% of sales, compared to $6.8 million or 32.9% of
             sales for the same period in 1996. The decrease in selling, general
             and administrative expense is primarily due to the decline in
             sales. The increase in these expenses, as a percent of sales, is
             attributable to fixed costs being spread over fewer sales.


<PAGE>

             Interest expense of $1.8 million in 1997 increased by 15.0% from
             $1.6 million in 1996. The increase in interest expense was due to
             slightly higher interest rates on some of the mortgages and notes
             payable established in 1997 as compared to 1996.

             Income tax benefit was 39.7% of loss before taxes for the year
             ended December 31, 1997, compared to income tax expense of 43.3% of
             income before taxes for the year ended December 31, 1996.

             LIQUIDITY AND CAPITAL RESOURCES

             OVERVIEW - Taylor requires consistent access to capital to finance
             growth of its operations. Although the Company has generally
             operated profitably, its cash flow from operating activities alone
             has been, and is expected to continue to be, insufficient to fund
             the Company's capital needs for continued growth.

             The Company generates cash flow from operations as land inventory
             is sold unless the sale is financed by the Company and collections
             are made on its contracts and mortgages receivable. Taylor's
             primary use of cash flow is for funding its ongoing acquisition of
             land and the subsequent customer mortgage financing. Secondarily,
             the Company uses cash to reduce the aggregate amount outstanding
             under its Credit Agreement, notes, and mortgages payable. The
             following table sets forth the Company's net cash flows for
             operating, investing, and financing activities for the years ended
             December 31, 1997 and 1996:

<TABLE>
<CAPTION>
                                                             1997            1996
<S>                                                      <C>              <C>
             Net cash provided by (used in):
               Operating activities                      $  7,534,672     $ 4,610,672
               Investing activities                           (85,150)       (296,139)
               Financing activities                        (7,415,816)     (4,135,445)
                                                         ------------     -----------
                  Net increase in cash                   $     33,706     $   179,088
                                                         ============     ===========
</TABLE>

             Cash provided by operating activities totaled $7,534,672 in 1997
             and $4,610,672 in 1996. Cash uses for investing and financing
             activities in 1997 consisted primarily of principal payments on
             notes, contracts, and mortgages payable of $7.0 million and a
             dividend payment to shareholders of $300,160. Cash uses for
             investing and financing activities in 1996 consisted primarily of
             principal payments on notes, contracts, and mortgages payable of
             $7.8 million; the purchase of property and equipment for a new
             computer system and a new office of $311,099; and payments made on
             the line of credit of $1.2 million, that were offset by proceeds
             from the sale of receivables of $5.6 million.

             FINANCING SOURCES - The Company's financing sources consist of
             short-term financing under its Credit Agreement, seller financing,
             financing from a network of commercial banks, and sales of
             contracts and mortgages receivable. Permanent financing has been
             obtained through the issuance of $4.0 million of Senior
             Subordinated Debt. The source of repayment for the Company's
             working capital financing is the sale of lots and the receipt of
             payment on contracts and mortgages receivables. As a lot is sold, a
             portion of the proceeds is used to pay down the respective
             financing. On average, the Company finances 75% of the cost of land
             acquisitions and development. As a result, the loan is usually paid
             in full when approximately 70% of the lots in a development are
             sold. Payments received by the Company on customer contracts or
             mortgages receivable are applied to the outstanding balance under
             its Credit Agreement. The following table sets forth the Company's
             sources of financing and the amount of such financing at December
             31, 1997 and 1996.


<PAGE>


             SOURCES OF FINANCING

<TABLE>
<CAPTION>
                                                               1997        Percentage         1996       Percentage
<S>                                                        <C>               <C>         <C>               <C>
             Lines of Credit                               $   5,932,225      34.2%       $   5,995,646    31.9%
             Notes payable (1)                                 7,028,377      40.5            8,571,571    45.6
             Contracts and mortgages payable                     406,948       2.3              253,781     1.3
             Senior subordinated debt                          3,990,000      23.0            3,990,000    21.2
                                                           -------------    ------       --------------    ----
               Total debt                                  $  17,357,550     100.0%       $  18,810,998   100.0%
                                                           =============    ======        ==============  =====
</TABLE>
--------------------

             (1)   Notes payable include the real estate line of credit
                   in the amounts of $1,592,221 and $1,286,347 as of
                   December 31, 1997 and 1996, respectively.

             "CREDIT AGREEMENT" - The Company began its borrowing relationship
             in 1986 and may currently borrow a total aggregate of up to $9.0
             million under the Credit Agreement which includes the following
             five lines of credit:

             DESCRIPTION OF LINES OF CREDIT

<TABLE>
<CAPTION>
                                                                                   Balance
                                                              Amount of        Outstanding as of
                                                               Line(1)         December 31, 1997

<S>                                                          <C>                <C>
             Mortgages and Contracts Receivable              $9,000,000         $   4,438,448
             Real Estate Mortgage                             3,500,000             1,592,221
             Project                                          1,000,000                93,777
             Interim Financing                                2,250,000             1,400,000
                                                                                -------------
                                                                                $   7,524,446
                                                                                =============
</TABLE>
--------------------

             (1)   These totals are the maximum principal amounts that
                   may be outstanding under each of the lines of credit;
                   however, the maximum aggregate principal amount
                   outstanding under all of the lines of credit cannot
                   exceed $9.0 million.

             The amounts borrowed by the Company under the Mortgages and
             Contracts Receivable line of credit are at the discretion of the
             lender, are based on 90% of eligible contracts receivable, and are
             to be used to finance the development of properties. Borrowings
             under this credit line bear interest at a rate equal to the greater
             of 1.0% over the lender's base rate (9.5% as of December 31, 1997)
             or 8.0%. The lender's base rate is equal to the interest rate
             publicly announced by National City Bank of Minneapolis from time
             to time as its "Base" rate.

             The Company also may borrow up to $3,500,000 under the Real Estate
             Mortgage line of credit based on 90% of the purchase price of the
             real estate plus 80% of eligible development costs. Funds obtained
             by the Company under the Real Estate Mortgage credit line are to be
             used to purchase real estate pending development or sale. The
             Project line of credit of $1,000,000 is to be used to finance
             project development costs and the purchase of real estate in
             connection with a project in northern Minnesota. The assets of the
             project secure this line of credit. Borrowings of up to $2,250,000
             under the Interim Financing line are available to the Company at
             the discretion of the lender to cover demand overages on the other
             lines of credit. Borrowings under the Real Estate Mortgage, Project
             and Interim Financing lines of credit bear interest at a rate equal
             to 2.0% over the lender's base rate.

             All amounts borrowed by the Company under the Credit Agreement are
             due April 30, 2000 under an amendment to the Credit Agreement which
             changed the structure of the Agreement to a Committed


<PAGE>

             Line. All funds advanced by the lender under the Credit Agreement
             are collateralized by an assignment by the Company of first
             mortgages, contracts for deed, security interests, or other rights
             or property interests acquired by the Company in connection with
             specific property development projects and a security interest in
             virtually all of the Company's assets. In addition, the Credit
             Agreement contains a number of restrictive covenants, and is
             personally guaranteed by the Company's President, Philip C. Taylor.

             NETWORK BANKS - Another recurring source of capital is a network of
             community banks, the majority of which Taylor has been utilizing as
             financing sources since the mid 1980s. These financial
             institutions, which are typically in proximity to the land being
             purchased, provide loans which are secured by a first mortgage on
             the land. Interest payments are made monthly and generally payments
             are made as the individual lots are sold. The Company's borrowings
             through the network of banks are shown as "Notes payable" in the
             table entitled "Sources of Financing."

             SELLER FINANCING - Seller financing or mortgages payable are
             equivalent to accounts payable that are due on resale and result
             from the Company's ordinary course of business. When Taylor decides
             to acquire a piece of land, the first source of financing it
             attempts to secure is financing from the seller. Seller financing
             typically consists of a purchase agreement evidencing the sale and
             outlining the terms of payment. Interest and principal payments are
             made on a scheduled amortization which varies by transaction, but
             which in no event extends beyond the sale of the property by the
             Company. The Company's use of seller financing is shown as
             "Mortgages payable" in the table entitled "Sources of Financing."

             SENIOR SUBORDINATED DEBT - In April 1994, the Company issued $1.0
             million of Senior Subordinated Notes, Series 1994 pursuant to Rule
             504 of Regulation D under the Securities Act of 1933, as amended.
             The proceeds were initially used to pay down existing debt.
             Ultimately the funds were used to acquire additional inventory. The
             Company issued an additional $3.0 million of Senior Subordinated
             Debt pursuant to a Registration Statement on Form SB-2, which
             became effective January 12, 1995. The proceeds of this offering
             were used to reduce existing debt, finance inventory, fund customer
             mortgage financing and open new offices during 1995.

             SALES OF CONTRACTS AND MORTGAGES RECEIVABLE - The general level of
             stability in its contracts and mortgages receivable portfolio has
             provided Taylor with the opportunity to sell portfolios of
             receivables to raise cash when needed and to take advantage of
             positive interest rate spreads. Depending on the current interest
             rates, the sale can be at a discount or premium to par. The typical
             structure involves the Company selling the rights to payment on the
             contracts and mortgages with recourse, and also requires a small
             percentage of the sales price, approximately 5%, to be "held-back,"
             and subsequently paid to the Company as the portfolio is paid down.
             In order to obtain more favorable pricing, the Company may retain
             servicing rights or grant put options to the purchasers in
             connection with the receivables sold. The put options typically
             require the Company to repurchase, at the option of the purchaser,
             the balance of the receivables within 60 days of the five year
             anniversary of the sale. The sale of receivables with put options
             is accounted for as a financing transaction in the Company's
             consolidated financial statements. Future sales of contracts and
             mortgages receivable will depend on the Company's cash needs and
             prevailing interest rates. During 1996, the Company closed on sales
             of contracts and mortgages receivable with recourse in the amount
             of $783,812.

             Put options were granted to three purchasers in 1991 on an initial
             aggregate amount of $1.4 million in contracts and mortgages
             receivable and in the amount of $5,613,167 in 1996. As of December
             31, 1997, there were $2,932,851 in contracts and mortgages
             receivable outstanding with recourse, all of which had put options.
             Based on the scheduled amortization of these balances, the
             Company's potential liability, if the put features are exercised,
             is approximately $196,403 in 1998, $1,725 in 1999, $0 in 2000, and
             $893,043 in 2001. Should all of the put options be exercised, the
             Company would use amounts available under its Credit Agreement to
             repurchase the contracts and mortgages receivable.


<PAGE>

             The following table lists as of December 31, 1997 and 1996 the
             balance of the Company's contracts and mortgages receivable
             outstanding, the amount of the portfolio 90 days past due, average
             portfolio term, and weighted average interest rate. The table also
             sets forth the amounts foreclosed and the contracts and mortgages
             sold during the years ended December 31, 1997 and 1996.

<TABLE>
<CAPTION>
                                                                    1997             1996
<S>                                                              <C>               <C>
             Contracts and mortgages receivable:
               Balance outstanding                               $9,094,999        $9,389,611
                 Amount 90 days past due                            368,340           217,861
                 Percentage of balance                                4.05%             2.32%
               Amount foreclosed during period                      123,126           199,786
                 Percentage of balance                                1.35%             2.13%
             Contracts and mortgages sold                               -0-           783,812
             Average portfolio term                                 6 years           6 years
             Weighted average interest rate                           12.3%             12.5%
</TABLE>

             At December 31, 1997, contracts and mortgages receivable
             outstanding were approximately $9.1 million, had an average
             remaining term of approximately six years, and carried a weighted
             average interest rate of 12.3%. Approximately 4% of the balance was
             over 90 days past due. The Company works aggressively and closely
             with its customers as soon as an account becomes overdue to attempt
             to avoid default and foreclosure. After the Company begins
             collection proceedings, most accounts are eventually made current
             and the Company receives full payment. On occasion, the Company
             must cancel the contract and begin foreclosure proceedings. As of
             December 31, 1997, there was approximately $123,000 in contract and
             mortgage receivable balances where the foreclosure process was
             complete, and an additional $29,000 were in the process of
             foreclosure. Subsequent to a completed foreclosure, the Company
             returns the underlying property to inventory and begins remarketing
             the lot. Properties that are foreclosed upon and returned to
             inventory are generally resold at a profit.

             Based on expected cash generated from operations in 1998 and the
             above available financing resources, management believes it has
             adequate sources of funds to finance its 1998 cash requirements.

             NEW ACCOUNTING STANDARDS - In 1997, the Company adopted Statement
             of Financial Accounting Standard (SFAS) No. 128, EARNINGS PER
             SHARE. SFAS No. 128 requires the reporting of earnings per share
             (EPS) in two forms for entities with complex capital structures:
             basic EPS and diluted EPS. The Company currently does not have a
             complex capital structure as the Company has no potentially
             dilutive common stock, thus the Company will continue to calculate
             EPS as net (loss) income available to common shareholders divided
             by the weighted average number of common shares outstanding during
             the year.

             In June 1997, the Financial Accounting Standards Board issued
             Statement of Financial Accounting Standards (SFAS) No. 131,
             DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION,
             which will be effective for the Company beginning January 1, 1998.
             SFAS No. 131 redefines how operating segments are determined and
             requires disclosure of certain financial and descriptive
             information about a company's operating segments. The Company has
             not yet completed its analysis of operating segments on which it
             will report.

             EFFECT OF INTEREST RATE ENVIRONMENT - The Company believes it can
             protect itself from sustained high interest rates by selling its
             contracts and mortgages receivable portfolio and increasing the
             rates it charges to customers who utilize Company financing, or by
             incurring fixed rate debt. Such increases in rates would, however,
             have an adverse impact on the Company's cost of carrying inventory.
             The Company believes the best defense against rising interest rates
             is to buy only the best property which should remain in high
             demand. However, sustained increases in interest rates could impact
             future sales levels. If demand for product was to decline for an
             extended period of time, the Company believes it


<PAGE>

             could minimize the impact by reducing the sales price of the
             product to stimulate sales and would discontinue purchasing
             properties until the level of inventory more closely matched
             customer demand.

             YEAR 2000 - As with other organizations, the Company's computer
             programs were originally designed to recognize calendar years by
             their last two digits. Calculations performed using these truncated
             fields would not work properly with dates from the year 2000 and
             beyond. The Company has recently implemented new systems in all
             areas of operations that are expected to remedy this situation. In
             addition, the Company intends to communicate with third parties
             with whom it does significant business to determine their year 2000
             compliance readiness and the extent to which the Company is
             vulnerable to any third party year 2000 issues. There can, however,
             be no guarantee that a failure to convert by another company would
             not have a material adverse effect on the Company.

             SAFE HARBOR DISCLOSURE - Various forms filed by the Company with
             the Securities and Exchange Commission, including the Company's
             Form 10-KSB and Form 10-QSB, and other written documents and oral
             statements released by the Company, may contain forward-looking
             statements. Forward-looking statements generally use words such as
             "expect," "anticipate," "believe," "project," "should," "estimate,"
             and similar expressions, and reflect the Company's expectations
             concerning the future. Such statements are based upon currently
             available information, but various risks and uncertainties may
             cause the Company's actual results to differ materially from those
             expressed in these statements. Among the factors which management
             believes could affect the Company's operating results are the
             following:

             o    Changing economic conditions, including economic downturns or
                  recessions;
             o    The ability of the company to maintain and enhance its market
                  position relative to its competitors, realize productivity,
                  and continue to control expenses;
             o    The availability of suitable tracts of undeveloped land in
                  proximity to the marketplace;
             o    Changes in zoning and subdivision  regulations;
             o    The availability and cost of financing;
             o    Continuity of management.


<PAGE>


ITEM 7.      FINANCIAL STATEMENTS

             Independent Auditors' Report..............................13

             Consolidated Balance Sheets...............................14

             Consolidated Statements of Operations.....................15

             Consolidated Statements of Stockholders' Equity...........16

             Consolidated Statements of Cash Flows.....................17

             Notes to Consolidated Financial Statements................18


<PAGE>



INDEPENDENT AUDITORS' REPORT


Board of Directors
Taylor Investment Corporation
Minneapolis, Minnesota

We have audited the accompanying consolidated balance sheets of Taylor
Investment Corporation and Subsidiaries (the Company) as of December 31, 1997
and 1996 and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Taylor Investment Corporation and
Subsidiaries at December 31, 1997 and 1996 and the results of their operations
and their cash flows for the years then ended, in conformity with generally
accepted accounting principles.



March 20, 1998
Minneapolis, Minnesota


<PAGE>


TAYLOR INVESTMENT CORPORATION

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                                           1997           1996
<S>                                                                                    <C>             <C>
ASSETS

INVENTORY - Principally land held for sale (Notes 4, 5, and 6)                         $ 12,231,884    $ 14,137,556

CONTRACTS AND MORTGAGES RECEIVABLE (Notes 2, 4, 5, 6, 8, and 12)                          9,094,999       9,389,611

INVESTMENT IN JOINT VENTURE                                                                  60,645          50,729

OTHER ASSETS:
   Cash                                                                                     648,760         615,054
   Note receivable from officer (Note 12)                                                   250,000         250,000
   Tax increment financing receivable (Note 3)                                              692,562         702,627
   Other receivables (Note 8)                                                                92,240         257,912
   Income taxes receivable (Note 10)                                                        314,296          65,540
   Prepaid expenses                                                                         136,483         200,993
   Land, buildings, and equipment, less accumulated
     depreciation of $579,114 and $501,940, respectively (Notes 1, 4, and 5)                747,325         903,741
   Loan acquisition and debt issuance costs,
     less accumulated amortization of $215,917 and
     $136,491, respectively                                                                 420,375         499,801
                                                                                       ------------    ------------
         Total other assets                                                               3,302,041       3,495,668
                                                                                       ------------    ------------
                                                                                       $ 24,689,569    $ 27,073,564
                                                                                       ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY

LINES OF CREDIT (Note 4)                                                               $  5,932,225    $  5,995,646

NOTES PAYABLE (Note 5)                                                                    7,028,377       8,571,571

CONTRACTS AND MORTGAGES PAYABLE (Note 6)                                                    406,948         253,781

SENIOR SUBORDINATED DEBT (Note 7)                                                         3,990,000       3,990,000

OTHER LIABILITIES:
   Accounts payable                                                                         351,907         365,746
   Accrued liabilities                                                                      349,635         470,333
   Deposits on land sales and purchase agreements                                            25,572          67,353
                                                                                       ------------    ------------
         Total other liabilities                                                            727,114         903,432

DEFERRED INCOME TAXES (Note 10)                                                           1,544,708       1,593,713

COMMITMENTS AND CONTINGENCIES (Notes 8 and 9)

STOCKHOLDERS' EQUITY (Notes 4 and 7):
   Common stock, $.01 par value; 10,000,000 shares authorized;
     484,129 and 488,884 shares issued and outstanding, respectively                          4,841           4,889
   Additional paid-in capital                                                               740,136         766,650
   Retained earnings                                                                      4,315,220       4,993,882
                                                                                       ------------    ------------
         Total stockholders' equity                                                       5,060,197       5,765,421
                                                                                       ------------    ------------
                                                                                       $ 24,689,569    $ 27,073,564
                                                                                       ============    ============

</TABLE>

See notes to consolidated financial statements.


<PAGE>


TAYLOR INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                                        1997             1996
<S>                                                                                <C>              <C>
REVENUES:
   Sales                                                                           $   16,827,362   $    20,725,388
   Interest income on contracts receivable                                              1,008,379           946,274
   Equity in income (loss) of 50% owned subsidiary and
     joint venture                                                                         39,916            (2,904)
   Other revenue                                                                          406,223           588,346
                                                                                   --------------   ---------------
         Total revenue                                                                 18,281,880        22,257,104

COSTS AND EXPENSES:
   Cost of land and structures sales                                                   10,615,911        13,041,353
   Reduction of inventory to net realizable value (Note 1)                                277,257
   Selling, general, and administrative                                                 6,126,626         6,821,949
   Interest                                                                             1,817,753         1,581,277
                                                                                   --------------   ---------------
         Total costs and expenses                                                      18,837,547        21,444,579
                                                                                   --------------   ---------------

(LOSS) INCOME BEFORE INCOME TAXES                                                        (555,667)          812,525

INCOME TAX (BENEFIT) EXPENSE (Note 10)                                                   (220,790)          351,975
                                                                                   --------------   ---------------

NET (LOSS) INCOME                                                                  $     (334,877)  $       460,550
                                                                                   ==============   ===============

NET (LOSS) INCOME PER COMMON SHARE (Note 1)                                        $       (0.69)   $          0.94
                                                                                   =============    ===============

AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                                               484,220           486,100
                                                                                   ==============   ===============
</TABLE>


See notes to consolidated financial statements.


<PAGE>


TAYLOR INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                  Common Stock           Additional
                                           ---------------------------     Paid-in       Retained
                                              Shares         Amount        Capital       Earnings         Total
<S>                                            <C>         <C>           <C>           <C>             <C>
BALANCES AT DECEMBER 31, 1995                  483,312     $     4,833   $   668,841   $  4,556,616    $  5,230,290

   Repurchase of common stock                   (1,969)            (19)       (2,116)       (23,284)        (25,419)
   Common stock issued                           7,541              75        99,925                        100,000
   Net income                                                                               460,550         460,550
                                           -----------     -----------   -----------   ------------    ------------

BALANCES AT DECEMBER 31, 1996                  488,884           4,889       766,650      4,993,882       5,765,421

   Repurchase of common stock                   (4,755)            (48)      (26,514)       (43,625)        (70,187)
   Dividends paid                                                                          (300,160)       (300,160)
   Net loss                                                                                (334,877)       (334,877)
                                           -----------     -----------   -----------   ------------    ------------

BALANCES AT DECEMBER 31, 1997                  484,129     $     4,841   $   740,136   $  4,315,220    $  5,060,197
                                           ===========     ===========   ===========   ============    ============

</TABLE>

See notes to consolidated financial statements.

<PAGE>


TAYLOR INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                                           1997           1996
<S>                                                                                    <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net (loss) income                                                                   $   (334,877)   $    460,550
   Adjustments to reconcile net (loss) income to net cash provided by
       operating activities:
     Depreciation and amortization                                                          350,879         281,565
     Loss on sale of assets                                                                     113           9,766
     Deferred income taxes                                                                  (49,005)        125,862
     Equity in (income) loss of 50% owned subsidiary and joint venture                      (39,916)          2,904
     Contracts and mortgages receivables funded                                          (4,400,130)     (5,371,211)
     Payments on contracts and mortgages receivable                                       4,694,742       4,007,745
     Contracts and mortgages receivable sold                                                                783,812
     Decrease in inventory - land held for sale                                           7,497,693       4,512,016
     Decrese (increase) in other receivables                                                175,737         (28,916)
     Increase in income tax receivable                                                     (248,756)        (65,540)
     Decrease (increase) in prepaid expenses                                                 64,510         (42,290)
     Increase in all other assets                                                                           (57,916)
     Decrease  in accounts payable and accrued liabilities                                 (134,537)        (35,113)
     (Decrease) increase in deposits on land sales and purchase agreements                  (41,781)         27,438
                                                                                       -------------   ------------
       Total adjustments to net (loss) income                                             7,869,549       4,150,122
                                                                                       ------------    ------------
         Net cash provided by operating activities                                        7,534,672       4,610,672

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of land, building, and equipment                                               (152,950)       (311,099)
   Proceeds from sale of land, building, and equipment                                       37,800          14,960
   Distribution from joint venture                                                           30,000
                                                                                       ------------    ------------
         Net cash used in investing activities                                              (85,150)       (296,139)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net payments on lines of credit                                                          (63,421)     (1,217,438)
   Proceeds from notes payable                                                                            4,829,355
   Repayment of notes, contracts, and mortgage payables                                  (6,982,048)     (7,821,943)
   Issuance of common stock                                                                                 100,000
   Retirement of common stock                                                               (70,187)        (25,419)
   Dividends paid                                                                          (300,160)
                                                                                       ------------    ------------
         Net cash used in financing activities                                           (7,415,816)     (4,135,445)
                                                                                       -------------   ------------

INCREASE IN CASH                                                                             33,706         179,088

CASH AT BEGINNING OF YEAR                                                                   615,054         435,966
                                                                                       ------------    ------------

CASH AT END OF YEAR                                                                    $    648,760    $    615,054
                                                                                       ============    ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
     INFORMATION:
   Cash paid during the period for:
     Interest                                                                          $  1,806,583    $  1,589,577
                                                                                       ============    ============
     Income taxes                                                                      $     85,586    $    389,300
                                                                                       ============    ============
   Noncash financing activity - inventory and equipment
     purchased with notes and contracts payable                                        $  5,592,021    $  7,612,248
                                                                                       ============    ============

</TABLE>

See notes to consolidated financial statements.


<PAGE>


TAYLOR INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996

1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        ORGANIZATION AND PRINCIPLES OF CONSOLIDATION - Taylor Investment
        Corporation (the Company) is a Minnesota corporation organized in 1979
        which is engaged in land development activities. The Company owns 100%
        of Four Seasons Realty of Minnesota, Inc. (FSM), Four Seasons Realty of
        Wisconsin, Inc. (FSW), Laurentian Development Corporation, Resort
        Hospitality, Inc., Kinkaid Development Corporation, and Four Seasons
        Builders, Inc. (FSB). FSM and FSW are engaged in the sale of
        recreational property, while Laurentian Development Corporation and
        Kinkaid Development Corporation are engaged in both the development and
        sale of recreational property. FSB was formed in 1995 and subcontracts
        for the construction of residential and recreational homes on property
        owned by the Company. The Company also owns 100% of T.I. Financial, Inc.
        and Four Seasons Realty of Michigan, Inc., which were inactive in 1997
        and 1996.

        The consolidated financial statements include the accounts of the
        Company and its subsidiaries. All significant intercompany accounts and
        transactions have been eliminated.

        INVENTORY - PRINCIPALLY LAND HELD FOR SALE - Land held for sale is
        recorded at the purchase price plus amounts expended for development and
        improvement of the land but not at a price more than its net realizable
        value. Property, which was sold and subsequently repossessed under the
        terms of a defaulted sales contract, is recorded at the lower of the
        remaining unpaid contract balance or the net realizable value of the
        property.

        Total costs of a development are allocated to individual lots on the
        basis of the estimated selling price of each lot as a percentage of the
        total estimated gross selling price of the entire development. In
        addition, development costs are allocated to individual lots for the
        purpose of recording cost of sales.

        During each period, the Company provides for identified, unsalable, and
        slow-moving inventory. In 1997, as a result of a review of the carrying
        amount of this inventory, the Company determined that a $277,257
        reduction in the carrying value of land inventories was necessary to
        reduce this inventory to net realizable value.

        Two units of a six-unit building that are currently being sold as
        timeshare properties are included in inventory at December 31, 1997.
        Four of the six units were included in inventory at December 31, 1996.
        The Company allocates costs of the timeshare properties on the basis of
        the selling price of each unit as a percentage of the total estimated
        gross selling price of all units. The Company has sold approximately 71%
        of all timeshare properties included in the development. The total
        remaining cost basis included in inventory at December 31, 1997 was
        approximately $134,000.

        LAND, BUILDINGS AND EQUIPMENT - Depreciation of building and equipment
        is computed principally using the straight-line method on the cost of
        the assets, less allowance for salvage value where appropriate, based on
        their estimated useful lives, which range from three to thirty years.



<PAGE>


        Land, buildings and equipment consist of the following at December 31:

<TABLE>
<CAPTION>
                                                           1997               1996

<S>                                                    <C>               <C>
        Land                                           $       19,304    $       19,304
        Buildings and improvements                             68,050            79,749
        Equipment                                           1,239,471         1,306,628
                                                       --------------    --------------
                                                            1,326,825         1,405,681
        Less accumulated depreciation                         579,500           501,940
                                                       --------------    --------------
           Land, buildings, and equipment, net         $      747,325    $      903,741
                                                       ==============    ==============
</TABLE>

        Included in land, building and equipment are assets under capital leases
        of $304,000 and associated accumulated depreciation of $110,000.

        LOAN ACQUISITION AND DEBT ISSUANCE COSTS - Such costs are amortized over
        the term of the related loan using the straight-line method.

        REVENUE RECOGNITION - The Company recognizes revenue when a sale has
        closed and the buyer's cumulative down payment, principal, and interest
        paid total at least 10% of the sale price. Until 10% of the sale price
        is received, no revenue is recognized and all payments received are
        recorded as a current liability in the consolidated balance sheets under
        the caption "deposits on land sales and purchase agreements." During
        1997 and 1996, down payments on sales financed by the Company averaged
        approximately 15% of the sale price.

        EARNINGS PER COMMON SHARE - In 1997, the Company adopted Statement of
        Financial Accounting Standard (SFAS) No. 128, EARNINGS PER SHARE. SFAS
        No. 128 requires the reporting of earnings per share (EPS) in two forms
        for entities with complex capital structures: basic EPS and diluted EPS.
        The Company currently does not have a complex capital structure as the
        Company has no potentially dilutive common stock. Hence, the Company
        will calculate EPS as net (loss) income available to common shareholders
        divided by the weighted average number of common shares outstanding
        during the year.

        INVESTMENT IN JOINT VENTURE - The Company owns 50% of a limited
        liability corporation which was formed to acquire and develop specific
        plots of land. The Company accounts for its investment in the limited
        liability corporation using the equity method of accounting.

        ESTIMATES - The preparation of consolidated financial statements in
        conformity with generally accepted accounting principles requires
        management to make estimates and assumptions that affect the reported
        amounts of assets and liabilities and disclosure of contingent assets
        and liabilities at the date of the financial statements and the reported
        amounts of revenues and expenses during the reporting period. Actual
        results could differ from those estimates.

        EFFECT OF INTEREST RATE ENVIRONMENT - The Company protects itself from
        sustained high interest rates by selling its contracts and mortgages
        receivable portfolio and increasing the rates it charges to customers
        who utilize Company financing, or by incurring fixed rate debt. Such
        increases in rates would, however, have an adverse impact on the
        Company's cost of carrying inventory. The Company believes the best
        defense against rising interest rates is to buy only the best property
        which should remain in high demand. Sustained increases in interest
        rates could, however, impact future sales levels if demand for product
        was to decline for an extended period of time. The


<PAGE>

        Company believes it could minimize the impact by reducing the sales
        price of the product to stimulate sales and would discontinue purchasing
        properties until the level of inventory more closely matched customer
        demand.

        FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying values of contracts
        and mortgage receivables, note receivable from officer, lines of credit,
        notes payable, and contracts and mortgages payable are reasonable
        estimates of the fair value of these financial instruments based on the
        short-term nature of these instruments and, if applicable, the interest
        rates of these financial instruments. The fair value of the Senior
        Subordinated Debt is estimated to be $3,900,000 and $4,029,000 at
        December 31, 1997 and 1996, respectively.

        IMPAIRMENT OF LONG-LIVED ASSETS - The Company periodically reviews the
        carrying amounts of all its long-lived assets and identifiable
        intangibles based on expected future cash flows from the use of those
        assets.

        NEW ACCOUNTING STANDARDS - In June 1997, the Financial Accounting
        Standards Board issued Statement of Financial Accounting Standards
        (SFAS) No. 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
        INFORMATION, which will be effective for the Company beginning January
        1, 1998. SFAS No. 131 redefines how operating segments are determined
        and requires disclosure of certain financial and descriptive information
        about a company's operating segments. The Company has not yet completed
        its analysis of operating segments on which it will report.

2.      CONTRACTS AND MORTGAGES RECEIVABLE

        Contracts and mortgages receivable result from sales of land or land and
        cabins. Generally, the receivables are collected in monthly
        installments, including interest, over ten years for land sales and over
        five years for land and property structure sales. The Company also has
        certain mortgage receivables which are amortized over eight years for
        land sales and ten years for property structure sales, with a balloon
        payment for the remaining unpaid principal at the end of four years. At
        December 31, 1997, the weighted average maturity of contracts and
        mortgages receivable was approximately six years, and the weighted
        average interest rate on outstanding contracts and mortgages receivable
        was approximately 12.3% and 12.5%, as of December 31, 1997 and 1996,
        respectively.

        Maturities of contracts and mortgages receivable at December 31, 1997
are as follows:

        Year ending December 31:
        1998                                            $       979,564
        1999                                                    940,398
        2000                                                  1,062,427
        2001                                                  1,179,265
        2002                                                  1,294,443
        Thereafter                                            3,747,502
                                                        ---------------
                                                              9,203,599
        Allowance for uncollectible
               contracts and mortgages receivable              (108,600)
                                                        ---------------
                                                        $     9,094,999
                                                        ===============

<PAGE>


3.      TAX INCREMENT FINANCING RECEIVABLES

        Several taxing authorities have established tax increment financing
        districts whereby the Company will be reimbursed for costs incurred in
        the development of community infrastructure to the extent the community
        improvements and related development increase property taxes collected
        by the taxing authority. The Company recognizes these receivables upon
        the sale of the developed property or upon the completion of the
        structure by the owner. Amounts receivable under these agreements are
        $692,562 and $702,627 at December 31, 1997 and 1996 respectively.
        Estimated maturities of these receivables at December 31, 1997 are as
        follows:

        Year ending December 31:
        1998                                                $       117,926
        1999                                                        131,467
        2000                                                        131,958
        2001                                                        132,454
        2002                                                        132,954
        Thereafter                                                1,115,094
                                                            ---------------
                                                                  1,761,853
        Less imputed interest                                    (1,069,291)
                                                            ---------------
           Net receivable                                   $       692,562
                                                            ===============

4.      LINES OF CREDIT

        The Company has a credit agreement which provides for total borrowings
        of up to $9,000,000 at the discretion of the lender and is due April 30,
        2000. The credit agreement provides for various lines of credit. Total
        borrowings outstanding under the credit agreement are secured by
        virtually all of the Company's assets and are guaranteed by the
        president of the Company. The credit agreement contains certain
        restrictive covenants, including such items as maintenance of minimum
        net worth (as defined), limitation of capital expenditures, and
        limitation of payment of dividends. The Company was in compliance with
        the financial covenants of the credit agreement at December 31, 1997 and
        1996.

        At December 31, 1997 and 1996, the Company had borrowings outstanding of
        $4,438,448 and $4,549,096, respectively, under the line of credit based
        on 90% of eligible contracts receivable. In addition, the Company may
        borrow up to $3,500,000 for real estate purchases. The real estate
        borrowings are at the discretion of the lender based on 90% of the
        purchase price of the real estate plus 80% of eligible development
        costs. At December 31, 1997 and 1996, the Company had borrowings of
        $1,592,221 and $1,286,347, respectively, which are included in real
        estate notes payable (see Note 5). Borrowings under the line of credit
        bear interest at the greater of 8% or the lender's "base" rate plus 1.0%
        (9.5% and 9.25% at December 31, 1997 and 1996, respectively) and the
        greater of 8% or the lender's "base" rate plus 2.0% (10.5% and 9.75% at
        December 31, 1997 and 1996, respectively) on the real estate loan
        facility. The "base" rate is equal to the interest rate publicly
        announced by National City Bank of Minneapolis from time to time as its
        "base" rate. At December 31, 1997 the Company has unused availability of
        $584,770 under the credit agreements and real estate loan facility.

        Also, under the credit agreement, the Company has a $1,000,000 line to
        support financing of a major project. Borrowings under the project line
        bear interest at the lender's "base" rate plus 2.0% (10.5% and 9.75% at
        December 31, 1997 and 1996, respectively). Borrowings under the project


<PAGE>

        line outstanding at December 31, 1997 and 1996 were $93,777 and
        $296,550, respectively, and are secured by a mortgage on the major
        project.

        The credit agreement also provides the Company an overline up to
        $2,250,000 at the discretion of the lender. Borrowings under the
        overline facility at December 31, 1997 and 1996 were $1,400,000 and
        $1,150,000, respectively. Borrowings bear interest at the lender's
        "base" rate plus 2.0% (10.5% and 9.75% at December 31, 1997 and 1996,
        respectively).

5.      NOTES PAYABLE

        Notes payable consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                                         1997              1996
<S>                                                                  <C>              <C>
        Fixed rate notes payable, due through 2001 at
          various rates of interest ranging from 6.25% to 12%        $   4,056,483    $    5,426,136
        Real estate notes payable, due through 1999
          at various rates of interest ranging from prime to
          prime plus 3.5%                                                2,971,894         3,145,435
                                                                     -------------    --------------
                                                                     $   7,028,377    $    8,571,571
                                                                     =============    ==============
</TABLE>

        At December 31, 1997, notes payable were secured by certain land held
        for sale, contracts and mortgages receivable, and equipment. The notes
        payable are personally guaranteed by the president of the Company.

        Maturity requirements on notes payable at December 31, 1997 are as
        follows:

        Years ending December 31:

        1998                                     $     4,212,160
        1999                                           1,099,363
        2000                                             512,108
        2001                                             339,783
        2002                                             307,750
        Thereafter                                       557,203
                                                 ---------------
                                                 $     7,028,377
                                                 ===============

6.      CONTRACTS AND MORTGAGES PAYABLE

        The Company has entered into contracts for deed and mortgages for the
        purchase of land. At December 31, 1997, the agreements provide for
        interest rates from 6.0% to 10.0% and maturity dates through 2002. The
        contracts and mortgages payable are secured by land held for sale and
        land which has been sold and the related contracts receivable.


<PAGE>


        Maturity requirements on the contracts and mortgages payable at December
        31, 1997 are as follows:

        Years ending December 31:
        1998                                      $      208,654
        1999                                             114,389
        2000                                              25,712
        2001                                              27,906
        2002                                              30,287
                                                  --------------
                                                  $      406,948
                                                  ==============

7.       SENIOR SUBORDINATED DEBT

        The Company has $990,000 in senior subordinated notes outstanding which
        bear interest at 8% to 10% and are unsecured. In addition, the Company
        has $3,000,000 of senior subordinated debt which bears interest at 11%
        to 12% and is unsecured. At December 31, 1997, principal maturities of
        senior subordinated debt are as follows:

        Years ending December 31:
        1998                                      $      158,000
        1999                                             152,000
        2000                                             166,000
        2001                                             780,000
        2002                                             774,000
        Thereafter                                     1,960,000
                                                  --------------
                                                  $    3,990,000
                                                  ==============

8.      COMMITMENTS AND CONTINGENCIES

        The Company has sold certain contracts receivable to financial
        institutions under recourse sales agreements. In the event of default
        under the contracts receivable, the Company is required to pay the
        outstanding balance of the contract, whereupon the Company will
        reacquire title to the underlying land. At December 31, 1997 and 1996,
        the balance on contracts and mortgages receivable under such recourse
        sales agreements was approximately $2,932,851 and $3,916,000,
        respectively. At December 31, 1997 and 1996, the Company had a holdback
        receivable of approximately $6,000 and $9,000, respectively, recorded as
        other receivables, resulting from the sale of contracts prior to 1996.
        During 1996, the Company closed on sales of contracts and mortgages
        receivable with recourse in the amount of $783,812. There were no such
        sales in 1997.

9.      OPERATING LEASES

        The Company has entered into noncancelable leases for office space.
        Estimated payments under these lease agreements at December 31, 1997 are
        approximately as follows:

        Years ending December 31:
        1998                                      $      104,310
        1999                                              21,897
                                                  --------------
                                                  $      126,207
                                                  ==============

        Total rental expense for all operating leases was approximately $186,000
        and $193,000 for the years ended December 31, 1997 and 1996,
        respectively.



<PAGE>


10.     INCOME TAXES

        Deferred taxes are recognized for the tax consequences in future years
        of differences between the tax bases of assets and liabilities and their
        financial reporting amounts at each year end based on enacted tax laws
        and statutory tax rates applicable to the periods in which the
        differences are expected to affect taxable income.

        The following summarizes the provisions for income taxes for the years
ended December 31:

<TABLE>
<CAPTION>
                                                        1997            1996
<S>                                                 <C>              <C>
        Current:
          Federal                                   $   (190,990)    $    171,841
          State                                                            54,272
                                                    ------------     ------------
              Total current                             (190,990)         226,113

        Deferred:
          Federal                                          6,478           95,960
          State                                          (36,278)          29,902
                                                    ------------     ------------
              Total deferred                             (29,800)         125,862
                                                    ------------     ------------
                 Income tax (benefit) expense       $   (220,790)    $    351,975
                                                    ============     ============
</TABLE>

        Sales of real estate are reported on the installment basis for income
        tax purposes. For financial statement purposes, sales are reported, in
        total, when proceeds exceed 10% of the sale price. Deferred income taxes
        are provided for this difference along with inventory capitalization and
        various other temporary differences. The tax effect of significant items
        comprising the Company's net deferred tax liability as of December 31,
        1997 and 1996 are as follows:

<TABLE>
<CAPTION>
                                                                              1997
                                                      ---------------------------------------------------
                                                                 Deferred Tax
                                                      --------------------------------
                                                            Asset          Liability           Total
<S>                                                   <C>               <C>              <C>
        State net operating loss carryforward         $        37,583                    $        37,583
        Inventory capitalization                               27,360                             27,360
        Allowance reserves                                     45,103                             45,103
        Installment sales                                               $   (1,613,524)       (1,613,524)
        Other                                                                  (41,230)          (41,230)
                                                      ---------------   ---------------  ----------------
                                                      $       110,046   $   (1,654,754)  $    (1,544,708)
                                                      ===============   ===============  ================

                                                                              1996
                                                      ---------------------------------------------------
                                                                 Deferred Tax
                                                      --------------------------------
                                                            Asset          Liability           Total

        Inventory capitalization                      $        87,639                    $        87,639
        Allowance reserves                                     65,356                             65,356
        Installment sales                                               $   (1,713,395)       (1,713,395)
        Other                                                                  (33,313)          (33,313)
                                                      ---------------   --------------   ---------------
                                                      $       152,995   $   (1,746,708)  $    (1,593,713)
                                                      ===============   ==============   ===============
</TABLE>

<PAGE>


        As of December 31, 1997, the Company has state net operating loss
        carryforwards of approximately $517,000, which expire in 2012.

        The provisions for income taxes differ from the amounts computed by
        applying the federal statutory rate to income before income taxes for
        the years ended December 31, as follows:

<TABLE>
<CAPTION>
                                                                                          1997            1996
<S>                                                                                  <C>             <C>
        Computed income tax expense at federal
          statutory rate                                                             $    (194,484)  $      284,382
        State income taxes, net of federal income tax
          benefit                                                                          (36,278)          53,099
        Graduated income tax rates                                                           5,557           (8,125)
        Other                                                                                4,415           22,619
                                                                                     -------------   --------------
          Income tax (benefit) expense                                               $    (220,790)  $      351,975
                                                                                     ==============  ==============
</TABLE>


11.     EMPLOYEE 401(k) PLAN

        The Company's 401(k) plan covers substantially all employees meeting
        minimum eligibility requirements. The plan provides for employee
        contributions of up to a maximum of 15% of each employee's compensation,
        with the Company matching 50% of the first 6% of each employee's
        contribution. The Company's contributions to the plan totaled
        approximately $81,000 and $80,000 for the years ended December 31, 1997
        and 1996, respectively.

12.     TRANSACTIONS WITH OFFICER AND EMPLOYEES

        At December 31, 1997 and 1996, the Company had a note receivable of
        $250,000 from an officer of the Company. The note accrues interest at
        9.75% and is due on demand or by August 31, 1998. Included in contracts
        and mortgages receivable at December 31, 1997 and 1996 are contracts
        receivable from employees of the Company in the amount of $60,970 and
        $15,014, respectively. During the years ended December 31, 1997 and 1996
        the Company had sales to officers and employees of approximately $75,074
        and $16,600, respectively.


<PAGE>


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
        ACCOUNTING AND FINANCIAL DISCLOSURE

        No changes in or disagreements with accountants have occurred within the
        two-year period ended December 31, 1997.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT

        EXECUTIVE OFFICERS AND DIRECTORS

        The Company's executive officers and directors and their ages and
        positions with the Company as follows:

<TABLE>
<CAPTION>
              Name                 Age                   Positions with Company

<S>                                <C>             <C>
        Philip C. Taylor           46              President, Chairman of the Board,
                                                      Secretary and Treasurer
        Joel D. Kaul               38              Vice President and Chief Operating Officer
        W. John Driscoll           69              Director
        John H. Hooley             46              Director
        Charles J. McElroy         43              Director
        William R. Sieben          45              Director

</TABLE>

        PHILIP C. TAYLOR is the founder, President, Chairman of the Board and
        majority shareholder of the Company. Mr. Taylor has been actively
        involved in real estate investment and development for over 20 years.
        Since 1979, management of the Company has been his full-time occupation.
        Mr. Taylor graduated in 1973 from the College of St. Thomas, St. Paul,
        Minnesota, with a Bachelor of Arts degree in Economics. In 1978, Mr.
        Taylor received his Juris Doctorate degree from William Mitchell College
        of Law, St. Paul, Minnesota. Mr. Taylor has been Chairman, President,
        Secretary, and Treasurer since the Company's formation.

        JOEL D. KAUL is Vice President and Chief Operating Officer. Mr. Kaul
        joined the Company in June 1995 and has over 10 years of experience in
        the real estate finance industry. From 1989-1995, Mr. Kaul served as
        senior asset manager for Dain Corporation. In this capacity, Mr. Kaul
        directed a staff of fifteen people in the management of a $300 million
        national real estate portfolio. Prior to joining Dain Corporation, Mr.
        Kaul spent four years employed as a CPA with Ernst and Young and Coopers
        and Lybrand. Mr. Kaul also served as the Chief Financial Officer for a
        Minnesota-based land developer for four years. Mr. Kaul graduated Cum
        Laude in 1981 from the University of Wisconsin-LaCrosse, with a double
        major in finance and accounting.

        W. JOHN DRISCOLL has been a director of the Company since 1986. Mr.
        Driscoll is a director of Rock Island Company, a private investment firm
        which he served as Chairman of the Board from May 1993 to June 1994 and
        as President prior to May 1993. Mr. Driscoll also serves as a member of
        the board of directors of Comshare, Inc., John Nuveen & Co., Northern
        States Power Company, the St. Paul Companies, Inc. and Weyerhaeuser
        Company.

        JOHN H. HOOLEY has been a director of the Company since 1986. Mr. Hooley
        is President of Cub Foods, a division of Super Valu, Inc. He received a
        Bachelor of Arts Degree in Economics in 1974 from St. John's University,
        Collegeville, Minnesota. In 1980, he received his Juris Doctorate Degree
        from William Mitchell College of Law, St. Paul, Minnesota.


<PAGE>

        CHARLES J. MCELROY has been a director of the Company since 1986. Mr.
        McElroy is a partner with the firm of Larson, Allen, Weishair & Company,
        a regional certified public accounting firm. He received his Bachelor of
        Arts Degree in Accounting from the College of St. Thomas, St. Paul,
        Minnesota, in 1976. Mr. McElroy is Mr. Philip C. Taylor's
        brother-in-law.

        WILLIAM R. SIEBEN has been a director of the Company since 1986. Mr.
        Sieben is a partner in the law firm of Schwebel, Goetz & Sieben, P.A.,
        of Minneapolis, Minnesota. He received his Bachelor of Arts in 1972 from
        St. Cloud State University and a Juris Doctorate Degree from William
        Mitchell College of Law in 1977. He is past President of the Minnesota
        Trial Lawyers Association and has written several legal publications.

        All members of the Board of Directors hold office until the next annual
        meeting of stockholders or until their successors are elected and
        qualified. The Company pays each of directors an annual fee of $4,500,
        plus reimbursement of out-of-pocket expenses.

        The Company does not have a class of equity securities registered
        pursuant to Section 12 of the Securities Exchange Act of 1934 (the
        "Exchange Act") and therefore is not subject to Section 16 of the
        Exchange Act.



<PAGE>


ITEM 10. EXECUTIVE COMPENSATION

             The following table sets forth the compensation paid or accrued by
             the Company for services rendered during the fiscal years ended
             December 31, 1997 and 1996 with respect to the President (Chief
             Executive Officer) and all officers of the Company whose total
             annual salary and bonus for 1997 exceeded $100,000:

             SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                            Annual Compensation
                                                         ---------------------------------------------------------
                  Name and                                                                            Other Annual
             Principal Position                          Year         Salary         Bonus(1)         Compensation
<S>                                                      <C>         <C>               <C>               <C>
             Philip C. Taylor, President                 1997        $150,000          $6,355            $4,500(2)
                                                         1996         150,000          55,738             4,500(2)
             Joel D. Kaul, Vice President                1997         100,000           6,994                -
                                                         1996         100,000          35,706                -

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

             (1)     The amount of Mr. Taylor's bonus is approved by the
                     Board of Directors and is based on a formula related to
                     the Company's Profitability. Mr. Taylor's and Mr. Kaul's
                     1997 bonus of $6,355 and $6,994, consists of 1996 profit
                     sharing for which payment was deferred until 1997.

             (2)     Annual fee paid to Mr. Taylor for serving as a member of
                     the Company's Board of Directors.



<PAGE>


ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

             The following table sets forth as of December 31, 1997, the number
             of shares of the Company's common stock beneficially owned by (i)
             each director of the Company, (ii) each executive officer of the
             Company named in the Summary Compensation Table, (iii) each person
             known by the Company to beneficially own more than five percent of
             the outstanding shares of the Company's common stock, and (iv) all
             executive officers and directors as a group. Unless otherwise
             indicated, each person has sole voting and dispositive power over
             such shares.

<TABLE>
<CAPTION>
                                                                                                     Percent of
                   Name and Address of                                     Outstanding            Number of Shares
                    Beneficial Owner                                        Shares (2)         Beneficially Owned (1)
<S>                                                                          <C>                     <C>
             Philip C. Taylor
               43 Main Street, SE, Suite 506
               Minneapolis, Minnesota  55414                                 387,804 (3)               80.2%
             Charles J. McElroy
               Pillsbury Center
               220 South Sixth Street
               Suite 1000
               Minneapolis, Minnesota 55402                                  120,000 (4)               24.8
             Joel D. Kaul
               2821 Overlook Lane North
               Stillwater, Minnesota  55082                                    7,541                    1.5
             John H. Hooley
               9770 Old Deer Trail
               Stillwater, Minnesota  55082                                    5,740                    1.2
             William R. Sieben
               1201 Southview Drive
               Hastings, Minnesota  55033                                      5,740                    1.2
             W. John Driscoll
               2090 First National Bank Building
               St. Paul, Minnesota  55101                                          0 (5)                  *
             All executive officers and directors
               as a group (7 persons)                                        401,159                   82.7
</TABLE>
--------------------

             (1) Unless otherwise indicated, each person has sole voting and
                 dispositive power with respect to all outstanding shares
                 reported in the foregoing table.

             (2) Based on 484,129 shares of common stock outstanding at December
                 31, 1997.

             (3) Includes 132,146 shares owned by Mr. Taylor's wife, 120,000
                 shares held in trust for his children and 1,708 shares held by
                 other members of his family as to which he disclaims beneficial
                 ownership. The 120,000 shares held in trust for Mr. Taylor's
                 children have also been included in the number of shares shown
                 for Mr. Charles J. McElroy, the trustee.

             (4) Includes 120,000 shares held by Mr. McElroy as trustee under
                 trusts for the benefit of Philip C. Taylor's children which
                 have also been included in the number of shares shown for Mr.
                 Taylor.

             (5) Does not include 35,700 shares held in a trust for which Mr.
                 Driscoll was the trustee or 7,140 shares held by Mr. Driscoll
                 as trustee as to which Mr. Driscoll disclaims beneficial
                 ownership.


<PAGE>


ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

             Employees of the Company have from time to time purchased from the
             Company vacation property for their personal use. In connection
             with such purchases, the Company has provided to such employees
             mortgage financing on the same or similar terms it makes available
             to unaffiliated customers in the ordinary course of its business.
             In the opinion of management, the terms of such sales and financing
             are no more favorable to the employee(s) than those generally made
             available to its customers.

             Mr. Taylor has a loan from the Company in the amount of $250,000,
             at December 31, 1997 and 1996.  The demand promissory note bears an
             annual interest rate of 9.75%.

             Under the terms of the Subordinated Debt, Taylor may not, and may
             not permit any subsidiary to, conduct any business or enter into
             any transaction or series of transactions with or for the benefit
             of any affiliate or any subsidiary of the Company, or any holder of
             5% or more of any class of capital stock of the Company, except in
             good faith and on terms that are, in the aggregate, no less
             favorable to the Company or any subsidiary, as the case may be,
             than those that could have been obtained in a comparable
             transaction on an arm's length basis from a person not an affiliate
             of the Company or such subsidiary.

ITEM 13.     EXHIBITS AND REPORTS ON FORM 8-K

             (a)   Exhibits.

                 No.                                      Description

                 3.1    Articles of Incorporation of the Company, as amended *

                 3.2    Bylaws of the Company, as amended *

                 4.1    Form of Debenture (included as Article Two of Indenture
                        filed as Exhibit 4.2)

                 4.2    Forms of Indenture by and between the Company and
                        American Bank National Association, as Trustee *

                 10.1   Taylor Investment Corporation 1987 Nonqualified Stock
                        Option Plan *

                 10.2   Office Lease Agreement between the Company and
                        Riverplace, Inc. dated February 4, 1994 *


                 10.3   Redevelopment Agreement between the City of Hillsboro,
                        Illinois and the Company dated April 26, 1994 *

                 10.4   Agreement for the Development of City Owned Lands
                        between the City of Hillsboro, Illinois and the Company
                        dated March 3, 1992 *

                 10.5   Contract For Private Development between The Joint East
                        Range Economic Development Authority and Laurentian
                        Development Authority *

                 10.6   Second Contract For Private Development between The
                        Joint East Range Economic Development Authority and
                        Laurentian Corporation Authority *

                 10.7   Term Agreement for the Development of Public Lands
                        between Kinkaid-Reed's Conservancy District and Kinkaid
                        Development Corporation *

                 10.8   Credit Agreement between Diversified Business Credit,
                        Inc. and the Company dated November 18, 1986, as amended
                        by Amendment to Credit Agreement dated June 2, 1993 *

                 10.9   Security Agreement between Diversified Business Credit,
                        Inc. and the Company dated November 18, 1986 *

                 10.10  Agreement between the City of Coleraine, Minnesota and
                        the Company dated September 26, 1994 *

                 22.1   Subsidiaries of the Company

                 27     Financial Data Schedule

            --------------------
             Incorporated by reference to the Company's registration statement
             on Form SB-2 (No. 33-87024C), effective January 12, 1995.

             (a) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during
                 the last quarter of the period covered by this report.


<PAGE>


                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

                          TAYLOR INVESTMENT CORPORATION
                                          (Registrant)

Dated:   March 25, 1998                   By     /S/ Philip C. Taylor
      ---------------------                     ---------------------
                                          Philip C. Taylor
                                          President and Chief Executive Officer

     In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>


SIGNATURE                                           TITLE                                        DATE


<S>                                                 <C>                                          <C>
/S/ Philip C. Taylor                                Chairman of the Board, President             March 25, 1998
--------------------------------------------        Secretary and Treasurer (Chief
Philip C. Taylor                                    Executive Officer)




/S/ W. John Driscoll                                Director                                     March 25, 1998
--------------------------------------------                                             ----------------------
W.    John Driscoll



/S/ John H. Hooley                                  Director                                     March 25, 1998
--------------------------------------------                                             ----------------------
John H. Hooley



/S/ Charles J. McElroy                              Director                                     March 25, 1998
--------------------------------------------                                             ----------------------
Charles J. McElroy



/S/ William R. Sieben                               Director                                     March 25, 1998
--------------------------------------------                                             ----------------------
William R. Sieben



/S/ Joel D. Kaul
--------------------------------------------
Joel D. Kaul                                        Vice President and Chief                     March 25, 1998
                                                    Operating Officer
                                                                                         --------------------------

</TABLE>


<PAGE>


INDEX TO EXHIBITS

<TABLE>
<CAPTION>

EXHIBIT
  NO.             DESCRIPTION                                                                           PAGE

<S>               <C>                                                                                     <C>
    3.1           Articles of Incorporation of the Company, as amended ...................................*
    3.2           Bylaws of the Company, as amended ......................................................*
    4.1           Form of Debenture (included as Article Two of Indenture filed
                  as Exhibit 4.2)
    4.2           Form of Indenture by and between the Company and American
                  Bank National Association, as Trustee...................................................*
   10.1           Taylor Investment Corporation 1987 Nonqualified Stock Option Plan.......................*
   10.2           Office Lease Agreement between the Company and
                  Riverplace, Inc. dated February 4, 1994.................................................*
   10.3           Redevelopment Agreement between the City of Hillsboro, Illinois
                  and the Company dated April 26, 1994....................................................*
   10.4           Agreement for the Development of  City Owned Lands between
                  The City of Hillsboro, Illinois and the Company dated March 3, 1992.....................*
   10.5           Contract For Private Development between The Joint East Range
                  Economic Development Authority and Laurentian
                  Development Authority...................................................................*
   10.6           Second Contract For Private Development between The Joint
                  East Range Economic Development Authority and Laurentian
                  Corporation Authority...................................................................*
   10.7           Term Agreement for the Development of Public Lands between
                  Kinkaid-Reed's Conservancy District and Kinkaid
                  Development Corporation.................................................................*
   10.8           Credit Agreement between Diversified Business Credit, Inc. and
                  the Company dated November 18, 1986, as amended by Amendment
                  to Credit Agreement dated June 2, 1993..................................................*
   10.9           Security Agreement between Diversified Business Credit, Inc. and the
                  Company dated November 18, 1986.........................................................*
  10.10           Agreement between the City of Coleraine, Minnesota and the
                  Company dated September 26, 1994........................................................*
   22.1           Subsidiaries of the Company.............................................................*
   27             Financial Data Schedule ................................................................*

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

*  Incorporated by reference to the Company's registration statement on
   Form SB-2 (No. 33-87024C), effective January 12, 1995.