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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

   
                                    FORM 10-K/A
                                (Amendment No. 2)
    

(Mark one)
[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 For the fiscal year ended December 31, 1997
                                       OR
[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

   For the transition period from: __________________ to ____________________

                           Commission File No. 1-14043

                           OCWEN ASSET INVESTMENT CORP.
             -----------------------------------------------------
             (Exact name of Registrant as specified in its charter)

                VIRGINIA                                     65-0736120
-----------------------------------------           ----------------------------
     (State or other jurisdiction of                      (I.R.S. Employer
     incorporation or organization)                      Identification No.)

          THE FORUM, SUITE 1000
     1675 PALM BEACH LAKES BOULEVARD
        WEST PALM BEACH, FLORIDA                                33401
-----------------------------------------           ----------------------------
 (Address of principal executive office)                      (Zip Code)

--------------------------------------------------------------------------------
                                 (561) 682-8000
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: 
Common Stock, $.01 par value                   New York Stock Exchange
    (Title of each class)            (Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: Not applicable.

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

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

         Aggregate  market value of the Common  Stock,  $.01 par value,  held by
nonaffiliates  of the registrant,  computed by reference to the closing price as
reported  by  NASDAQ  as  of  the  close  of  business  on  February  27,  1998:
$337,132,688  (for purposes of this  calculation  affiliates  include only Ocwen
Financial Corporation, directors and executive officers of the Company).

         Number of shares of Common  Stock,  $.01 par value,  outstanding  as of
February 27, 1998: 18,965,000 shares.

         DOCUMENTS  INCORPORATED BY REFERENCE:  Portions of the Annual Report to
Stockholders are incorporated by reference into Part III, Items 5-8. Portions of
the definitive Proxy Statement for the annual meeting of stockholders to be held
on May 14, 1998 are  incorporated  by reference  into Part III,  Items 10-13 and
Part IV, Item 14 of this Form 10K.

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<PAGE>

   
                          OCWEN ASSET INVESTMENT CORP.
                          1997 FORM 10-K ANNUAL REPORT
                                TABLE OF CONTENTS
--------------------------------------------------------------------------------
                                                                            PAGE
                                     PART I
Item 1.  Business...........................................................   4
           General..........................................................   4
           Initial Stock Offering...........................................   4
           The Manager......................................................   5
           Investment Activities............................................   6
           Commercial Real Estate Activities................................  21
           Discount Loan Acquisition and Resolution Activities..............  25
           Lending Activities ..............................................  27
           Federal Taxation.................................................  28

Item 2.  Properties.........................................................  35

Item 3.  Legal Proceedings..................................................  35

Item 4.  Submission of Matters to a Vote of Security Holders................  35

                                     PART II

Item 5.  Market for the Registrant's Common Equity and 
          Related Shareholder Matters.......................................  36

Item 6.  Selected Consolidated Financial Data...............................  36

Item 7.  Management's Discussion and Analysis of 
          Financial Condition and Results of Operations.....................  36

Item 7a. Quantitative and Qualitative Disclosures About Market Risk.........  36

Item 8.  Financial Statements...............................................  37

Item 9.  Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure..........................................  37

                                    PART III

Item 10.  Directors and Executive Officers of Registrant....................  37

Item 11.  Executive Compensation............................................  37

Item 12.  Security Ownership of Certain Beneficial Owners and Management....  37

Item 13.  Certain Relationships and Related Transactions....................  37

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules, and 
           Reports on Form 8-K..............................................  38

          Signatures........................................................  40
    
                                       2

<PAGE>

FORWARD-LOOKING STATEMENTS

   
         CERTAIN  STATEMENTS  CONTAINED  HEREIN ARE NOT, AND CERTAIN  STATEMENTS
CONTAINED  IN FUTURE  FILINGS BY THE COMPANY  WITH THE  SECURITIES  AND EXCHANGE
COMMISSION,  IN THE COMPANY'S PRESS RELEASES OR IN THE COMPANY'S OTHER PUBLIC OR
SHAREHOLDER  COMMUNICATIONS,  MAY  NOT BE  BASED  ON  HISTORICAL  FACTS  AND ARE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED AND SECTION 21E OF THE SECURITIES  EXCHANGE ACT OF 1934,
AS AMENDED,  INCLUDING THE CONSUMMATION AND EXPECTED  BENEFITS OF THE IDENTIFIED
TRANSACTIONS. THESE FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY REFERENCE TO
FUTURE PERIODS,  OR BY THE USE OF  FORWARD-LOOKING  TERMINOLOGY,  SUCH AS "MAY,"
"WILL," "BELIEVE," "ESTIMATE," "EXPECT,"  "ANTICIPATE,"  "CONSIDER," "CONTINUE,"
"ENCOURAGE,"  "INTENDS," "PLANS," "PRESENTS,"  "PROPOSE,"  "PROSPECT," FUTURE OR
CONDITIONAL  VERB  TENSES,  OR SIMILAR  TERMS,  VARIATIONS  OF THOSE  TERMS,  OR
NEGATIVES OF ANY SUCH  TERMINOLOGY.  ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE SET FORTH IN  FORWARD-LOOKING  STATEMENTS  DUE TO A  VARIETY  OF  FACTORS,
INCLUDING,  BUT NOT LIMITED TO, THOSE  RELATED TO THE  INTERNATIONAL,  NATIONAL,
REGIONAL OR LOCAL  ECONOMIC  ENVIRONMENTS,  PARTICULARLY  IN THE MARKET AREAS IN
WHICH THE  COMPANY  OPERATES,  COMPETITIVE  PRODUCTS  AND  PRICING,  FISCAL  AND
MONETARY  POLICIES  OF THE  U.S.,  CANADIAN  OR OTHER  GOVERNMENTS,  CHANGES  IN
GOVERNMENT  REGULATIONS  AFFECTING  REAL ESTATE  INVESTMENT  TRUSTS,  CHANGES IN
PREVAILING INTEREST AND CURRENCY EXCHANGE RATES,  CHANGES IN FACTORS INHERENT TO
THE VALUATION AND PRICING OF VARIOUS SECURITIES  INCLUDING THE IMPACT OF CHANGES
IN PREPAYMENT  SPEEDS ON MORTGAGE LOANS,  THE  EFFECTIVENESS OF THE SERVICING OF
LOANS UNDERLYING VARIOUS SECURITIES,  THE COURSE OF NEGOTIATIONS WITH RESPECT TO
VARIOUS  TRANSACTIONS,  THE ABILITY OF PARTIES TO AGREE TO  MATERIAL  TERMS OF A
TRANSACTION,  THE ABILITY TO SATISFY OR FULFILL AGREED UPON TERMS AND CONDITIONS
OF CLOSING OR PERFORMANCE  (INCLUDING  BOARD  APPROVALS,  AS NECESSARY OR AGREED
UPON),  THE OCCURRENCE OF MATERIAL  ADVERSE CHANGES IN THE BUSINESS OF ANY PARTY
TO A  TRANSACTION,  THE  TIMING  OF  TRANSACTION  CLOSINGS,  UNSATISFACTORY  DUE
DILIGENCE RESULTS,  BORROWER FAILURE TO SATISFY CLOSING CONDITIONS,  THE ABILITY
TO SECURITIZE MORTGAGE LOANS ON MUTUALLY ACCEPTABLE TERMS,  ACQUISITIONS AND THE
INTEGRATION  OF ACQUIRED  BUSINESSES,  CREDIT RISK  MANAGEMENT,  ASSET/LIABILITY
MANAGEMENT,  THE FINANCIAL AND SECURITIES MARKETS, THE AVAILABILITY OF AND COSTS
ASSOCIATED  WITH TIMELY  SOURCES OF LIQUIDITY ON MUTUALLY  ACCEPTABLE  TERMS AND
OTHER  FACTORS  GENERALLY  UNDERSTOOD  TO AFFECT  THE REAL  ESTATE  ACQUISITION,
MORTGAGE AND LEASING MARKETS AND SECURITY INVESTMENTS.
    

                                       3

<PAGE>
                                     PART I

ITEM 1.  BUSINESS

GENERAL

         Ocwen  Asset  Investment  Corp.  ("OAIC" or the  "Company")  is a newly
formed  corporation  that has  elected to be taxed as a Real  Estate  Investment
Trust ("REIT")  under  Sections 856 through 860 of the Internal  Revenue Code of
1986, as amended (the "Code").  As such,  OAIC will  generally not be subject to
federal income taxation on that portion of its income that it distributes to its
shareholders  if it  distributes  at  least  95% of its  taxable  income  to its
shareholders annually and meets certain other income and asset tests.

         The Company was incorporated in the Commonwealth of Virginia on January
22, 1997,  and on May 14,  1997,  the Company was  capitalized  with the sale of
19,125,000  shares of common  stock,  par value  $.01 per  share,  at a price of
$16.00 per share (before underwriting and offering expenses).

         The  Company's  business  and  investment  affairs are managed by Ocwen
Capital Corporation ("OCC" or the "Manager"), a Florida corporation wholly-owned
by Ocwen  Financial  Corporation  ("Ocwen").  Ocwen is a  diversified  financial
services company that is primarily  engaged in the acquisition and resolution of
troubled loans and in diverse mortgage lending activities.

         The Company  seeks to enhance the value of its common stock by pursuing
advantageous  investments that capitalize on  inefficiencies  in the real estate
and mortgage  markets.  Pursuant to that  strategy,  the Company has invested in
several  categories  of  real  estate  and  real  estate  related  assets.  Such
investments  consist  primarily of: (i) subordinate  interests in commercial and
residential  mortgage-backed  securities;  and (ii)  distressed  commercial  and
multi-family real property,  including  properties acquired by a mortgage lender
at foreclosure (or deed in lieu of foreclosure). The Company believes that these
investment  activities  complement  each  other  from both a cash flow and a tax
planning perspective in the early years after an acquisition real property tends
to  generate  more  cash flow than  taxable  income as a result of  depreciation
deductions while subordinate and residual securities during the same period tend
to generate more taxable income than cash flow. The relationship between taxable
income and cash flow will,  with respect to each type of  investment,  generally
reverse in later years.

         The Company also has invested, by way of purchase and origination,  in:
(i)  commercial,  multi-family  and  single-family  residential  mortgage loans,
including  construction  and  rehabilitation  loans and  mezzanine  loans;  (ii)
interest-only and inverse interest-only mortgage-related securities supported by
residential and commercial  mortgage loans; and (iii) mortgage loans that are in
default or for which  default is likely or imminent or for which the borrower is
currently  making  monthly  payments  in  accordance  with  a  forbearance  plan
(collectively,  "discount loans"). The Company also may acquire real property or
mortgage  loans secured by such real property and other real property  interests
that:  (i) may be  environmentally  distressed;  or (ii) is located  outside the
United States.

         The  following  table  sets  forth  the  composition  of the  Company's
principal assets at December 31, 1997.

                                                       December 31, 1997
                                              ----------------------------------
                                              Amount           % of Total Assets
                                              ------           -----------------
                                                    (Dollars in Thousands)

Securities available for sale                $146,027                  50.7%
Loan portfolio, net                            15,831                  14.9
Discount loan portfolio, net                   26,979                   9.4
Investment in real estate, net                 45,430                  15.8
                                             --------                  ----
                                             $234,267                  90.8%

INITIAL STOCK OFFERING

         On May 19,  1997 the  Company  completed  an  initial  public  offering
("IPO") which consisted of the sale of 19,125,000  shares of its common stock at
a price of $16 per share  (before  underwriting  discount  of $1.12 per  share),
including  1,875,000 shares of common stock sold to Investors Mortgage Insurance
Holding Company ("IMI"),  a wholly-owned  subsidiary of Ocwen. Total proceeds to

                                       4
<PAGE>

the Company,  net of underwriting  discount and offering  expenses,  were $283.7
million.   The  Company   incorporated   and   capitalized  two  qualified  REIT
subsidiaries,  Ocwen General,  Inc. ("General Partner") and Ocwen Limited,  Inc.
("Limited Partner") which, in turn, organized and capitalized Ocwen Partnership,
L.P. (the "Operating Partnership"). The Company, through the General Partner and
the Limited  Partner,  contributed  all of the net proceeds  from the IPO to the
Operating  Partnership.  The General Partner and Limited partner initially had a
1% and a 99% ownership interest in the Operating Partnership, respectively.

         On December 9, 1997,  the Company  repurchased  160,000 shares of stock
from  IMI  at  the  weighted  average  price  of the  stock  on  the  day of the
repurchase. IMI immediately acquired 160,000 units in the Operating Partnership,
representing a 0.8% ownership interest.  The shares were repurchased in order to
comply  with the stock  ownership  restrictions  imposed  on REITs.  The  shares
redeemed  by the  Company  are  presented  as  treasury  stock in the  Company's
consolidated  financial statements,  whereas the units acquired by IMI gave rise
to a minority interest in the Operating Partnership.

THE MANAGER

         The Company's  business and investment  affairs are managed by OCC. The
Company has entered into a management  agreement with OCC pursuant to which OCC,
subject to the  supervision  of the  Company's  Board of  Directors,  formulates
operating strategies for the Company,  arranges for the acquisition of assets by
the Company  and  arranges  for  various  types of  financing  for the  Company,
including  repurchase  agreements and secured lines of credit. In addition,  OCC
monitors  the  performance  of  the  Company's   assets  and  provides   certain
administrative  and managerial  services in connection with the operation of the
Company. In consideration for performance of these services, OCC receives: (i) a
base  management  fee in an amount  equal to 1% per annum,  calculated  and paid
quarterly  based  upon the  average  invested  assets  of the  Company  for such
quarter, which is intended to cover OCC's costs of providing management services
to the  Company;  and (ii) a quarterly  incentive  fee in an amount equal to the
product of (A) 25% of the dollar  amount by which (1) (a) funds from  operations
("FFO")  (before the  incentive  fee) of the  Company per share of common  stock
(based on the weighted average number of shares  outstanding) plus (b) gains (or
minus losses) from debt  restructuring  or sales of property per share of common
stock (based on the weighted average number of shares  outstanding),  exceed (2)
an amount  equal to (a) the  weighted  average of the price per share at initial
offering  and the prices per share at any  secondary  offerings  by the  Company
multiplied  by (b) the Ten-Year  U.S.  Treasury Rate plus five percent per annum
multiplied  by (B) the  weighted  average  number  of  shares  of  common  stock
outstanding.

         In addition to the management fees described  above,  OCC is reimbursed
for its costs for performing due diligence on assets purchased by the Company or
considered for purchase by the Company,  as well as for  out-of-pocket  expenses
incurred on behalf of the Company.

         Under a non-qualified  stock option plan (the "Option Plan") adopted by
the Company, the Manager was granted, at the IPO, options representing the right
to purchase  1,912,500 shares of the Company's common stock or, at the Company's
election,  an equal amount of units in the operating  partnership at an exercise
price  per share  equal to the  initial  offering  price of $16 per  share.  One
quarter of these options will vest and become  exercisable  on each of the first
four  anniversaries  of the closing  date of the IPO.  The purpose of the Option
Plan is to provide a means of performance-based compensation in order to provide
incentive for the Manager to enhance the value of OAIC's stock.

         OAIC  does  not  maintain  an  office  and does  not  employ  full-time
personnel.  Instead,  OAIC  relies  on the  facilities  and  resources  of Ocwen
(through OCC).  Ocwen has been actively  involved since its formation in 1988 in
the real estate and mortgage markets and brings significant expertise to OAIC in
acquiring and managing distressed real estate assets. The Company's relationship
with Ocwen provides a number of advantages.  First,  Ocwen's  primary  operating
subsidiary, Ocwen Federal Bank FSB (the "Bank"), is one of only six firms in the
United States to be rated as a "Strong" Special Servicer for commercial loans by
Standard  & Poor's,  its  highest  rating  category,  and is the only firm to be
designated as a Special Servicer for residential mortgage loans. Further,  Ocwen

                                       5

<PAGE>

has  a  proven  track  record  in  managing   subperforming   and  nonperforming
residential and commercial  real estate loans and distressed  real estate.  As a
result, OAIC has bid on many subordinate  securities because Ocwen has been able
to be named as Special Servicer on a majority of those investments.  Second, the
Company benefits from Ocwen's proprietary software  applications,  which include
acquisition  modeling and resolution  management  systems.  Third, the Company's
relationship  with Ocwen has  provided  it with  access to  markets,  as well as
instant and positive  name  recognition;  OAIC may also benefit by being able to
co-bid on transactions jointly with Ocwen.

         Pursuant to the Company's  management agreement with OCC, neither Ocwen
nor  any of  its  affiliates  is  permitted  to  purchase  non-investment  grade
subordinate  securities  or  distressed  commercial  real estate  without  first
obtaining the approval of OAIC's independent directors.

INVESTMENT ACTIVITIES

         At December 31,  1997,  the  Company's  investment  in  mortgage-backed
securities  ("MBS")  totaled  $146.0  million  or  50.7% of  total  assets.  The
following  table sets forth the fair value of the  Company's  MBS  available for
sale at December 31, 1997:

Single family residential:
  FHLMC interest-only.................................        $   21,177,964
  FNMA interest-only..................................            22,573,132
  AAA-rated interest-only.............................               729,372
  Subordinates........................................             9,444,067
                                                              --------------
    Total.............................................            53,924,535
                                                              --------------

Multi-family residential and commercial:
  AAA-rated interest-only.............................               865,747
  A-rated interest-only...............................               480,188
  Non-rated interest-only.............................             4,802,873
  Subordinates........................................            85,953,564
                                                              --------------
    Total.............................................            92,102,372
                                                              --------------
      Total............................................       $  146,026,907
                                                              ==============

                                       6
<PAGE>

   
         The following tables detail the Company's securities available for sale
portfolio  at December 31, 1997,  and its  estimates of expected  yields on such
securities,  taking  into  consideration  expected  prepayment  and  loss  rates
together with other factors.
Included in the tables are the following terms:

ACTUAL DELINQUENCY - Represents the total unpaid principal balance of loans more
than 30 days  delinquent  at the  indicated  date as a percentage  of the unpaid
principal balance of the collateral at such date.

ACTUAL  LIFE-TO-DATE  LOSSES  -  Represents  cumulative  losses  expressed  as a
percentage  of the unpaid  balance of the original  collateral  at the indicated
date.

OVER-COLLATERALIZATION   LEVEL  -  For   residual   interests   in   residential
mortgage-backed securities, over-collateralization ("OC") is the amount by which
the  collateral  balance  exceeds the sum of the bond principal  amounts.  OC is
achieved  by  applying  monthly  a  portion  of  the  interest  payments  on the
underlying  mortgages  toward the reduction of the class  certificate  principal
amounts,  causing them to amortize more rapidly than the aggregate loan balance.
The OC  percentage,  expressed as a  percentage  of the  outstanding  collateral
balance,   represents  the  first  tier  of  loss  protection  afforded  to  the
non-residual   holders.   The  OC  percentage   also   determines   whether  the
over-collateralization  target has been  satisfied as of a specific  date,  such
that cash flows to the residual holder are warranted. To the extent not consumed
by losses on more highly rated bonds, OC is remitted to the residual holders.

CLASS DESIGNATION  LETTER - Refers to the credit rating designated by the rating
agency  for  each  securitization  transaction.  Classes  designated  "A" have a
superior  claim on payment to those rated "B," which are superior to those rated
"C."  Additionally,  multiple letters have a superior claim to designations with
fewer letters.  Thus,  for example,  "BBB" is superior to "BB," which in turn is
superior to "B." The lower class designations in any securitization will receive
interest payments  subsequent to senior classes and will experience losses prior
to any senior class. The lowest potential class  designation is not rated ("NR")
which, if included in a  securitization,  will always receive  interest last and
experience  losses  first.  Interest only ("IO")  securities  receive the excess
interest  remaining  after the  interest  payments  have been made on all senior
classes  of bonds  based on their  respective  principal  balances.  There is no
principal associated with IO securities and they are considered  liquidated when
the  particular  class  they  are  contractually  tied to is paid  down to zero.
Principal only ("PO")  securities  receive excess  principal  payments after the
principal  has  been  made on all  classes  of bonds  based on their  respective
payment schedules.  There is no interest  associated with PO securities and they
are sold at a  discount.  The  return on PO  securities  is earned  through  the
receipt of the payments and the collection of the discounted amount.

CLASS SIZE - Represents  the percentage  size of a particular  class relative to
the total outstanding balance of all classes.

COLLATERAL BALANCE - Represents,  in the case of residuals, the unpaid principal
balance of the  collateral of the entire  securitization  at the indicated  date
and,  in the case of  subordinates,  the  outstanding  principal  balance of the
entire securitization at the indicated date.
    

                                       7

<PAGE>
   
ACTUAL  LIFE-TO-DATE  CPR - The Constant  Prepayment Rate is used to measure the
average  prepayment rate for the underlying  mortgage pool(s) over the period of
time elapsed since the issuance of the  securities  through the date  indicated,
and is calculated as follows:
<TABLE>
<CAPTION>
<S>                             <C>      <C>                                <C>                    <C>
                                  _                                                                _
                                 |                                           (      12          )   |
                                 |                                           ( ---------------- )   |
                                 |                                           ( months in period )   |
                                 | ( 1 - Final Aggregate Balance actual     )                       |
                                 | (     ---------------------------------- )                       |
                                 | (     Final Aggregate Balance scheduled  )                       |
 Actual Life-to-Date CPR = 100 X |                                                                  |
                                 |_                                                                _|.
</TABLE>

WEIGHTED-AVERAGE  DSCR -  Represents  debt  service  coverage  ratio,  which  is
calculated by dividing cash flow available for debt service by debt service.

ISSUE DATE - Represents the date on which the indicated securities were issued.

WEIGHTED-AVERAGE  LTV - Represents  the ratio of the loan amount to the value of
the underlying collateral.

RATING - Represents  the rating,  if any, on the security or  securities  by the
indicated rating agencies.

SECURITIZATION - Series description.

SECURITY - Represents the name of the class associated with each  securitization
held by the  Company.  This has no  relationship  to a formal  rating but is for
identification  purposes  (although  the names are  usually in  alphabetical  or
numeric order from the highest rated to the lowest rated).

SUBORDINATION  LEVEL - Represents  the credit  support for each  mortgage-backed
security  by  indicating  the  percentage  of  outstanding  bonds whose right to
receive  payment is  subordinate  to the referenced  security.  The  subordinate
classes  must  experience  a complete  loss before any  additional  losses would
affect the particular referenced security.

YIELD TO MATURITY - Yield to maturity  represents  a measure of the average rate
of return that is earned on a security if held to maturity.

         The   following   tables   set   forth   the   Company's    residential
mortgage-backed securities portfolio as of December 31, 1997:

SUBORDINATES
<TABLE>
<CAPTION>
                                                                            ($ Thousands)          Over-
                                               Class                         Collateral      Collateralization
                                               Designation   Rating          Balance at:         Level at       Product Type at:
Securitization         Security   Issue Date   Letter        Agencies    Issuance  12/31/97      12/31/97           12/31/97
--------------         --------   ----------   -----------   --------    --------  --------      --------           --------
<S>                        <C>          <C>    <C>                          <C>        <C>         <C>          <C>
SBMS 1997-HUD1 (1)        B5        Apr-97    B2, n.a.     Moody's, DCR     9,785     9,666       5.58%        97% Fixed, 3% ARM
SBMS 1997-HUD1 (1)        B6        Apr-97      UR                         16,998    16,706        n.a.
GECMS 1994-12 (2)         B4        Mar-94      UR     Moody's, Fitch, S&P  2,069     1,708        n.a.            100% Fixed

                                      Weighted
                                      Average      Weighted      Actual         Actual       ($ Thousands)       Yield to
                                      Interest     Average     Delinquency   Life to Date   Actual Life to       Maturity
                                      Rate at:     LTV at:         at:         CPR at:      Date Losses at:         at:
Securitization         Security       12/31/97     12/31/97     12/31/97       12/31/97         12/31/97   Purchase    12/31/97
--------------         --------       --------     --------     --------     ------------       --------   --------    --------
<S>                        <C>         <C>         <C>            <C>           <C>               <C>           <C>       <C>
SBMS 1997-HUD1(1)         B5           9.78%       111.91%        8.98%         8.52%             214        16.27%     16.41%
SBMS 1997-HUD1(1)         B6                                                                                 22.86%     22.95%
GECMS 1994-12(2)          B4           6.84%        53.20%        0.24%         5.00%              0         19.37%     20.81%
</TABLE>

ISSUERS:                                  

(1) Solomon Brothers Mortgage Securities  
(2) GE Capital Mortgage Services, Inc.    
    
                                        8

<PAGE>
         The following tables set forth the Company's commercial mortgage-backed
securities as of December 31, 1997:
<TABLE>
<CAPTION>
   
                                                        Class                               Subordination
                                                        Designation                           Level at:
Securitization               Security    Issue Date     Letter         Rating Agencies        Issuance     12/30/97
--------------               --------    ----------     -----------    ---------------        --------     --------
<S>                             <C>       <C>            <C>            <C>                    <C>         <C>  
MRAC 1996-C2(1)                  K         Dec-96          B            Fitch, Moody's            2.50%       2.56%
MRAC 1996-C2(1)                 L-1                      NR-PO                                    0.00%       0.00%
MRAC 1996-C2(1)                 L-2                      NR-10                                    0.00%       0.00%
BTC 1997-S1(2)                 E, F        Dec-97        BB/B            S&P, Fitch              19.00%      19.89%
BTC 1997-S1(2)                Equity                      NR                                      0.00%       0.00%
DLJ 1993-MF17(3)                B-2        Nov-93         BB            Moody's, Duff             4.59%       5.15%
DLJ 1993-MF17(3)                B-3                        B                                      1.28%       1.44%
DLJ 1993-MF17(3)                C-1                       NR                                      0.00%       0.00%
DLJ 1993-MF17(3)                S-1                     AAA-IO                                   32.18%      36.13%
DLJ 1993-MF17(3)                S-2                      A-IO                                    18.02%      20.24%
MLMCI 1993-M1(4)                 B         Sep-93         NR            Moody's, S&P              2.00%       6.17%
</TABLE>

ISSUERS:                                       

(1) Midland Realty Acceptance Corp.            
(2) BTC Mortgage Investors Trust 1997-S1
(3) DLJ Mortgage Acceptance Corp.
(4) Merrill Lynch Mortgage Capital, Inc.

COMMERCIAL MORTGAGE BACKED SECURITIES:
<TABLE>
<CAPTION>

                                                                              Actual   Actual    
                                                Weighted Weighted             Life to  Life to   
                              ($ Thousands)     Average  Average    Actual    Date     Date         Class Size%        Yield to
                         Collateral Balance at: DSCR at  LTV at   Delinquency CPR at:  Losses at: of Total as of:     Maturity at
Securitization  Security  Issuance     12/31/97 Issuance Issuance  12/31/97   12/31/97 12/31/97  Issuance 12/31/97 Purchase 12/31/97
--------------  --------  --------     -------- -------- --------  --------   -------- --------  -------- -------- -------- --------
<S>              <C>     <C>          <C>         <C>     <C>        <C>       <C>        <C>     <C>       <C>      <C>      <C>   
MRAC 1996-C2(1)    K     $ 512,102    $ 600,222   1.36    69.1%      0.0%      1.0%       $0      1.50%     1.54%    12.10%   12.02%
MRAC 1996-C2(1)   L-1                                                                             2.50%     2.56%    12.31%   12.86%
MRAC 1996-C2(1)   L-2                                                                             2.50%     2.56%    12.82%   13.67%
BTC 1997-S1(2)    E, F     303,946      290,412   1.27   106.0%     20.7%     53.15%      $0     14.50%    15.18%     8.36%    8.37%
BTC 1997-S1(2)   Equity                                                                          19.00%    19.89%    21.19%   21.19%
DLJ 1993-MF17(3)  B-2      139,183      123,937   1.36    73.7%      0.0%      0.0%       $0      9.41%    10.57%    12.29%   12.33%
DLJ 1993-MF17(3)  B-3                                                                             3.31%     3.71%    11.39%   12.60%
DLJ 1993-MF17(3)  C-1                                                                             1.28%     1.44%   -29.82%  -13.80%
DLJ 1993-MF17(3)  S-1                                                                            67.82%    63.87%    16.69%   16.85%
DLJ 1993-MF17(3)  S-2                                                                            14.15%    15.90%    14.46%   14.46%
MLMCI 1993-M1(4)   B       256,765       67,168   1.51    56.0%      9.0%      61.9%      $0      9.00%    26.80%    13.65%   12.06%
</TABLE>
    
                                       9
<PAGE>
         The following  table sets forth  information  regarding the  geographic
location  underlying  the Company's  securities  portfolio at December 31, 1997,
based upon the  notional  amount of the  residual and par amount of the class of
subordinate securities held.

<TABLE>
<CAPTION>

Description                           California        Florida              Texas         Maryland       Illinois        Other (1)
                                      ----------       ----------          ---------       --------       --------        ---------
                                                                         (In Thousands)

<S>                                    <C>             <C>                 <C>             <C>            <C>            <C>       
  Single-family residential......      $ 127,104       $   21,787          $  54,582       $ 39,842       $ 37,972       $   61,970

  Multi-family and commercial....        162,758           89,638            145,739         10,500          2,214          621,060
                                       ---------       ----------          ---------       --------       --------        ---------

  Total..........................      $ 289,862       $  111,425          $ 200,321       $ 50,342       $ 40,186        $ 683,030
                                       =========       ==========          =========       ========       ========        =========
  Percentage (2).................          21.1%             8.1%              14.6%           3.7%           2.9%            49.6%
                                       =========       ==========          =========       ========       ========        =========
</TABLE>

(1)      No other individual state makes up more than 5% of total.
(2)      Based on a  percentage  of the total  unpaid  principal  balance of the
         underlying loans.

         The  following  table sets forth the  property  types of the  Company's
commercial mortgage-backed securities at December 31, 1997.

                                                        Percentage
                          Property type                  Invested
                  -------------------------------       ----------
                  Multi-family...................          48.8%
                  Retail.........................          21.5
                  Hotel..........................           2.7
                  Office.........................          14.8
                  Industrial.....................           6.9
                  Mixed use......................           3.8
                  Other..........................           1.5
                                                          -----
                  Total..........................         100.0%

         At December 31, 1997 the carrying value of the Company's  investment in
subordinate  interests  amounted to $95.4  million or 65.3% of total  securities
available  for sale  and  supported  senior  classes  of  securities  having  an
outstanding  principal balance of $1.53 billion. As discussed below,  because of
their subordinate position,  subordinate classes of mortgage-related  securities
involve more risk than the other classes.

         The Company marks its securities  portfolio to fair value at the end of
each month  based  upon  broker/dealer  marks,  subject  to an  internal  review
process.  For those securities which do not have an available market  quotation,
the Company  requests market values and underlying  assumptions from the various
broker/dealers that underwrote,  are currently financing the securities, or have
had  prior  experience  with  the  type of  securities.  Because  the  Company's
subordinate and residual  securities are not readily  marketable,  trades can be
infrequent   (and  under  some  market   conditions,   non-existent)   and  most
broker/dealers  do not have  the  securities  modeled  and the  market  value is
typically available from only a small group of broker/dealers, and in most cases
only  one  broker/dealer.   When  valuations  are  obtained  from  two  or  more
broker/dealers,  the average dealer mark will be utilized.  As of each reporting
period,  the Company evaluates whether and to what extent any unrealized loss is
to be recognized as other than temporary.

                                       10
<PAGE>

         In December, 1997, after its successful bid for an equity interest in a
$320.0  million  securitization  of real  estate  owned  assets and  performing,
subperforming and nonperforming  commercial loans, (BTC Trust Mortgage Investors
Trust 1997-S1),  the Company effectively acquired 100% of the BB tranche as well
as 25% of the unrated  tranche for $47.2  million.  This  subordinate  interest,
which had an amortized  cost and carrying value of $47.2 million at December 31,
1997,  constitutes  the Company's  single  largest  security  investment for the
reported  period and represents  32.3% of the total carrying value of securities
available for sale at December 31, 1997.

         At December 31, 1997, the carrying value of the Company's investment in
interest only securities  amounted to $50.6 million or 34.7% of total securities
available  for sale.  As  discussed  below,  interest  only  securities  exhibit
considerably   more  price  volatility  than  mortgages  or  ordinary   mortgage
pass-through  securities,  due in part to the  uncertain  cash flows that result
from changes in the  prepayment  rates of the  underlying  mortgage  collateral.
Increased  prepayments of the underlying  mortgage  collateral  resulting from a
decrease in market  interest  rates or other factors can result in a loss of all
or part of the purchase price of such security. At December 31, 1997, all of the
Company's  interest only  securities were either issued by FHLMC or FNMA or were
rated AAA by national  rating  agencies,  with the  exception of one  commercial
security with a carrying value of $480,000, which was rated A, and two non-rated
commercial securities with an aggregate carrying value of $4.8 million.

         During January and February 1998, the Company  recorded charges of $2.5
million against its interest only  securities  portfolio.  The charges  resulted
from increases in projected prepayment speeds during this period and a resulting
shortening of the weighted average lives of certain individual securities in the
portfolio.  As a result,  a  determination  was ade to write  down the  recorded
investment in those  securities where the reduction in fair value was considered
to be other than temporary.  The Company believes that the current low levels of
interest  rates,  and the  inverted  shape of the yield  curve,  are  relatively
short-term phenomena.  To the extent that longer term interest rates increase or
the  relationship  between  short-term  and  long-term  rates  revert  to  their
historical  spreads,  the value of the portfolio  should recover.  To the extent
that  the  current  environment   persists,  or  that  rates  decrease  further,
additional impairment losses may be recognized.

         SUBORDINATE  INTERESTS.  The Company has acquired subordinate interests
in   multi-family   residential,   commercial  and  single  family   residential
mortgage-backed  securitizations.  MBS  typically  are divided  into two or more
classes,  sometimes  called  "tranches."  The senior  classes are higher "rated"
securities,  which  would be rated  from low  investment  grade  "BBB" to higher
investment  grade  "AA" or "AAA."  The  junior,  subordinate  classes  typically
includes one or more lower rated,  non-investment grade classes, and an unrated,
higher-yielding, credit support class (which generally is required to absorb the
first losses on the underlying mortgage loans).

         MBS generally are issued either as collateralized  mortgage obligations
("CMOs"  or  "CMO  Bonds")  or  as  pass-through   certificates   ("Pass-Through
Certificates").  CMO Bonds are debt obligations of special purpose corporations,
owner trusts or other special purpose  entities  secured by commercial  mortgage
loans or MBS.  Pass-Through  Certificates  evidence  interests  in  trusts,  the
primary  assets  of  which  are  mortgage  loans.  CMO  Bonds  and  Pass-Through
Certificates may be issued or sponsored by private  originators of, or investors
in, mortgage loans,  including savings and loan associations,  mortgage bankers,
commercial banks, investment banks and other entities.

                                       11
<PAGE>

         In most  mortgage  loan  securitizations,  a series of MBS is issued in
multiple  classes  in order to obtain  investment-grade  ratings  for the senior
classes and thus increase their  marketability.  Each class of MBS may be issued
with a specific  fixed or variable  coupon  rate and a stated  maturity or final
scheduled  distribution  date.  Principal  prepayments  on  the  mortgage  loans
comprising the mortgage collateral may cause the MBS to be retired substantially
earlier than their stated  maturities  or final  scheduled  distribution  dates,
although,  with  respect  to  commercial  mortgage  loans and  certain  subprime
residential  mortgage loans, there generally are penalties for or limitations on
the ability of the  borrower to prepay the loan.  Interest is paid or accrued on
MBS on a periodic basis, typically monthly.

         The  credit  quality  of MBS  depends  on  the  credit  quality  of the
underlying mortgage collateral. Among the factors determining the credit quality
of the underlying mortgage loans will be the ratio of the mortgage loan balances
to the value of the properties  securing the mortgage loans,  the purpose of the
mortgage loans (e.g.,  refinancing or new purchase),  the amount of the mortgage
loans, their terms, the geographic  diversification  of the properties,  and, in
the case of commercial mortgage loans, the credit-worthiness of tenants.

         Additionally,  the principal of and interest on the underlying mortgage
loans may be allocated  among the several classes of a MBS in many ways, and the
credit quality of a particular  class depends in part on the order and timing of
the  receipt  of  cash  flow  generated  from  the  underlying  mortgage  loans.
Subordinate   interests  carry  significant  credit  risks.   Typically,   in  a
"senior-subordinate"   structure,   the  subordinate  interests  provide  credit
protection  to the senior  classes by  absorbing  losses  from loan  defaults or
foreclosures  before  such losses are  allocated  to senior  classes.  Moreover,
typically,  as long as the more senior  tranches of securities are  outstanding,
all  prepayments  on the  mortgage  loans  generally  are paid to  those  senior
tranches,  at least until the end of a specified period, which typically is five
years or more.  In some  instances,  particularly  with  respect to  subordinate
interests in commercial  securitizations,  the holders of subordinate  interests
are not  entitled  to receive  scheduled  payments of  principal  until the more
senior tranches are paid in full or until the end of a specified period. Because
of this  structuring  of the cash  flows  from the  underlying  mortgage  loans,
subordinate interests in a typical securitization are subject to a substantially
greater risk of non-payment  than are those more senior  tranches.  Accordingly,
the  subordinate  interests are assigned  lower credit  ratings or no ratings at
all.  Neither the  subordinate  interests nor the underlying  mortgage loans are
guaranteed by agencies or  instrumentalities  of the United States government or
by other  governmental  entities  and,  accordingly,  are  subject,  among other
things, to credit risks.

         As  a  result  of  the  typical  "senior-subordinate"   structure,  the
subordinate interest is extremely sensitive to losses on the underlying mortgage
loans.  Accordingly,  the holder of the  subordinate  interest  is  particularly
interested in minimizing the loss frequency (the percentage of the loan balances
that  default over the life of the mortgage  collateral)  and the loss  severity
(the amount of loss on a defaulted  mortgage loan, i.e., the principal amount of
the mortgage  loan  unrecovered  after  applying any recovery to the expenses of
foreclosure and accrued interest) on the underlying mortgage loans.

                                       12

<PAGE>

   
         The loss  frequency  on a pool of  mortgage  loans will  depend  upon a
number of  factors,  many of which will be beyond the  control of the Company or
the  applicable  servicer.  Among other things,  the loss frequency will reflect
broad conditions in the economy generally and real estate particularly, economic
conditions  in the local  area in which the  underlying  mortgaged  property  is
located,  the loan-to-value  ratio of the mortgage loan, the purpose of the loan
and the debt service coverage ratio (with respect to commercial mortgage loans).
The loss serverity will depend upon many of the same factors described above and
will also be influenced by the servicer's  ability to  efficiently  foreclose on
the defaulted mortgage loan and sell the underlying mortgaged property.

         The Company  determines the present value of anticipated  cash flows of
its mortgage-related  securities utilizing valuation assumptions  appropriate at
the time of each  acquisition or  securitization  transaction.  The  significant
valuation  assumptions  include  the  anticipated   prepayment  speeds  and  the
anticipated  credit  losses  related to the  underlying  mortgages.  In order to
determine  the present  value of this  estimated  excess cash flow,  the Company
currently  applies a  discount  rate of 18% to the  projected  cash flows on the
unrated  classes of securities.  The annual  prepayment  rate of the securitized
loans is a function of full and partial  prepayments  and defaults.  The Company
makes assumptions as to the prepayment rates of the underlying loans,  which the
Company  believes are  reasonable,  in estimating fair values of the subordinate
securities and residual securities  retained.  During 1997, the Company utilized
proprietary  prepayment curves generated by the Company (reaching an approximate
range of  annualized  rates of 30%-40%).  In its estimates of annual loss rates,
the Company utilizes  assumptions  that it believes are reasonable.  The Company
estimates annual losses of between 0.22% and 2.06% of the underlying loans.

         Subordinate  and  residual  interests  in  mortgage-related  securities
provide  credit  support  to the more  senior  classes  of the  mortgage-related
securities.  Principal from the underlying mortgage loans generally is allocated
first to the senior classes,  with the most senior class having a priority right
to the cash flow from the  mortgage  loans  until its payment  requirements  are
satisfied. To the extent that there are defaults and unrecoverable losses on the
underlying mortgage loans, resulting in reduced cash flows, the most subordinate
security will be the first to bear this loss.  Because  subordinate and residual
interests  generally  have no credit  support,  to the extent there are realized
losses  on the  mortgage  loans  comprising  the  mortgage  collateral  for such
securities,  the Company may not recover the full amount or, indeed,  any of its
initial  investment  in such  subordinate  and residual  interests.  The Company
generally  owns the  most  subordinate  classes  of the  securities  in which it
invests and therefore will be the first to bear any credit losses.

         The credit  risk of  mortgage  related  securities  is  affected by the
nature of the underlying  mortgage  loans.  In this regard,  the risk of loss on
securities   backed  by  commercial  and  multifamily  loans  and  single-family
residential  loans made to borrowers who, because of prior credit problems,  the
absence of a credit history or other factors, are unable or unwilling to qualify
as  borrowers  under  guidelines  established  by the  FHLMC  and the  FNMA  for
purchases of loans by such agencies, generally involve more risk than securities
backed by  single-family  residential  loans which  conform to the  requirements
established by FHLMC and FNMA for their purchase by such agencies.

         Subordinate and residual  interests are affected by the rate and timing
of  payments of  principal  (including  prepayments,  repurchase,  defaults  and
liquidations)  on the mortgage  loans  underlying  a series of  mortgage-related
securities.  The rate of  principal  payments may vary  significantly  over time
depending on a variety of factors, such as the level of prevailing mortgage loan
interest  rates  and  economic,  demographic,  tax,  legal  and  other  factors.
Prepayments  on the  mortgage  loans  underlying  a series  of  mortgage-related
securities   are   generally   allocated   to  the  more   senior   classes   of
mortgage-related  securities.  Although  in the  absence of defaults or interest
shortfalls all subordinates  receive interest,  amounts  otherwise  allocable to
residuals  generally are used to make payments on more senior classes or to fund
a   reserve    account   for   the    protection   of   senior   classes   until
overcollateralization  or the balance in the reserve account reaches a specified
level. In periods of declining  interest rates, rates of prepayments on mortgage
loans  generally  increase,  and if the  rate  of  prepayments  is  faster  than
anticipated,  then the yield on subordinates will be positively affected and the
yield on residuals will be negatively affected.
    

                                       13
<PAGE>

         OTHER MBS.  The  Company  also  invests in  interest-only  and  inverse
interest-only  securities  (together,  "IOs"), which are entitled to no (or only
nominal) payments of principal,  but only to payments of interest. The holder of
an IO may be  entitled  to  receive  a stated  rate of  interest  on a  notional
principal  balance  equal to the principal  balance of the mortgage  collateral,
that portion  that bears  interest in excess of a certain  rate,  or one or more
classes of that MBS.  Alternatively,  the holder of an IO may be  entitled  to a
variable rate of interest on a nominal principal balance that adjusts based upon
adjustment in the interest rate of the underlying mortgage collateral.

         Because IOs often pay at a relatively small rate of interest on a large
notional principal balance,  an accelerated  reduction of that principal balance
will have an adverse  effect on the  anticipated  yield to  maturity of such IO.
Accordingly,   if  the  underlying   mortgage   collateral   prepays  (including
prepayments  as a result of default  and  repurchases  by the  seller) at a rate
faster than  anticipated,  the weighted  average life of the IO will be reduced,
and  the  yield  to maturity  will  be adversely  affected.  Conversely,  if the
underlying  mortgage  collateral prepays at a rate slower than anticipated,  the
weighted average life of the IO will be extended,  and the anticipated  yield to
maturity will be increased.

         The  yield  curve is  derived  by  calculating  the term  structure  of
interest rates based on the yield to maturity of the most  recently-issued  U.S.
Treasury  bills,  notes and bonds  where the  y-axis is yield and the  x-axis is
maturity.  IOs are sensitive to  prepayments,  which  increase as rates (yields)
decrease and refinance opportunities increase. Inverse IOs also are sensitive to
prepayments but have a coupon that floats inversely to LIBOR. If LIBOR decreases
with rates  (yields)  then the coupon on the Inverse IOs  increases and if LIBOR
increases with rates (yields) then the coupon will decrease.

         Residential mortgage loans typically do not have prepayment  penalties.
As a result,  prepayments  tend to increase  during periods of falling  interest
rates and decrease during periods of rising interest rates. However, prepayments
are dependent upon a number of other factors as well (such as the number of jobs
available in the area,  general economic  conditions and the borrower's need for
additional  cash).  Commercial  loans often  carry  prepayment  restrictions  or
require that the borrower pay a prepayment  penalty (which  generally is not for
the  benefit of the holder of the IO).  In any event,  it is very  difficult  to
predict the prepayment  pattern for any particular  mortgage  collateral,  which
makes it difficult to predict the actual yield with respect to an IO.

         Inverse interest-only  securities bear interest at a floating rate that
varies inversely with (and often at a multiple of) changes in a specified index.
The yield to maturity of such a class of IOs is not only very  sensitive  to the
rate of prepayments on the underlying mortgage  collateral,  but also to changes
in the related index.

                                       14
<PAGE>

         At December  31, 1997,  the  Company's  single  family  residential  IO
portfolio consisted of the following securities:
<TABLE>
<CAPTION>

                                                                                                  December 31, Weighted
                                                       Purchase   Amortized           Purchase       1997      Average   Market
        Broker             Issue      Class   Type       Date       Cost     Coupon    Yield        Yield      Life (2)  Value
-------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)

<S>                     <C>           <C>   <C>      <C>              <C>    <C>        <C>        <C>          <C>       <C>
CORESTATES              FHLMC 1308     K      I/O      05/21/97       670     8.50%    11.65%        6.63%      1.59       587

DLJ                     FHLMC 1977     IA     I/O      08/05/97       798     7.00%    13.69%       10.06%      2.10       767
                                                                                                                    
COASTAL                 FNMA 97-45     JD     I/O      06/30/97       933     7.00%     7.39%       -6.72%      3.28       396

MORGAN STANLEY          HS 92-EB       B7     I/O      09/23/97     1,090   n/a (1)    16.22%       15.05%      4.85       729

BEAR STEARNS            FHLMC 1933     SO     INV I/O  12/04/97     5,193     2.50%    28.33%       29.11%      2.72     4,185

IBS                     FHLMC 1943     S      INV I/O  09/16/97     2,258     2.80%    28.33%       15.75%      3.20     1,813

PAINE WEBBER            FHLMC 1946     SE     INV I/O  05/20/97     1,078     2.25%    32.47%       23.27%      2.93     1,294

DEUTSCHE                FHLMC 1948     S      INV I/O  12/17/97     2,316     2.37%    28.33%       26.15%      3.74     2,278

IBS                     FHLMC 1967     S      INV I/O  09/09/97     1,595     2.25%    33.12%       19.83%      4.49     1,133

DLJ                     FHLMC 1967     SA     INV I/O  06/30/97     2,409     2.85%    31.63%       19.62%      2.47     2,177

MORGAN STANLEY          FHLMC 1969     SJ     INV I/O  07/30/97       461     4.87%    33.45%      -13.73%      1.74       428

NOMURA                  FHLMC 1979     SA     INV I/O  12/24/97     1,778     2.32%    28.33%       70.32%      1.38     1,682

SALOMON                 FHLMC 1983     SA     INV I/O  08/29/97     5,919     2.65%    34.56%       13.55%      2.27     3,474

COASTAL                 FHLMC 1988     SH     INV I/O  09/30/97       386     0.20%    15.68%        5.88%      4.47       287

GREENWICH               FNMA 96-51     SB     INV I/O  12/11/97     4,985     2.75%    28.33%       21.53%      2.89     4,690

PAINE WEBBER            FNMA 97-19     SK     INV I/O  06/03/97       707     2.28%    32.80%       15.01%      2.96       891

COASTAL                 FNMA 97-43     SC     INV I/O  06/30/97     2,322     2.70%    33.11%       10.40%      1.68     1,632

SALOMON                 FNMA 97-44     SG     INV I/O  09/09/97     3,536     2.75%    34.21%       22.49%      5.34     3,005

SMITH BARNEY            FNMA 97-58     S      INV I/O  08/29/97     2,020     2.75%    30.57%       13.06%      2.94     1,680

SALOMON                 FNMA 97-61     SA     INV I/O  08/29/97       876     2.85%    32.29%       20.34%      2.94       770

NOMURA                  FNMA 97-62     S      INV I/O  09/23/97     1,045     3.35%    22.59%       18.56%      3.67       959

NOMURA                  FNMA 97-65     SH     INV I/O  09/30/97     8,980     2.25%    34.38%       17.40%      3.26     7,306

NOMURA                  FHLMC 1979     SC     TTIB     12/17/97     1,150     0.65%     0.00%       41.37%      1.75     1,073

SALOMON                 FNMA 97-30     SL     TTIB     05/19/97     1,885     1.00%    17.45%      -12.89%      1.55     1,244
                                                               ---------------------------------------------------------------
                                                                   54,390     1.51%    21.18%       11.05%      2.26    44,480
</TABLE>

(1)  The coupon rate for this instrument is not meaningful because the principal
     is based on a notional amount.
(2)  Weighted average life is represented in years.

                                       15
<PAGE>
         At February  28,  1998,  the Company  continued  to hold a portfolio of
single family  residential  IOs having an amortized  cost of $54.3 million and a
market value of $46.4 million on such date.  The portfolio had a gross  weighted
average  mortgage coupon of 8.30% at February 28, 1998 and 8.34% at December 31,
1997, as follows:

<TABLE>
<CAPTION>
                                               February 28, 1998                       December 31, 1997
      Gross Weighted Average           --------------------------------        ---------------------------------
          Mortgage Coupon              Amortized Cost       Market Value       Amortized Cost       Market Value
----------------------------------     --------------       ------------       --------------       ------------
                                             (Dollars in Thousands)                  (Dollars in Thousands)
<S>                                      <C>                 <C>                 <C>                 <C>      
9.00% to 10.25%................          $     578           $     567           $     667           $     587
8.25% to  8.99%................             32,880              26,182              37,156              28,962
7.75% to  8.24%................             13,661              12,623              11,116               9,585
7.25% to  7.74%................              7,166               7,015               5,451               5,346
                                         ---------           ---------           ---------           ---------
                                            54,285              46,387              54,390              44,480
</TABLE>

         In addition, the portfolio was comprised of a diverse bond structure as
follows:

<TABLE>
<CAPTION>
                                               February 28, 1998                       December 31, 1997
                                       ---------------------------------       ---------------------------------
          Bond Structure               Amortized Cost       Market Value       Amortized Cost       Market Value
-----------------------------------    --------------       ------------       --------------       ------------
                                             (Dollars in Thousands)                  (Dollars in Thousands)
<S>                                      <C>                 <C>                 <C>                 <C>      
Prorata Strip...................         $  14,180           $  13,177           $  13,081           $  11,768
Planned Amortization Class......             3,005               2,968                 386                 286
Targeted Amortization Class.....            23,153              18,257              28,276              22,373
Scheduled Pay...................               929                 835               1,809               1,166
Sequential Pay..................             9,634               8,498               7,224               6,074
Support.........................             3,384               2,652               3,614               2,813
                                         ---------           ---------           ---------           ---------
                                            54,285              46,387              54,390              44,480

</TABLE>

         Additionally, OAIC has modeled the portfolio at February 28, 1998 in an
interest rate  environment  which assumes:  (i) an  instantaneous  and sustained
parallel  shift in interest  rates for the remaining  duration of the portfolio;
(ii) a 50 basis  point  decrease  in LIBOR to  steepen  the  yield  curve and an
instantaneous  and sustained  parallel shift in interest rates for the remaining
duration of the  portfolio;  and (iii) a 50 basis point  increase in the 10 year
treasury rate to steepen the yield curve and then an instantaneous and sustained
parallel  shift in interest  rates for the remaining  duration of the portfolio.
OAIC's model is based on median Wall Street prepayment  assumptions.  The yields
resulting from this analysis are presented below:
<TABLE>
<CAPTION>

                                                                          LIBOR                10 Year Treasury
        Shift in Basis Points               Parallel Shift              Decreases                  Increases
--------------------------------------      --------------              ---------              ----------------
<S>                                               <C>                      <C>                       <C> 
+200.............................                 7.0%                     28.6%                     9.4%
+100.............................                19.5                      42.8                     28.6
+50..............................                19.9                      44.2                     36.5
  0..............................                15.2                      35.3                     42.8
-50..............................                (6.7)                     15.2                     44.2
-100.............................               (19.1)                     (1.6)                    35.3
-200.............................               (28.5)                    (15.3)                    (1.6)
</TABLE>

         In the above parallel shift  scenario,  a 50 basis point  instantaneous
and  sustained  decline in current  interest  rates is  estimated to result in a
yield of (6.7)% on a portfolio which would have a weighted  average life of 1.26
years, for a loss of $4.6 million on the amortized cost of the IOs. On the other
hand, should the Company experience a 50 basis point parallel, instantaneous and
sustained increase in current interest rates, the portfolio is expected to yield
19.9% with a weighted  average  life of 3.0 years,  for income of $32.4  million
over the remaining life of the portfolio.

                                       16
<PAGE>

         OAIC  believes  that  the  assumptions  used  by  it  to  evaluate  the
vulnerability  of OAIC's  operations  to changes in interest  rates  approximate
OAIC's and its affiliates  actual  experiences  and considers  them  reasonable;
however,  the interest  rate  sensitivity  of the IO portfolio and the estimated
effects  of changes in  interest  rates  thereon  could  vary  substantially  if
different  assumptions  are  used  or if  actual  experience  differs  from  the
historical experience on which they are based. Accordingly,  no assurance can be
given that the  assumptions  used in creating  OAIC's model will  correspond  to
actual results, including, in particular, prepayment speeds in any interest rate
environment.

         MARKET RISK. Market risk is the exposure to loss resulting from changes
in interest rates, foreign currency exchange rates,  commodity prices and equity
prices. The primary market risk to which the Company is exposed is interest rate
risk, which is highly sensitive to many factors, including governmental monetary
and  tax   policies,   domestic  and   international   economic  and   political
considerations  and other factors beyond the control of the Company.  Changes in
the  general  level of  interest  rates can affect the  Company's  net  interest
income,   which  is  the  difference  between  the  interest  income  earned  on
interest-earning assets and the interest expense incurred in connection with its
interest-bearing  liabilities,  by affecting  the spread  between the  Company's
interest-earning assets and interest-bearing  liabilities.  Changes in the level
of  interest  rates also can  affect,  among  other  things,  the ability of the
Company  to  originate   and  acquire   loans,   the  value  of  the   Company's
mortgage-related securities and other interest-earning assets and its ability to
realize gains from the sale of such assets.

         The Company may utilize a variety of financial  instruments,  including
interest rate swaps, caps, floors and other interest rate exchange contracts, in
order to limit the effects of interest rates on its operations. The use of these
types of derivatives to hedge  interest-earning  assets and/or  interest-bearing
liabilities  carries  certain  risks,  including the risk that losses on a hedge
position  will reduce the funds  available for payments to holders of securities
and,  indeed,   that  such  losses  may  exceed  the  amount  invested  in  such
instruments.  A hedge may not perform its intended purpose of offsetting  losses
or increased costs. Moreover, with respect to certain of the instruments used as
hedges,  the Company is exposed to the risk that the  counterparties  with which
the  Company  trades  may  cease  making  markets  and  quoting  prices  in such
instruments,  which may render the  Company  unable to enter into an  offsetting
transaction  with respect to an open position.  If the Company  anticipates that
the income from any such hedging  transaction will not be qualifying  income for
REIT income test  purposes,  the Company may conduct  part or all of its hedging
activities through a to-be-formed  corporate subsidiary that is fully subject to
federal  corporate  income  taxation.  The  profitability  of the Company may be
adversely affected during any period as a result of changing interest rates.

   
         The following  table  quantifies the potential  changes in net interest
income and net portfolio value should interest rates go up or down (shocked) 400
basis  points,  assuming the yield curves of the rate shocks will be parallel to
each  other.  Net  portfolio  value  is  calculated  as the sum of the  value of
off-balance sheet  instruments and the present value of cash in-flows  generated
from   interest-earning   assets   net  of  cash   out-flows   in   respect   of
interest-bearing liabilities. The cash flows associated with the loan portfolios
and securities available for sale are calculated based on prepayment and default
rates  that  vary by  asset.  Projected  losses,  as well  as  prepayments,  are
generated  based upon the actual  experience  with the subject  pool, as well as
similar, more seasoned pools. To the extent available, loan characteristics such
as loan-to-value ratio,  interest rate, credit history,  prepayment penalty term
and  product  types  are used to  produce  the  projected  loss  and  prepayment
assumptions  that are included in the cash flow  projections of the  securities.
When interest rates are shocked, these projected loss and prepayment assumptions
are further adjusted. For example, under current market conditions,  a 100 basis
point decline in the market  interest rate is estimated to result in a 200 basis
point increase in the prepayment rate of a typical  subprime  residential  loan.
Most  commercial  and  multi-family  loans are not subject to  prepayments  as a
result of prepayment  penalties and contractual terms which prohibit prepayments
during specified periods.  However,  for those commercial and multi-family loans
    
                                       17
<PAGE>

   
where prepayments are not currently precluded by contract,  declines in interest
rates are associated with steep increases in prepayment speeds in computing cash
flows. A risk premium is then  calculated for each asset,  which,  when added to
the interest rate being modeled,  results in a matrix of discount rates that are
applied to the cash flows computed by the model. The base interest rate scenario
assumes  interest  rates at December  31,  1997.  Actual  results  could  differ
significantly from those estimated in the table.
    


                                         Projected Percentage Change In
--------------------------------------------------------------------------------
Change in Interest Rate         Net Interest Income (1)      Net Portfolio Value
================================================================================

      -400 Basis Points                         -43.47%                   -0.19%
      -300 Basis Points                         -36.93                    -2.69
      -200 Basis Points                         -30.39                    -4.88
      -100 Basis Points                         -15.66                    -5.13
     Base Interest Rate                              0                        0
      +100 Basis Points                           9.57                     1.36
      +200 Basis Points                          18.88                    -1.10
      +300 Basis Points                          21.41                    -4.93
      +400 Basis Points                          23.94                    -8.66

   
(1)  Represents the estimated  percentage change in net interest income over the
     next twelve  months,  assuming that balances are rolled over and reinvested
     at the shocked level of interest  rate.  For purposes of this  calculation,
     net interest income  includes as a deduction  interest  expense  associated
     with real estate.
    

         ASSET AND  LIABILITY  MANAGEMENT.  Asset and  liability  management  is
concerned  with  the  timing  and  magnitude  of the  repricing  of  assets  and
liabilities.  It is the  objective  of the  Company to attempt to control  risks
associated with interest rate movements. In general, management's strategy is to
match asset and  liability  balances  within  maturity  categories  to limit the
Company's exposure to earnings  variations and variations in the value of assets
and liabilities as interest rates change over time.

         The Company may  utilize  off-balance  sheet  financing  techniques  to
assist it in the management of interest rate risk.  These techniques may include
interest rate exchange  agreements,  pursuant to which the parties  exchange the
difference between fixed-rate and floating-rate interest payments on a specified
principal amount  (referred to as the "notional  amount") for a specified period
without the exchange of the underlying  principal  amount. At December 31, 1997,
the Company had not utilized off-balance sheet financing techniques.

         Methods for  evaluating  interest  rate risk include an analysis of the
Company's  interest rate sensitivity  "gap",  which is defined as the difference
between  interest-earning  assets and  interest-bearing  liabilities maturing or
repricing  within a given time period.  A gap is  considered  positive  when the
amount of  interest-rate  sensitive  assets exceeds the amount of  interest-rate
sensitive  liabilities.  A  gap  is  considered  negative  when  the  amount  of
interest-rate  sensitive  liabilities  exceeds  interest-rate  sensitive assets.

                                       18
<PAGE>

During a period of rising interest rates, a negative gap would tend to adversely
affect net  interest  income,  while a  positive  gap would tend to result in an
increase in net interest  income.  During a period of falling  interest rates, a
negative gap would tend to result in an increase in net interest income, while a
positive  gap would  tend to  affect  net  interest  income  adversely.  Because
different  types of assets and liabilities  with the same or similar  maturities
may react differently to changes in overall market rates or conditions,  changes
in interest rates may affect net interest  income  positively or negatively even
if an institution were perfectly matched in each maturity category.

         The following  table sets forth the estimated  maturity or repricing of
the  Company's  interest-earning  assets  and  interest-bearing  liabilities  at
December  31,  1997.  The  amounts  of assets  and  liabilities  shown  within a
particular  period were determined in accordance  with the contractual  terms of
the assets and liabilities, except (i) adjustable-rate loans, and securities are
included  in the period in which their  interest  rates are first  scheduled  to
adjust  and  not  in  the  period  in  which  they   mature,   (ii)   fixed-rate
mortgage-related securities reflect estimated prepayments,  which were estimated
based on  analyses  of broker  estimates,  the  results  of a  prepayment  model
utilized by the Company and empirical data, (iii) non-performing  discount loans
reflect the  estimated  timing of  resolutions  which result in repayment to the
Company and (iv) fixed-rate loans reflect  scheduled  contractual  amortization,
with  no  estimated  prepayment.  Management  believes  that  these  assumptions
approximate  actual  experience  and considers  them  reasonable;  however,  the
interest rate  sensitivity of the Company's  assets and liabilities in the table
could vary substantially if different assumptions were used or actual experience
differs from the historical experience on which the assumptions are based.

<TABLE>
<CAPTION>
                                                                               December 31, 1997
                                                  ---------------------------------------------------------------------------
                                                                                  More than 1
                                                     Within         4 to 12         Year to        3 Years
                                                    3 Months         Months         3 Years        and Over          Total
                                                  ------------    ------------    ------------   ------------    ------------
<S>                                                      <C>            <C>             <C>            <C>            <C>    
Rate-Sensitive Assets:                                                           (In Thousands)
   Interest-earning cash........................  $     48,346    $         --    $         --   $         --    $     48,346
   Securities available for sale................         6,365          20,347          42,688         76,627         146,027
   Loan portfolio, net (1)......................         1,888           4,925           3,222          5,796          15,831
   Discount loan portfolio, net (1).............         4,192           5,225           7,220         10,342          26,979
                                                  ------------    ------------    ------------   ------------    ------------
     Total rate-sensitive assets................        60,791          30,497          53,130         92,765         237,183
                                                  ------------    ------------    ------------   ------------    ------------

Rate-Sensitive Liabilities:.....................            --              --              --             --              --
                                                  ------------    ------------    ------------   ------------    ------------
     Total rate-sensitive liabilities...........            --              --              --             --              --
Interest rate sensitivity gap...................        60,791          30,497          53,130         92,765    $    237,183
                                                  ------------    ------------    ------------   ------------    ------------
Cumulative interest rate sensitivity gap........  $     60,791    $     91,288    $    144,418   $    237,183
                                                  ============    ============    ============   ============
Cumulative interest rate sensitivity gap as a
   percentage of total rate-sensitive assets....        25.63%          38.49%          60.89%        100.00%
</TABLE>

(1)      Balances have not been reduced for non-performing loans.

                                       19
<PAGE>

         SERVICING.  The Company intends  generally to acquire  servicing rights
with  respect  to  the  mortgage  loans  underlying  subordinated  interests  it
purchases.  Acquiring  these  rights  will  give  the  Company  control  of  the
underlying mortgage loans within certain parameters.

         The terms of servicing  agreements vary  considerably,  and the Company
cannot predict with certainty the precise terms of the servicing agreements into
which it will enter. In general, the Company will attempt to negotiate servicing
agreements  that will permit the Company to service,  or to direct the servicing
of, mortgage loans that are more than 60 to 90-days  delinquent.  At that point,
the Company would have the right (and the obligation) to decide whether to begin
foreclosure  proceedings  or  to  seek  alternatives  to  foreclosure,  such  as
forbearance  agreements,  partial payment  forgiveness,  repayment  plans,  loan
modification plans, loan sales and loan assumption plans. Thus, the Company will
have within its control,  subject to obligations to the related senior  classes,
some  ability to  minimize  losses on  mortgage  loans  underlying  subordinated
interests owned by the Company.

         The Company intends to assign to the Bank, all of its servicing  rights
and  obligations  (other  than  the  right to  direct  foreclosure  and  related
decisions).  It is expected that most or all of the servicing  compensation will
be paid to the Bank,  and thus,  the  Company  may  benefit  from the ability to
direct certain of the special  servicing  activities,  as a result of the Bank's
expertise in  servicing  loans,  particularly  nonperforming  and  subperforming
loans, as discussed under "The Manager" above,  but not from receipt of material
amounts of servicing fees.

         The  Bank  has  experience  in  servicing  distressed  loans,  has been
approved as a servicer  by HUD,  FHLMC and FNMA and has been rated in the second
highest applicable category,  "above average," by Fitch Investors Service, Inc.,
as a special servicer of commercial mortgage loans. Moreover, Moody's recognizes
the Bank as a "highly  capable"  servicer of  single-family  residential  loans,
while Standard & Poors includes the Bank on an approved servicers list.

         Because the  acquisition and servicing of distressed real estate is one
of the Bank's  business  focuses,  the Bank has an  established  network of real
estate professionals throughout the United States to assist its asset management
activities.  The Bank maintains working  relationships with approved  engineers,
environmental  consultants  and real estate brokers  nationwide,  and calls upon
these local advisors for assistance when appropriate.

         The Company has  acquired  subordinate  residual  interests  in several
pools of mortgage loans and has assumed responsibility for the special servicing
of  nonperforming  loans  underlying such subordinate  residual  interests.  The
Company  has  assigned  to the  Bank  the  servicing  rights  related  to  these
acquisitions.

         For a general  description of the Bank's approach to resolving troubled
loans, see "Discount Loan Acquisition and Resolution  Activities - Resolution of
Discount Loans."

                                       20

<PAGE>

COMMERCIAL REAL ESTATE ACTIVITIES

         The  Company  believes  that,  under  appropriate  circumstances,   the
acquisition of commercial  and  multifamily  real estate  acquired by a mortgage
lender at foreclosure, or by receipt of a deed in lieu of foreclosure, and other
underperforming and otherwise distressed  commercial and multifamily real estate
("Distressed Real Properties") offers significant  opportunities to the Company.
Distressed Real Property  generally is real estate that, because of insufficient
income  production  or inadequate  management,  is in  foreclosure  or impending
foreclosure or which suffers  significant  physical or structural  deficiencies.
Distressed Real Property generally is not performing to its potential because of
any one or a combination  of the  following:  adverse  market  conditions,  over
leverage or management  neglect.  OAIC focuses on the  acquisition of Distressed
Real  Properties that it can reposition or rehabilitate in order to increase the
underlying value.

         The Company's  $45.4 million net  investment in real estate at December
31, 1997 is the result of the acquisition of two office  buildings in California
and one shopping center in Florida, as follows:
<TABLE>
<CAPTION>

  Date Acquired           Property               Location           Square Feet Property Type     Acquisition Cost
-----------------     -----------------      -----------------      ----------- -------------     ----------------
<S>                   <C>                    <C>                     <C>        <C>               <C>
     09/03/97         10 U.N. Plaza (1)      San Francisco, CA         68,560   Office Bldg.       $    9,095,341
     09/23/97         450 Sansome St.(2)     San Francisco, CA        123,099   Office Bldg.           17,246,713
     11/10/97         Cortez Plaza (3)       Bradenton, FL            289,686   Shopping Ctr.          19,267,073
                                                                                                   --------------
                                                                                                   $   45,609,127
                                                                                                   ==============
</TABLE>

--------------------
 (1)  The leases, 90% of which mature over the next several months, are at below
      market rate. OAIC intends to reposition the office building to offer large
      blocks of  contiguous  space and full  floor  identity,  both of which are
      presently in demand in the San Francisco market.

(2)   OAIC  intends to  reposition  the office  building  with  renovations  and
      upgrades to common areas to support  increasing market rents. The property
      has been 83% leased and a  substantial  number of leases  mature  over the
      next few years.

(3)   The  shopping  center  has been 97%  leased.  In a  separate  simultaneous
      transaction,  the Company purchased fee simple title to a large portion of
      the shopping center that had been subject to a ground lease.  National and
      regional tenants comprise over 86% of the center.

         Set forth below is a brief  description  of each of the  investments in
real estate at December 31, 1997.

         CORTEZ PLAZA. In November 1997, the Company  purchased  Cortez Plaza, a
289,686 square foot shopping center located in Bradenton,  Florida,  a suburb of
Tampa Bay.  The Company  purchased  this  property,  which was built in 1956 and
renovated in 1988, for $18.4 million. In a separate transaction,  the fee simple
title to a large  portion  of the  shopping  center  that had been  subject to a
ground lease was  purchased  simultaneously  for $650,000,  which  resulted in a
total investment in this property of $19.1 million. By simultaneously  acquiring
fee simple title to a ground lease that  encumbered a large part of the shopping
center's  parking lot, the Company  believes  that it  immediately  improved the
value and  marketability  of the project.  As of December 31, 1997, the shopping
center was 97% leased,  and  national and regional  tenants,  including  Publix,
PetSmart,  Circuit City and Montgomery  Ward,  which currently is in bankruptcy,
comprised a majority of the complex.  Below market leases covering approximately
17% of the center expire during 1998, 1999 and 2000.

                                       21
<PAGE>

         450 SANSOME STREET.  In September 1997, the Company  acquired a 130,437
square foot, 16- story, Class B office building located at 450 Sansome Street in
the financial district of San Francisco,  California. The Company purchased this
property for $17.2 million. The building was 83% leased as of December 31, 1997.
The  property  was built in 1967 and  upgraded  in certain  respects in 1989 and
1990.  The  property  was  acquired  from a lender who had taken  title  through
foreclosure.  Subsequent  to the  foreclosure,  the  property  was  suboptimally
managed by the  institutional  owner. As a result,  average rent per square foot
amounted to  approximately  $18.00 at the date of  acquisition.  During the next
five years, 86% of the leased space in the property  expires.  The Company plans
to invest  approximately  $6.7 million in this property to renovate the entrance
lobby,  elevator  cabs,  bathrooms  and  hallways,  install a sprinkler  system,
install  various  upgrades  to  enhance   compliance  with  the  Americans  with
Disabilities  Act of 1990 (the "ADA"),  fund  deferred  maintenance  and various
tenant improvements and pay leasing  commissions.  Since acquiring the property,
the Company has commenced its repositioning strategy.

         10 UNITED NATIONS  PLAZA.  In September  1997,  the Company  acquired a
71,636  square foot,  six-story,  Class B office  building  located at 10 United
Nations  Plaza in the  civic  center  district  of San  Francisco.  The  Company
purchased this property,  which was built in 1982, for $9.1 million. At the date
of acquisition,  the property was substantially  leased and the average rent per
square  foot was a below  market  $13.76.  The  building  was 100%  leased as of
December 31, 1997, and over 93% of total rentable space will become available by
August 1998. The property is currently  being marketed for lease to tenants with
full floor or full building space  requirements  and the Company is under active
negotiation  with several  companies  for rents in the upper $20 per square foot
range. The Company plans to invest  approximately  $3.0 million in this property
to fund cosmetic  improvements  to enhance the lobby and  hallways,  install ADA
upgrades,  fund deferred  maintenance  and tenant  improvements  and pay leasing
commissions.

         The  Company  maintains  comprehensive  insurance  coverage on its real
estate,  including  coverage  against events of a catastrophic  nature,  such as
earthquakes,  hurricanes and other natural disasters.  There can be no assurance
that insurance against such events will continue to be obtainable on terms which
are acceptable to the Company or at all. Moreover, changes in building codes and
ordinances,  environmental  considerations  and other factors also might make it
not feasible to use insurance proceeds to replace a property if it is damaged or
destroyed.  Under such  circumstances,  the insurance  proceeds  received by the
Company  might not be adequate to restore its economic  position with respect to
the affected distressed real property.

         The Company's current overall strategy,  with respect to its properties
is to renovate and  reposition the facilities and target full floor tenants with
five to ten year lease terms.  The Company  estimates  that over the next twelve
months,   the  Company  will  spend   approximately   $4.4  million  in  capital
improvements,  tenant  improvements  and leasing  commissions  to  renovate  and
reposition the above  properties.  Repositioning is intended to result in rents,
upon re-leasing, that are greater than the current rents at the sites.

         The Company intends to acquire  Distressed  Real Properties  solely for
its own portfolio. From time to time, however, the Company and a co-investor may
submit a joint bid to acquire a pool of  Distressed  Real  Property  in order to
enhance the  prospects of  submitting a successful  bid. It may be beneficial to
submit  a bid  with  a  co-investor  depending  on the  size  and  make-up  of a
particular portfolio,  which are often quite diverse in terms of the asset type,
quality, performance and location. If the size is determined to be too large, or
if  there  is a  concentration  of  assets  in  the  pool  within  a  particular
geographical  location,  or  of  a  particular  type  which  the  Company  deems
undesirable,  either because of its preference for asset type, quality, location
or portfolio  concentration  issues, it may choose to bid with a co-investor and
split the  portfolio,  keeping  the  desirable  assets for  itself.  Conversely,
another  investor  may ask that the  Company  submit a joint bid  because of the
Company's special expertise in evaluating and managing specific asset types. Any
co-investor  with the Company must (i) be adequately  capitalized  and (ii) have
significant  expertise in the  analysis,  management  or operation of the assets
being  acquired.  If a joint bid is successful,  the Company and the co-investor
generally would split up the acquired assets in an agreed-upon manner,  although
in certain  instances  the Company and the  co-investor  may  continue to have a
joint interest in the acquired assets.

                                       22
<PAGE>

         The Company's policy is to conduct an  investigation  and evaluation of
the properties in a portfolio of Distressed Real Property before purchasing such
a portfolio. Prior to purchasing assets, the Manager will generally identify and
contact real estate brokers and/or  appraisers in the market area of the subject
properties  in  order to  obtain  rent and sale  comparables  and  broker  price
opinions  ("BPOs") for each asset in a portfolio.  This  information  is used to
supplement due diligence that is performed by the Manager's employees.

         The  Company's due  diligence  generally  includes the review of market
studies for each market within a portfolio.  The studies  typically include area
economic data, employment trends,  absorption rates and market rental rates. Due
diligence also includes site inspections by the Manager's employees or agents of
most  properties in a portfolio  and a review of all  available  asset files and
documentation.  To the extent possible,  those include examinations of available
legal documents,  litigation  files,  correspondence,  title reports,  operating
statements,   appraisals  and  engineering  and   environmental   reports.   The
information compiled is then analyzed in order to value each property.

         The property  valuation  process  utilizes a variety of tools which may
include various  proprietary  financial models that have been developed by Ocwen
and are available to the Company  through its  management  agreement with Ocwen.
Sources of information  examined to determine value may include: (a) current and
historical operating statements; (b) existing appraisals: (c) BPOs; (d) rent and
sales  comparables;  (e) industry  statistics  and reports  regarding  operating
expenses such as those compiled by the Institute of Real Estate Management;  (f)
leases;  and (g)  deferred  maintenance  observed  during  site  inspections  or
described in structural reports, and correspondence found in the loan files.

         The Manager develops projections of net operating income and cash flows
taking  into  account  lease  rollovers,  tenant  improvement  costs and leasing
commissions.  The Manager  compares  its  estimates  of revenue and  expenses to
historical operating  statements and estimates provided in BPOs,  appraisals and
general  industry  and  regional  statistics.  Market  capitalization  rates and
discount rates are then applied to the cash flow projections to estimate values.
Market  capitalization rates generally are calculated by dividing the stabilized
projected net operating income by the total investment and increase as the level
of risk in a property increases. Determining the appropriate capitalization rate
to apply to a particular property is subjective,  but generally is a function of
comparing  capitalization  rates of similar properties that have sold and making
adjustments  based on  various  risk  factors,  including  market,  tenancy  and
physical  asset  factors.  These values  obtained  from these  analyses are then
compared to available appraisals,  BPOs and market sale comparables to determine
recommended  bid prices for each  asset.  The bids take into  account  projected
holding periods,  capital costs and projected profit  expectations.  Recommended
bid prices are then reviewed with senior  management  and a decision  whether to
bid is made. The amount offered by the Company  generally will be the price that
the Manager  estimates is  sufficient  to generate an  acceptable  risk-adjusted
return on the Company's investment.

         After the Company  acquires  Distressed  Real  Property,  the Company's
strategy is to improve  management  of the  property so as to increase  the cash
flow  from  the  property.  If cash  flows  can be  increased  and the  property
stabilized,  the Company may begin to seek an  opportunity to sell the property.
Although the period during which the Company holds  Distressed  Real  Properties
varies  considerably  from asset to asset,  the Company  believes that most such
properties  will be held in its  portfolio  more than four  years and  generally
fewer than ten years.

         If the Company is offered the opportunity to purchase a Distressed Real
Property  that is likely  to be held for fewer  than  four  years,  the  Company
anticipates  establishing a corporation in which the Operating  Partnership will
hold  a  95%  non-voting  ownership  interest  to  make  the  purchase.  Such  a
corporation  will not be eligible for taxation as a qualified  REIT  subsidiary,
and any  profits  that it earns on its  activities  will be  subject  to federal
corporate  income tax  before  they are  distributable  to the  Company.  If the
Company  purchases a Distressed  Real Property with the intent to hold it in the
Operating  Partnership  for more than four years,  but an opportunity  arises to
sell the property sooner, the Company will consider certain strategies,  such as
a like-kind  exchange,  to reduce any negative tax consequences  relating to the
sale.

         Although  the  Company   believes  that  a  permanent  market  for  the
acquisition  of Distressed  Real Property has emerged in recent years within the
private  sector,  there can be no  assurance  that the  Company  will be able to
acquire  the  

                                       23
<PAGE>

desired  amount and type of Distressed  Real Property in future  periods or that
there  will not be  significant  inter-period variations  in the  amount of such
acquisitions.  Moreover,  there can be no  assurance  that the  Company  will be
effective  in making any asset  acquired  more   valuable than the price paid to
acquire it.


         The  following  table  sets  forth  the cost of  improvements  for each
investment in real estate during 1997.

<TABLE>
<CAPTION>

                                                               Actual
                                               Budgeted        Cost of    Carrying Value                Rents due and
                            Initial Cost       Cost of      Improvements   at December    Accumulated     Accrued at       Total
         Property           to Company     Improvements(1)    to Date       31, 1997      Depreciation  end of Period  Rental Income
                            --------------------------------------------------------------------------------------------------------
                                                           (In Thousands)
<S>  <C>                     <C>             <C>             <C>           <C>             <C>              <C>         <C>    
     450 Sansome St......... $  17,205       $  3,401        $     42      $  17,247       $    90          $     -     $   506
     10 United Nations Plaza.    9,080          3,153              15          9,095            49               12         466
     Cortez Plaza...........    19,244            212              23         19,267            40                -         348
                             ---------       --------        --------      ---------       -------          -------     -------
               Total ......  $  45,529       $  6,766        $     80      $  45,609       $   179          $    12     $ 1,320
                             =========       ========        ========      =========       =======          =======     =======
</TABLE>

(1) Projected through December 31, 1998

         The  following  table sets forth a summary  schedule of the total lease
expirations for the Company's  investments in real estate for leases in place as
of December 31, 1997, assuming that none of the tenants exercise renewal options
or termination rights, if any, at or prior to the scheduled expirations.

<TABLE>
<CAPTION>
                                                   Percentage of                 Average Base      Percentage of
                                                     Aggregate     Annualized      Rent per          Aggregate
                    Number of   Square Footage       Portfolio    Base Rent of  Square Foot of       Portfolio
  Year of Lease      Leases       of Expiring      Leased Square    Expiring       Expiring       Annualized Base
  Expiration(1)     Expiring        Leases             Feet         Leases(2)      Leases(3)           Rent
----------------   ----------   --------------    --------------  ------------  --------------    ---------------
<S>   <C>               <C>            <C>              <C>         <C>             <C>                <C>  
      1998              7              23,373           6.07%     $  213,068        $9.12              8.64%
      1999             11              35,686            9.27        338,827         9.49              13.74
      2000              8              28,854            7.50        361,700        12.54              14.67
      2001             12              41,898           10.89        390,955         9.33              15.85
      2002              8              34,232            8.90        165,371         4.83               6.71
      2003              -                   -               -              -            -                  -
      2004              -                   -               -              -            -                  -
      2005              1               8,768            2.28         36,533         4.17               1.48
      2006              3               6,730            1.75         43,053         6.40               1.75
  2007 & beyond         6             205,243           53.34        916,780         4.47              37.16
                       --             -------         -------        -------                          ------
                       56             384,784         100.00%     $2,466,287                          100.00%
                       ==             =======         =======     ==========                          ======
</TABLE>

---------
(1)      Lease year runs from January 1 to December 31 for all years.
(2)      Annualized  base  rent  is  calculated  based  on the  amount  of  rent
         scheduled from January 1 of the listed year to the lease expiration.
(3)      Average base rent per square foot is  calculated  using the  annualized
         base rent divided by the square footage.

         The  operating  costs and the value of real  property  acquired  by the
Company may be affected by the  obligation to pay for the cost of complying with
existing environmental laws, ordinances and regulations,  as well as the cost of
future legislation.  Under various federal,  state and local environmental laws,
ordinances  and  regulations,  a current or  previous  owner or operator of real
property may be liable for the costs of removal or  remediation  of hazardous or
toxic substances on, under or in such property. Such laws often impose liability
whether  or not the owner or  operator  knew of,  or was  responsible  for,  the
presence of such  hazardous or toxic  substances.  Therefore,  an  environmental
liability could have a material adverse effect on the underlying value of a real
property, and the revenue therefrom.  Although the Company is not aware that any
of its real estate has any known  material  environmental  concerns and believes
that such real  estate is in material  compliance  with  environmental  laws and
regulations, there can be no assurance that this will continue to be the case in
the future.

                                       24
<PAGE>

DISCOUNT LOAN ACQUISITION AND RESOLUTION ACTIVITIES

         The  Company  believes  that  under   appropriate   circumstances   the
acquisition of nonperforming  and  underperforming  mortgage loans at a discount
offers significant  opportunities to the Company.  Discount loans generally have
collateral  coverage  (which refers to the purchase  price of a particular  loan
relative to the value of the collateral securing the loan) which is sufficiently
in excess of the purchase price of the loan,  such that  successful  resolutions
can produce total  returns  which are in excess of an  equivalent  investment in
performing mortgage loans.

         COMPOSITION OF THE DISCOUNT LOAN  PORTFOLIO.  At December 31, 1997, the
Company's net discount loan  portfolio  amounted to $27.0 million or 9.4% of the
Company's total assets.  All of the Company's discount loan portfolio is secured
by mortgage liens on real estate.


     The following  table sets forth the  composition of the Company's  discount
loan portfolio by type of loan at December 31, 1997:

Commercial real estate loans:
  Office.....................................................   $  11,892,814
  Retail.....................................................      30,635,968
                                                                -------------
    Total discount loans.....................................      42,528,782
    Discount.................................................     (15,549,894)
Allowance for loan losses....................................              --
                                                                -------------
Discount loans, net..........................................   $  26,978,888
                                                                =============

(1)      Discount generally represents the difference between the purchase price
         of  discounted  loans and  their  aggregate  book  value at the date of
         acquisition  which has not been accreted into income in accordance with
         generally  accepted  accounting  principles.   See  "-  Accounting  for
         Discounted Loans" below.

         The properties which secure the Company's discount loans are located in
the United States and Canada.  At December 31, 1997,  discount loans with unpaid
principal balance of $26.8 million,  $9.2 million, $3.9 million and $2.6 million
were secured by properties  located in Nova Scotia (Canada),  New York,  Montana
and Ohio,  respectively.  At December 31,  1997,  the  discount  loan  portfolio
included  one loan with a carrying  value  greater  than $16.0  million and four
loans  with a  carrying  value of more  than  $1.1  million  and less  than $5.4
million.

At December 31, 1997, the Company's  discount loans  primarily  consisted of the
following loans:

o        A 13.83%  participation  interest in a loan pool purchased from a large
         commercial  bank,  which  interest had an  outstanding  balance of $7.6
         million.  The  collateral  for the loans  consists  primarily  of three
         office buildings located in midtown Manhattan,  New York. The loans are
         serviced by the Bank,  which was the other  successful  joint bidder on
         the loan pool.  At December 31,  1997,  all but $277,000 of these loans
         were performing in accordance with their terms.

o        A loan secured by a shopping  center  located in Havre,  Montana with a
         book value of $1.8  million.  At December 31,  1997,  this loan was not
         performing in accordance with its terms.

o        A loan  secured by a shopping  center  located in Halifax,  Nova Scotia
         with a book value of $16.1 million. At December 31, 1997, this loan was
         not performing in accordance with its terms.

o        A loan  secured by an office  building  located in Dayton,  Ohio with a
         book value of $1.5  million.  At December 31,  1997,  this loan was not
         performing in accordance with its terms.

                                       25
<PAGE>

         Nonperforming  and  subperforming  mortgage  loans may  presently be in
default  or  may  have a  greater  than  normal  risk  of  future  defaults  and
delinquencies, as compared to newly-originated, high-quality loans of comparable
type, size and geographic  concentration.  Returns on an investment of this type
depend on the borrower's  ability to make required  payments or, in the event of
default,  the ability of the loan's  servicer to  foreclose  and  liquidate  the
mortgage  loan.  There  can be no  assurance  that the  Company  will be able to
liquidate a defaulted  mortgage loan successfully  (through sale of the security
property or otherwise) or in a timely fashion.

         ACQUISITION OF DISCOUNT LOANS.  Commercial  discount real  estate loans
generally  are  acquired  individually.  The  Company  believes  that  it  has a
competitive  advantage  relative to many of its  competitors  as a result of the
Manager's  experience in managing and resolving  discount  loans,  the Manager's
large investment in the computer  systems,  technology and other resources which
are necessary to conduct this business,  the Manager's  national  reputation and
the strategic  relationships and contacts developed by the Manager in connection
with these activities.

         Prior to  making  an offer to  purchase  discount  loans,  the  Manager
conducts an extensive  investigation and evaluation of the loan.  Evaluations of
potential discount loans are conducted  primarily by the Manager's employees who
specialize  in  the  analysis  of  nonperforming   loans,   often  with  further
specialization based on geographic or collateral specific factors. The Manager's
employees  regularly use third parties,  such as brokers,  who are familiar with
the property's type and location,  to assist them in conducting an evaluation of
the collateral property, and depending on the circumstances, particularly in the
case of commercial  real estate  loans,  may use  subcontractors,  such as local
counsel and engineering and environmental  experts,  to assist in the evaluation
and  verification  of  information  and the gathering of other  information  not
previously made available by the potential seller.

         The  Company  determines  the  amount  to  offer to  acquire  potential
discount  loans by using the  Manager's  proprietary  modeling  system  and loan
information  database which focuses on the anticipated  recovery amount,  timing
and cost of the  resolution  of the loan.  The  amount  offered  by the  Company
generally is at a discount  from both the stated value of the loan and the value
of the underlying  collateral and is sufficient to generate an acceptable return
on the  Company's  investment.  Upon  acquisition,  the servicing of the loan is
transferred to the Manager.

         RESOLUTION OF DISCOUNT  LOANS.  After a discount loan is acquired,  the
Manager   utilizes  its  computer   software  system  to  resolve  the  loan  as
expeditiously as possible in accordance with specified  procedures.  The various
resolution alternatives generally include the following: (i) the borrower brings
the loan  current in  accordance  with  original  or  modified  terms,  (ii) the
borrower repays the loan or a negotiated  amount of the loan, (iii) the borrower
agrees to deed the property to the Company in lieu of foreclosure, in which case
it is classified as real estate, or (iv) the Company  forecloses on the loan and
the property is acquired at the  foreclosure  sale either by a third party or by
the Company, in which case it is classified as real estate.


         ACTIVITY IN THE DISCOUNT LOAN PORTFOLIO. The following table sets forth
the activity in the Company's  gross discount loan  portfolio  during the period
from May 19, 1997 to December 31, 1997:

Balance at beginning of period..............................    $          --
Acquisitions (1)............................................       44,686,413
Resolutions and repayments (2)..............................       (1,281,846)
Foreign exchange loss (3)...................................         (875,785)
                                                                -------------
Balance at end of period....................................    $  42,528,782
                                                                =============

-------------------
(1)   Acquisitions  consisted of $31.6 million of  commercial  real estate loans
      secured by retail  buildings and $13.1  million of commercial  real estate
      loans secured by office buildings.
(2)   Resolutions  and  repayments  consists of loans  which were  resolved in a
      manner  which  resulted  in partial or full  repayment  of the loan to the
      Company  and  consisted  of $1.3  million of  negotiated  settlements  and
      $16,000 of partial repayments.

(3)   Amount  represents  the gross foreign  currency loss related to the unpaid
      principal  balance which,  net of $307,220  related to the discount on the
      loans,  resulted in a net foreign currency loss of $568,565 for the period
      from May 14, 1997 to December 31, 1997.

                                       26
<PAGE>

         PAYMENT  STATUS OF  DISCOUNT  LOANS.  The  following  table  sets forth
certain  information  relating to the payment  status of loans in the  Company's
discount loan portfolio at December 31, 1997:

Loan status:
  Current...................................................    $   7,964,105
  Past due 31 days to 89 days...............................               --
  Past due 90 days or more..................................       34,564,677
                                                                -------------
                                                                $  42,528,782
                                                                =============

         ACCOUNTING  FOR  DISCOUNT  LOANS.  The  acquisition  cost for a pool of
discount loans is allocated to each  individual  loan within the pool based upon
the  Company's  pricing  methodology.  The  discount  which is  associated  with
commercial real estate loans which are current,  and which the Company  believes
will remain  current,  is accreted  into interest  income as a yield  adjustment
using the interest  method over the  contractual  maturity of the loan.  For all
other loans  interest is earned as cash is received.  Gains on the repayment and
discharge of loans are reported as interest income.

LENDING ACTIVITIES

         COMPOSITION OF LOAN PORTFOLIO. At December 31, 1997, the Company's loan
portfolio,  net amounted to $15.8 million or 5.5% of the Company's total assets.
Loans  held for  investment  in the  Company's  loan  portfolio  are  carried at
amortized cost, less any allowance for loan losses.

         The following  table sets forth the  composition  of the Company's loan
portfolio by type of loan at December 31, 1997:

   Single-family residential................................    $   6,465,080
   Multi-family residential.................................        3,455,000
   Commercial real estate:
     Office.................................................       33,058,000
     Hotel..................................................       20,952,000
                                                                -------------
      Total loans...........................................       63,930,080
   Undisbursed loan proceeds................................      (47,639,676)
   Deferred origination fees................................         (458,925)
   Allowance for loan losses................................               --
                                                                -------------
     Loans, net.............................................    $  15,831,479
                                                                =============

         At December  31, 1997,  the five states in which the largest  amount of
properties  securing  loans in the Company's  loan  portfolio  were located were
Massachusetts,  Delaware,  South Carolina, New York and Georgia, which had $40.7
million, $13.3 million, $3.5 million, $3.5 million and $2.0 million of principal
amount of loans, respectively.

         During the  reported  period,  the Company  acquired  48 single  family
residential  loans with an aggregate  unpaid  principal  balance of $6.5 million
with the intent of  accumulating  such  loans,  executing a  securitization  and
effectively  retaining  a  subordinate   interest.  In  addition,   the  Company
originated one multi-family  residential loan in the amount of $3.5 million,  of
which $1.4 million had been funded at December 31, 1997,  two hotel  acquisition
and renovation  loans in the aggregate  amount of $21.0  million,  of which $8.4
million had been funded at December 31, 1997, and one office building renovation
and  construction  loan in the amount of $33.0 million which had not been funded
at December  31,  1997.  At December  31, 1997 all loans were  current  with the
exception of four single  family  residential  loans having an unpaid  principal
balance of approximately $269,000 which were greater than 89 days past due.

                                       27
<PAGE>

COMPETITION

         GENERAL.  The  Company's   competition  varies  by  business  line  and
geographic   market.   In  many  cases,  the  acquisition  of   mortgage-related
securities,  real  estate  and  commercial  and  multi-family  loans is based on
competitive  bidding,  which  involves the risk that the Company may bid too low
(which  generates no business) or too high (which could result in an acquisition
at an economically  unattractive  price). Many of the Company's  competitors are
larger and have greater  financial  resources than the Company,  and thus may be
better  able than the  Company to pursue  business  opportunities  or to survive
periods of industry consolidation.

         MORTGAGE-RELATED   SECURITIES.  The  competition  for  subordinate  and
residual interests in mortgage-related  securities is intense and dominated by a
relatively  few  large  entities,  including  Criimi  Mae,  Inc.  in the case of
subordinate   interests  in  commercial   mortgage-related   securities.   Other
significant  purchasers of these  securities  from time to time include  General
Electric Capital  Corporation,  First Chicago Commercial  Assets,  Wilshire Real
Estate Investment  Trust,  Amresco,  Inc.,  Clarion Capital Corp. and Anthracite
Capital, Inc.

         REAL ESTATE. The markets in which the Company invests in commercial and
multi-family real estate are located nationwide and characterized by competitive
factors that vary based upon the type of real estate and geographic  region.  In
general,  in periods of increasing  real estate values the market for commercial
and multifamily real estate is highly competitive. The Company's competitors for
investments in real estate include Goldman Sach's  Whitehall  Street Real Estate
Funds,  Cargill  Financial  Services,  Colony  Capital  Management,   Lone  Star
Financial  and other real estate  investment  trusts,  insurance  companies  and
institutional lenders.

         COMMERCIAL AND MULTIFAMILY LENDING ACTIVITIES. The markets in which the
Company  conducts  commercial  and  multifamily  lending  activities are located
nationwide and  characterized  by  competitive  factors that vary based upon the
type of loan  product and  geographic  region.  The  Company's  competitors  for
commercial and multifamily loans include commercial banks, thrift  institutions,
finance companies, asset-based lenders and other real estate investment trusts.

FEDERAL TAXATION

         OAIC operates in a manner so as to qualify as a REIT for federal income
tax purposes under sections 856 through 860 of the Code. Generally,  a REIT that
complies with the Code and distributes at least 95% of its taxable income to its
stockholders  does  not  pay  federal  income  tax  on its  distributed  income.
Qualification  as a REIT involves the application of highly  technical rules for
which there are only limited  judicial or  administrative  interpretations.  The
determination of various factual matters and  circumstances  not entirely within
OAIC's  control,  may affect its ability to qualify as a REIT. In addition,  new
legislation,  regulations,  administrative  interpretations,  or court decisions
could have a substantial adverse impact on OAIC's qualification as a REIT or the
federal income tax consequences of such  qualification.  If OAIC were to fail to
qualify as a REIT in any taxable year, OAIC would not be allowed a deduction for
distributions  to  stockholders  in  computing  its taxable  income and would be
subject to federal income tax (including any applicable alternative minimum tax)
on its taxable  income at regular  corporate  rates.  Unless  entitled to relief
under certain Code provisions, OAIC also would be disqualified from treatment as
a REIT for the four taxable years following the year during which  qualification
was lost. As a result, the cash available for distribution to stockholders would
be reduced for each of the years  involved.  Although OAIC currently  intends to
operate in a manner  designed to qualify as a REIT,  it is possible  that future
economic,  market,  legal, tax, or other considerations could cause the Board of
Directors, with appropriate shareholder consent, to revoke OAIC's REIT election.

                                       28

<PAGE>
         OAIC generally will not be subject to federal  corporate  income tax on
its net income that is distributed currently to its stockholders. That treatment
substantially  eliminates  the  "double  taxation"  (i.e.,  taxation at both the
corporate and stockholder levels) that generally results from an investment in a
corporation.  However,  OAIC will be subject  to  federal  income tax in certain
circumstances.  First,  OAIC  will be taxed at  regular  corporate  rates on any
undistributed  REIT taxable income,  including  undistributed net capital gains.
Second,  under certain  circumstances,  OAIC may be subject to the  "alternative
minimum tax" on its  undistributed  items of tax  preference,  if any. Third, if
OAIC has (i) net  income  from the sale or  other  disposition  of  "foreclosure
property" that is held primarily for sale to customers in the ordinary course of
business or (ii) other nonqualifying income from foreclosure  property,  it will
be subject to tax at the highest corporate rate on such income.  Fourth, if OAIC
has net income from  prohibited  transactions  (which  are, in general,  certain
sales or other  dispositions of property (other than foreclosure  property) held
primarily for sale to customers in the ordinary course of business), such income
will be subject to a 100% tax.  Fifth,  if OAIC  should  fail to satisfy the 75%
gross  income  test or the 95%  gross  income  test (as  discussed  below),  and
nonetheless  has maintained its  qualification  as a REIT because  certain other
requirements  have been met,  it will be subject to a 100% tax on the net income
attributable  to the  greater  of the  amount by which OAIC fails the 75% or 95%
gross income test. Sixth, if OAIC should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of  its  REIT  capital  gain  net  income  for  such  year,  and  (iii)  any
undistributed  taxable income from prior periods,  OAIC would be subject to a 4%
excise tax on the excess of such required distribution over the amounts actually
distributed.  Seventh,  if OAIC acquires any asset from a C corporation (i.e., a
corporation  generally subject to full corporate-level tax) in a merger or other
transaction  in which the basis of the asset in OAIC's  hands is  determined  by
reference  to the basis of the asset (or any other  asset) in the hands of the C
corporation and OAIC recognizes gain on the disposition of such asset during the
10-year  period  beginning on the date on which it acquired such asset,  then to
the extent of such asset's  "built-in-gain" (i.e., the excess of the fair market
value of such asset at the time of  acquisition  by OAIC over the adjusted basis
in such asset at such time),  OAIC will be subject to tax at the highest regular
corporate rate applicable.  The results  described above with respect to the tax
on  "built-in-gain"  assume that OAIC will elect pursuant to IRS Notice 88-19 to
be subject to the rules  described in the preceding  sentence if it were to make
any such  acquisition.  Finally,  OAIC  will be  subject  to tax at the  highest
marginal  corporate rate on the portion of any excess inclusion  derived by OAIC
from REMIC residual  interests equal to the percentage of the stock of OAIC held
by the United States, any state or political  subdivision  thereof,  any foreign
government, any international organization, any agency or instrumentality of any
of the  foregoing,  any other  tax-exempt  organization  (other  than a farmer's
cooperative  described in section 521 of the Code) that is exempt from  taxation
under the unrelated business taxable income provisions of the Code, or any rural
electrical or telephone cooperative (each, a "Disqualified  Organization").  Any
such tax on the portion of any excess inclusion  allocable to stock of OAIC held
by a Disqualified  Organization  will reduce the cash available for distribution
from OAIC to all stockholders.

REQUIREMENTS FOR QUALIFICATION

         The Code defines a REIT as a corporation,  trust,  or  association  (i)
that is  managed  by one or more  trustees  or  directors;  (ii) the  beneficial
ownership of which is  evidenced  by  transferable  shares,  or by  transferable
certificates of beneficial  interest;  (iii) that would be taxable as a domestic
corporation,  but for sections 856 through 860 of the Code; (iv) that is neither
a financial  institution nor an insurance company subject to certain  provisions
of the  Code;  (v) the  beneficial  ownership  of  which  is held by 100 or more
persons;  (vi) not more than 50% in value of the outstanding  shares of which is
owned,  directly or indirectly,  by five or fewer individuals (as defined in the
Code to include certain entities) during the last half of each taxable year (the
"5/50  Rule");  (vii)  that  makes an  election  to be a REIT (or has made  such
election for a previous  taxable  year) and  satisfies  all relevant  filing and
other  administrative  requirements  established  by the IRS that must be met in
order to elect and maintain  REIT status;  (viii) that uses a calendar  year for
federal income tax purposes and complies with the record keeping requirements of
the Code and regulations  promulgated thereunder ("Treasury  Regulations");  and
(ix) that meets certain other tests,  described  below,  regarding the nature of
its income and assets. The Code provides that conditions (i) to (iv), inclusive,
must be met during the entire  taxable year and that  condition  (v) must be met
during  at  least  335  days  of a  taxable  year  of 12  months,  or  during  a
proportionate part of a taxable year of less than 12 months.  Conditions (v) and
(vi) will not apply until after the first  taxable year for which an election is
made to be taxed as a REIT. For purposes of determining  stock  ownership  under
the 5/50 Rule, a supplemental unemployment compensation benefits plan, a private
foundation,  or a portion of a trust  permanently set aside or used  exclusively
for charitable purposes generally is considered an individual. A trust that is a
qualified trust under Code section 401(a), however, generally is not

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<PAGE>
considered an individual and  beneficiaries of such trust are treated as holding
shares of a REIT for purposes of the 5/50 Rule in proportion to their  actuarial
interests in such trust.

         OAIC  directly owns two qualified  REIT two  subsidiaries,  the General
Partner and the Limited  Partner,  and may have  additional  subsidiaries in the
future.  Code section  856(i)  provides that a corporation  that is a "qualified
REIT subsidiary" shall not be treated as a separate corporation, and all assets,
liabilities,  and items of income,  deduction,  and credit of a "qualified  REIT
subsidiary"  shall be  treated  as  assets,  liabilities,  and items of  income,
deduction,  and  credit  of  the  REIT.  A  "qualified  REIT  subsidiary"  is  a
corporation,  all of the capital stock of which has been held by the REIT at all
times during the period such  corporation  was in  existence.  Effective for tax
years  beginning  after August 5, 1997,  the  definition  of a  "qualified  REIT
subsidiary"  was  changed  to  require  only  that  the  REIT  own  100% of such
corporation. Thus, in applying the requirements described herein, any "qualified
REIT  subsidiaries" of OAIC will be ignored,  and all assets,  liabilities,  and
items of income,  deduction,  and credit of such subsidiaries will be treated as
assets,  liabilities,  and items of income,  deduction,  and credit of OAIC. The
General  Partner and the  Limited  Partner are  "qualified  REIT  subsidiaries."
Accordingly, neither the General Partner nor the Limited Partner will be subject
to federal corporate income taxation,  although each may be subject to state and
local taxation.

         Treasury  Regulations  provide  that a REIT  will be  deemed to own its
proportionate share of the assets of a partnership in which it is a partner, and
will  be  deemed  to  be  entitled  to  the  gross  income  of  the  partnership
attributable  to such share.  In  addition,  the assets and gross  income of the
partnership will retain the same character in the hands of the REIT for purposes
of section  856 of the Code,  including  satisfying  the gross  income and asset
tests described  below.  On December 9, 1997, IMI acquired  160,000 units in the
operating partnership. Accordingly, OAIC's proportionate share of the assets and
gross income of the Operating Partnership are treated as assets and gross income
of OAIC for purposes of applying the requirements described herein.

         INCOME TESTS

         In order for OAIC to qualify and to  maintain  its  qualification  as a
REIT,  three  requirements  relating to OAIC's  gross  income must be  satisfied
annually.  First,  at least 75% of OAIC's gross income  (excluding  gross income
from  prohibited  transactions)  for each  taxable  year must consist of defined
types of income derived directly or indirectly from investments relating to real
property or mortgages on real property (including "rents from real property" and
interest on obligations secured by mortgages on real property or on interests in
real property) or temporary  investment  income.  Second, at least 95% of OAIC's
gross income  (excluding  gross income from  prohibited  transactions)  for each
taxable  year  must be  derived  from  such  real  property,  mortgages  on real
property, or temporary investments, and from dividends, other types of interest,
and gain from the sale or disposition of stock or  securities.  Third,  not more
than  30% of  OAIC's  gross  income  (including  gross  income  from  prohibited
transactions)  for  each  taxable  year  may be gain  from  the  sale  or  other
disposition of (i) stock or securities  held for less than one year, (ii) dealer
property that is not foreclosure property,  and (iii) certain real property held
for less  than four  years  (apart  from  involuntary  conversions  and sales of
foreclosure  property).  This third  requirement no longer exists as of the 1998
tax year. The specific application of these tests to OAIC is discussed below.

         The term  "interest,"  as defined for purposes of the 75% and 95% gross
income  tests,  generally  does not  include  any  amount  received  or  accrued
(directly or indirectly) if the determination of such amount depends in whole or
in part on the income or profits of any person.  However,  an amount received or
accrued generally will not be excluded from the term "interest" solely by reason
of being based on a fixed  percentage or  percentages  of receipts or sales.  In
addition,  an amount received or accrued generally will not be excluded from the
term  "interest"  solely by reason of being  based on the income or profits of a
debtor if the debtor  derives  substantially  all of its gross  income  from the
related property  through the leasing of  substantially  all of its interests in
the  property,  to the  extent  the  amounts  received  by the  debtor  would be
characterized as rents from real property if received by a REIT. Furthermore, to
the extent that interest from a loan that is based on the cash proceeds from the
sale of the  property  securing  the loan  constitutes  a  "shared  appreciation
provision" (as defined in the Code),  income  attributable to such participation
feature  will be treated as gain from the sale of the  secured  property,  which
generally  is  qualifying  income for  purposes of the 75% and 95% gross  income
tests.

         Interest on  obligations  secured by mortgages  on real  property or on
interests in real  property is  qualifying  income for purposes of the 75% gross

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<PAGE>

income test. Any amount  includible in gross income with respect to a regular or
residual  interest in a REMIC  generally is treated as interest on an obligation
secured by a mortgage on real property. If, however, less than 95% of the assets
of a REMIC  consists  of real  estate  assets  (determined  as if OAIC held such
assets),  OAIC will be treated as receiving directly its proportionate  share of
the income of the REMIC.  In addition,  if OAIC  receives  interest  income with
respect to a  mortgage  loan that is  secured  by both real  property  and other
property  and the  highest  principal  amount of the loan  outstanding  during a
taxable year exceeds the fair market value of the real property on the date OAIC
purchased the mortgage loan, the interest income will be apportioned between the
real  property and the other  property,  which  apportionment  may cause OAIC to
recognize  income that is not  qualifying  income for  purposes of the 75% gross
income test.

         Interest, original issue discount, and market discount income that OAIC
derives from its  investments  in  subordinate  interests,  IOs, and Inverse IOs
generally  will be qualifying  interest  income for purposes of both the 75% and
the 95%  gross  income  tests,  except to the  extent  that less than 95% of the
assets of a REMIC in which OAIC holds an interest consists of real estate assets
(determined as if OAIC held such assets),  and OAIC's proportionate share of the
income of the REMIC includes  income that is not qualifying  income for purposes
of the 75% and 95% gross income tests.  Most of the income that OAIC  recognizes
with respect to its investments in loans will be qualifying  income for purposes
of both gross income tests. In some cases,  however,  the loan amount may exceed
the value of the real property securing the loan, which will result in a portion
of the income from the loan being  classified as qualifying  income for purposes
of the 95% gross income test, but not for purposes of the 75% gross income test.
It is also possible that, in some instances, the interest income from a loan may
be based in part on the borrower's  profits or net income,  which generally will
disqualify  the income  from the loan for  purposes  of both the 75% and the 95%
gross income tests.

         OAIC may originate or acquire construction or mezzanine loans that have
shared  appreciation  provisions.  OAIC  generally will be required to recognize
income from a shared  appreciation  provision  over the term of the related loan
using the constant yield method pursuant to certain Treasury Regulations.

         OAIC may originate or acquire and securitize loans through the issuance
of non-REMIC CMOs. As a result of such transactions,  OAIC will retain an equity
ownership  interest in the loans that, after considering the notes issued in the
securitization,  has economic  characteristics similar to those of a subordinate
interest. In addition, OAIC may resecuritize MBS (or non-REMIC CMOs) through the
issuance of  non-REMIC  CMOs,  retaining  an equity  interest in the MBS used as
collateral in the resecuritization transaction. Such transactions will not cause
OAIC to fail to satisfy  the gross  income  tests or the asset  tests  described
herein.

         OAIC may receive income that is not  qualifying  income for purposes of
the 75% and 95% gross  income  tests.  For  example,  certain  fees for services
rendered by the Operating Partnership will not be qualifying income for purposes
of the gross income tests. It is not anticipated that the Operating  Partnership
will  receive a  significant  amount of such fees.  Such fees  include,  without
limitation,  (i) fees for servicing loans, (ii) fees for performing underwriting
or appraisal  services for others and (iii) fees for managing  property owned by
others.  OAIC will monitor the amount of  nonqualifying  income  produced by its
assets and has represented  that it will manage its portfolio in order to comply
at all times with the three gross income tests.

         The rent  received  by OAIC  from  the  tenants  of its  real  property
("Rent")  will  qualify as "rents from real  property" in  satisfying  the gross
income  tests for a REIT  described  above only if several  conditions  are met.
First,  the amount of Rent must not be based, in whole or in part, on the income
or profits of any person.  However, an amount received or accrued generally will
not be excluded  from the term "rents  from real  property"  solely by reason of
being based on a fixed  percentage or percentages of receipts or sales.  Second,
the Code  provides  that the Rent  received  from a tenant  will not  qualify as
"rents from real  property" in  satisfying  the gross income tests if OAIC, or a
direct  or  indirect  owner  of 10% or more of  OAIC,  owns  10% or more of such
tenant,  taking into account both direct and constructive  ownership (a "Related
Party Tenant").  Third, if Rent  attributable  to personal  property,  leased in
connection with a lease of Real Property,  is greater than 15% of the total Rent
received under the lease, then the portion of Rent attributable to such personal

                                       31
<PAGE>

property will not qualify as "rents from real property."  Finally,  for the Rent
to qualify as "rents from real  property,"  OAIC  generally  must not operate or
manage the Real  Property  or furnish or render  services to the tenants of such
real property,  other than through an "independent contractor" who is adequately
compensated   and  from  whom  OAIC   derives  no  revenue.   (An   "independent
contractor" for this purpose  generally means a service provider that is not (i)
an employee of the Company or (ii) in general,  an entity which owns 35% or more
of the  Company  or an  entity of which the  persons  owning a greater  than 35%
equity  interest  also  own  35% or  more  of  the  Company.)  The  "independent
contractor"  requirement,  however,  does not apply to the extent  the  services
provided by OAIC are "usually or  customarily  rendered" in connection  with the
rental of space for occupancy only and are not otherwise considered "rendered to
the  occupant."   Pursuant  to  a  DE  MINIMIS   expection,   OAIC  may  provide
non-customary  services  to  its  tenants  other  than  through  an  independent
contractor  without  disqualifying  the income from the  property as long as the
amount OAIC receives for the impermissible services does not exceed 1% of OAIC's
gross  income  from  the  property.  The  amount  that  OAIC  receives  that  is
attributable to impermissible services cannot be valued at less than 150% of the
direct cost to OAIC of providing the services.

         It is OAIC's policy that it will not charge Rent for any portion of any
real  property  that is based,  in whole or in part, on the income or profits of
any person (except by reason of being based on a fixed percentage or percentages
of receipts or sales, as described above) to the extent that the receipt of such
Rent  would  jeopardize  OAIC's  status  as a REIT.  In  addition,  it is OAIC's
intention that, to the extent that it receives Rent from a related party tenant,
such Rent will not cause  OAIC to fail to  satisfy  either  the 75% or 95% gross
income  test.  It is also  OAIC's  intention  that it will  not  allow  the Rent
attributable  to personal  property  leased in connection with any lease of real
property  to exceed  15% of the total  Rent  received  under the  lease,  if the
receipt of such Rent would  cause OAIC to fail to satisfy  either the 75% or 95%
gross income test. Finally,  OAIC intends that it will not operate or manage its
real property or furnish or render  noncustomary  services to the tenants of its
real property other than through an "independent contractor," to the extent that
such operation or the provision of such services would jeopardize  OAIC's status
as a REIT.

         REITs generally are subject to tax at the maximum corporate rate on any
income from  foreclosure  property  (other than income that would be  qualifying
income for  purposes  of the 75% gross  income  test),  less  expenses  directly
connected with the production of such income.  "Foreclosure property" is defined
as any real  property  (including  interests in real  property) and any personal
property  incident to such real  property  (i) that is acquired by a REIT as the
result  of such REIT  having  bid in such  property  at  foreclosure,  or having
otherwise  reduced  such  property to ownership  or  possession  by agreement or
process of law,  after there was a default (or default was  imminent) on a lease
of such  property  or on an  indebtedness  owed to the REIT that  such  property
secured, (ii) for which the related loan was acquired by the REIT at a time when
default was not imminent or  anticipated,  and (iii) for which such REIT makes a
proper  election to treat such property as foreclosure  property.  OAIC does not
anticipate that it will receive any income from foreclosure property that is not
qualifying  income for purposes of the 75% gross income test,  but, if OAIC does
receive  any such  income,  OAIC will  make an  election  to treat  the  related
property as foreclosure property.

         If  property  is  not  eligible  for  the  election  to be  treated  as
foreclosure  property  ("Ineligible  Property")  because  the  related  loan was
acquired by the REIT at a time when default was imminent or anticipated,  income
received with respect to such Ineligible  Property may not be qualifying  income
for  purposes of the 75% or 95% gross  income test.  OAIC  anticipates  that any
income it receives with respect to Ineligible Property will be qualifying income
for purposes of the 75% and 95% gross income tests.

         Net income  derived from a prohibited  transaction is subject to a 100%
tax.  The  term  "prohibited  transaction"  generally  includes  a sale or other
disposition of property (other than foreclosure property) that is held primarily
for sale to customers in the ordinary course of a trade or business. The Company
believes that no asset owned by OAIC or the Operating  Partnership  will be held
for  sale to  customers  and that a sale of any  such  asset  will not be in the
ordinary  course of  OAIC's or the  Operating  Partnership's  business.  Whether
property is held  "primarily  for sale to customers in the ordinary  course of a
trade or business"  depends,  however,  on the facts and circumstances in effect
from  time  to  time,   including  those  related  to  a  particular   property.
Nevertheless,  OAIC  will  attempt  to  comply  with the  terms  of  safe-harbor
provisions in the Code prescribing when asset sales will not be characterized as
prohibited transactions.  Complete assurance cannot be given, however, that OAIC
can comply with the safe-harbor  provisions of the Code or avoid owning property
that may be  characterized  as property held "primarily for sale to customers in
the ordinary course of a trade or business."

                                       32
<PAGE>

         OAIC will from  time to time,  enter  into  hedging  transactions  with
respect  to  one  or  more  of its  assets  or  liabilities.  Any  such  hedging
transactions  could  take a  variety  of  forms,  including  interest  rate swap
contracts,  interest rate cap or floor contracts,  futures or forward contracts,
and  options.  To the extent that OAIC enters into an interest  rate swap or cap
contract,  option,  future  contract,  forward  rate  agreement,  or any similar
financial  instrument  to reduce  its  interest  rate risk with  respect to debt
incurred or to be incurred to acquire or carry real estate assets,  any periodic
income or gain from the disposition of such contract should be qualifying income
for purposes of the 95% gross income test, but not the 75% gross income test. To
the extent  that OAIC hedges with other  types of  financial  instruments  or in
other  situations,  it may not be  entirely  clear  how the  income  from  those
transactions will be treated for purposes of the various income tests that apply
to REITs under the Code. OAIC intends to structure any hedging transactions in a
manner that does not jeopardize its status as a REIT.

         Accordingly,  OAIC may conduct  some or all of its  hedging  activities
through a corporate subsidiary that is fully subject to federal corporate income
tax.

         If OAIC  fails to satisfy  one or both of the 75% and 95% gross  income
tests for any taxable year, it nevertheless  may qualify as a REIT for such year
if it is entitled to relief under certain  provisions of the Code.  Those relief
provisions  generally  will be available if OAIC's failure to meet such tests is
due to reasonable cause and not due to willful neglect, OAIC attaches a schedule
of the sources of its income to its return, and any incorrect information on the
schedule  was not due to fraud  with  intent to evade tax.  It is not  possible,
however,  to state  whether in all  circumstances  OAIC would be entitled to the
benefit of those relief  provisions.  As discussed  above,  even if those relief
provisions apply, a 100% tax would be imposed on the net income  attributable to
the greater of the amount by which OAIC fails the 75% or 95% gross  income test.

         ASSET TESTS

         OAIC,  at the close of each  quarter of each  taxable  year,  also must
satisfy two tests relating to the nature of its assets.  First,  at least 75% of
the value of OAIC's  total  assets  must be  represented  by cash or cash  items
(including certain receivables),  government  securities,  "real estate assets,"
or, in cases where OAIC raises new capital  through stock or long-term (at least
five-year) debt offerings,  temporary  investments in stock or debt  instruments
during the one-year period  following  OAIC's receipt of such capital.  The term
"real estate assets" includes interests in real property, interests in mortgages
on real  property  to the extent the  principal  balance of a mortgage  does not
exceed  the fair  market  value of the  associated  real  property,  regular  or
residual  interests in a REMIC (except that, if less than 95% of the assets of a
REMIC consists of "real estate assets" (determined as if OAIC held such assets),
OAIC will be treated as holding directly its  proportionate  share of the assets
of such REMIC),  and shares of other REITs.  For purposes of the 75% asset test,
the term "interest in real  property"  includes an interest in mortgage loans on
land and improvements  thereon,  such as buildings or other inherently permanent
structures  (including items that are structural components of such buildings on
structures),  a  leasehold  of real  property,  and an  option to  acquire  real
property (or a leasehold of real property).  An "interest" in real property also
generally  includes an interest in mortgage loans secured by controlling  equity
interests in entities  treated as  partnerships  for federal income tax purposes
that own real property, to the extent that the principal balance of the mortgage
does not exceed the fair market value of the real  property that is allocable to
the equity  interest.  Second,  of the investments not included in the 75% asset
class, the value of any one issuer's  securities owned by OAIC may not exceed 5%
of the value of OAIC's total  assets,  and OAIC may not own more than 10% of any
one issuer's  outstanding  voting  securities  (except for its  interests in the
Operating  Partnership,  the General  Partner,  the Limited  Partner,  any other
qualified REIT subsidiary, partnership or any other REIT).

         OAIC  expects  that  any  distressed   real   properties,   subordinate
interests,  IOs and temporary  investments  that it acquires  generally  will be
qualifying  assets for purposes of the 75% asset test, except to the extent that
less than 95% of the assets of a REMIC in which OAIC owns an  interest  consists
of "real estate assets" and OAIC's  proportionate share of those assets includes
assets that are  nonqualifying  assets for purposes of the 75% asset test. Loans
also will be qualifying  assets for purposes of the 75% asset test to the extent
that the  principal  balance of each  mortgage loan does not exceed the value of
the associated real property. OAIC will monitor the status of the assets that it
acquires for  purposes of the various  asset tests and has  represented  that it
will manage its portfolio in order to comply at all times with such tests.

                                       33
<PAGE>

         If OAIC should fail to satisfy the asset tests at the end of a calendar
quarter,  such a failure  would  not cause it to lose its REIT  status if (i) it
satisfied  the asset tests at the close of the  preceding  calendar  quarter and
(ii) the  discrepancy  between  the value of OAIC's  assets  and the asset  test
requirements  arose from changes in the market  values of its assets and was not
wholly or partly caused by the acquisition of one or more non-qualifying assets.
If the  condition  described in clause (ii) of the  preceding  sentence were not
satisfied,   OAIC  still  could  avoid   disqualification   by  eliminating  any
discrepancy  within 30 days after the close of the calendar  quarter in which it
arose.

         DISTRIBUTION REQUIREMENTS

         OAIC, in order to avoid corporate  income taxation of the earnings that
it  distributes,  is required to  distribute  with  respect to each taxable year
dividends  (other  than  capital  gain  dividends)  to  its  stockholders  in an
aggregate  amount at least equal to (i) the sum of (A) 95% of its "REIT  taxable
income"  (computed  without  regard to the dividends  paid deduction and its net
capital  gain)  and  (B)  95% of the  net  income  (after  tax),  if  any,  from
foreclosure  property,  minus (ii) the sum of certain  items of noncash  income.
Such  distributions must be paid in the taxable year to which they relate, or in
the  following  taxable  year if declared  before OAIC timely  files its federal
income  tax  return  for such  year and if paid on or before  the first  regular
dividend payment date after such  declaration.  To the extent that OAIC does not
distribute  all of its net capital  gain or  distributes  at least 95%, but less
than 100%, of its "REIT taxable income," as adjusted,  it will be subject to tax
thereon at regular ordinary and capital gains corporate tax rates.  Furthermore,
if OAIC should fail to distribute  during each calendar year (or, in the case of
distributions with declaration and record dates falling in the last three months
of the calendar year, by the end of the January immediately following such year)
at least the sum of (i) 85% of its REIT ordinary  income for such year, (ii) 95%
of its REIT  capital  gain  income  for such year,  and (iii) any  undistributed
taxable income from prior periods,  OAIC would be subject to a 4%  nondeductible
excise tax on the excess of such required distribution over the amounts actually
distributed. OAIC intends to make timely distributions sufficient to satisfy the
annual distribution requirements.

         It is possible  that,  from time to time,  OAIC may  experience  timing
differences  between  (i) the actual  receipt  of income  and actual  payment of
deductible  expenses and (ii) the inclusion of that income and deduction of such
expenses  in  arriving  at its REIT  taxable  income.  For  example,  OAIC  will
recognize  taxable  income in excess of its cash  receipts  when,  as  generally
happens, original issue discount ("OID") accrues with respect to its subordinate
interests.  Furthermore,  some loans and IOs may be deemed to have OID, in which
case OAIC will be required to recognize taxable income in advance of the related
cash flow. In addition,  pursuant to certain Treasury  Regulations,  OAIC may be
required to recognize the projected amount of any payment to be made pursuant to
a shared  appreciation  provision  over the term of the  related  loan using the
constant yield method.  OID generally  will be accrued using a methodology  that
does not allow credit losses to be reflected  until they are actually  incurred.
In addition,  OAIC may recognize taxable market discount income upon the receipt
of proceeds  from the  disposition  of, or principal  payments  on,  subordinate
interests and loans that are "market  discount bonds" (i.e.,  obligations with a
stated  redemption  price at maturity  that is greater  than OAIC's tax basis in
such   obligations),   although  such  proceeds  often  will  be  used  to  make
non-deductible principal payments on related borrowings. OAIC also may recognize
excess  inclusion  or  other  "phantom"   taxable  income  from  REMIC  residual
interests.  It also is possible that,  from time to time, OAIC may recognize net
capital gain  attributable to the sale of depreciated  property that exceeds its
cash receipts from the sale. Finally,  OAIC may recognize taxable income without
receiving a  corresponding  cash  distribution  if it  forecloses  on or makes a
"significant  modification" (as defined in Regulations section 1.1001-3(e)) to a
loan, to the extent that the fair market value of the underlying property or the
principal  amount of the modified loan, as  applicable,  exceeds OAIC's basis in
the original loan. Therefore,  OAIC may have less cash than is necessary to meet
its annual 95% distribution  requirement or to avoid corporate income tax or the
excise tax imposed on certain  undistributed  income. In such a situation,  OAIC
may  find it  necessary  to  arrange  for  short-term  (or  possibly  long-term)
borrowings  or to  raise  funds  through  the  issuance  of  preferred  stock or
additional common stock.

                                       34
<PAGE>

         Under certain  circumstances,  OAIC may be able to rectify a failure to
meet the distribution  requirements for a year by paying "deficiency  dividends"
to its  stockholders in a later year,  which may be included in OAIC's deduction
for  dividends  paid for the earlier  year.  Although  OAIC may be able to avoid
being taxed on amounts distributed as deficiency dividends,  it will be required
to pay to the IRS  interest  based  upon the amount of any  deduction  taken for
deficiency dividends.

         RECORDKEEPING REQUIREMENTS

         Pursuant to  applicable  Treasury  Regulations,  in order to be able to
elect to be taxed as a REIT,  OAIC must maintain  certain records and request on
an annual basis certain  information from its stockholders  designed to disclose
the actual ownership of its outstanding  stock. OAIC intends to comply with such
requirements.

FAILURE TO QUALIFY

         If OAIC fails to qualify for  taxation  as a REIT in any taxable  year,
and the relief  provisions do not apply,  OAIC will be subject to tax (including
any  applicable  alternative  minimum  tax) on its  taxable  income  at  regular
corporate rates.  Distributions to OAIC's stockholders in any year in which OAIC
fails to qualify will not be  deductible by OAIC nor will they be required to be
made. In such event,  to the extent of OAIC's current and  accumulated  earnings
and  profits,  all  distributions  to  stockholders  will be taxable as ordinary
income and, subject to certain limitations of the Code,  corporate  distributees
may be eligible for the dividends received deduction.  Unless entitled to relief
under  specific  statutory  provisions,  OAIC  also  will be  disqualified  from
taxation as a REIT for the four taxable  years  following  the year during which
OAIC ceased to qualify as a REIT.  It is not  possible  to state  whether in all
circumstances OAIC would be entitled to such statutory relief.

ITEM 2.  PROPERTIES

OFFICES

         The Company  does not maintain an office.  It relies on the  facilities
provided by its  manager,  OCC.  In addition,  reference  is made to the section
entitled  "Business-Distressed  Commercial  Real  Estate  Activities"  which  is
incorporated herein by reference.

ITEM 3.  LEGAL PROCEEDINGS

         None.

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

          None.

                                       35
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
         MATTERS

         Information   required   by  this  Item   appears   under  the  caption
"Shareholder Information" on page 29 of the Annual Report to Shareholders and is
incorporated herein by reference.

         The following table sets forth the amount of cash dividends declared on
the common stock during the periods indicated.

                                                         Cash Dividends
                       1997                                Per Share
         ---------------------------------           ----------------------

         Second quarter (from May 14)                      $  0.10
         Third quarter                                        0.24
         Fourth quarter                                       0.39
 
ITEM 6.  SELECTED CONSOLIDATED FINANCIAL INFORMATION

         Information  required by this Item appears under the caption  "Selected
Consolidated   Financial  Information"  on  page  1  of  the  Annual  Report  to
Shareholders and is incorporated herein by reference.


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         Information   required   by  this  Item   appears   under  the  caption
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations"  on  pages  2 to 9 of  the  Annual  Report  to  Shareholders  and is
incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Information required by this Item appears under the caption "Business -
Investment  Activities"  under  Item 1  hereto  and is  incorporated  herein  by
reference.

                                       36
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS

         Information  required  by this Item  appears  in the  Annual  Report to
Shareholders on pages 12 to 26 and is incorporated herein by reference.

ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

         None


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

         The information contained in the Company's 1998 Proxy Statement,  dated
April 15, 1998, for the 1998 Annual Meeting of  Shareholders  under the captions
"Election of  Directors"  on pages 2 to 4, "Ownership  of the  Company's  Common
Stock -- Has There Been  Compliance  with  Section  16(a)  Beneficial  Ownership
Reporting Requirements?" on  page  7 and "Management of the Company--Who are the
Executive  Officers of the Company?" on pages 8 to 9 is  incorporated  herein by
reference.

ITEM 11. EXECUTIVE COMPENSATION

         The information contained in the Company's 1998 Proxy Statement for the
1998   Annual   Meeting   of   Shareholders   under  the   captions   "Executive
Compensation--What  Compensation does the Company Pay to its Executive Officers?
" on page 11 and "Management of the Company -- What is the Compensation  Paid to
Directors?"  and "What  Committees  has the Board  Established?  -  Compensation
Committee" on page 9  other than under the sub-caption "Report of the Nominating
and   Compensation   Committee,"  and  "Board  of  Directors   Compensation"  is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information contained in the Company's 1998 Proxy Statement for the
1998  Annual  Meeting  of  Shareholders  under  the  caption  "Ownership  of the
Company's Common Stock" on pages 6 to 7 is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information contained in the Company's 1998 Proxy Statement for the
1998 Annual Meeting of Shareholders under the caption "Certain Relationships and
Related Transactions" on pages 10 to 11 is incorporated herein by reference.

                                       37
<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

         (a)     Exhibits

                  3.1     Amended and Restated Articles of Incorporation (1) 

                  3.2     Bylaws(1)

                  4.1     Form of Common Stock Certificate (1).

                 10.1     Form of Management Agreement (1).

                 10.2     Form of Registration Rights Agreement (1).

                 10.3     Second  Amended  and  Restated  Agreement  of  Limited
                          Partnership   of   Ocwen   Partnership   L.P.*

                 10.4     Form of Stock Option Plan (1)

                 11.1     Computation of earnings per share.*

                 13.1     Annual Report to Shareholders for the Period Ended 
                          December 31, 1997

                 21.0     List of subsidiaries.*

                 27.1     Financial   Data  Schedule  -  For  the  period  ended
                          December 31, 1997*

                 27.2     Financial  Data  Schedule - For the period  ended June
                          30, 1997*

                 27.3     Financial   Data  Schedule  -  For  the  period  ended
                          September 30, 1997*

                 ----------------
                          *      Previously filed.

                          (1)   Incorporated   by  reference  to  the  similarly
                          described   exhibit  filed  in  connection   with  the
                          Company's  Registration  Statement  on Form S-11 (File
                          No. 333-21965),  as amended, declared effective by the
                          Commission on May 14, 1997.

                          (2)  Computation of earnings per share appears on page
                          25  in  the  Annual  Report  to  Shareholders  and  is
                          incorporated herein by reference.

         (b)     Financial Statements and Schedules

                 The following  Consolidated Financial Statements of Ocwen Asset
         Investment  Corp.  and  Report  of Price  Waterhouse  LLP,  Independent
         Certified Public  Accountants,  are incorporated herein by reference to
         pages 11 to 26 of the Company's Annual Report to Shareholders:

                 (1)       Report of Independent Certified Public Accountants

                 (2)       Consolidated Statement of Financial Condition at 
                           December 31, 1997

                 (3)       Consolidated  Statement of Operations for the period 
                           from May 14, 1997 to December 31, 1997

                                       38
<PAGE>

                 (4)       Consolidated  Statement  of Changes in  Stockholders'
                           Equity for the period  from May 14,  1997 to December
                           31, 1997

                 (5)       Consolidated  Statement  of Cash Flows for the period
                           from May 14, 1997 to December 31, 1997

                 (6)       Notes to Consolidated Financial Statements

                 Financial  statement  schedules have been omitted  because they
         are  not  applicable  or  the  required  information  is  shown  in the
         Consolidated Financial Statements or notes thereto.

         (c)     Reports on Form 8-K filed during the quarter ended December 31,
                 1997

                 (1)       A Form 8-K was filed by the  Company on  October  31,
                           1997 which  contained a news release  announcing  the
                           Company's  financial  results  for the  three  months
                           ended  September  30, 1997 and for the period May 19,
                           1997 to September 30, 1997.

                 (2)       A Form 8-K was filed by the  Company on  December  9,
                           1997 which  contained a news release  announcing  the
                           Company's  November 1997 investments of $35.4 million
                           and $164.9 million in outstanding commitments.

                                       39
<PAGE>


SIGNATURES

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

                      OCWEN ASSET INVESTMENT CORP.


                      By: /s/ MARK S. ZEIDMAN
                         -----------------------------------------------------
                              Mark S. Zeidman
                              Senior Vice President and Chief Financial Officer
                              (duly authorized representative of the registrant)


   
Date:  February 8, 1999
    

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