SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             -----------------------

                                    FORM 10-Q

(Mark One)

   X    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 1997

                                       OR


       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934


                         Commission file number 1-22262


                             COMMERCIAL ASSETS, INC.
             (Exact name of registrant as specified in its charter)


                 Maryland                                      84-1240911
     (State or other jurisdiction of                         (IRS Employer
      incorporation or organization)                      Identification No.)

  3600 South Yosemite Street, Suite 350                          80237
             Denver, Colorado                                  (Zip Code)
 (Address of Principal Executive Offices)

                                 (303) 773-1221
              (Registrant's telephone number, including area code)

                                 Not Applicable
              (Former Name, Former Address and Former Fiscal Year,
                         if Changed Since Last Report.)


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

             As of August 1, 1997,  10,342,009 shares of Commercial Assets, Inc.
Common Stock were outstanding.


<PAGE>




                             COMMERCIAL ASSETS, INC.

                                    FORM 10-Q

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997

                                TABLE OF CONTENTS

                                                                            PAGE
PART I.   FINANCIAL INFORMATION:

          Item 1.  Condensed Financial Statements:

                   Balance Sheets as of June 30, 1997 (Unaudited)
                     and December 31, 1996..................................   1

                   Statements of Income for the three and six months
                     ended June 30, 1997 and 1996 (Unaudited)...............   2

                   Statements of Cash Flows for the six months ended
                     June 30, 1997 and 1996 (Unaudited).....................   3

                   Notes to Financial Statements (Unaudited)................   4

          Item 2.  Management's Discussion and Analysis of
                     Financial Condition and Results of Operations..........   8


PART II.  OTHER INFORMATION:

          Item 4.  Submission of Matters to a Vote of Security Holders......  17

          Item 6.  Exhibits and Reports on Form 8-K.........................  17



                                      (i)

<PAGE>
<TABLE>
<CAPTION>
                             COMMERCIAL ASSETS, INC.
                            CONDENSED BALANCE SHEETS
                          (Dollar amounts in thousands)

                                                                                         June 30,       December 31,
                                                                                          1997             1996
                                                                                          ----             ----
Assets                                                                                (Unaudited)

<S>                                                                                     <C>              <C>       
   Cash and cash equivalents                                                            $    3,082       $    8,277
   Accrued interest receivable                                                                 613              597
   Restricted cash                                                                           2,209            1,982
   CMBS bonds                                                                               68,460           61,460
   Other assets, net                                                                           176               90
                                                                                        ----------       ----------

     Total Assets                                                                       $   74,540       $   72,406
                                                                                        ==========       ==========

Liabilities

   Accounts payable and accrued liabilities                                             $      153       $      189
   Management fees payable                                                                     311              298
                                                                                        ----------       ----------

     Total Liabilities                                                                         464              487
                                                                                        ----------       ----------

Stockholders' Equity

   Preferred Stock, par value $.01 per share, 25,000,000 shares authorized; no
     shares issued or outstanding                                                               --               --

   Common Stock, par value $.01 per share, 75,000,000 shares authorized;
     10,342,009 and 10,315,809 shares issued and outstanding, respectively                     104              103

   Additional paid-in capital                                                               76,724           76,559

   Cumulative dividends declared                                                           (23,807)         (20,295)
   Cumulative net income                                                                    22,486           18,941
                                                                                        ----------       ----------
      Dividends in excess of net income                                                     (1,321)          (1,354)
                                                                                        ----------       ----------

   Net unrealized holding losses on CMBS bonds                                              (1,431)          (3,389)
                                                                                        ----------       ----------

     Total Stockholders' Equity                                                             74,076           71,919
                                                                                        ----------       ----------

     Total Liabilities and Stockholders' Equity                                         $   74,540       $   72,406
                                                                                        ==========       ==========
</TABLE>

                  See Notes to Condensed Financial Statements.

                                     - 1 -

<PAGE>
<TABLE>
<CAPTION>
                             COMMERCIAL ASSETS, INC.
                         CONDENSED STATEMENTS OF INCOME
                      (In thousands, except per share data)
                                   (Unaudited)

                                                             Three Months Ended                 Six Months Ended
                                                                  June 30,                          June 30,
                                                         ---------------------------        -----------------------
                                                           1997              1996             1997             1996
                                                         ---------         ---------        ---------        ------
Revenues

<S>                                                      <C>               <C>              <C>              <C>    
   CMBS bonds                                            $  2,193          $  3,462         $  4,237         $ 5,773
   Interest                                                    49                64              160              71
                                                         --------          --------         --------         -------

     Total Revenues                                         2,242             3,526            4,397           5,844
                                                         --------          --------         --------         -------

Expenses

   Management fees                                            311               452              608             830
   General and administrative                                 121               114              244             444
   Elimination of DERs                                         --               966               --             966
   Interest                                                    --                 2               --               5
                                                         --------          --------         --------         -------

     Total Expenses                                           432             1,534              852           2,245
                                                         --------          --------         --------        --------


Net Income                                               $  1,810          $  1,992         $  3,545        $  3,599
                                                         ========          ========         ========        ========


Net income per share                                     $    .17          $    .19         $    .34        $    .35

Weighted-average shares outstanding                        10,326            10,214           10,321          10,178

Dividends per share                                      $    .17          $    .17         $    .34        $    .34

</TABLE>

                  See Notes to Condensed Financial Statements.

                                     - 2 -


<PAGE>
<TABLE>
<CAPTION>
                             COMMERCIAL ASSETS, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)

                                                                                              Six Months Ended
                                                                                                  June 30,
                                                                                             --------------------
                                                                                             1997            1996
                                                                                             ----            ----

Cash Flows From Operating Activities

<S>                                                                                       <C>             <C>      
   Net income                                                                             $ 3,545         $   3,599
   Adjustments to reconcile net income to net cash flows from operating
     activities:
   Amortization of discount on CMBS bonds and other assets                                   (460)           (1,775)
   Issuance of Common Stock for elimination of DERs                                            --               941
   (Increase) decrease in accrued interest receivable                                         (16)               78
   Decrease (increase) in other assets                                                         19               (14)
   (Decrease) increase in accounts payable and accrued liabilities                             (1)              173
                                                                                          -------         ---------

Net Cash Provided By Operating Activities                                                   3,087             3,002
                                                                                          -------         ---------

Cash Flows From Investing Activities

   Acquisition of CMBS bonds                                                               (4,801)               --
   Principal collections from CMBS bonds                                                       --             9,857
                                                                                          -------         ---------

Net Cash (Used In) Provided By Investing Activities                                        (4,801)            9,857
                                                                                          -------         ---------

Cash Flows From Financing Activities

   Dividends paid                                                                          (3,512)           (1,724)
   Repayments of short-term notes payable                                                      --              (700)
   Issuance of Common Stock                                                                    31                --
                                                                                         --------         ---------

Net Cash Used In Financing Activities                                                      (3,481)           (2,424)
                                                                                         --------         ---------

Cash and Cash Equivalents

   (Decrease) increase                                                                     (5,195)           10,435
   Beginning of period                                                                      8,277               598
                                                                                          -------         ---------

   End of period                                                                         $  3,082         $  11,033
                                                                                         ========         =========
</TABLE>

                  See Notes to Condensed Financial Statements.

                                     - 3 -



<PAGE>
                             COMMERCIAL ASSETS, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

A.           Organization

             Commercial Assets,  Inc. (the "Company") was incorporated under the
laws of Maryland  on August 11,  1993,  as a wholly  owned  subsidiary  of Asset
Investors Corporation,  a Maryland corporation,  which is listed on the New York
Stock Exchange, Inc. under the symbol "AIC" ("Asset Investors"). Pursuant to the
agreement dated August 20, 1993, between Asset Investors and the Company,  Asset
Investors  contributed  $75,000,000  to the  initial  capital  of  the  Company,
including  $200,000 in cash. On October 12, 1993,  Asset  Investors  distributed
approximately 70% of the outstanding  common stock, par value of $.01 per share,
of the  Company  ("Common  Stock")  as a taxable  dividend  to Asset  Investors'
stockholders.  Prior to the  distribution,  the  Company  had not engaged in any
activities other than those related to its formation.  Asset Investors currently
owns  approximately  27% of the  outstanding  Common Stock.  The Common Stock is
listed on the American Stock Exchange, Inc. ("AMEX") under the symbol "CAX."

B.           Presentation of Financial Statements

             The  Condensed  Financial  Statements  of  the  Company  have  been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange  Commission.  These Condensed  Financial  Statements
reflect all adjustments, consisting of only normal recurring accruals, which, in
the  opinion  of  management,  are  necessary  to present  fairly the  financial
position  and results of  operations  of the Company as of June 30, 1997 and for
the three and six  months  then  ended and all prior  periods  presented.  These
statements  are  condensed  and do not include all the  information  required by
generally  accepted  accounting  principles  ("GAAP") in a full set of financial
statements.  These  statements  should be read in conjunction with the Company's
Financial  Statements and notes thereto  included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.

C.           Statements of Cash Flows

             Cash maintained in bank accounts,  money market funds and overnight
cash  investments are considered to be cash and cash equivalents for purposes of
reporting  cash flows.  The Company paid interest  expense in cash of $7,000 for
the six months ended June 30, 1996.

             Non-cash  investing  and  financing  activities  for the six months
ended June 30, 1997 and 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                               1997             1996
                                                                                             --------        --------
<S>                                                                                          <C>             <C>     
Principal collections on CMBS bonds transferred to restricted cash                           $    227        $    996

Unrealized holding gains on CMBS bonds                                                       $  1,958        $    381

Distributions of Common Stock                                                                $    135        $     96

Distributions of Common Stock as consideration for the elimination of DERs                   $     --        $    941

Dividends declared but not yet paid                                                          $     --        $  1,754
</TABLE>


                                     - 4 -
<PAGE>

D.           CMBS Bonds

             The Company owns subordinate  classes of Commercial Mortgage Backed
Securities  ("CMBS  bonds").  As of June 30, 1997 and  December  31,  1996,  the
outstanding   balances  of  the  Company's  CMBS  bonds  were   $94,806,000  and
$89,297,000,  respectively,  while unamortized  purchase discounts,  acquisition
costs and allowance  for credit  losses  totaled  $24,915,000  and  $24,448,000,
respectively.  Additionally,  unrealized  holding losses on the CMBS bonds as of
June  30,  1997  and  December  31,  1996  were   $1,431,000   and   $3,389,000,
respectively.

             In May 1996,  two CMBS bonds (Aspen MHC,  Series 1994-1 Class C and
D-1) with an outstanding  principal balance of $9,664,000 and net carrying value
of $8,723,000  were redeemed,  eight years earlier than  anticipated.  The bonds
were acquired on March 8, 1994, for $9,088,000,  or 84.25% of their  outstanding
principal balance.  Since the bonds were redeemed at par, $1,426,000 of discount
amortization was included in earnings during the three and six months ended June
30, 1996.

             In March 1997, the Company  contributed  its ownership  interest in
two CMBS bonds (Lehman Capital Corporation Trust Certificate,  Series 1994-2 and
Series 1994-3) into a newly created trust (Blaylock Mortgage Capital Corporation
Multifamily  Trust).  Interests  in bond classes  within the same CMBS  issuance
which were owned by another  party  were also  contributed  into the trust.  The
trust then issued seven  classes of CMBS bonds  collateralized  by the CMBS bond
classes  contributed into the trust. The Company received an interest in five of
the new bond classes which corresponded to the Company's  ownership interests in
the two bonds  contributed to the trust. The Company also acquired the remaining
$5,737,000  principal  balance of two of the new bond classes rated "BB" and "B"
at a cost of $4,801,000,  which resulted in the Company having 100% ownership in
the five new subordinate classes.

             At June 30, 1997,  the  outstanding  balance of the mortgage  loans
collateralizing  the CMBS bonds was $864,555,000  and the outstanding  principal
balance  of the CMBS  bonds  that are  senior to the  Company's  CMBS  bonds was
$766,458,000.  The aggregate  allowance for credit losses on the Company's  CMBS
bonds was  $12,720,000  at both June 30, 1997 and December 31, 1996.  As of June
30,  1997,  one mortgage  loan with an  outstanding  balance of $788,000,  which
collateralized two of the Company's CMBS bonds, has been foreclosed. The Company
estimates  that the loss from this  mortgage loan may range from $0 to $425,000,
depending  upon the  recovery of  indemnification  claims made  against the bond
underwriter.  There  have  been  no  credit  losses  charged  to  operations  or
write-downs charged against the allowance for credit losses.

             Pursuant to the  provisions of certain of the Company's CMBS bonds,
principal  payments  which would  otherwise  be  attributable  to the  Company's
interests  are  required  to be set aside in reserve  accounts  to  support  the
eventual  payment of more  senior  classes of CMBS  bonds.  At June 30, 1997 and
December 31, 1996,  $2,209,000 and $1,982,000,  respectively,  were set aside in
reserve accounts and are shown as restricted cash on the balance sheet.

E.           Short-Term Notes Payable

             The Company's Loan and Security  Agreement  collateralized  by four
CMBS bonds (FNMA 94-M2C,  FNMA 94-M2D,  Kidder 94-M1C and Kidder 94-M1D) expires
on November 29, 1997. No borrowings  were  outstanding  on this line at June 30,
1997 or December 31, 1996.  Advances bear interest  based upon a spread over the


                                     - 5 -
<PAGE>

London Interbank  Offered Rate on Eurodollar  Deposits  ("LIBOR").  The Loan and
Security  Agreement  contains  certain  covenants  with which the Company was in
compliance at June 30, 1997. The amount the Company will be able to borrow under
the Loan and  Security  Agreement  is subject to lender  approval  and will vary
depending on the value of the collateral pledged to secure such facility.

F.           Management Fees

             The  Company's  day-to-day  operations  are  performed by Financial
Asset  Management LLC (the  "Manager")  pursuant to a management  agreement (the
"Management Agreement") which is subject to the annual approval of a majority of
the Independent  Directors.  The Company's By-laws,  as amended,  require that a
specified  number  of the  Board of  Directors  and each  committee  thereof  be
comprised  of  persons  constituting  Independent  Directors.  Pursuant  to  the
Company's By-laws,  an Independent  Director is a person "who is not affiliated,
directly or indirectly,  with the person or entity  responsible for directing or
performing the day-to-day  business  affairs of the corporation (the "advisor"),
including a person or entity to which the advisor subcontracts substantially all
of such functions,  whether by ownership of, ownership  interest in,  employment
by, any material business or professional relationship with, or by serving as an
officer of the advisor or an affiliated business entity of the advisor."

             Pursuant to the Management  Agreement,  the Manager receives a Base
Fee, an Incentive Fee, an Acquisition  Fee and an  Administrative  Fee. The Base
Fee is  payable  quarterly  in an amount  equal to 1% per annum of the  "average
invested  assets" of the Company.  The  Incentive  Fee is based on the Company's
profitability and is intended to align compensation paid to the Manager with the
interests  of  the  Company's  stockholders.  The  Manager  is  entitled  to the
Incentive  Fee only  after the  Company's  stockholders  first  have  received a
threshold  return on the  Company's  "average net worth" equal to the  "Ten-Year
United  States  Treasury  rate" plus 1%. Twenty  percent of the  Company's  REIT
income  in  excess  of this  threshold  return  is paid  to the  Manager  as the
Incentive  Fee.  The  Manager  receives an  Acquisition  Fee of 1/2 of 1% of the
initial cost of each asset which the Manager  assists the Company in  acquiring.
The  Acquisition  Fee  compensates  the Manager  for  performing  due  diligence
procedures  on  portfolio  assets  acquired by the  Company.  The  Manager  also
performs certain bond  administration and other related services for the Company
pursuant to the Management Agreement and receives an Administrative Fee for such
services of up to $10,000 per annum for each of the Company's CMBS bonds. If the
Company owns more than one class of a commercial securitization,  the Manager is
entitled  to  receive  an  additional  fee of up to  $2,500  per  annum for each
additional class.

             During the six months ended June 30, 1997 and 1996,  the  Company's
total  management  fees pursuant to the  Management  Agreement were $631,000 and
$830,000,  respectively.  Management  fees during the six months  ended June 30,
1997 and 1996  included:  (i) Base Fees of $341,000 and $335,000,  respectively;
(ii) Administrative Fees of $30,000 and $32,000,  respectively;  (iii) Incentive
Fees of  $237,000  and  $463,000,  respectively;  and (iv)  Acquisition  Fees of
$23,000 and $0,  respectively.  Acquisition  Fees are capitalized as part of the
cost of the acquired CMBS bonds.

             In February 1997, the Board of Directors of Asset Investors  formed
a special committee to consider of Asset Investors'  acquisition of the Manager.
If the acquisition is consummated,  it would result in Asset Investors  assuming
the  operations  of  the  Manager  and  its  obligations  under  the  Management
Agreement.

G.           Stock Option Plan

             The  Company  has  a  Stock   Option  Plan  for  the   issuance  of
non-qualified  stock options to its  directors  and  officers.  Prior to May 30,


                                     - 6 -
<PAGE>

1996,  stock options granted under the Stock Option Plan  automatically  accrued
dividend equivalent rights ("DERs").  During the six months ended June 30, 1996,
the Company  incurred $96,000 of non-cash  general and  administrative  expenses
from DERs covering  16,362 shares of Common Stock which were subject to issuance
pursuant to options granted under the Stock Option Plan.

             On May 30, 1996, the Company's  stockholders  approved an amendment
to the Stock  Option Plan which  provided  for the  issuance of Common  Stock in
exchange for the  elimination  of the accrual of DERs for options  granted under
the Stock  Option  Plan.  Pursuant  to the  amendment,  the  Company  incurred a
$966,000 charge (a $941,000  non-cash charge from the issuance of 157,413 shares
of Common  Stock plus  $25,000 of  transaction  costs)  during the three and six
months ended June 30, 1996.





                                     - 7 -
<PAGE>




Item 2.      MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
             RESULTS OF OPERATIONS.

             Commercial  Assets,  Inc. was  incorporated  under  Maryland law on
August 11, 1993 by Asset Investors.  The Company commenced operations on October
12, 1993, the date on which Asset Investors contributed  $75,000,000,  including
$200,000 in cash to the capital of the Company and distributed approximately 70%
of the shares of Common Stock of the Company to Asset  Investors'  stockholders.
The Company's  Common Stock is listed on the American  Stock  Exchange under the
symbol "CAX".

             Since its  inception,  the  Company  has  operated in a manner that
permitted it to qualify for the income tax  treatment  afforded to a real estate
investment  trust  ("REIT") as defined in the Internal  Revenue Code of 1986, as
amended,  (the "Code"). If it so qualifies,  the Company's taxable income ("REIT
income"),  with certain  limited  exceptions,  will not be subject to federal or
state income tax at the  corporate  level.  To qualify as a REIT under the Code,
the Company is  required,  among other  things,  to  distribute  annually to its
stockholders  at least 95% of its REIT income and to meet certain asset,  income
and stock ownership tests.

             The Company's  day-to-day  operations are performed by the Manager,
pursuant to the Management Agreement, which is subject to the annual approval of
a  majority  of the  Independent  Directors.  The  Manager  also  manages  Asset
Investors.  The Manager is subject to the  supervision of the Board of Directors
of the  Company.  As part of its duties,  the Manager  presents the Company with
asset  acquisition  opportunities  and  furnishes  the Board of  Directors  with
information  concerning the acquisition,  performance and disposition of assets.
The  Company  has no  employees.  Certain  employees  of the  Manager  have been
designated officers of the Company.

             The Company  owns,  and the Manager  administers  on the  Company's
behalf,  subordinate debt interests in CMBS bonds issued in  securitizations  of
mortgage  loans on multifamily  properties.  The Company owns 12 CMBS bonds from
five commercial mortgage loan securitizations acquired at a cost of $70,146,000.
The CMBS bonds had an outstanding  principal  balance of $94,806,000 at June 30,
1997, and an estimated  weighted-average  yield-to-maturity before credit losses
of 13.3%.  At June 30,  1997,  approximately  65% of the  outstanding  principal
balance of the Company's  CMBS bonds is unrated,  and the remaining 35% is rated
"BB" through "CCC" by national  credit  rating  agencies.  The  mortgages  which
comprise the  collateral  for the Company's  CMBS bonds are secured by apartment
communities  in 36  states,  including  25%,  13% and 8% in Texas,  Arizona  and
Florida, respectively.

             The  multifamily  mortgage loans that  collateralize  the Company's
CMBS bonds were primarily  originated during 1993 and 1994. Capital for mortgage
financing  during 1993 and 1994 was generally  less  available  than in 1995 and
1996  because of,  among  other  things,  the  reduced  funding of such loans by
traditional real estate lenders (e.g. banks,  thrifts,  pension funds,  etc.) in
response to significant losses which resulted from falling real estate values in
the late 1980s and early 1990s.  Accordingly,  the Company believes the mortgage
loan  underwriting  procedures  applied to mortgage loans originated in 1993 and
1994 were more stringent  than  underwriting  procedures  applied to multifamily
mortgage  loans  originated in 1995 and 1996. The Company may benefit from these
more stringent underwriting  procedures on the mortgage loans that collateralize
its CMBS bonds through reduced credit losses in the future. See "FORWARD LOOKING
INFORMATION" below.

             Presented  below  is a  schedule  of the  CMBS  bonds  owned by the
Company as of June 30, 1997 and December 31, 1996 (dollar amounts in thousands).




                                     - 8 -
<PAGE>


<TABLE>
<CAPTION>




                                                                         Weighted-                                   Outstanding
                                                              Maturity    Agerage                     Senior          Balance at
                        Description                Coupon       Date       Life (1)      Rating    CMBS Bonds(2)  6/30/97   12/31/96
-------------------------------------------------  ------     --------   ----------      ------    -----------    ------------------
Fannie Mae Multifamily REMIC Trust 1994-M2
<S>                                                 <C>         <C>         <C>         <C>          <C>        <C>        <C>     
     Class C(4)                                     7.99%       1/2001      3.4 yrs.    Unrated      $298,756   $ 10,653   $ 10,704
     Class D(4)                                     8.18%       1/2004      6.2         Unrated                   38,208     38,384
DLJ Mortgage Acceptance Corporation
     Series 1994-MF4, Class B-3                     8.50%       4/2001      3.8            B           89,959      3,136      3,136
     Series 1994-MF4, Class C                       8.50%       4/2001      3.8         Unrated                    4,183      4,183
Kidder, Peabody Acceptance Corporation I
     Series 1993-M2, Class E(5)                     8.88%       8/2021      3.1            BB          79,745     10,000     10,000
Kidder, Peabody Acceptance Corporation I
     Series 1994-M1, Class C                        8.25%      11/2002      4.1            B          176,665      8,930      8,930
     Series 1994-M1, Class D                        8.25%      11/2002      4.3         Unrated                    7,655      7,655
Lehman Capital Corporation Trust Certificate
     Series 1994-2(3)                                                                                                 --      2,143
     Series 1994-3(3)                                                                                                 --      4,162
Blaylock Mortgage Capital Corporation
 Multifamily Trust
     Series 1997-A Class B-3 (3)                    6.42%      10/2003      6.3            BB         121,333      5,352         --
     Series 1997-A Class B-4 (3)                    6.42%      10/2003      6.3            B                       3,345         --
     Series 1997-A Class B-5 (3)                    6.42%      10/2003      6.3            B-                      1,003         --
     Series 1997-A Class B-6 (3)                    6.42%      10/2003      6.3           CCC                      1,003         --
     Series 1997-A Class B-7 (3)                    6.42%      10/2003      6.3         Unrated                    1,338         --
                                                    ----                    ---                      --------   --------   --------
     Total outstanding balance                      8.05%                   5.0 yrs.                 $766,458     94,806     89,297
                                                    ====                    ===                      ========

Unamortized discount (6)                                                                                         (12,605)   (12,077)
Allowance for credit losses (6)                                                                                  (12,720)   (12,720)
Unamortized acquisition costs (6)                                                                                    410        349
                                                                                                                --------   --------
     Amortized cost                                                                                               69,891     64,849
Net unrealized holding losses (6)                                                                                 (1,431)    (3,389)
                                                                                                                --------   --------
     Total net book value                                                                                       $ 68,460   $ 61,460
                                                                                                                ========   ========
<FN>
------------------------------------------------------------------
1    Remaining weighted-average life at June 30, 1997.
2    The  outstanding  principal  balance  at June 30, 1997, of  the CMBS  bonds
     senior  to the  Company's  subordinate  CMBS  bond  classes.  The amount is
     aggregated for classes from a single issuance.
3    In March 1997, the Company contributed Lehman Series 1994-2 and 1994-3 to a
     trust and in turn received  Blaylock Classes B-5, B-6 and B-7 and a partial
     interest in Classes B-3 and B-4. At the same time, the Company acquired the
     remaining interests in Blaylock Classes B-3 and B-4.
4    Payment of principal and interest is not guaranteed by FNMA.
5    The Company has a 75.2% ownership interest in this CMBS bond.
6    The amounts are specifically identified to individual CMBS bonds.

</FN>
</TABLE>



                                     - 9 -
<PAGE>




                          RESULTS OF OPERATIONS FOR THE
                     SIX MONTHS ENDED JUNE 30, 1997 AND 1996

REIT Income

             REIT  income is taxable  income  computed as  prescribed  for REITs
prior to the dividends paid  deduction.  The Company's REIT income for the three
and six  months  ended  June 30,  1997,  was  $1,954,000  ($.19 per  share)  and
$3,866,000  ($.38 per share),  respectively,  compared with $2,546,000 ($.25 per
share) and $4,605,000  ($.45 per share),  respectively,  for the same periods in
1996.  The  primary  reason for the  decrease  was lower  income from CMBS bonds
partially offset by reduced  management fees and expenses  incurred only in 1996
for the elimination of DERs.

             REIT income from CMBS bonds for the three and six months ended June
30,  1997,  was  $2,337,000  ($.22 per share) and  $4,559,000  ($.44 per share),
respectively, compared with $4,022,000 ($.39 per share) and $6,847,000 ($.67 per
share), respectively,  for the same periods in 1996. The decrease in REIT income
from  CMBS  bonds  was due to the May 1996  redemption  of two CMBS  bonds,  and
prepayments  on one other CMBS bond  during  the first  half of 1996,  partially
offset by earnings on CMBS bonds acquired in March 1997.

             In May 1996,  two CMBS bonds (Aspen MHC,  Series 1994-1 Class C and
D-1), with an outstanding  principal balance of $9,664,000,  were redeemed eight
years earlier than anticipated. As a result, the yield on the bonds increased to
18.1% from an originally  expected  yield of 11.8%.  During the six months ended
June 30, 1996, the Company's earnings for these bonds were $1,837,000.

             Additionally,  during the first half of 1996, the Company  received
principal  prepayments on one of its CMBS bonds.  For this particular  bond, the
Company  previously  had  elected,  under  the  Code,  to limit  the  amount  of
amortization  of the market  discount  to the lesser of  principal  received  or
computed  amortization.  During the six months ended June 30,  1996,  there were
$755,000 of principal prepayments from a mortgage  collateralizing this bond. As
a result of the election,  amortization  during the first six months of 1996 was
$633,000 higher than the same period in 1997 due to prepayments.

             In March 1997, the Company  contributed  its ownership  interest in
two CMBS bonds (Lehman Capital Corporation Trust Certificate,  Series 1994-2 and
Series 1994-3) into a newly created trust (Blaylock Mortgage Capital Corporation
Multifamily  Trust).  Interests  in bond classes  within the same CMBS  issuance
which were owned by another  party  were also  contributed  into the trust.  The
trust then issued seven  classes of CMBS bonds  collateralized  by the CMBS bond
classes  contributed into the trust. The Company received an interest in five of
the new bond classes which corresponded to the Company's  ownership interests in
the two bonds  contributed to the trust. The Company also acquired the remaining
$5,737,000  principal  balance of two of the new bond classes rated "BB" and "B"
at a cost of $4,801,000,  which resulted in the Company having 100% ownership in
the  five  new  subordinate  classes.  As a  result  of  the  restructuring  and
acquisition,  revenues from these CMBS bonds increased by $95,000 during the six
months ended June 30, 1997, as compared to the same period in 1996.

             The CMBS bonds have coupon interest rates ranging from 6.4% to 8.9%
and a weighted-average  yield-to-maturity before credit losses for REIT purposes
of 13.3%. The yield from CMBS bonds exceeds the coupon interest rate because the
subordinate  CMBS bonds were sold to the Company with original issue discount or
market discount (i.e.,  the acquisition  prices of the CMBS bonds were less than
their par values).  Accordingly, the Company amortizes a portion of the discount


                                     - 10 -
<PAGE>

(the  excess of the  outstanding  par  amount  over the net cost),  as  interest
income, on a constant effective yield under the interest method over the life of
the CMBS bond.  Amortization  of the discount into REIT income from certain CMBS
bonds is limited to principal received.

             Through  June 30,  1997,  one  mortgage  loan  with an  outstanding
balance of $788,000,  which  collateralized two of the Company's CMBS bonds, has
been foreclosed. The Company estimates that the loss from this mortgage loan may
range from $0 to $425,000, depending upon the recovery of indemnification claims
made against the bond underwriter.  Otherwise, there have been no delinquencies.
As of June 30, 1997,  there have been no credit losses  charged to operations or
write-downs  charged against the allowance for credit losses. For REIT purposes,
credit  losses are  reflected in income only when they are  realized.  In future
periods,  the Company likely will be allocated  credit losses on its CMBS bonds,
and as a result,  REIT income may be adversely  impacted.  See "FORWARD  LOOKING
INFORMATION" below.

             Interest  income  during  the three and six  months  ended June 30,
1997, was $49,000 ($.01 per share) and $160,000 ($.02 per share),  respectively,
compared   with  $64,000   ($.01  per  share)  and  $71,000  ($.01  per  share),
respectively,  for the same  periods in 1996.  The  increase in interest  income
during the six months  ended June 30,  1997,  as  compared to the same period in
1996 is due to investing the proceeds  from the May 1996  redemption of two CMBS
bonds into highly liquid,  short-term  investments.  Interest  income during the
three months ended June 30, 1997,  was lower than that of the preceding  quarter
and the same quarter in 1996 because of the $4,801,000 of short-term investments
used to acquire interests in Blaylock Classes B-3 and B-4 in March 1997.

             The Company's  management  fees were $311,000  ($.03 per share) and
$608,000 ($.06 per share), respectively, for the three and six months ended June
30, 1997, compared with $452,000 ($.04 per share) and $830,000 ($.08 per share),
respectively,  for the  same  periods  in  1996.  Specifically,  Incentive  Fees
declined by $153,000 and $226,000,  respectively,  Administrative Fees increased
by $1,000 and  decreased  by $2,000,  respectively,  and Base Fees  increased by
$11,000 and $6,000, respectively. The decreases in Incentive Fees were primarily
due to  decreases  in REIT income of $592,000  and  $739,000,  respectively.  In
addition,  the average  Ten-Year  U.S.  Treasury Rate was 33 basis points higher
during the six months  ended June 30,  1997,  as  compared to the same period in
1996 which had the effect of raising the threshold  above which  Incentive  Fees
are  paid.  The  increase  in Base  Fees  was  primarily  due to the  $4,801,000
acquisition of Blaylock bonds in March 1997 and unrealized  holding gains on the
CMBS bonds causing the net carrying value of the bonds to increase.

             The Company  incurred  $23,000 of  Acquisition  Fees during the six
months  ended June 30,  1997,  relating to the purchase of interests in Blaylock
Classes B-3 and B-4. These  Acquisition  Fees are capitalized and amortized over
the life of the related bonds. No Acquisition  Fees were incurred during the six
months ended June 30, 1996.

             In February 1997, the Board of Directors of Asset Investors  formed
a special committee for the consideration of Asset Investors' acquisition of the
Manager.  If the acquisition is consummated,  it would result in Asset Investors
assuming the operations of the Manager and its obligations  under the Management
Agreement.

             General and  administrative  expenses of the Company were  $121,000
($.01 per share) and $245,000 ($.02 per share), respectively,  for the three and
six months  ended June 30, 1997,  compared  with  $120,000  ($.01 per share) and
$512,000 ($.05 per share),  respectively,  for the same periods in 1996. General
and administrative expenses decreased during the six months ended June 30, 1997,
compared  with  the same  period  in 1996,  due to lower  shareholder  relations
expenses and the  elimination of DER expense  pursuant to the May 1996 amendment
to the Stock Option Plan.

                                     - 11 -
<PAGE>

             On May 30, 1996, the Company's shareowners approved an amendment to
the Stock Option Plan at their annual  meeting  permitting  the Company to issue
shares of Common  Stock in the second  quarter  of 1996 to the  holders of stock
options  who  voluntarily  gave up their DERs.  The  amendment  also  eliminated
provisions  in the Stock Option Plan that would have  permitted  the issuance of
DERs in  connection  with stock options  granted in the future.  The issuance of
Common Stock in exchange  for the right to receive DERs  resulted in a one-time,
non-cash  charge to income of  $966,000  ($941,000  for the  issuance of 157,413
shares of Common  Stock plus  $25,000 of  transaction  costs)  during the second
quarter of 1996.

             During the six months ended June 30, 1996,  interest expense on the
Company's  short-term  notes  payable was $5,000 ($.00 per share).  There was no
interest  expense during the six months ended June 30, 1997. The decrease is the
result of repayment of short-term borrowings during the first half of 1996.

Dividend Distributions

             In May 1997, the Company declared a second quarter dividend of $.17
per share which was paid on June 30, 1997, to stockholders of record on June 16,
1997. This was the eleventh  consecutive  regular quarterly dividend of $.17 per
share.

Book Income

             For the three and six  months  ended  June 30,  1997,  the  Company
earned book income  computed in  accordance  with GAAP of  $1,810,000  ($.17 per
share) and $3,545,000 ($.34 per share),  respectively,  compared with $1,992,000
($.19 per share) and  $3,599,000  ($.35 per share),  respectively,  for the same
periods in 1996.  The $54,000  ($.01 per share)  decrease in book income for the
six months was due to reasons  previously  discussed:  lower  revenues  from the
early  redemption  of the two CMBS  bonds  partially  offset  by income on newly
acquired bonds, increased interest income, lower management fees and general and
administrative  expenses and no DER elimination  expense. The election regarding
the amortization of the pricing discount on the bond with the $755,000 principal
prepayment  was for REIT income  purposes  only.  The prepayment did not have an
impact on book income during the six months ended June 30, 1996.

Reconciliation of REIT Income and Book Income

             The Company  computes its income in accordance  with the Code (REIT
income) and in accordance with GAAP (book income). As a REIT, the Company's REIT
income  is  the  basis  upon  which  the  Code  requires  the  Company  to  make
distributions to its stockholders.  However,  because the Company's Common Stock
is registered with the Securities and Exchange  Commission,  the Company is also
required to report its financial position and income in accordance with GAAP.

             During the three and six months  ended June 30,  1997,  REIT income
exceeded book income by $144,000 ($.01 per share) and $321,000 ($.03 per share),
respectively.  Substantially all of this difference is due to: (i) the method of
recording  credit losses,  which for REIT income purposes are not deducted until
they occur (as of June 30, 1997, no credit  losses had been  realized) and which
for book income  purposes are estimated and reflected as a reduction of revenues
in the form of lower discount amortization included in interest income from CMBS
bonds;  and (ii) the method of amortizing  purchase price  discounts,  which for
REIT income  purposes is subject to certain  limitations not applicable for book
income purposes.

                                     - 12 -
<PAGE>

                         LIQUIDITY AND CAPITAL RESOURCES

             The Company uses its cash flows from operating activities and other
capital  resources to provide  working  capital to support its  operations,  for
making  distributions  to its  stockholders,  for the  acquisition  of portfolio
assets and for the repayment of short-term borrowings.  For the six months ended
June 30,  1997 and 1996,  cash  flows  provided  by  operating  activities  were
$3,087,000 and  $3,002,000,  respectively.  As of June 30, 1997, the Company had
$3,082,000 in cash and cash equivalents,  which the Company currently intends to
use to pay its expenses, make dividend distributions to stockholders and acquire
portfolio assets. See "FORWARD LOOKING INFORMATION" below.

             During  March 1997,  the  Company  acquired  interests  in Blaylock
Mortgage  Capital  Corporation   Multifamily  Trust  Classes  B-3  and  B-4  for
$4,703,000  plus  acquisition  and  transaction  costs of $98,000.  The acquired
interests  in the new bond  classes  are  rated  "BB" and "B",  had a  principal
balance of $5,737,000 at  acquisition,  and pay a coupon of 6.4% per annum.  The
estimated  weighted-average   yield-to-maturity  before  credit  losses  of  the
acquired CMBS bonds is 10.0% per annum.

             The Company's Loan and Security  Agreement  collateralized  by four
CMBS bonds expires on November 29, 1997. No borrowings were  outstanding on this
line at June 30, 1997 or December 31, 1996.  Advances bear interest based upon a
spread over LIBOR. The Loan and Security  Agreement  contains certain  covenants
with  which the  Company  was in  compliance  at June 30,  1997.  The amount the
Company will be able to borrow under the Loan and Security  Agreement is subject
to lender  approval  and will  vary  depending  on the  value of the  collateral
pledged to secure such facility.

             The  indentures  of the  commercial  securitizations  in which  the
Company has acquired CMBS bonds generally  provide for substantial  penalties if
the mortgage loans underlying the commercial securitization are prepaid, and the
prepayments  generally  are  allocated  to the senior  bond  classes  before the
subordinate bond classes which the Company generally owns. Significant principal
distributions to subordinate CMBS bonds generally are not anticipated before the
scheduled principal distributions.

             The Company's ability to acquire  additional assets will depend on,
among other things,  unanticipated  principal prepayments such as the $9,664,000
of CMBS bonds  redeemed in May 1996,  obtaining new debt or equity  capital,  or
liquidating  the  existing  portfolio of CMBS bonds.  There is no assurance  the
Company will be able to identify new asset acquisition  opportunities  that meet
the  Company's  acquisition  criteria or that the Company  will be able to raise
additional funds, whether from principal prepayments,  borrowings,  issuances of
debt or  equity  securities,  liquidation  of the  current  portfolio  or  other
sources. See "FORWARD LOOKING INFORMATION" below.

             As a  REIT,  the  Company  is  required,  among  other  things,  to
distribute  annually to its stockholders at least 95% of its REIT income, 85% of
which must be declared  during the tax year and distributed by January 31 of the
subsequent year. The remainder is required to be distributed prior to filing the
tax return for the year.  At June 30,  1997,  the  Company had  cumulative  REIT
income in excess of distributions of $1,629,000. By qualifying for the favorable
tax treatment accorded to a REIT and by distributing to its stockholders 100% of
the Company's  REIT income,  the Company  generally  will not be required to pay
income tax at the corporate level. See "FORWARD LOOKING INFORMATION" below.

             The Company anticipates its REIT income from CMBS bonds will exceed
the  related  cash  flow  due to  the  inherent  structure  and  pricing  of the
subordinate CMBS bonds.  The subordinate  classes of CMBS bonds purchased by the
Company were issued at a significant  discount to their par value. In accordance


                                     - 13 -
<PAGE>

with the Code, this discount generally is amortized into income over the life of
the CMBS bond (a non-cash source of REIT income).

             Under the Code,  the  Company  has  elected  an income  recognition
methodology for certain of its CMBS bonds that computes  income  attributable to
the  amortization  of  market  discount  as the  lesser  of:  (i) the  amount of
principal  received  from the CMBS bond  during the year;  or (ii) the  computed
discount amortization.  The effect of this election is to defer a portion of the
amount of the Company's REIT income from non-cash discount amortization from the
early years in the life of the applicable  bonds to later years when significant
repayments  of principal  are  expected to be received.  The Company was able to
make this  election  on seven  CMBS  bonds  which had an  outstanding  principal
balance of $60,902,000 at June 30, 1997.

             Subordinate  CMBS bonds  acquired  by the  Company  are  relatively
non-liquid  and,  as a result,  the  Company's  ability to change its  portfolio
quickly in response to changes in economic and other  conditions may be limited.
In addition,  REIT rules  applicable  to the Company may restrict the  Company's
ability to sell assets within four years of their acquisition. Under the Code, a
redemption or prepayment does not constitute a "sale."

             As the  holder of  subordinate  CMBS  bonds  (which  generally  are
allocated  all  losses on the  underlying  mortgage  loans  until the  principal
balance of the bond is  exhausted),  the Company has  significant  credit  risk.
These bonds are subject to a greater risk of loss of principal  and  non-payment
of interest than the more senior bonds secured by the same assets. If a borrower
defaults  on a  commercial  mortgage  loan that is pledged as  collateral  for a
commercial mortgage loan securitization,  and the proceeds of the foreclosure of
the property are less than the unpaid  balance of the mortgage plus  foreclosure
costs (principal and interest  advances  through  foreclosure  sale,  repair and
maintenance  costs during the foreclosure,  brokerage fees,  legal fees,  taxes,
insurance,  etc.),  the Company,  as the holder in most cases of the subordinate
class, will suffer a loss.

             The  Company  believes  that cash  generated  by current and future
operations and additional capital-raising activities, including borrowings, will
enable  the  Company  to meet  its  current  and  anticipated  future  liquidity
requirements,  including  the payment of  dividends  to its  stockholders  in an
amount equal to at least 95% of the Company's REIT income.  See "FORWARD LOOKING
INFORMATION" below.

             The  management  and the  Board of  Directors  of the  Company  are
continuously  evaluating  the  Company's  existing  investments,  structure  and
strategy and considering  whether changes are warranted.  The goal of management
and  the  Board  of   Directors  is  to  invest  in  assets  with  the  greatest
risk-adjusted  rates of return. A change in the Company's existing portfolio may
impact the nature of the  Company's  assets,  future REIT  income and  resulting
dividends of the Company. See "FORWARD LOOKING INFORMATION" below.

                         CMBS BOND YIELD CONSIDERATIONS

Defaults

             The yields on the CMBS bonds  acquired by the Company are extremely
sensitive to the amount and timing of defaults and the severity of losses on the
mortgage loans collateralizing such CMBS bonds. The Company's right, as a holder
of  subordinate  CMBS bonds,  to  distributions  of  principal  and  interest is
subordinate to the more senior classes of CMBS bonds. Actual losses on the loans
take place after  default on the loan,  when the proceeds  from the  foreclosure
sale of the real estate are less than the unpaid  balance of the  mortgage  loan


                                     - 14 -
<PAGE>

plus  interest  advances and  foreclosure  costs.  Such losses will be allocated
first to the  subordinate  first-loss CMBS bonds prior to being allocated to the
more senior CMBS bond classes. As of June 30, 1997, one of the mortgages with an
outstanding  balance of $788,000 that  collateralized  two of the Company's CMBS
bonds  has been  foreclosed.  The  Company  estimates  that the loss  from  this
mortgage  loan may range from $0 to  $425,000,  depending  upon the  recovery of
indemnification claims made against the bond underwriter.  Otherwise, there have
been no delinquencies. The CMBS bonds the Company owns are more speculative than
the senior CMBS bond  classes and may be subject to special  risks,  including a
substantially greater risk of loss of principal and non-payment of interest.

             If the CMBS bonds  acquired by the Company  have an actual  default
rate and severity of loss on the mortgage  collateral that are higher than those
anticipated  by the Company  when the bonds were  acquired,  their yield will be
lower than the Company  initially  anticipated  and, in the event of substantial
losses,  the Company may not recover its acquisition  cost. The timing of actual
losses also will affect the Company's  yield on CMBS bonds,  even if the rate of
default and severity of loss are consistent with the Company's  projections.  In
general,  the earlier a loss  occurs,  the  greater  the  adverse  effect on the
Company's yield.

             The Company's yield on CMBS bonds also will be affected by interest
rate levels during the periods in which the mortgage loans  collateralizing  the
CMBS bonds  mature.  For example,  if at the maturity  date of a mortgage  loan,
prevailing  mortgage  interest rates are much higher than the original  interest
rate on the mortgage loan, the operating cash flows from the commercial property
may not be  sufficient  to meet the higher  debt  service  costs of  replacement
financing,  and  the  owner  of  the  commercial  property,   unable  to  obtain
replacement financing,  may default on the mortgage. If the property is not sold
for more than the amount of the mortgage plus foreclosure costs, the Company may
incur credit  losses.  Similar  losses may occur if financing of the  commercial
properties  cannot be arranged at the maturity  date of the current  outstanding
mortgage due to poor property  performance.  These potential losses are referred
to as "balloon losses."

             There can be no  assurance  as to the future  rate of  delinquency,
severity  of loss  or the  timing  of any  such  losses  on the  mortgage  loans
collateralizing  the CMBS bonds and,  thus,  no assurance as to the actual yield
received by the Company. See "FORWARD LOOKING INFORMATION" below.

Prepayments

             The aggregate  amount of  distributions on the Company's CMBS bonds
and their  yields also will be  affected  by the amount and timing of  principal
prepayments  on the  mortgage  loans.  Generally,  all  payments  of  principal,
including prepayments,  on the mortgage loans will be paid to the holders of any
more senior  classes of CMBS bonds  before  principal  payments  are paid to the
subordinate  bond classes held by the Company.  Because of this,  when computing
yields-to-maturity  on its CMBS bonds,  the Company  generally does not consider
prepayments from the underlying  mortgage loans  collateralizing its CMBS bonds.
However,  because the Company acquires the CMBS bonds at a significant  discount
from their  outstanding  principal  balance,  prepayments  of  principal  on the
Company's CMBS bonds may increase the Company's yield on its CMBS bonds.

             Because the rate and timing of principal payments on mortgage loans
will depend on future  events and on a variety of factors over which the Company
has no control, no assurances can be given as to the rate or timing of principal
payments,  if any,  on the CMBS bonds the Company  owns.  See  "FORWARD  LOOKING
INFORMATION" below.

                                     - 15 -
<PAGE>

Loss Severity

             While  the rate and  timing  of  defaults  and  prepayments  on the
mortgage  collateral  are  important in  determining  the  anticipated  yield on
subordinate  CMBS bonds,  the  anticipated  severity of the loss on the mortgage
loans  (i.e.,  the total loss on any  foreclosure  sale as a  percentage  of the
remaining  outstanding  principal  balance of a mortgage loan) is  significantly
more important in determining the anticipated  yield on a subordinate CMBS bond.
Losses on defaulted mortgage  collateral are realized after the foreclosure sale
of the property which  generally is the only security for the mortgage loan. The
severity of these losses is extremely  important  because such losses  generally
will be allocated  to, and will reduce the remaining  principal  balance of, the
Company's  subordinate  CMBS bonds.  The severity of loss takes into account the
property owner's equity in the mortgaged real estate, the anticipated decline in
market  value  of  the  property,   accrued  and  unpaid  interest  through  the
foreclosure  process and  foreclosure  costs.  The higher the coupon rate of the
mortgage  loan,  the higher are the costs of interest  advances from the date of
default through foreclosure sale.

        INFLATION, INTEREST RATES, MORTGAGE PREPAYMENTS AND OTHER FACTORS

             The  Company,  its assets and its Common  Stock will be affected by
prevailing market interest rates,  including:  (i) the effects of interest rates
on the values of long-term,  fixed-rate  debt  securities;  (ii) the possibility
that, in periods of high interest rates, the Common Stock may be less attractive
than alternative  investments of equal or lower risk; (iii) possible  mismatches
between the Company's  borrowing costs and the Company's cash flow  requirements
which could have a negative  effect on the Company's  income;  (iv) the negative
effect of high interest  rates on the  properties  underlying the Company's CMBS
bonds  (including a negative  impact on the owner's  ability to  refinance  debt
secured  by such  properties);  and (v) the  effects  of  interest  rates on the
Company's borrowing costs. Interest rates are determined in large part by market
conditions and  government  policies which are beyond the control of the Company
and which are difficult to predict.

                           FORWARD LOOKING INFORMATION

             Certain  statements made by the Company's officers included in, but
not limited to, this Form 10-Q Quarterly Report,  periodic press releases,  oral
statements about the Company,  and conference calls following quarterly earnings
releases,  constitute  "forward-looking  statements"  within the  meaning of the
Private  Securities   Litigation  Reform  Act  of  1995.  Such   forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual  results,  performance or achievements of the Company to be
materially  different  from any  future  results,  performance  or  achievements
expressed or implied by the forward-looking statements. Such factors include the
following:  general economic and business conditions;  investment opportunities;
interest rate changes; competition; the availability of financing with terms and
prices  acceptable to the Company;  the Company's  ability to maintain or reduce
expense levels; and losses on CMBS bonds.





                                     - 16 -
<PAGE>




                                     PART II
                                OTHER INFORMATION


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

                  The Company's 1997 Annual Meeting of Stockholders  was held on
                  May 20,  1997.  At the  meeting,  Messrs.  Thomas  L.  Rhodes,
                  Raymond T. Baker,  and Thomas C. Fries were elected as Class I
                  Directors to terms expiring in 2000;  Mr. Terry  Considine was
                  elected as a Class III  Director  to a term  expiring in 1999;
                  and Mr.  Bruce D. Benson was elected as a Class II Director to
                  a term  expiring  in 1998.  There were  8,939,364,  8,964,945,
                  8,940,320,  8,961,163,  and  8,941,946  votes  cast  "for" the
                  election  of  Messrs.  Rhodes,  Baker,  Fries,  Considine  and
                  Benson, respectively;  and 130,035, 104,454, 129,079, 108,236,
                  and 127,453, respectively, votes cast "abstain."


Item 6.           EXHIBITS AND REPORTS ON FORM 8-K.

           (a)    Exhibits:

Exhibit No.       Description

   10.4(b)*       Second Amendment to Commercial  Assets, Inc. 1993 Stock Option
                  Plan

     27           Financial Data Schedule.
--------------------
*    Management contract or compensatory plan or arrangement.


           (b)    Reports on Form 8-K:

                  No Current  Reports  on Form 8-K were filed by the  Registrant
                  during  the period  covered  by  this Quarterly Report on Form
                  10-Q.



                                    SIGNATURE

             Pursuant to the  requirements  of the  Securities  Exchange  Act of
1934,  the  Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

                             COMMERCIAL ASSETS, INC.

                                                        (Registrant)



Date:  August 7, 1997                               By  /s/ Kevin J. Nystrom
                                                        ----------------------
                                                         Kevin J. Nystrom
                                                         Chief Financial Officer


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