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-KSB40
(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, 1996

               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.  $22,257,104

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.

                        $988,113 as of December 31, 1996

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 - 488,884 shares as of December 31, 1996

                       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_


                                TABLE OF CONTENTS

                                     PART I
ITEM 1.    BUSINESS............................................................1

           General.............................................................1

           Principal Business..................................................1

           Competition.........................................................3

           Regulation..........................................................3

           Employees...........................................................4

ITEM 2.    PROPERTIES..........................................................4

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...............................................4

ITEM 7.    FINANCIAL STATEMENTS...............................................13

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


                                     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
             property and river frontage 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 Realty 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. In 1995, the Company
             formed a construction subsidiary, Four Seasons Builders, Inc., to
             expand their share of the construction marketplace. 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 waterfront properties
             for building primary and secondary homes for use as vacation
             retreats, retirement residences or investment. The Company's
             strategy to expand its marketplace includes plans to increase its
             levels of inventory, expand its Sales and Marketing staff, as well
             as increase the number of Acquisitions and Development personnel.
             The Company has been implementing this strategy over the past
             several years, as reflected in its increased level of inventory and
             employees. The Company increased its inventory to $14.1 million at
             December 31, 1996 from $11.3 million at December 31, 1995. The
             Company also increased its staff of acquisition and development
             personnel to 37 as of December 31, 1996 from 31 in 1995. The
             acquisition and development staff was increased to decrease the
             development time of projects and increase the amount of product
             available for sale.

             The Company opened a new Four Seasons Realty office in Jasper,
             Georgia, in February, 1996. This new office focuses on inventory in
             the mountains of Northern Georgia.

             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 adjacent lakes or rivers 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.

             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 - $45,000
             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 Realty 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
             Realty regional sales offices are located near Brainerd, Minnesota,
             and Spooner, Minocqua, 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.

             In September 1995, the Company formed Four Seasons Builders, Inc.,
             a subsidiary engaged in the cabin construction business, in which
             it subcontracts for the construction of structures on property
             owned by the Company. The Company discontinued its previous
             agreement with an outside builder due to cost savings realized by
             using subcontractors. The primary focus of Four Seasons Builders,
             Inc. is to construct quality cabins and homes, which ultimately
             leads to the sale of additional lots.

             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 Chief Financial
             Officer for ultimate approval or rejection. Approved customers
             execute notes secured by first mortgages on the lots purchased.

             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 Realty 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, 1996, the Company has 103 full-time and 13
             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.

             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, 1996.

                                     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 488,884 shares
             were outstanding and held of record by 19 stockholders as of
             December 31, 1996. 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 Credit Agreement with DBCI 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, 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.

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 property and river frontage. 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 Diversified Business Credit,
             Inc. ("DBCI") through an asset-based credit facility (the "Credit
             Agreement"). On average, between 60% and 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 at least the next twelve
             months. Inventory balances were $14.1 million and $11.3 million as
             of December 31, 1996, and 1995, respectively.

             Through Four Seasons Builders, Inc., the Company contracts for the
             construction of shell homes, on its Four Season's lots, which
             structures are eventually sold. The Company plans to have 3-4
             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.
             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 25.9% and 44.0% of sales for the years
             ended December 31, 1996, and 1995, respectively. The decrease in
             purchases financed by the Company is due to an increase in lower
             rate financing available to customers from sources outside of the
             Company. The weighted average interest rate on outstanding
             contracts and mortgages receivable was approximately 12.5%, and
             12.7% as of December 31, 1996, and 1995, respectively.

             Other revenues also include the following:

             RESORT MANAGEMENT INCOME - The Company manages the Laurentian
             Resort in Biwabik, Minnesota through its wholly-owned subsidiary,
             Resort Hospitality, Inc. In this capacity, Resort Hospitality, Inc.
             retains a percentage of the income generated through the rental of
             condominiums, which have previously been sold by the Company.

             CLOSING FEE INCOME - The Company collects a documentation
             preparation fee and a closing fee for each sale to partially
             reimburse itself for title insurance costs and real estate taxes.

             COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND 1995.

             The Company reported a 39.0% increase in sales for the year ended
             December 31, 1996 to $20.7 million, including sales of shell homes,
             condominiums, townhomes and timeshare sales of $3.9 million, or
             19.0% of sales. For the same period in 1995, sales were $14.9
             million, including $2.1 million in sales of shell homes,
             condominiums and townhomes, or 14.0% of sales. This increase in
             sales is attributable to an increase in the amount and quality of
             inventory brought to market. Structure sales increased due to
             additional construction of shell homes.

             The following table sets forth the sales, cost of sales, and gross
             profit information for the years ended December 31, 1996, and 1995.

<TABLE>
<CAPTION>
                 1996                  Land                     Structures                    Total

<S>                                <C>              <C>       <C>               <C>       <C>               <C>   
             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%

                 1995                  Land                     Structures                    Total

             Sales                 $ 12,842,959     100.0%    $  2,059,171      100.0%    $  14,902,130     100.0%
             Cost of sales            6,449,798      50.2%       1,250,886       60.7%        7,700,684      51.7%
                                   ------------   -------     ------------   --------     -------------   -------
             Gross profit          $  6,393,161      49.8%    $    808,285       39.3%    $   7,201,446      48.3%
</TABLE>

             For 1996, gross profit was $7.7 million or 37.1% of sales, compared
             to $7.2 million or 48.3% of sales, for the same period in 1995.
             Gross profit margin from the sale of lots was 42.9% for 1996, and
             49.8% in 1995. In 1996, gross profit margin from the sale of
             structures (shell homes, condominiums, and townhomes) was 11.6%
             while for the same period in 1995, gross profit margin from the
             sale of structures was 39.3%. The decrease in gross profit margin
             is partially due to the aggressive sales program to sell a majority
             of lower margin Laurentian inventory. This resulted in discounting
             timeshare sales prices. Land sales also contributed to the decrease
             in profit margin due to price discounts on slower-moving inventory.

             Other revenues of $1.5 million in 1996 increased 15.4% from $1.3
             million for the same period in 1995. This increase was due to
             additional interest income, rental revenue, reimbursement for
             closing costs and tax increment financing. Interest income
             increased to $946,274 in 1996 from $908,740 in 1995 as a result of
             higher average balances of Contracts and Mortgages receivable.
             Rental income for the Resort Hospitality increased from $193,995 in
             1995, to $211,763 in 1996, principally due to an increase in the
             number of units available for rental and a moderate increase in
             rental rates. Closing fees increased 42.6% from the prior year due
             to an increase in average closing costs as well as closing 661
             transactions in 1996, compared to 526 in 1995. Tax increment
             financing income was recognized on lots previously sold of
             $131,523.

             Selling, general and administrative expenses for 1996 were $6.8
             million or 32.9% of sales, compared to $5.8 million or 39.0% of
             sales, for the same period in 1995. The decrease in selling,
             general and administrative expense, as a percent of sales, is
             primarily due to fixed costs being spread over higher sales. The
             increase in these expenses of $1.0 million was attributable to
             selling related variable expenses of advertising and commissions.

             Interest expense of $1.6 million in 1996 increased by 15.3% from
             $1.4 million in 1995. The increase in interest expense was due to
             financing a higher level of inventory during 1996 as compared to
             1995.

             Income tax expense for the years ended December 31, 1996 and 1995
             was 43.3% and 43.5%, respectively, of income before income taxes.

             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, 1996 and 1995:

                                                     1996            1995
             Net cash provided by (used in):
               Operating activities              $  4,610,672     $   729,898
               Investing activities                  (296,139)       (451,235)
               Financing activities                (4,135,445)       (130,805)
                                                 ------------     -----------
               Net increase in cash              $    179,088     $   147,858
                                                 ============     ===========

             Cash provided by operating activities totaled $4,610,672 in 1996
             and $729,898 in 1995. 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 new a 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. Cash uses for investing and financing
             activities in 1995 consisted primarily of principal payments on
             notes, contracts, and mortgages payable of $3.6 million, the
             purchase of property and equipment of $190,101, and the loan to an
             officer of $232,000, that were offset by net borrowings under the
             Credit Agreement of $767,080 and the issuance of $2,760,000 in
             senior subordinated notes, net of underwriters' commissions.

             FINANCING SOURCES - The Company's financing sources consist of
             short-term financing under its Credit Agreement with DBCI, 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, Taylor finances between 60% and 75% of the
             cost of land acquisitions. 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 with DBCI. The following table sets forth the Company's
             sources of financing and the amount of such financing at December
             31, 1996 and 1995.

             SOURCES OF FINANCING

<TABLE>
<CAPTION>
                                                               1996        Percentage         1995       Percentage

<S>                                                        <C>                  <C>      <C>                 <C>  
             Lines of Credit                               $   5,995,646        31.9%    $    7,213,084      49.3%
             Notes payable (1)                                 8,571,571        45.6          2,417,590      16.5
             Mortgages payable                                   253,781         1.3          1,004,290       6.9
             Subordinated debt                                 3,990,000        21.2          3,990,000      27.3
                                                           -------------    --------     --------------    ------
               Total debt                                  $  18,810,998       100.0%    $   14,624,964     100.0%
                                                           =============    ========     ==============    ======
</TABLE>
             -------------------------
             (1)Notes payable include the DBCI real estate line of credit in the
             amounts of $1,286,347 and $314,030 as of December 31, 1996, and
             1995, respectively.

             DIVERSIFIED BUSINESS CREDIT, INC. - The Company began its borrowing
             relationship with DBCI 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

                                                                    Balance
                                                   Amount of   Outstanding as of
                                                    Line(1)    December 31, 1996

             Mortgages and Contracts Receivable   $9,000,000    $   4,549,096
             Real Estate Mortgage                  3,500,000        1,286,347
             Project Line Credit                   1,000,000          296,550
             Interim Financing                     2,000,000        1,150,000
                                                                -------------
                                                                $   7,281,993
                                                                =============

             -------------------------
             (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 is at the discretion of DBCI
             and are based on 90% of eligible contracts receivable. Amounts
             borrowed under the Mortgages and Contracts Receivable line are to
             be used to finance the development of properties. Borrowings under
             this credit line bears interest at a rate equal to the greater of
             1.0% over the DBCI base rate (9.25% as of December 31, 1996) or
             8.0%. The DBCI 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
             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 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 the Laurentian Resort project at Giant's Ridge Ski Resort in
             northern Minnesota. The assets of the project secure this line of
             credit. Borrowings of up to $2,000,000 under the Interim Financing
             line are available to the Company at the discretion of DBCI to
             cover demand overages on the other lines of credit. Borrowings
             under the Real Estate, Project and Interim financing lines of
             credit bear interest at a rate equal to 1.5% over the DBCI base
             rate.

             All amounts borrowed by the Company under the Credit Agreement are
             due December 31, 1997 under an amendment to the Credit Agreement
             which changed the structure of the Agreement to a Committed 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 is
             personally guaranteed by the Company's President, Philip C. Taylor.
             The Credit Agreement also contains a number of restrictive
             covenants.

             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 sale 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, 1996, there were $3,916,061 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 $176,947 in 1997, $16,122 in 1998, $ 8,938 in
             1999, $15,510 in 2000 and $1,403,343 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.

             The following table lists as of December 31, 1996, and 1995 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, 1996, and 1995.

                                                       1996             1995
             Contracts and mortgages receivable:
               Balance outstanding                  $9,389,611        $8,026,145
                 Amount 90 days past due               217,861           323,155
                 Percentage of Balance                   2.32%             4.03%
               Amount foreclosed during period         199,786           110,688
                 Percentage of balance                   2.13%             1.38%
             Contracts and mortgages sold              783,812               -0-
             Average portfolio term                    6 years           6 years
             Weighted average interest rate             12.50%            12.70%

             At December 31, 1996, contracts and mortgages receivable
             outstanding were approximately $9.4 million, had an average
             remaining term of approximately six years, and carried a weighted
             average interest rate of 12.5%. Approximately 2% of the balance was
             over 90 days past due. Taylor 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 Taylor
             receives full payment. On occasion, Taylor must cancel the contract
             and begin foreclosure proceedings. As of December 31, 1996, there
             was approximately $100,000 in contract and mortgage receivable
             balances where the foreclosure process was complete, and an
             additional $54,000 were in the process of foreclosure. Subsequent
             to a completed foreclosure, Taylor returns the underlying property
             to inventory and begins re-marketing 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 1997 and the
             above available financing resources, management believes it has
             adequate sources of funds to finance its 1997 cash requirements.

             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 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.

             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:

             * Changing economic conditions, including economic downturns or
               recessions;

             * The ability of the company to maintain and enhance its market
               position relative to its competitors, realize productivity, and
               continue to control expenses;

             * The availability of suitable tracts of undeveloped land in
               proximity to the marketplace;

             * Changes in zoning and subdivision regulations;

             * The availability and cost of financing;
             
             * Continuity of management.


ITEM 7.      FINANCIAL STATEMENTS

             Independent Auditors' Report..................................14

             Consolidated Balance Sheets...................................15

             Consolidated Statements of Operations.........................16

             Consolidated Statements of Stockholders' Equity...............17

             Consolidated Statements of Cash Flows.........................18

             Notes to Consolidated Financial Statements....................19


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, 1996
and 1995 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, 1996 and 1995 and the results of their operations
and their cash flows for the years then ended, in conformity with generally
accepted accounting principles.


DELOITTE & TOUCHE LLP

March 17, 1997
Minneapolis, Minnesota


TAYLOR INVESTMENT CORPORATION

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>

                                                                                            1996           1995

ASSETS

<S>                                                                                   <C>             <C>         
INVENTORY - Principally land held for sale (Notes 1, 4, 5, and 6)                      $ 14,137,556    $ 11,255,151

CONTRACTS AND MORTGAGES RECEIVABLE (Notes 1, 2, 4, 5, 6, 8, and 12)                       9,389,611       8,026,145

INVESTMENT IN JOINT VENTURE (Note 1)                                                         50,729          53,633

OTHER ASSETS:
   Cash                                                                                     615,054         435,966
   Note receivable from officer (Note 12)                                                   250,000         250,000
   Tax increment financing receivable (Note 3)                                              702,627         735,131
   Other receivables (Note 8)                                                               257,912         196,492
   Income taxes receivable (Note 10)                                                         65,540
   Prepaid expenses                                                                         200,993         158,703
   Land, buildings, and equipment, less accumulated
     depreciation of $501,940 and $316,423, respectively (Notes 1, 4, and 5)                903,741         611,742
   Loan acquisition and debt issuance costs,
     less accumulated amortization of $136,491 and
     $67,128, respectively (Note 1)                                                         499,801         511,249
                                                                                       ------------    ------------
         Total other assets                                                               3,495,668       2,899,283
                                                                                       ------------    ------------
                                                                                       $ 27,073,564    $ 22,234,212
                                                                                       ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY

LINES OF CREDIT (Note 4)                                                               $  5,995,646    $  7,213,084

NOTES PAYABLE (Note 5)                                                                    8,571,571       2,417,590

CONTRACTS AND MORTGAGES PAYABLE (Note 6)                                                    253,781       1,004,290

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

OTHER LIABILITIES:
   Accounts payable                                                                         365,746         255,705
   Accrued liabilities                                                                      470,333         551,817
   Income taxes payable (Note 10)                                                                            63,670
   Deposits on land sales and purchase agreements (Note 1)                                   67,353          39,915
                                                                                       ------------    ------------
         Total other liabilities                                                            903,432         911,107

DEFERRED INCOME TAXES (Note 10)                                                           1,593,713       1,467,851

COMMITMENTS AND CONTINGENCIES (Notes 8 and 9)

STOCKHOLDERS' EQUITY (Notes 4 and 7):
   Common stock, $.01 par value; 10,000,000 shares authorized;
     488,884 and 483,312 shares issued and outstanding, respectively                          4,889           4,833
   Additional paid-in capital                                                               766,650         668,841
   Retained earnings                                                                      4,993,882       4,556,616
                                                                                       ------------    ------------
         Total stockholders' equity                                                       5,765,421       5,230,290
                                                                                       ------------    ------------
                                                                                       $ 27,073,564    $ 22,234,212
                                                                                       ============    ============
</TABLE>

See notes to consolidated financial statements.


TAYLOR INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>

                                                                                        1996             1995

REVENUES:
<S>                                                                                <C>              <C>            
   Sales (Note 1)                                                                  $   20,725,388   $    14,902,130
   Interest income on contracts receivable                                                946,274           908,740
   Equity in loss of 50% owned subsidiary and
     joint venture (Note 1)                                                                (2,904)          (26,181)
   Other revenue                                                                          588,346           384,637
                                                                                   --------------   ---------------
         Total revenue                                                                 22,257,104        16,169,326

COST AND EXPENSES:
   Cost of sales                                                                       13,041,353         7,700,684
   Selling, general, and administrative                                                 6,821,949         5,806,405
   Interest expense                                                                     1,581,277         1,371,591
                                                                                   --------------   ---------------
         Total costs and expenses                                                      21,444,579        14,878,680
                                                                                   --------------   ---------------

INCOME BEFORE INCOME TAXES                                                                812,525         1,290,646

PROVISION FOR INCOME TAXES (Note 10)                                                      351,975           561,145
                                                                                   --------------   ---------------

NET INCOME                                                                         $      460,550   $       729,501
                                                                                   ==============   ===============

NET INCOME PER COMMON SHARE                                                        $         0.94   $          1.51
                                                                                   ==============   ===============

AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                                               486,100           483,312
                                                                                   ==============   ===============
</TABLE>

See notes to consolidated financial statements.


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, 1994                  483,312     $     4,833   $   668,841   $  3,827,115    $  4,500,789

   Net income                                                                               729,501         729,501
                                           -----------     -----------   -----------   ------------    ------------

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
                                           ===========     ===========   ===========   ============    ============
</TABLE>

See notes to consolidated financial statements.


TAYLOR INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>

                                                                                             1996           1995

<S>                                                                                    <C>             <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                                          $    460,550    $    729,501
   Adjustments to reconcile net income to net cash provided by
       operating activities:
     Depreciation and amortization                                                          281,565         173,211
     Loss on sale of assets                                                                   9,766           1,804
     Deferred income taxes                                                                  125,862         283,432
     Equity in loss of 50% owned subsidiary and joint venture                                 2,904          26,181
     Contracts and mortgages receivables funded                                          (5,371,211)     (4,211,942)
     Payments on contracts and mortgages receivable                                       4,007,745       3,014,866
     Contracts and mortgages receivable sold                                                783,812
     Decrease in inventory - land held for sale                                           4,512,016         780,232
     Increase in other receivables                                                          (28,916)       (339,825)
     (Increase) decrease in income tax receivable                                           (65,540)        105,654
     (Increase) decrease in prepaid expenses                                                (42,290)         47,112
     Increase in all other assets                                                           (57,916)       (202,206)
     (Decrease) increase in accounts payable, accrued liabilities,
       and income taxes payable                                                             (35,113)        309,004
     Increase in deposits on land sales and purchase agreements                              27,438          12,874
                                                                                       ------------    ------------
                                                                                          4,150,122             397
                                                                                       ------------    ------------
         Net cash provided by operating activities                                        4,610,672         729,898

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                                                      (311,099)       (190,101)
   Proceeds from sale of property and equipment                                              14,960           2,500
   Investment in joint venture                                                                              (31,634)
   Advance to officer                                                                                      (232,000)
                                                                                       ------------    ------------
         Net cash used in investing activities                                             (296,139)       (451,235)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net (payments) borrowings on lines of credit                                          (1,217,438)        767,080
   Proceeds from notes payable (Note 2)                                                   4,829,355
   Proceeds from issuance of senior subordinated debt                                                     2,760,000
   Repayment of notes, contracts, and mortgage payables                                  (7,821,943)     (3,647,885)
   Issuance of common stock                                                                 100,000
   Retirement of common stock                                                               (25,419)
   Payment of senior subordinated debt                                                                      (10,000)
                                                                                       ------------    ------------
         Net cash used in financing activities                                           (4,135,445)       (130,805)
                                                                                       -------------   ------------

INCREASE IN CASH                                                                            179,088         147,858

CASH AT BEGINNING OF YEAR                                                                   435,966         288,108
                                                                                       ------------    ------------

CASH AT END OF YEAR                                                                    $    615,054    $    435,966
                                                                                       ============    ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
     INFORMATION:
   Cash paid during the period for:
     Interest                                                                          $  1,589,577    $  1,361,630
                                                                                       ============    ============
     Income taxes                                                                      $    389,300    $    250,000
                                                                                       ============    ============
   Noncash financing activity - inventory and equipment
     purchased with notes and contracts payable                                        $  7,612,248    $  3,550,984
                                                                                       ============    ============
   Noncash financing activity - debt issuance costs paid from
     senior subordinated debt proceeds                                                 $         -     $    240,000
                                                                                       ============    ============
</TABLE>

See notes to consolidated financial statements.


TAYLOR INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995

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, 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 1996 and 1995.

        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. Recreational 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. The Company has a valuation allowance
        of $19,000 and $0 recorded at December 31, 1996 and 1995, respectively,
        to reduce certain inventory to net realizable value.

        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.

        Four units of a six-unit building that are currently being sold as
        timeshare properties are 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 65% of
        all timeshare properties included in the development. The total
        remaining cost basis included in inventory at December 31, 1996 was
        approximately $276,000.

        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.

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

                                                    1996              1995

        Land                                  $       19,304    $       27,885
        Buildings and improvements                    79,749           189,185
        Equipment                                  1,306,628           711,095
                                              --------------    --------------
                                                   1,405,681           928,165
        Less accumulated depreciation                501,940           316,423
                                              --------------    --------------
                                              $      903,741    $      611,742
                                              ==============    ==============

        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
        1996 and 1995, down payments on sales financed by the Company averaged
        approximately 15% and 17% of the sale price, respectively.

        EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE - Earnings per common
        and common equivalent share are computed by dividing net income by the
        weighted average number of common and common equivalent 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 impact future sales levels, however, if demand for product was to
       decline for an extended period of time, the Company 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 $4,029,000 and $4,017,000 at
        December 31, 1996 and 1995, respectively.

        IMPAIRMENT OF LONG-LIVED ASSETS - In March 1995, the Financial
        Accounting Standards Board issued Statement of Financial Accounting
        Standards (SFAS) No. 121, ACCOUNTING FOR LONG-LIVED ASSETS AND
        LONG-LIVED ASSETS TO BE DISPOSED OF, which became effective for the
        Company's financial statements in 1996. The Company has determined that
        the carrying amounts of all its long-lived assets and identifiable
        intangibles at December 31, 1996 are recoverable through expected future
        cash flows from the use of those assets.

        STOCK OPTIONS - In October 1995, the Financial Accounting Standards
        Board issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
        which became effective for the Company's financial statements in 1996.
        The statement establishes financial accounting and reporting standards
        for stock-based employee compensation. At December 31, 1996, the Company
        had no stock-based employee compensation programs that are subject to
        SFAS No. 123 reporting requirements.

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, 1996, 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 12.5% and 12.7%, as of December 31, 1996 and 1995,
        respectively.

        Maturities of contracts and mortgages receivable at December 31, 1996
        are as follows:

<TABLE>
<CAPTION>
<S>                          <C>
        Year ending December 31:
        1997                                                                                        $       976,185
        1998                                                                                              1,015,531
        1999                                                                                              1,007,373
        2000                                                                                              1,136,808
        2001                                                                                              1,379,438
        Thereafter                                                                                        3,979,076
                                                                                                    ---------------
                                                                                                          9,494,411
        Allowance for uncollectible contracts and mortgages receivable                                     (104,800)
                                                                                                    ---------------
                                                                                                    $     9,389,611
                                                                                                    ===============

</TABLE>

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
        $702,627 and $735,131 at December 31, 1996 and 1995 respectively.
        Maturities of these receivables at December 31, 1996 are as follows:

        Year ending December 31:
        1997                                          $        72,614
        1998                                                   88,540
        1999                                                   96,125
        2000                                                  103,282
        2001                                                  111,166
        Thereafter                                            935,313
                                                      ---------------
                                                            1,407,040
        Less imputed interest                                (704,413)
                                                      ---------------
        Net receivable                                $       702,627
                                                      ===============

4.       LINES OF CREDIT

        The Company has a credit agreement with Diversified Business Credit Inc.
        (DBCI) which provides for total borrowings of up to $9,000,000 at the
        discretion of DBCI and is due December 31, 1997. 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, 1996 and 1995.

        At December 31, 1996 and 1995, the Company had borrowings outstanding of
        $4,549,096 and $4,833,538, respectively, under a 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, 1996 and 1995, the Company had borrowings of
        $1,286,347 and $314,030, 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 DBCI "base" rate plus 1.0% (9.25%
        and 10.0% at December 31, 1996 and 1995, respectively) and the greater
        of 8% or the DBCI "base" rate plus 1.5% 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, 1996 the Company has unused availability of
        $526,737 under the credit agreements and real estate loan facility.

        Also, under the credit agreement, the Company has a $1,000,000 line with
        DBCI to support financing of a major project. Borrowings under the
        project line bear interest at the DBCI "base" rate plus 1.5% (9.75% and
        10.5% at December 31, 1996 and 1995, respectively). Borrowings under the
        project line outstanding at December 31, 1996 and 1995 were $296,550 and
        $679,546, respectively and are secured by a mortgage on the major
        project.

        The credit agreement also provides the Company an overline up to
        $2,000,000 at the discretion of the lendor. Borrowings under the
        overline facility at December 31, 1996 and 1995 were $1,150,000 and
        $1,700,000, respectively. Borrowings bear interest at the DBCI "base"
        rate plus 1.5% (9.75% and 10.5% at December 31, 1996 and 1995,
        respectively).

5.      NOTES PAYABLE

        Notes payable consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                                                         1996             1995

<S>                                                                                <C>              <C>           
        Fixed rate notes payable, due through 2002 at
          various rates of interest ranging from 6.25% to 12%                       $   5,426,136    $    1,171,292
        Real estate notes payable, due through 1998
          at various rates of interest ranging from prime to
          prime plus 3.5%                                                               3,145,435         1,246,298
                                                                                    -------------    --------------
                                                                                    $   8,571,571    $    2,417,590
                                                                                    =============    ==============
</TABLE>

        At December 31, 1996, 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, 1996 are follows:

        Years ending December 31:

        1997                                             $     3,638,822
        1998                                                   2,097,783
        1999                                                     592,196
        2000                                                     663,924
        2001                                                     429,206
        Thereafter                                             1,149,640
                                                         ---------------
                                                         $     8,571,571
                                                         ===============

6.      CONTRACTS AND MORTGAGES PAYABLE

        The Company has entered into contracts for deed and mortgages for the
        purchase of land. At December 31, 1996, the agreements provide for
        interest rates from 6% to 15.7% and maturity dates through 1999. The
        contracts and mortgages payable are secured by land held for sale and
        land which has been sold and the related contracts receivable.

        Maturity requirements on the contracts and mortgages payable at December
        31, 1996 are as follows:

        Years ending December 31:
        1997                                              $      115,496
        1998                                                      69,248
        1999                                                      69,037
                                                          --------------
                                                          $      253,781
                                                          ==============

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, 1996, principal maturities of
        senior subordinated debt is as follows:

        Years ending December 31:
        1998                                          $      158,000
        1999                                                 152,000
        2000                                                 166,000
        2001                                                 780,000
        Thereafter                                         2,734,000
                                                      --------------
                                                      $    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, 1996 and 1995,
        the balance on contracts and mortgages receivable under such recourse
        sales agreements was approximately $3,916,000 and $460,000,
        respectively. At December 31, 1996 and 1995, the Company had a holdback
        receivable of approximately $9,000 and $13,000, 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 in the amount of $783,812.

9.      OPERATING LEASES

        The Company has entered into noncancelable leases for office space.
        Estimated payments under these lease agreements at December 31, 1996 are
        approximately as follows:

        Years ending December 31:
        1997                                      $      115,000
        1998                                              70,000
        1999                                              11,000
                                                  --------------
                                                  $      196,000
                                                  ==============

        Total rental expense for all operating leases was approximately $193,000
        and $166,000 for the years ended December 31, 1996 and 1995,
        respectively.

10.     INCOME TAXES

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

                                                    1996             1995

        Current:
          Federal                               $    171,841     $    205,712
          State                                       54,272           72,001
                                                ------------     ------------
              Total current                          226,113          277,713

        Deferred:
          Federal                                     95,960          258,490
          State                                       29,902           24,942
                                                ------------     ------------
              Total deferred                         125,862          283,432
                                                ------------     ------------
                                                $    351,975     $    561,145
                                                ============     ============

        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,
        1996 and 1995 are as follows:

<TABLE>
<CAPTION>
                                                                                       1996
                                                                 --------------------------------------------------
                                                                             Deferred Tax
                                                                       ------------------------
                                                                       Asset          Liability           Total

<S>                                                              <C>                                <C>            
        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)
                                                                 ===============   ===============  ================

                                                                                       1995
                                                                 --------------------------------------------------
                                                                            Deferred Tax
                                                                       ------------------------
                                                                       Asset          Liability           Total

        Inventory capitalization                                 $       116,968                    $       116,968
        Allowance reserves                                                52,115                             52,115
        Installment sales                                                          $   (1,609,344)       (1,609,344)
        Other                                                              3,392          (30,982)          (27,590)
                                                                 ---------------   --------------   ---------------
                                                                 $       172,475   $   (1,640,326)  $    (1,467,851)
                                                                 ===============   ==============   ===============
</TABLE>

        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>
                                                                                          1996            1995

<S>                                                                                  <C>             <C>           
        Computed income tax expense at federal
          statutory rate                                                             $     284,382   $      451,726
        State income taxes, net of federal income tax
          benefit                                                                           53,099           63,982
        Graduated income tax rates                                                          (8,125)         (12,906)
        Change in tax rate applicable to cumulative temporary differences                                    44,909
        Other                                                                               22,619           13,434
                                                                                     -------------   --------------
                                                                                     $     351,975   $      561,145
                                                                                     =============   ==============
</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 $80,000 and $61,000 for the years ended December 31, 1996
        and 1995, respectively.

12.     TRANSACTIONS WITH OFFICER AND EMPLOYEES

        At December 31, 1996 and 1995, 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, 1996 and 1995 are contracts
        receivable from employees of the Company in the amount of $15,014 and
        $49,690, respectively. During the years ended December 31, 1996 and
        1995, the Company had sales to officers and employees of approximately
        $16,600 and $62,000 respectively.


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, 1996.

                                    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:

                   Name             Age           Positions with Company

             Philip C. Taylor       45      President, Chairman of the Board,
                                               Secretary and Treasurer
             Joel D. Kaul           37      Vice President and Chief Operating
             Officer
             Mark E. Ties           31      Chief Financial Officer
             Linda J. Rieman        47      Vice President and Controller
             W. John Driscoll       68      Director
             John H. Hooley         45      Director
             Charles J. McElroy     42      Director
             William R. Sieben      44      Director

             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 Financial 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
             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.

             MARK E. TIES is Chief Financial Officer. Mr. Ties joined the
             Company in March 1997 and has over 9 years of financial management
             experience. From 1993 until February 1997, Mr. Ties served as Chief
             Financial Officer / Director of Operations, for Progressive Beauty
             Enterprises, Inc.. In the capacity, Mr. Ties was responsible for
             the management of the financial and operational activities of this
             $25 million regional distribution company. Prior to joining
             Progressive Beauty Enterprises, Inc., Mr. Ties spent three years as
             the Corporate Controller of MEI Salons, a $350 million service and
             products company. Mr. Ties also spent three years employed as a CPA
             with Coopers and Lybrand. He is a graduate of Mankato State
             University.

             LINDA J. RIEMAN is the Company's Vice President and Controller. Ms.
             Rieman joined the Company in June 1985 and has over 20 years of
             accounting experience in banking and financial services. From 1982
             until May 1985, Ms. Rieman was Controller and Manager of Planning
             and Operations Analysis with Dart and Kraft Financial Corporation,
             a $200 million national vehicle leasing company. From 1977 to 1982,
             she was a Controller of FBS Financial, Inc. a $100 million
             financial services subsidiary of First Bank System, Inc. She is a
             graduate of the University of Wisconsin-Eau Claire.

             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's 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.

             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's 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's
             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.


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, 1996 and 1995 with respect to the President (Chief
             Executive Officer) and all officers of the Company whose total
             annual salary and bonus for 1996 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                 1996        $150,000         $55,738            $4,500(2)
                                                         1995         150,000          68,450             4,500
             Joel D. Kaul, Vice President                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. Regarding Mr. Taylor's 1995 bonus of $68,450,
                 the Company deferred payment of $2,549 until 1996.
             (2) Annual fee paid to Mr. Taylor for serving as a member of the
                 Company's Board of Directors.


ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

             The following table sets forth as of December 31, 1996, 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                                   Number of Shares            Outstanding
                    Beneficial Owner                                   Beneficially Owned(1)          Shares(2)

<S>                                    <C>                                   <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(6)                 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 488,884 shares of common stock outstanding at December
                 31, 1996.
             (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.
             (6) Includes fully vested options to purchase 1,875 shares of
                 common stock.


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, 1996 and 1995. 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.


                                   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 24, 1997                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 24, 1997
--------------------------------------------        Secretary and Treasurer (Principal  
Philip C. Taylor                                    Executive Officer)                 
                                                    



/S/ W. John Driscoll                                Director                                     March 24, 1997
--------------------------------------------                                             
W. John Driscoll



/S/ John H. Hooley                                  Director                                     March 24, 1997
--------------------------------------------                                             
John H. Hooley



/S/ Charles J. McElroy                              Director                                     March 24, 1997
--------------------------------------------                                             
Charles J. McElroy



/S/ William R. Sieben                               Director                                     March 24, 1997
--------------------------------------------                                             
William R. Sieben



/S/ Linda J. Rieman                                 Vice President and Controller                March 24, 1997
--------------------------------------------        (Principal Financial and Accounting Officer)                     
Linda J. Rieman                                     



/S/ Joel D. Kaul                                    Vice President and Chief                     March 24, 1997 
--------------------------------------------        Operating Officer                                           
Joel D. Kaul                                        
</TABLE>



<TABLE>
<CAPTION>

INDEX TO EXHIBITS

   EXHIBIT
     NO.          DESCRIPTION                                                                           PAGE

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