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                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-K

(Mark one)

    X         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

                   For the fiscal year ended December 31, 1996

                                       OR


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

                          Commission file number 1-9360

                           ASSET INVESTORS CORPORATION
             (Exact name of registrant as specified in its charter)

                    Maryland                         84-1038736
        (State or other jurisdiction of            (IRS Employer
         incorporation or organization)         Identification No.)

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

                                 (303) 793-2703
              (Registrant's telephone number, including area code)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

         Common Stock,
   par value $.01 per share              New York Stock Exchange, Inc.
     (Title of each class)       (Name of each exchange on which registered)

        SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

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

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

As of February 28, 1997, 24,843,345 shares of Asset Investors Corporation Common
Stock were outstanding, and the aggregate market value of the shares (based upon
the closing  price of the common  stock on that date as reported on the New York
Stock Exchange, Inc.) held by non-affiliates was approximately $80,000,000.


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                  ASSET INVESTORS CORPORATION AND SUBSIDIARIES

                                    FORM 10-K

                      FOR THE YEAR ENDED DECEMBER 31, 1996

                                TABLE OF CONTENTS



Part I                                                                      PAGE
ITEM 1.    BUSINESS
           (a)    General Development of Business...........................   1
           (b)    Narrative Description of Business.........................   2
ITEM 2.    PROPERTIES.......................................................   9
ITEM 3.    LEGAL PROCEEDINGS................................................   9
ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY
           HOLDERS..........................................................   9

Part II
ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND
           RELATED SHAREOWNER MATTERS.......................................  10
ITEM 6.    SELECTED FINANCIAL DATA..........................................  10
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................  12
ITEM 8.    CONSOLIDATED FINANCIAL STATEMENTS AND
           SUPPLEMENTARY DATA............................................... F-1
ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
           ON ACCOUNTING AND FINANCIAL DISCLOSURE...........................  21

Part III
ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE
           REGISTRANT.......................................................  21
ITEM 11.   EXECUTIVE COMPENSATION...........................................  23
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
           OWNERS AND MANAGEMENT............................................  26
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................  27

Part IV
ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
           AND REPORTS ON FORM 8-K..........................................  28

SIGNATURES..................................................................  32


                                      (i)
<PAGE>

                                     PART I

Item 1.  BUSINESS.

         (a)      General Development of Business.

         Asset Investors Corporation (the "Company") is a real estate investment
trust ("REIT") that was  incorporated  under Maryland law in 1986. Its shares of
Common  Stock,  par value  $.01 per  share,  are  listed  on the New York  Stock
Exchange  ("NYSE")  under the symbol "AIC." As of December 31, 1996, the Company
owned debt interests in residential mortgage loan securitizations collateralized
by  pools  of  non-conforming  (non-agency  guaranteed)  single-family  (one- to
four-unit)  mortgage loans  ("non-agency MBS bonds") and owned 27% of the common
stock  of  Commercial  Assets,   Inc.  (American  Stock  Exchange,   Inc.:  CAX)
("Commercial Assets"). Commercial Assets is a publicly-traded REIT formed by the
Company in August 1993 under Maryland law.

         The Company  operates  in a manner  that  permits it to qualify for the
income tax treatment  accorded to a REIT as defined  under the Internal  Revenue
Code of 1986, as amended (the "Code"). Accordingly, the Company's taxable income
("REIT  income") is not subject to state or federal  income tax at the corporate
level.  In order to maintain  its REIT status,  the Company is  required,  among
other  things,  to  distribute  annually (as  determined  under the Code) to its
shareowners  at least  95% of its REIT  income,  prior  to the  "dividends  paid
deduction," and to meet certain asset, income and stock ownership tests.

         The Company's  asset  acquisition  and other policies are determined by
its Board of  Directors.  The  Company's  By-laws,  as amended,  require  that a
specified  number  of the  Board of  Directors  and each  committee  thereof  be
comprised  of  persons  constituting  Independent  Directors.  Pursuant  to  the
Company's By-laws,  an Independent  Director is a person "who is not affiliated,
directly or indirectly,  with the person or entity  responsible for directing or
performing the day-to-day  business  affairs of the corporation (the "advisor"),
including a person or entity to which the advisor subcontracts substantially all
of such functions,  whether by ownership of, ownership  interest in,  employment
by, any material business or professional relationship with, or by serving as an
officer of the advisor or an affiliated business entity of the advisor."

         The Company's  day-to-day  operations are performed by Financial  Asset
Management  LLC  (the  "Manager"),  pursuant  to  a  management  agreement  (the
"Management  Agreement") which is extended annually subject to the approval of a
majority of the Independent Directors. The Manager is subject to the supervision
of the Board of  Directors.  As part of its  duties,  the Manager  presents  the
Company with asset  acquisition  opportunities  consistent with the policies and
objectives of the Company and furnishes the Board of Directors with  information
concerning the acquisition,  holding and disposition of assets.  The Company has
no employees.  Certain employees of the Manager have been designated as officers
of the Company.

         Multi-Step  Plan to Maximize  Shareowner  Value - In February 1997, the
Board of Directors  adopted a multi-step  plan (the "1997 Plan") to  restructure
the  Company's  asset  base and  redeploy  its  assets in order to  reduce  risk
associated  with the  Company's  non-agency  MBS  bond  portfolio  and  maximize
long-term,  risk-adjusted  returns to shareholders.  Under the first step of the
1997 Plan,  the Company  expects to contribute  its portfolio of non-agency  MBS
bonds into a  structured  transaction  in which the Company  will retain a small
equity  interest.  The Company  plans to  reinvest  the cash  proceeds  from the


                                     - 1 -
<PAGE>

structured  transaction  in real estate,  a step which would  likely  reduce its
return on assets from 1996 levels,  shift the  Company's  strategic  emphasis to
achieving capital appreciation, and also reduce the risk borne by the Company in
its portfolio.

         In addition,  the 1997 Plan  anticipates  converting  the Company to an
umbrella partnership real estate investment trust ("UPREIT").  The Company would
contribute  certain of the Company's  assets to an operating  partnership  while
retaining  the general  partner's  interest.  The Company  anticipates  that the
operating partnership will facilitate the future acquisition of real estate.

         The  1997  Plan  also  provides  for  consideration  of  the  Company's
acquisition  of its Manager,  a step which would result in the Company  becoming
self-managed and fully integrated.  A special committee of Independent Directors
has been established to evaluate this acquisition.

         (b)      Narrative Description of Business.

         The  Company  seeks  to:  (i)  generate  cash  flow  in  order  to make
distributions to its shareowners;  (ii) enable its shareowners to participate in
the market for real estate assets; and (iii) enhance stockholders' equity. There
can be no  assurance  that  the  Company  will  achieve  any  or  all  of  these
objectives.

         The discussion below describes the principal categories of assets which
the Company owned at December 31, 1996.

         Non-Agency MBS Bonds - In late April 1994, the Company began  acquiring
unrated  credit support debt interests in  non-conforming  residential  mortgage
loan securitizations  known as "non-agency MBS bonds." Residential mortgage loan
securitization is the process of accumulating a specific group of mortgage loans
on  residential  (one- to  four-unit)  properties  and  structuring  the monthly
principal  and  interest  payments  received  from the owners of the  properties
securing these mortgage loans into new multi-class debt instruments.

         Non-agency MBS bonds are  collateralized  by mortgage loans that do not
meet  Government  National  Mortgage  Association  ("GNMA"),   Federal  National
Mortgage   Association  ("FNMA")  or  Federal  Home  Loan  Mortgage  Corporation
("FHLMC")  guarantee  standards,  typically  because the  mortgage  loans are so
called "jumbo" loans that exceed agency size limits (e.g.,  currently  $214,600)
or because the borrower does not meet other agency credit underwriting  criteria
(a  "non-conforming  mortgage loan").  If a borrower defaults on a mortgage loan
which is pledged as collateral  for a residential  mortgage loan  securitization
and the proceeds of the foreclosure  sale of the property  securing the mortgage
loan are less than the  unpaid  balance  of the  mortgage,  "foreclosure  costs"
(necessary repair and maintenance costs during the foreclosure period, brokerage
fees, legal fees, taxes and insurance,  net of proceeds from mortgage insurance,
if any) and interest advances,  the holder of the  non-conforming  mortgage loan
suffers  a loss.  The  loss  would  equal  the  unpaid  principal  balance  plus
foreclosure  costs and interest  advances,  net of proceeds from the foreclosure
sale  and  loss  indemnifications,   if  any.  Conversely,   the  holder  of  an
agency-guaranteed  mortgage  loan  virtually  is  assured  of  full  payment  of
principal and interest because of the agency guarantee.

         Because of credit risk, a  securitization  of  non-conforming  mortgage
loans requires some form of credit  enhancement.  One type of credit enhancement
commonly  provided  is  through  a  "senior-subordinate"  structure,  where  the
subordinate  classes (or tranches) of the  non-conforming  residential  mortgage
loan securitization provide credit protection to the senior classes by absorbing
the first losses from loan defaults or  foreclosures.  Based on the structure of
the non-conforming  mortgage loan  securitization,  the cash flow (principal and
interest)  from the  non-conforming  mortgage  loans is  allocated  first to the


                                     - 2 -
<PAGE>

senior bond classes and then to the subordinated bond classes.  The senior class
consists  of  securities  that may be rated from low  investment  grade "BBB" to
higher  investment  grades "A" through "AAA." The  subordinated  class typically
would be the lower rated,  non-investment  grade ("BB" and "B") and the unrated,
credit support bond class (which generally incurs the first losses). The Company
has acquired the subordinate bond classes which, while offering the potential of
a  substantially  higher yield than the more senior  classes,  have the greatest
credit risk.  Such bond classes are considered to be speculative and are subject
to special risks,  including a  substantially  greater risk of loss of principal
and non-payment of interest than the more senior, rated classes.

         The principal of, and interest on, the  non-conforming  mortgage  loans
which  comprise  the mortgage  collateral  for the  non-agency  MBS bonds may be
allocated  among the classes of MBS bonds in many ways.  The Company's  right to
distributions  of principal and interest is  subordinated to all the more senior
classes of the non-agency MBS bond issuance.  Furthermore,  as the holder of the
credit  support  non-agency  MBS bond  class,  the Company  generally  would not
receive any  prepayments  of principal  from the  non-conforming  mortgage loans
which comprise the mortgage  collateral for a period of at least five years from
the date of issuance.

         Despite credit  underwriting  of the  non-conforming  mortgage loans by
mortgage originators, the nationally recognized credit rating agencies generally
are unwilling to give favorable  ratings to classes of  non-conforming  mortgage
loan   securitizations   unless  these   classes  have  the  benefit  of  credit
enhancement.  An unrated  credit  support  class  absorbs the first  losses when
homeowners  default on their  mortgage  loans.  Therefore,  the inclusion of the
unrated credit support class in a  non-conforming  mortgage loan  securitization
enables the rating agencies to rate the more senior bond classes.

         Yield  Considerations  on  Non-agency  MBS  Bonds - The  yields  on the
unrated  credit  support  non-agency  MBS  bonds  acquired  by the  Company  are
extremely  sensitive  to  prepayments,  defaults  and the severity and timing of
foreclosure losses on the non-conforming  mortgage loans comprising the mortgage
collateral  for such  non-agency  MBS bonds.  As a holder of the credit  support
class of non-agency MBS bonds, the Company's right to distributions of principal
and interest is subordinate  to all of the more senior classes of bonds.  Actual
losses on the mortgage  collateral  (after default,  where the proceeds from the
foreclosure  sale of the home are less than the unpaid  balance of the  mortgage
loan plus  foreclosure  costs and interest  advances) are allocated first to the
Company's  credit  support   non-agency  MBS  bonds  (to  the  extent  of  their
outstanding  principal balance) prior to being allocated to the more senior bond
classes.

         Although the Company has earned a yield of approximately 18% to date on
its non-agency MBS bonds,  a number of factors  including a future  down-turn in
the economy,  or an uninsured  natural  disaster in geographic  regions in which
properties that back the Company's bonds are located,  may  dramatically  reduce
the high returns. Therefore, the Board of Directors concluded in connection with
the adoption of the 1997 Plan that the risks of investing in subordinate classes
on non-agency MBS bonds outweighed their potential returns.

         Commercial  Assets - During 1993, the Company  contributed  $75,000,000
(including $200,000 cash) to the capital of Commercial Assets. Commercial Assets
is  an  American  Stock  Exchange-listed  REIT,  which  owns  and  manages  debt
instruments issued in commercial mortgage loan  securitizations  ("CMBS bonds").
To date,  Commercial  Assets'  primary  emphasis has been on the  acquisition of
credit support bond classes  primarily secured by mortgage loans on multi-family
real estate.

         The process of commercial  mortgage loan  securitization  is similar to
the process of single-family  mortgage loan  securitization.  Commercial  Assets


                                     - 3 -
<PAGE>

owns and  manages  interests  that are heavily  weighted  toward the unrated and
lower-rated  credit support classes of CMBS bonds issued in commercial  mortgage
loan  securitizations.  As in non-agency MBS bonds,  the subordinate  classes of
CMBS bonds  shield the more senior  classes  from  losses on  defaults  from the
underlying commercial mortgage loans comprising the mortgage collateral and have
substantially greater credit risk than the more senior classes of such bonds.

         Because of its tax status as a REIT,  Commercial  Assets'  REIT  income
generally is not subject to income tax at the corporate  level. The Company will
not be subject to corporate  income tax on the  dividends  it receives  from its
shares of  Commercial  Assets stock as long as Commercial  Assets  maintains its
status as a REIT.

Competition

         In acquiring  assets,  the Company and  Commercial  Assets compete with
other REITs,  savings and loan  associations,  banks,  mortgage bankers,  mutual
funds,  pension funds,  professional money managers,  insurance  companies,  and
other  investors,  many of  which  have  greater  financial  resources  than the
Company.  Furthermore,  many  of  these  entities  may  be  conducting  business
activities through  corporations,  master limited partnerships or other business
forms,  which may have more  flexibility  than the Company in  conducting  their
business operations because of the Company's status as a REIT or other reasons.

Capital Resources

         The Company uses its cash flow from operating activities and short-term
credit facilities to provide working capital to support its operations,  for the
payment of dividends to its shareowners and for the acquisition of assets.

         The Company has entered into a transaction to contribute its non-agency
MBS bonds  into a  structured  transaction  (see  "Multi-Step  Plan to  Maximize
Shareowner  Value"  above)  that will  provide the  Company  with  approximately
$68,000,000 of cash after payment of transaction  costs and management fees. The
Company  plans to reinvest the cash in real estate.  Investments  in real estate
will likely  generate lower returns than the Company has  historically  received
from its non-agency MBS bonds. However, such investments may result in increased
opportunities for capital appreciation and reduced portfolio risk. The Company's
goal is to invest in real estate assets with:  (i) future  capital  appreciation
potential, (ii) a stable, unlevered return of approximately 9% to 10%, and (iii)
the option to convert the underlying  land to an alternative  use at some future
point in time.  There is no  assurance  that the Company will achieve this goal.
See "FORWARD LOOKING INFORMATION" below.

         In addition,  the 1997 Plan  anticipates  converting  the Company to an
UPREIT.  The  Company  would  contribute  certain of its assets to an  operating
partnership  while  retaining  the  general  partner  interest.   The  operating
partnership  will facilitate the future  acquisition of real estate.  Sellers of
real estate interests to the Company could elect to receive as payment operating
partnership  interests  ("OP  units")  that could be converted to cash or Common
Stock of the Company at a later date.

         Without further shareowner approval, the Company is authorized to issue
up to 50,000,000  shares of Common Stock, of which 24,843,345 shares were issued
and outstanding as of February 28, 1997. The Board of Directors is authorized to
issue additional  classes of stock without shareowner  approval.  Depending upon
the terms set by the Board of  Directors,  the  authorization  and  issuance  of
preferred  stock or other new classes of stock could affect  adversely  existing
shareowners.  The effects on  shareowners  could  include,  among other  things,
dilution  of  ownership  interests  of  existing  shareowners,  restrictions  on


                                     - 4 -
<PAGE>

dividends on Common Stock and  preferences to holders of a new class of stock in
the  distribution  of assets upon  liquidation.  As of February  28,  1997,  the
Company has not authorized or issued additional classes of stock.

Dividend Reinvestment Plan

         The  Company  has  an  Automatic   Dividend   Reinvestment   Plan  (the
"Reinvestment  Plan") which was  administered by KeyCorp  Shareholder  Services,
Inc.  through  January 31, 1997, and by Norwest  Shareowner  Services  beginning
February 1, 1997.  The  Reinvestment  Plan provides the Company's  shareowners a
method of investing cash  dividends paid by the Company in additional  shares of
Common Stock purchased in the open market.  The  Reinvestment  Plan also permits
participants  to  purchase  additional  Common  Stock  in the open  market  with
voluntary cash payments.

Investment Restrictions

         The  Company  intends to  continue  its  business  and to  conduct  its
operations  so as not to become  regulated as an  investment  company  under the
Investment  Company Act of 1940,  as amended  (1940 Act").  The 1940 Act exempts
entities that, directly or through majority-owned  subsidiaries,  are "primarily
engaged in the business of purchasing or otherwise acquiring mortgages and other
liens on and interests in real estate" ("Qualifying  Interests").  Under current
interpretations  by the staff of the  Securities  and Exchange  Commission  (the
"Commission"),  in order to qualify for this exemption, the Company, among other
things, must maintain at least 55% of its assets in Qualifying Interests and may
also be required to maintain an additional 25% in Qualifying  Interests or other
real  estate-related  securities.  Compliance with this  requirement  limits the
assets the Company may acquire. In connection with its acquisition of non-agency
MBS bonds, the Company has adopted a policy of obtaining substantial foreclosure
rights with respect to the underlying  mortgage  loans. As a result of obtaining
such rights,  the Company  believes  that its  non-agency  MBS bonds  constitute
Qualifying Interests for the purpose of the 1940 Act.

         Because  greater  than 55% of the  Company's  consolidated  assets  are
Qualifying  Interests,  the Company believes that it is not required to register
as an investment company under the 1940 Act. If the Commission or its staff were
to take a different  position with respect to whether the  Company's  non-agency
MBS bonds constitute Qualifying Interests, the Company could be required either:
(i) to change the manner in which it  conducts  its  operations  to avoid  being
required  to  register  as an  investment  company;  or (ii) to  register  as an
investment company,  either of which could have an adverse effect on the Company
and the market prices for the Common Stock. The Company's intent is that any new
real estate  assets  acquired will also be  Qualifying  Interests.  See "FORWARD
LOOKING INFORMATION" below.

         Pursuant to restrictions set forth in its By-laws,  the Company may not
"invest  in  unimproved  real  property  (i.e.,  acquire an equity  interest  in
property for purposes other than producing  income,  which has no development or
construction in progress thereon nor is any development or construction  planned
to  commence  thereon  within  the  year);  invest in  mortgage  loans  (but not
including  mortgage related  securities)  without an appraisal of the underlying
property;  invest  in real  estate  contracts  of sale  unless  the  same are in
recordable form; invest in or make a mortgage loan on property in excess of 100%
of its appraised value (unless other mortgage loan  underwriting  criteria would
justify such investment);  or invest in or make a mortgage loan subordinate to a
mortgage or equity  interest in the property held by the Manager,  a director or
an affiliate of the  foregoing." The foregoing  restrictions  may not be changed
without the approval of the Board of Directors, which has the power to modify or
alter such policies without the consent of shareowners. Although the Company has
no present  intention of modifying  such  policies,  the Board of Directors  may
conclude in the future that it would be  advantageous  for the Company to modify
such  policies  if  such   modifications  are  in  the  best  interests  of  the
shareowners.


                                     - 5 -
<PAGE>

Management Agreement

         The Management  Agreement has been extended  through December 31, 1997.
The Manager  advises the Company on its business  and  oversees  its  day-to-day
operations, subject to the supervision of the Board of Directors of the Company.
The  Manager  also is  obligated  to present to the  Company  asset  acquisition
opportunities  consistent with the policies and objectives of the Company and to
furnish the Board of Directors of the Company with  information  concerning  the
acquisition,  holding and  disposition of assets.  The terms appearing in quotes
below which are not defined herein are defined in the Management Agreement.

         The  Management   Agreement  has  been  approved  by  the   Independent
Directors.  It may be  terminated  by either party with or without  cause at any
time upon 60 days'  written  notice.  In addition,  the Company has the right to
terminate  the  Management  Agreement  upon the  happening of certain  specified
events  including,  among other things,  a breach by the Manager of any material
provision  which breach  remains  uncured for 30 days, or the  bankruptcy of the
Manager.  The  Management  Agreement  also  may be  terminated  at any time by a
majority vote of the: (i) Independent  Directors;  or (ii) holders of the shares
of Common Stock. The Manager is entitled to certain termination  payments in the
event of, among other things,  an  acquisition  of the Company  resulting in the
termination of the Management Agreement.

         The Manager  receives  various fees for the advisory and other services
performed in connection with the Management Agreement.  The Manager provides all
personnel and certain  overhead items (at its expense)  necessary to conduct the
regular business of the Company.

         Pursuant to the  Management  Agreement,  the  Manager  receives a "Base
Fee," an "Incentive Fee" and an  "Administrative  Fee," all of which are payable
quarterly per the terms of the Management  Agreement.  The Base Fee is an annual
fee equal to 3/8 of 1% of the "average  invested  assets" of the Company and its
subsidiaries  for such year. The Incentive Fee is equal to 20% of the amount the
Company's  net book income,  calculated in accordance  with  generally  accepted
accounting principles ("GAAP"),  which is in excess of a return on the Company's
"average net worth" equal to the "Ten-Year U.S. Treasury Rate" plus one percent.
In  1994  and  1995,  the  Incentive  Fee  was  based  on  the  Company's  "cash
distributions  to  shareowners,"  rather  than GAAP  income.  The  Manager  also
performs certain bond  administration and other related services for the Company
pursuant to the Management Agreement and receives an Administrative Fee of up to
$3,500 per annum per non-agency MBS bond for such services.

         The Company has agreed to indemnify the Manager and its affiliates with
respect to all  expenses,  losses,  damages,  liabilities,  demands,  charges or
claims of any nature in respect of acts or omissions of the Manager made in good
faith and in accordance with the Management Agreement.

         The 1997 Plan provides for  consideration of the Company's  acquisition
of its Manager,  a step which would result in the Company becoming  self-managed
and fully  integrated.  A special  committee of  Independent  Directors has been
established to evaluate this transaction.

Federal Income Taxation of the Company

         General - For all taxable years commencing on or after January 1, 1987,
the Company has  operated in a manner that  permits it to qualify for the income
tax  treatment  accorded a REIT.  To so  qualify,  in  general,  the  Company is
required,  among other things,  to distribute  annually (as determined under the


                                     - 6 -
<PAGE>

Code),  to its  shareowners,  at  least  95% of its  REIT  income  prior  to the
dividends paid  deduction.  So long as the Company meets the REIT  qualification
requirements, including its distribution requirements, the Company expects that,
with limited  exceptions,  its REIT income will not be subject to federal income
tax at the corporate  level. If the Company fails to qualify as a REIT, it would
be subject to federal income tax on its REIT income at regular  corporate  rates
without any deduction for distributions to shareowners.

         In order  to  qualify  as a REIT,  the  Company  must  satisfy  various
requirements   with   respect   to:  (i)  the  nature  of  its  assets   ("Asset
Requirements")   and  income  ("Income   Requirements");   (ii)  the  amount  of
distributions to shareowners  ("Distribution  Requirements");  and (iii) certain
organizational matters ("Organizational Requirements").

         Asset  Requirements  - At least 75% of the assets of the  Company  must
consist of specified real estate assets,  cash or government  securities.  Also,
the  Company  cannot  own equity  securities  of any one  issuer  (other  than a
qualified  REIT)  which  represent:  (i) more than 5% of the total  value of the
Company's assets; or (ii) more than 10% of the outstanding  voting securities of
any  one  issuer  (in  each  case  other  than  another  REIT).   Under  certain
circumstances, if the Company fails to satisfy the Asset Requirements at the end
of any quarter of its taxable  year,  such  failure can be cured  within 30 days
after the close of that quarter.

         Income Requirements - The Income Requirements provide that at least 75%
of the  Company's  gross  income  must be derived  from  specified  real  estate
sources,   including   rents  from  real   property  and  interest  on  mortgage
obligations.  Additionally,  at least 95% of the  Company's  gross  income  must
consist of income  derived  from items that  qualify for the 75% test plus other
specified  types of passive income,  such as interest,  dividends and gains from
the sale or other disposition of stock and securities.

         If the Company fails to satisfy the foregoing Income Requirements,  the
Company will nevertheless continue to qualify as a REIT but will be subject to a
100% tax on certain of its  non-qualifying  income if: (i) the Company otherwise
satisfies the  requirements  for  qualification  as a REIT; (ii) such failure is
held to result from reasonable cause and not willful neglect;  and (iii) certain
other requirements are met.

         The  Income  Requirements  also  require  that  less  than  30%  of the
Company's  gross  income be derived from the sale or other  disposition  of: (i)
stock or securities  held for less than one year; (ii) property in a transaction
which is a "Prohibited  Transaction" as defined in the Code; and (iii) most real
property held for less than four years. In addition,  the Code generally imposes
a 100% tax on net gain derived from Prohibited Transactions.  Failure to satisfy
the 30% test generally causes a loss of REIT status.

         Distribution  Requirements  - In  general,  the  Company is required to
distribute annually,  to its shareowners,  at least 95% of its REIT income prior
to the dividends paid deduction.  Distributions may be made in cash,  securities
or  property.  For  this  purpose  (but  not for  purposes  of  determining  how
distributions  are to be taxed to  shareowners),  certain  dividends paid by the
Company  after the close of a taxable year may be considered as having been made
during such  taxable  year.  Shareowners  will be subject to tax, in the year of
declaration,  on dividends declared by the Company during October,  November and
December of a taxable year and paid before January 31 of the subsequent  taxable
year.

         At December  31,  1996,  the Company had a net  operating  loss ("NOL")
carryover of approximately  $96,000,000.  The NOL may be used to offset all or a
portion of the Company's  distribution  requirement with respect to REIT income;
however,  the  NOL  may  not be  used  to  reduce  or  eliminate  the  Company's
distribution  requirement with respect to Excess Inclusion income (as defined in
the  Code).  Excess  Inclusion  income is the  amount of income  from a residual


                                     - 7 -
<PAGE>

interest in a real estate mortgage  investment conduit ("REMIC") which exceeds a
specified  return as provided in the Code. A REMIC is a pass-through  tax entity
created  by the  Tax  Reform  Act of  1986  to  facilitate  the  structuring  of
mortgage-asset  transactions.  To the extent the Company  has either  current or
accumulated  earnings and profits,  distributions  generally  will be treated as
ordinary income by the shareowners  receiving such distributions.  The Company's
NOL will not change how shareowners treat distributions from the Company for tax
purposes under the Code.

         Organizational  Requirements - Shares of Common Stock must be held by a
minimum of 100  persons for at least 335 days in each  taxable  year and no more
than 50% in value of the Common Stock can be owned,  actually or constructively,
by five or fewer  individuals at any time during the second half of each taxable
year. For this purpose an "individual"  includes certain pension plans and other
tax-exempt entities. To evidence compliance with these requirements, the Company
is  required to maintain  records  that  disclose  the actual  ownership  of its
outstanding  shares of Common Stock.  In fulfilling its  obligations to maintain
records,  the Company must demand written  statements  each year from the record
holders of  designated  percentages  of its shares of Common  Stock which would,
among other things, disclose the actual owners of such shares.

         Failure  to  Qualify  as a REIT - The  Company  will be  subject to tax
(including any applicable alternative minimum tax) on its REIT income at regular
corporate  rates without any deduction for  distributions  to  shareowners if it
fails to  qualify  as a REIT in any  taxable  year.  Even if the  Company is not
disqualified  as a REIT as a result of a  failure  to  satisfy  any of the tests
described  above, it may be subject to certain excise taxes.  Unless entitled to
relief  under  specific   statutory   provisions,   the  Company  also  will  be
disqualified  from treatment as a REIT for the following four taxable years. The
failure  to  qualify  as a REIT for even one year  could  result in the  Company
incurring  substantial  indebtedness in order to pay any resulting  taxes,  thus
reducing the amount of cash  available for  distribution  to  shareowners or for
acquisition of additional assets.

         THE  PROVISIONS OF THE CODE ARE EXTREMELY  TECHNICAL AND COMPLEX.  THIS
SUMMARY IS NOT INTENDED TO BE A DETAILED DISCUSSION OF ALL APPLICABLE PROVISIONS
OF  THE  CODE,  THE  RULES  AND  REGULATIONS  PROMULGATED  THEREUNDER,   OR  THE
ADMINISTRATIVE  AND  JUDICIAL  INTERPRETATIONS  THEREOF.  THIS  SUMMARY  IS  NOT
INTENDED TO BE A SUBSTITUTE FOR PRUDENT TAX PLANNING, AND EACH SHAREOWNER OF THE
COMPANY,  INCLUDING FOREIGN AND TAX-EXEMPT  ENTITIES,  IS URGED TO CONSULT THEIR
OWN TAX ADVISOR  WITH  RESPECT TO THESE AND OTHER  FEDERAL,  STATE AND LOCAL TAX
CONSEQUENCES OF THE  ACQUISITION,  OWNERSHIP AND DISPOSITION OF THE COMMON STOCK
OF THE COMPANY.

Restrictions on and Redemptions of Common Stock

         To qualify as a REIT,  the Company  must meet certain  ownership  tests
with  respect  to its  shares  of  Common  Stock.  In  addition,  the  Company's
Certificate  of  Incorporation  provides  that shares of Common Stock may not be
owned by a person if the  ownership of shares by such person would result in the
imposition of a tax on the Company or on any other holder (nominee or otherwise)
of shares of Common  Stock.  Provisions  of the Code would  impose such a tax if
shares of Common Stock were owned, directly or indirectly, by the United States,
any  state  or  political  subdivision  thereof,  any  foreign  government,  any
international organization,  a rural electric or telephone cooperative described
in Section  1381(a)(2)(C) of the Code, any agency or  instrumentality  of any of
the foregoing,  or any  organization  exempt from tax under the Code that is not
subject to tax on its unrelated business taxable income.


                                     - 8 -
<PAGE>

         The  Company's  Certificate  of  Incorporation  empowers  the  Board of
Directors,  at its  option,  to redeem  shares of  Common  Stock or to  restrict
transfers  of  shares  to  conform  ownership  of  the  Common  Stock  with  the
requirements described above. The redemption price to be paid is the fair market
value as reflected in the latest  quotations on any exchange on which the shares
of  Common  Stock  are  listed  or,  if the  Common  Stock is not  listed on any
exchange, on the over-the-counter market or, if no quotations are available, the
net asset  value of the  shares of Common  Stock as  determined  by the Board of
Directors.  The Company's  Certificate of  Incorporation  also provides that any
acquisition of shares of Common Stock that would result in the  disqualification
of the  Company  as a REIT under the Code  shall be void to the  fullest  extent
permitted under applicable law and the intended  transferee of such shares shall
be deemed never to have had an interest therein.  Furthermore, if such provision
is determined to be void or invalid, then the transferee of such shares shall be
deemed,  at the option of the  Company,  to have acted as agent on behalf of the
Company  in  acquiring  such  shares  and to hold  such  shares on behalf of the
Company.

         Each shareowner is required,  upon demand,  to disclose to the Board of
Directors  in writing  such  information  with  respect  to direct and  indirect
ownership of shares of Common Stock as the Board of Directors  deems  prudent in
protecting the tax status of the Company.

Employees

         The Company has no employees. Pursuant to the Management Agreement, the
Manager provides all personnel  necessary to conduct the regular business of the
Company.  Certain  employees of the Manager have been  designated as officers of
the Company.  If the Company acquires its Manager,  the employees of the Manager
would be deemed to be employees of the Company.

Item 2.  PROPERTIES.

         The Company does not own or lease any real estate or physical property.

Item 3.  LEGAL PROCEEDINGS.

         At February 28, 1997, there were no material legal proceedings, pending
or threatened,  to which the Company or any of its  subsidiaries  was a party or
which any of their respective property was subject.

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

         No matters were submitted to a vote of the Company's shareowners during
the fourth quarter of 1996.


                                     - 9 -
<PAGE>

                                     PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREOWNER MATTERS.

         The  Company's  Common  Stock is  listed on the NYSE  under the  symbol
"AIC." The high and low closing  sales  prices of the shares of Common  Stock as
reported on the NYSE Composite  Tape and certain  dividend  information  for the
periods indicated were as follows:

                                  High                Low              Dividends
                                -------             -------            ---------
1996
   First Quarter                $ 3-3/8             $ 2-3/4             $ .090
   Second Quarter                 3-3/4               3-1/8               .090
   Third Quarter                  3-3/4               3-3/8               .095
   Fourth Quarter                 4                   3-1/2               .095

1995
   First Quarter                $ 2-3/8             $ 1-5/8             $ .080
   Second Quarter                 2-5/8               2-1/4               .080
   Third Quarter                  2-7/8               2-3/8               .090
   Fourth Quarter                 3-3/8               2-5/8               .090



         As of  February  28,  1997,  24,843,345  shares  of Common  Stock  were
outstanding and were held by 3,590 shareowners of record.  The Company estimates
there were an additional 12,000 beneficial owners on that date whose shares were
held by banks, brokers or other nominees.

Item 6.  SELECTED FINANCIAL DATA.

         The selected  financial data of the Company,  set forth below, has been
derived  from and  should  be read in  conjunction  with the  Company's  audited
consolidated  financial  statements and the notes thereto.  Financial data as of
December 31, 1996 and 1995,  and for each of the three years in the period ended
December 31, 1996, is included  elsewhere in this Annual Report on Form 10-K (in
thousands, except per share data).

<TABLE>
<CAPTION>

Statement of Operations Data: (1)
                                                               Year Ended December 31,
                                        -------------------------------------------------------------------------
                                           1996           1995            1994            1993            1992
                                        ---------       ---------      ----------      ----------     -----------
Revenues from:
<S>                                     <C>             <C>             <C>            <C>            <C>
    Ongoing operations                  $  13,524       $  10,871       $   3,448      $    1,126     $        --
    Liquidating operations                     --           7,328          15,456         (41,697)(2)     (24,874)
                                        ---------       ---------       ---------      ----------     -----------
                                        $  13,524       $  18,199       $  18,904      $  (40,571)    $   (24,874)
                                        =========       =========       =========      ==========     ===========

Net income (loss) from:
    Ongoing operations                  $   9,673       $   7,933       $   1,461      $   (3,105)    $   (2,482)
    Liquidating operations                     --           6,507          11,897         (47,913)(2)    (29,640)
                                        ---------       ---------       ---------      ----------     ----------
                                        $   9,673       $  14,440       $  13,358      $  (51,018)    $  (32,122)
                                        =========       =========       =========      ==========     ==========


                                     - 10 -
<PAGE>

                                                               Year Ended December 31,
                                        -------------------------------------------------------------------------
                                          1996            1995            1994            1993            1992
                                        ---------       ---------       ---------      ----------      ----------

Net income (loss) per share             $     .39       $    0.60       $    0.92      $   (3.64)(2)   $    (2.30)

Dividends per share                     $     .37       $    0.34       $    0.33      $    3.99 (3)   $     1.18

Weighted-average shares
   outstanding                             24,595          24,279          14,548         14,024           13,986


Balance Sheet Data:
                                                                    December 31,
                                        -------------------------------------------------------------------------

                                          1996            1995            1994            1993            1992
                                        ---------      ----------      ----------      -----------    -----------

Total assets                            $  90,344      $   79,653     $   109,539      $   94,250     $   241,116
Secured notes payable                          --              --          30,592          42,000          48,000
Total stockholders' equity                 86,365          78,759          72,965 (4)      47,187 (5)     153,316
Book value per share                    $    3.48      $     3.23     $      3.01 (4)  $     3.35 (5) $     10.96
<FN>
--------------------------
1    During  1993  through  1995,  the  Company  sold  substantially  all of its
     interests  in  collateralized   mortgage  obligations  ("CMOs").  CMOs  are
     multi-class  issuances  of bonds  which are  secured  and  funded as to the
     payment of interest  and  repayment  of  principal  by a specific  group of
     mortgage loans or mortgage backed certificates and other collateral.  These
     ownership  interests are referred to as "CMO Ownership  Interests." Because
     of the sale of these  interests,  the Company has classified as liquidating
     operations  its revenues from CMO Ownership  Interests  along with expenses
     directly allocable to the CMO Ownership  Interests.  All other revenues and
     expenses of the Company,  including  corporate  general and  administrative
     expenses, are classified as ongoing operations.
2    Includes   $24,399,000  ($1.74  per  share)  of  cumulative  effect  of  an
     accounting  change  from  adoption of  Statement  of  Financial  Accounting
     Standards No. 115,  Accounting  for Certain  Investments in Debt and Equity
     Securities ("FAS 115").
3    Includes $.25 per share in cash and $3.74 per share in shares of Commercial
     Assets common stock.
4    Includes  $17,208,000 of net proceeds and 10,053,794 shares of Common Stock
     from a one-for-one  rights offering of Common Stock completed  December 16,
     1994 (the "Rights Offering"). Shares of Common Stock were sold at $1.90 per
     share,  $2.04 per share less than the book value of the Common  Stock prior
     to the  Rights  Offering  which  reduced  the book  value  per  share  from
     approximately $3.94 to $3.01.
5    The decrease in book value per share between 1992 and 1993  reflects, among
     other  things,  the payment of a  dividend of $3.99 per share,  including a
     dividend of  $3.74 per share  in the form of  shares  of Commercial  Assets
     common stock.
</FN>
</TABLE>

                                     - 11 -
<PAGE>

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


                          RESULTS OF OPERATIONS FOR THE
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

         The table below summarizes the Company's  results of operations  during
the three years ended December 31, 1996 (in thousands, except per share data).
<TABLE>
<CAPTION>

                                                                                     Year Ended December 31,
                                                                               ----------------------------------
Ongoing Operations:                                                              1996          1995          1994
                                                                               ---------     ---------    -------
    Revenues
<S>                                                                            <C>           <C>          <C>
      Non-agency MBS bonds                                                     $ 11,513      $  8,499     $   1,531
      Equity in earnings of Commercial Assets                                     1,875         1,742         1,354
      Other income and expenses, net                                                136           630           563
                                                                               --------      --------     ---------

                                                                                 13,524        10,871         3,448
                                                                               --------      --------     ---------
    Expenses
      Management fees                                                             1,793           980           253
      General and administrative                                                  1,145         1,895         1,586
      Elimination of DERs                                                           825            --            --
      Interest expense                                                               88            63           148
                                                                               --------      --------     ---------
                                                                                  3,851         2,938         1,987
                                                                               --------      --------     ---------

    Earnings from ongoing operations                                              9,673         7,933         1,461
                                                                               --------      --------     ---------

    Earnings from liquidating operations (1)                                         --         6,507         11,897
                                                                              ---------     ---------     ----------

Book income                                                                   $   9,673     $  14,440     $   13,358
                                                                              =========     =========     ==========

Earnings from ongoing operations per share                                    $     .39     $     .33     $      .10
Earnings from liquidating operations per share (1)                                   --           .27            .82
                                                                              ---------     ---------     ----------
Book income per share                                                         $     .39     $     .60     $      .92
                                                                              =========     =========     ==========

Estimated REIT Income (Loss):
    Ongoing operations                                                        $  14,959     $  13,211     $    3,401
    Liquidating operations (1)                                                   (1,002)       (5,886)       (25,521)
                                                                              ---------     ---------     ----------

Estimated REIT income (loss)                                                  $  13,957     $    7,325    $  (22,120)
                                                                              =========     ==========    ==========
Estimated REIT income (loss) per share                                        $     .57      $     .30    $    (1.52)
                                                                              =========      =========    ==========

Excess Inclusion income                                                       $      --     $     636     $    3,769
                                                                              =========     =========     ==========
Excess Inclusion income per share                                             $      --     $     .03     $      .26
                                                                              =========     =========     ==========

Dividends                                                                     $   9,128     $   8,255     $    4,959
                                                                              =========     =========     ==========
Dividends per share                                                           $     .37     $     .34     $      .33
                                                                              =========     =========     ==========

Weighted-average shares outstanding (2)                                          24,595        24,279         14,548


                                     - 12 -
<PAGE>
<FN>
--------------------------
1    The Company has classified its revenues from CMO Ownership  Interests along
     with expenses directly allocable to the CMO Ownership Interests as revenues
     and income from liquidating operations.  All other revenues and expenses of
     the Company,  including corporate general and administrative  expenses, are
     classified as being generated by ongoing operations.
2    In  December  1994,  the  Rights  Offering  resulted  in  net  proceeds  of
     $17,208,000  and increased the Company's  outstanding  Common Stock by 71%,
     from 14,158,208  shares to 24,212,002  shares.  Shares issued in the Rights
     Offering were sold for $1.90 per share, $2.04 per share less than the $3.94
     book value of such shares  immediately  prior to  completion  of the Rights
     Offering.  The  proceeds of the Rights  Offering  principally  were used to
     acquire non-agency MBS bonds.
</FN>
</TABLE>


Book Income

         Non-agency  MBS Bonds - Book income from the Company's  non-agency  MBS
bonds increased  significantly during 1996 compared with 1995 and 1994 primarily
due to the  acquisition  of 55 and 74 non-agency MBS bonds during 1996 and 1995,
respectively,   with  an  outstanding   principal  balance  of  $60,478,000  and
$99,398,000,  respectively,  and a  weighted-average  coupon  of 7.4% and  6.9%,
respectively. The Company's effective book yield on its non-agency MBS bonds for
the years ended December 31, 1996, 1995 and 1994,  taking into  consideration an
estimate of future credit losses, was 18.5%, 18.7%, and 15.0%, respectively.

         The Company's  non-agency  MBS bonds are subject to the risk of default
and foreclosure loss from the $43.7 billion  principal balance of non-conforming
mortgage  loans that, at December 31, 1996,  backed its bonds.  The  subordinate
non-agency  MBS bonds owned by the Company  represent,  on average,  .51% of the
bond issuances that are collateralized by these mortgages.

         For the years ended  December 31, 1996,  1995 and 1994,  the  principal
amount of credit losses on the Company's  non-agency MBS bonds was  $13,295,000,
$3,056,000  and  $331,000,  respectively.  Based on the  cost of the  applicable
non-agency MBS bonds,  these losses had economic values (loss  multiplied by the
purchase  price   percentage  less  amounts   collected  under   indemnification
agreements) of $3,518,000,  $265,000 and $7,000 for the years ended December 31,
1996, 1995 and 1994,  respectively.  The  significant  increase in credit losses
allocated  to the  Company is due to: (i) the  acquisition  of  $60,478,000  and
$99,398,000  of principal  amount of bonds  during the years ended  December 31,
1996 and 1995, respectively;  and (ii) as mortgages mature, in particular during
their  first five  years,  the  defaults  and the  resulting  credit  losses are
expected to increase.

         Subsequent  to year end,  the  Company  entered  into an  agreement  to
contribute its  non-agency MBS bonds into a structured  transaction in which the
Company  will  retain a small  equity  interest  in the  portfolio.  The Company
anticipates  that the  structured  transaction  will  result  in a 1997  gain of
approximately  $6,000,000,  or $.24 per  share,  and the  Company's  receipt  of
approximately  $68,000,000  of cash  after  payment  of  transaction  costs  and
management  fees. The Company plans to reinvest the cash in real estate,  a step
which would likely reduce its return on assets from 1996 levels.  The Company is
beginning the process of reinvesting  the proceeds of the  transaction,  and the
impact on future earnings is dependent upon,  among other things,  the yields of
the acquired assets and the timing of such acquisitions, and cannot be estimated
at this time. See "FORWARD LOOKING INFORMATION" below.

         Commercial  Assets - Income  from the  Company's  shares of  Commercial
Assets  (which,  for book income  purposes,  is based on the  Company's pro rata
share of Commercial  Assets' book income) for the years ended December 31, 1996,


                                     - 13 -
<PAGE>

1995  and  1994  was  $1,875,000,   $1,742,000  and  $1,354,000,   respectively.
Commercial  Assets  reported to the Company that the increase in income for 1996
over  1995 is  primarily  due to the early  redemption  of two bonds in May 1996
offset by a one-time,  non-cash  charge  resulting  from the issuance of 157,413
shares of  Commercial  Assets  common  stock  for the  elimination  of  dividend
equivalent  rights under its stock option plan.  Commercial Assets also reported
that the  increase  in  income  for  1995  over  1994 was due to a full  year of
earnings in 1995 from the  $91,971,000  principal  amount of CMBS bonds acquired
during 1994.

         At  December  31,  1996 and 1995,  Commercial  Assets'  CMBS  bonds had
outstanding  principal  balances of $89,297,000 and $100,368,000,  respectively,
and weighted-average coupons of 8.15% and 8.24%,  respectively.  The decrease in
the outstanding principal balance and weighted-average  coupon of the CMBS bonds
from  December 31, 1995,  to December 31, 1996,  was primarily the result of the
early bond redemptions in May 1996.

         According to Commercial  Assets,  at December 31, 1996 and 1995, it had
$3,389,000 and  $4,245,000,  respectively,  of unrealized  holding losses on its
CMBS bonds. The Company's share of these unrealized holding losses, $907,000 and
$1,156,000  as of December  31, 1996 and 1995,  respectively,  was recorded as a
reduction in the carrying value of its investment in Commercial  Assets and as a
component of stockholders' equity.

         Other Income and Expenses, Net - Other income and expenses from ongoing
operations  decreased during 1996 compared to 1995 and 1994 due to a decrease in
income  from  other  sources  and  lower  interest  income  from  cash  and cash
equivalents,  because the Company has used  substantially  all of its  available
cash to acquire non-agency MBS bonds.

         Management Fees - Included in Management  Fees  attributable to ongoing
operations  are Incentive  Fees incurred by the Company along with Base Fees and
Administrative  Fees  applicable to the  non-agency MBS bonds.  Management  Fees
included in ongoing operations increased during 1996 compared with 1995 and 1994
due to: (i) higher  Administrative  and Base Fees as a result of acquisitions of
non-agency  MBS bonds during 1994 through  1996;  (ii) a change in the method of
calculating  Incentive  Fees  pursuant  to  the  terms  of an  amendment  to the
Management  Agreement  dated  January 1, 1996;  (iii) a decrease  in the average
Ten-Year U.S.  Treasury Rate to 6.44% during 1996,  from 6.58% in 1995 and 7.09%
in 1994 which had the effect of lowering the threshold above which the Incentive
Fees are paid;  and (iv) higher book income in 1996  compared to 1995 and higher
distributions in 1995 compared to 1994.

         The  Company's  day-to-day  operations  are  performed  by the  Manager
pursuant to the Management  Agreement  which is in effect  through  December 31,
1997.  The  Management  Agreement  has  been  approved  by  a  majority  of  the
Independent  Directors.  Prior to April 1,  1996,  the  Company  was  managed by
Financial  Asset  Management  Corporation,  a  wholly  owned  subsidiary  of MDC
Holdings, Inc. ("MDC").  Effective April 1, 1996, Financial Asset Management LLC
assumed the obligations of the Management Agreement. From April 1, 1996, through
September 30, 1996,  the Manager was 80% owned by two wholly owned  subsidiaries
of MDC and 20% owned by  Spencer I.  Browne  who was at the time the  President,
Chief  Executive  Officer and a Director of the Company.  On September 30, 1996,
MDC acquired Mr.  Browne's 20% interest in the Manager and then sold 100% of the
Manager to an investor  group led by Terry  Considine and Thomas L. Rhodes.  MDC
received  sales  proceeds  of  $11,450,000,  including  $6,000,000  of cash  and
$5,450,000 of subordinated convertible notes. The notes are payable at specified
dates   during  the  next  ten  years  and  are   convertible,   under   certain
circumstances, into as much as a 47.6% ownership interest in the Manager.


                                     - 14 -
<PAGE>

         In connection with the sale, Larry A. Mizel resigned as Chairman of the
Board of Directors and Mr. Browne resigned as President, Chief Executive Officer
and a Director of the Company. Terry Considine and Thomas L. Rhodes were elected
as  Co-Chairmen  of the Board of Directors and Co-Chief  Executive  Officers and
Leslie B. Fox was elected as President of the Company.

         The 1997 Plan provides for  consideration of the Company's  acquisition
of the Manager,  a step which would result in the Company becoming  self-managed
and fully  integrated.  A special  committee of the Board of Directors  has been
established to evaluate this  transaction.  If the Company acquires the Manager,
management  fees  will be  discontinued,  but the  Company  will  receive  other
revenues  and be  obligated  for  expenses  of the  Manager.  The  impact of the
potential  acquisition  on the  Company's  earnings  and  cashflow  is, in part,
dependent upon the  consideration  paid for the Manager and currently  cannot be
estimated.

         General  and  Administrative  Expenses  -  General  and  administrative
expenses  decreased  during  1996  compared  with  1995  due  primarily  to  the
elimination of Dividend  Equivalent Rights ("DER") expense in the second quarter
of 1996,  reductions in legal and consulting  fees,  and lower costs  associated
with the  Company's  annual  report.  General and  administrative  expenses from
ongoing operations  increased during 1995 compared with 1994 due to, among other
things, an increase in DER expense, legal fees and printing costs.

         Elimination  of DERs - Prior  to May  1996,  options  holders  received
shares  of  Common  Stock  equal to the value of  dividends  received  as if the
options were fully exercised. At their annual meeting in May 1996, the Company's
shareowners  approved an amendment to the Company's 1986 Stock Option Plan which
permitted  the Company to issue shares of Common Stock to the holders of options
who  voluntarily  relinquished  their right to receive  DERs in the future.  The
issuance of Common Stock in exchange for the right to receive DERs in the future
resulted in a  one-time,  non-cash  charge to second  quarter  1996  earnings of
$825,000 and the issuance of 244,391  shares of Common Stock.  The effect of the
amendment will be to reduce general and administrative expenses from the accrual
of DERs from  options  granted  under the 1986 Stock  Option  Plan.  General and
administrative expenses related to DERs totaled $337,000 in 1995.

         Interest  Expense  -  Interest  expense  on  the  Company's   borrowing
facilities  increased  during 1996 compared to 1995  reflecting  higher interest
rates and the increase in the average daily balance to $1,058,000 from $813,000.
Interest  expense on the Company's  borrowing  facilities  decreased during 1995
compared  with 1994,  principally  due to lower  borrowings  in 1995  because of
excess  available cash from the Rights  Offering in December 1994. The effective
interest rate under the Company's  short-term  borrowing facilities during 1996,
1995 and 1994 was 8.18%, 7.21% and 5.02% per annum, respectively.

         Liquidating  Operations - In 1993,  the Company  began to liquidate its
CMO Ownership  Interests and acquire  credit-sensitive  non-agency MBS bonds and
shares  of  Commercial  Assets.  Accordingly,  the  Company  has  classified  as
liquidating  operations  its revenues  from CMO Ownership  Interests  along with
expenses directly allocable to the CMO Ownership  Interests.  As of December 31,
1995,  the  Company  had  substantially  liquidated  all  of its  CMO  Ownership
Interests.  Earnings from liquidating operations during the years ended December
31, 1995 and 1994, were comprised of the following (in thousands):


                                     - 15 -
<PAGE>

                                                        Year Ended December 31,
                                                       -------------------------
                                                         1995             1994
                                                       -------          --------
Revenues
    CMO Ownership Interests                            $ 1,734          $  2,082
    Interest income                                        225               728
    Net gain on sale of CMO Ownership Interests          5,369            12,646
                                                       -------          --------
       Total revenues                                    7,328            15,456
                                                       -------          --------

Expenses
    Management fees                                        234               496
    General and administrative                              23               339
    Interest                                               564             2,724
                                                       -------          --------
       Total expenses                                      821             3,559
                                                       -------          --------

Earnings from liquidating operations                   $ 6,507          $ 11,897
                                                       =======          ========

         The formal agreements  between the issuer of each of the Company's CMOs
and the related  bondholders  allow the issuer of the CMO Ownership  Interest to
sell the mortgage collateral and redeem the bonds at par at a predetermined date
or if the bond balance falls below a predetermined  amount, for example,  10% of
the  original  bond  balance  (referred  to as the "Call  Rights").  Any  excess
proceeds  from the sale of the mortgage  collateral  over the funds  required to
redeem the bonds is passed on to the residual interest holder.  During the years
ended December 31, 1995 and 1994,  the Company  exercised Call Rights on its CMO
Ownership   Interests   resulting  in  gains  of  $2,153,000  and   $12,883,000,
respectively.  The exercise of these Call Rights during the years ended December
31, 1995 and 1994  reduced the  outstanding  principal  amount of the  Company's
mortgage collateral by $45,698,000 and $184,491,000, respectively.

         On March 30, 1995, Asset Investors Securitization Corporation, a wholly
owned subsidiary of the Company ("Asset  Securitization")  sold 28 CMO Ownership
Interests  and repaid the  related  outstanding  secured  notes  payable.  As of
December 31, 1994, the Company  recognized  $1,205,000 of net holding losses for
book  income  purposes  related to the 28 CMO  Ownership  Interests  sold.  As a
result, no gain or loss was recorded on the sale of the CMO Ownership  Interests
and repayment of the secured notes in 1995.  During the years ended December 31,
1995 and 1994,  the Company  earned book  income  from Asset  Securitization  of
$733,000 and $3,306,000 (including $4,664,000 of gains from the exercise of Call
Rights in 1994), respectively.

        On November 10, 1995, the Company sold 23 CMO Ownership Interests with a
net  carrying  value of  $2,315,000  for  $5,517,000  resulting in a net gain of
$3,202,000 which was included in earnings from liquidating operations in 1995.

REIT Income

         The Company's estimated REIT income from ongoing operations during 1996
improved  over 1995 and 1994 due to higher REIT  earnings  from  non-agency  MBS
bonds and  increased  dividends  from  Commercial  Assets.  The increase in REIT
earnings from  non-agency  MBS bonds was due to  acquisitions  of non-agency MBS
bonds in 1995 and 1996.  The Company's  estimated  REIT losses from  liquidating
operations  for 1996 were less than 1995 and 1994 due to the sale of many of the
CMO Ownership Interests which generated REIT losses.


                                     - 16 -
<PAGE>

         Substantially all of the difference between REIT income and book income
is due to: (i) the method of  recording  credit  losses,  which for REIT  income
purposes  are not deducted  until they occur and which for book income  purposes
are  estimated  and  reflected  as a reduction  of revenues in the form of lower
discount  amortization  included  in income  from  non-agency  MBS  bonds;  (ii)
differences  in the  calculation of discount and premium  amortization  for REIT
income compared to book income attributable to non-agency MBS bonds; (iii) gains
on the sales of assets recorded for book income purposes that resulted in either
capital  losses or capital  gains for REIT income  purposes  that are reduced to
zero by the Company's  capital loss  carryover;  and (iv)  recognition of income
from  Commercial  Assets which for REIT income  purposes is based upon dividends
received and which for book income  purposes is based on the  Company's pro rata
share of Commercial Assets' book income.

Excess Inclusion Income

         The Company's  Excess Inclusion income for the years ended December 31,
1996,  1995 and 1994  was $0,  $636,000  and  $3,769,000,  respectively.  Excess
Inclusion income was generated from certain of the CMO Ownership Interests owned
by the Company. Due to the liquidation of these CMO Ownership Interests,  Excess
Inclusion income is not expected to be material in future periods.

NOL and Capital Loss Carryovers

         At December 31, 1996,  the Company's  NOL  carryover was  approximately
$96,000,000 and its capital loss carryover was  approximately  $35,000,000.  The
NOL  carryover  may be used to offset  all or a portion  of the  Company's  REIT
income,  and as a result,  to reduce the amount of income that the Company  must
distribute to shareowners to maintain its status as a REIT. The NOL carryover is
scheduled  to expire  between  2007 and 2009 and the capital  loss  carryover is
scheduled to expire between 1998 and 2000.

Dividend Distributions

         During 1996, the Company declared regular dividends of $9,128,000 ($.37
per share) compared to 1995 regular  dividends  declared of $8,255,000 ($.34 per
share). Twenty percent, or $.07 per share, of the 1995 distributions constituted
return of capital distributions, generally not taxable to the shareowners to the
extent of their basis in their stock.  Return of capital  distributions were not
made in 1996.  During 1994, the Company declared regular dividends of $3,809,000
($.27 per share) and special dividends of $1,150,000 ($.06 per share).

                         LIQUIDITY AND CAPITAL RESOURCES

         The  Company  uses its cash flow from  operating  activities  and other
capital resources to provide working capital to support its operations,  for the
payment of dividends to its  shareowners,  for the acquisition of assets and for
the repayment of borrowings.

         The table below summarizes the Company's  operating cash flows and uses
of those cash  flows for the years ended  December 31, 1996,  1995 and  1994 (in
thousands).


                                     - 17 -
<PAGE>
<TABLE>
<CAPTION>

                                                                               Year Ended December 31,
                                                                   ----------------------------------------------
Cash Generated By Ongoing Operations:                                  1996              1995             1994
                                                                   -----------        ----------       ----------
    Non-agency MBS bonds:
<S>                                                                <C>                <C>              <C>
       Interest                                                    $    14,511        $    9,830       $    1,869
       Principal                                                         2,769             2,017              599
       Indemnifications                                                    382               807              137
    Dividends from Commercial Assets                                     1,988             2,430              911
    Borrowings (repayment) of short-term debt                            3,000            (2,758)          (1,482)
                                                                   -----------        ----------       ----------
         Net Cash Generated by Ongoing Operations                       22,650            12,326            2,034
                                                                   -----------        ----------       ----------

Cash Generated By Liquidating Operations:
    CMO Ownership Interests                                                 --             4,743           21,083
    Release of restricted cash upon
       repayment of secured notes payable                                   --            15,862            1,201
    Sale of assets                                                          --            25,038           17,194
    Repayment of secured notes payable                                      --           (30,592)         (11,408)
                                                                   -----------        ----------       ----------
         Net Cash Generated by Liquidating Operations                       --            15,051           28,070

Total Expenses, Net of Interest Income and Other                        (2,841)           (4,064)          (2,035)
                                                                   -----------        ----------       ----------

Cash Generated by Operations                                       $    19,809        $   23,313       $   28,069
                                                                   ===========        ==========       ==========

Issuance of Common Stock                                           $       301        $       --       $   17,208
                                                                   ===========        ==========       ==========

Dividends Paid                                                     $    (9,128)       $   (8,981)      $   (4,232)
                                                                   ===========        ==========       ==========

Acquisitions of non-agency MBS bonds                               $   (15,893)       $  (23,965)      $  (33,624)
                                                                   ===========        ==========       ==========
</TABLE>

         The  Company's  cash from ongoing  operations  continued to increase in
1996  compared to 1995 and 1994 due to  acquisitions  of  non-agency  MBS bonds.
Dividends from Commercial  Assets have decreased  because 1995 dividends include
the dividend  declared in the fourth quarter of 1994 and  distributed in January
1995.

         Cash from liquidating operations, primarily consisting of CMO Ownership
Interests, ended in 1995  because of the  exercises  of Call Rights and sales of
CMO Ownership Interests in 1994 and 1995.

         On July 19, 1995, the Company obtained a one-year, $1,000,000 unsecured
line of credit.  The line of credit was renewed for an  additional  year on July
19, 1996.  Advances under this line bear interest at the prime rate. At December
31, 1996 and 1995, there were no borrowings under this line of credit.

         On July 24, 1996, the Company  secured a $10,000,000  revolving  credit
and term loan agreement with a bank.  The loan is  collateralized  by certain of
the Company's  non-agency  MBS bonds with a net carrying value of $19,461,000 at
December 31, 1996.  At December 31,  1996,  $3,000,000  was borrowed  under this
credit  facility at an average  effective  interest rate of 8.25%.  The loan was
repaid subsequent to year-end as a result of the structured  transaction for the
non-agency MBS bonds. One of the Company's  Independent Directors is a member of
the Board of Directors of the parent holding company of the bank.


                                     - 18 -
<PAGE>

         In February 1997,  the Company  entered into an agreement to contribute
its  non-agency MBS bonds into a structured  transaction  which will provide the
Company with  approximately  $68,000,000  of cash after  payment of  transaction
costs and  management  fees.  The  Company  plans to  reinvest  the cash in real
estate.  Investments  in real estate will likely reduce the Company's  return on
assets from 1996  levels,  however,  such  investments  may result in  increased
opportunities for capital  appreciation and reduce portfolio risk. The Company's
goal is to invest in real estate assets with: (i) future growth potential,  (ii)
a stable,  unlevered  return of approximately 9% to 10%, and (iii) the option to
convert the underlying  land to an alternative use at some future point in time.
There is no  assurance  that the  Company  will  achieve  this  goal.  Until the
proceeds from the structured transaction can be reinvested into real estate, the
Company may invest the proceeds in short-term  investments  which generate lower
returns. See "FORWARD LOOKING INFORMATION" below.

         The Company had  available  cash of  $5,328,000  at December  31, 1995,
generated cash from operations of $19,809,000 during the year ended December 31,
1996,  including  $3,000,000  borrowed  on the  revolving  credit  and term loan
agreement,  enabling  the  Company  to  acquire  55  non-agency  MBS  bonds  for
$15,893,000.  The Company also declared $9,128,000 ($.37 per share) in dividends
during 1996.  The Board of Directors  will  continue its policy of reviewing its
dividends on a  quarter-to-quarter  basis and will adjust distribution levels as
it considers necessary. See "FORWARD LOOKING INFORMATION" below.

Fair Value of Financial Instruments

         The estimates of fair value of the Company's financial instruments have
been determined by the Company using available market  information and valuation
methodologies.   The  fair  values  of  the   Company's   short-term   financial
instruments,  including cash and cash equivalents,  accounts payable and accrued
liabilities,  management fees payable and short-term borrowings are estimated to
equal  their  carrying  amounts or cost basis  because of the short  maturity of
these  instruments.  The estimate of fair value of the  Company's  investment in
Commercial  Assets is based upon the per share trading price of the common stock
of Commercial Assets.

         Due to the complex nature of mortgage securitization structures,  every
non-agency  MBS  bond  and CMO  Ownership  Interest  varies  significantly  from
issuance to issuance.  The collateral for each issuance is separate and distinct
from that underlying the collateral of any other issuance. These instruments are
not listed or traded on any exchange or other active market from which to obtain
a  quoted  market  price  for  these  financial  instruments.  Accordingly,  the
estimates  of fair value have been  determined  by the Company  using  available
market  information  and  valuation  methodologies.  Considerable  judgment  was
required to interpret the market  information  and develop the estimates of fair
value at December 31, 1995. At December 31, 1996,  the  estimated  fair value of
the  non-agency  MBS bonds  was  based  upon the  anticipated  proceeds,  net of
transaction costs, from contributing the portfolio into the proposed  structured
transaction.

         EXCEPT FOR THE ESTIMATED  FAIR VALUE OF THE  NON-AGENCY MBS BONDS BASED
ON THE PROPOSED  STRUCTURED  TRANSACTION,  THE ESTIMATES OF FAIR VALUE PRESENTED
HEREIN ARE NOT  NECESSARILY  INDICATIVE OF THE AMOUNTS THE COMPANY COULD REALIZE
IN A  CURRENT  MARKET  TRANSACTION.  THE USE OF  DIFFERENT  MARKET  ASSUMPTIONS,
VALUATION  METHODOLOGIES  OR BOTH MAY HAVE A MATERIAL EFFECT ON THE ESTIMATES OF


                                     - 19 -
<PAGE>

FAIR VALUE.  THE FAIR VALUE  ESTIMATES  PRESENTED  HEREIN ARE BASED ON PERTINENT
INFORMATION AVAILABLE TO MANAGEMENT AS OF FEBRUARY 28, 1997. FUTURE ESTIMATES OF
FAIR VALUE MAY DIFFER SIGNIFICANTLY FROM THE AMOUNTS PRESENTED HEREIN.

         At  December  31,  1996,  the  estimated  fair  value of the  Company's
ownership interest in Commercial Assets was $18,638,000, compared to $15,531,000
at December 31, 1995.  The increase in fair value was due to the increase in the
trading  price per share from $5.625 per share at December 31, 1995 to $6.75 per
share at  December  31,  1996.  At  February  28,  1997,  the  closing  price of
Commercial Assets was $6.5625 per share.

         At December 31, 1996 and 1995,  the Company's  non-agency MBS bonds are
carried  at  their  estimated  fair  value  of  $68,079,000   and   $52,753,000,
respectively.  The increase in the fair value was due to the  acquisition  of 55
non-agency  MBS bonds and  unrealized  holding gains of  $5,601,000  during 1996
offset by principal  repayments and  indemnifications  received during 1996. The
estimated  fair value of the Company's  non-agency MBS bonds will fluctuate over
time due to, among other things,  changes in collateral  prepayments  and credit
performance,  size of the Company's  class relative to the size of the offering,
liquidity in the mortgage-backed securities market, changes in the values of the
related real estate and changes in prevailing long-term interest rates.


                           FORWARD LOOKING INFORMATION

         Some of the statements in this Form 10-K, as well as statements made by
the Company in periodic press  releases,  oral  statements made by the Company's
officials to analysts and shareowners in the course of  presentations  about the
Company and conference calls following  quarterly earnings releases,  constitute
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation  Reform  Act of 1995  (the  "Reform  Act").  The  statements  include
projections  of the  Company's  cash flow and  dividends.  Such  forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual  results,  performance or achievements of the Company to be
materially  different  from any  future  results,  performance  or  achievements
expressed or implied by the forward-looking statements. Such factors include the
following:  general  economic and business  conditions;  interest  rate changes;
risks   inherent  in  owning  real  estate  or  debt  secured  by  real  estate;
competition;  the  availability  of real estate  assets at prices which meet the
Company's  investment  criteria;  the  Company's  ability to  maintain or reduce
expense levels and the Company's ability to complete the 1997 Plan.


                                     - 20 -
<PAGE>

Item 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                          Index to Financial Statements

                                                                            PAGE

Consolidated Financial Statements of Asset Investors
Corporation and Subsidiaries

         Report of Independent Auditors..................................    F-2

         Consolidated Balance Sheets as of December 31,
         1996 and 1995.........l.........................................    F-3

         Consolidated Statements of Income for the years
         ended December 31, 1996, 1995 and 1994..........................    F-4

         Consolidated Statements of Stockholders' Equity
         for the years ended December 31, 1996, 1995 and 1994...........     F-5

         Consolidated Statements of Cash Flows for the
         years ended December 31, 1996, 1995 and 1994....................    F-6

         Notes to Consolidated Financial Statements......................    F-7


Financial Statements of Commercial Assets, Inc. (a significant
unconsolidated subsidiary of the Company)

         Report of Independent Auditors.................................    F-18

         Balance Sheets as of December 31, 1996 and 1995................    F-19

         Statements of Income for the years ended
         December 31, 1996, 1995 and 1994...............................    F-20

         Statements of Stockholders' Equity for the
         years ended December 31, 1996, 1995 and 1994...................    F-21

         Statements of Cash Flows for the
         years ended December 31, 1996, 1995 and 1994...................    F-22

         Notes to Financial Statements..................................    F-23


                                      F-1
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS



Board of Directors and Shareowners
Asset Investors Corporation
Denver, Colorado


         We have audited the accompanying  consolidated  balance sheets of Asset
Investors Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated  statements of income,  stockholders' equity and cash flows
for each of the  three  years in the  period  ended  December  31,  1996.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Asset Investors  Corporation and  subsidiaries as of December 31, 1996 and 1995,
and the  consolidated  results of their operations and their cash flows for each
of the three years in the period  ended  December  31, 1996 in  conformity  with
generally accepted accounting principles.







                                                               ERNST & YOUNG LLP

Phoenix, Arizona
February 28, 1997


                                      F-2
<PAGE>

                  ASSET INVESTORS CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                          (Dollar amounts in thousands)
<TABLE>
<CAPTION>

                                                                                             December 31,
                                                                                   --------------------------------
                                                                                      1996                   1995
                                                                                   ----------            ----------
Assets
<S>                                                                                <C>                   <C>
   Cash and cash equivalents                                                       $      417            $    5,328
   Non-agency MBS Bonds                                                                68,079                52,753
   Investment in Commercial Assets                                                     19,361                19,225
   Other assets, net                                                                    2,487                 2,347
                                                                                   ----------            ----------

       Total Assets                                                                $   90,344            $   79,653
                                                                                   ==========            ==========

Liabilities
   Accounts payable and accrued liabilities                                        $      454            $      416
   Management fees payable                                                                525                   478
   Short-term borrowings                                                                3,000                    --
                                                                                   ----------            ----------

       Total Liabilities                                                                3,979                   894
                                                                                   ----------            ----------

Stockholders' Equity
   Common Stock, par value $.01 per share, 50,000,000
     shares authorized 24,840,140 and 24,355,862 shares
     issued and outstanding, respectively                                                 248                   244
   Additional paid-in capital                                                         228,753               227,546

   Cumulative dividends                                                              (238,367)             (229,239)
   Cumulative net income                                                               90,638                80,965
                                                                                   ----------            ----------
     Dividends in excess of net income                                               (147,729)             (148,274)

   Unrealized holding gains (losses) on debt securities                                 5,093                  (757)
                                                                                   ----------            ----------

       Total Stockholders' Equity                                                      86,365                78,759
                                                                                   ----------            ----------

       Total Liabilities and Stockholders' Equity                                  $   90,344            $   79,653
                                                                                   ==========            ==========
</TABLE>


                See Notes to Consolidated Financial Statements.


                                      F-3
<PAGE>

                  ASSET INVESTORS CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                      (In thousands, except per share data)
<TABLE>
<CAPTION>

                                                                               Year Ended December 31,
                                                                    --------------------------------------------
Ongoing Operations:                                                   1996               1995             1994
                                                                    ---------         ---------        ---------
   Revenues
<S>                                                                 <C>               <C>              <C>
      Non-agency MBS bonds                                          $  11,513         $   8,499        $   1,531
      Equity in earnings of Commercial Assets                           1,875             1,742            1,354
      Other income and expenses, net                                      136               630              563
                                                                    ---------         ---------        ---------
           Total revenues                                              13,524            10,871            3,448
                                                                    ---------         ---------        ---------

   Expenses
      Management fees                                                   1,793               980              253
      General and administrative                                        1,145             1,895            1,586
      Elimination of DERs                                                 825                --               --
      Interest expense                                                     88                63              148
                                                                    ---------         ---------        ---------
           Total expenses                                               3,851             2,938            1,987
                                                                    ---------         ---------        ---------

Earnings from ongoing operations                                        9,673             7,933            1,461
                                                                    ---------         ---------        ---------


Earnings from liquidating operations                                       --             6,507           11,897
                                                                    ---------         ---------        ---------

Net income                                                          $   9,673         $  14,440        $  13,358
                                                                    =========         =========        =========

Net income per share                                                $     .39         $     .60        $     .92
                                                                    =========         =========        =========

Weighted-average shares outstanding                                    24,595            24,279           14,548

Dividends per share                                                 $     .37         $     .34        $     .33

</TABLE>

                See Notes to Consolidated Financial Statements.

                                      F-4
<PAGE>

                  ASSET INVESTORS CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                                                       Unrealized
                                                                        Additional   Dividends In    Holding Gains       Total
                                                     Common Stock        Paid-In     Excess of Net    (Losses) on     Stockholders'
                                                  Shares      Amount     Capital        Income      Debt Securities      Equity
                                                  ------     -------   ----------    -----------    ---------------    ----------

<S>                                               <C>        <C>       <C>           <C>                 <C>             <C>
Balances - December 31, 1993                      14,080     $ 141     $  209,904    $  (162,858)      $    --         $ 47,187

   Issuance of Common Stock                       10,132       101         17,278             --            --           17,379
   Net income                                         --        --             --         13,358            --           13,358
   Dividends                                          --        --             --         (4,959)           --           (4,959)
                                                  ------     -----     ----------    -----------       -------         --------

Balances - December 31, 1994                      24,212       242        227,182       (154,459)           --           72,965

   Issuance of Common Stock                          144         2            364             --            --              366
   Net income                                         --        --             --         14,440            --           14,440
   Dividends                                          --        --             --         (8,255)           --           (8,255)
   Unrealized depreciation of CMBS bonds net
     of appreciation of non-agency MBS bonds          --        --             --             --          (757)            (757)
                                                  ------     -----     ----------    -----------       -------         --------

Balances - December 31, 1995                      24,356       244        227,546       (148,274)         (757)          78,759

   Issuance of Common Stock                          484         4          1,207             --            --            1,211
   Net income                                         --        --             --          9,673            --            9,673
   Dividends                                          --        --             --         (9,128)           --           (9,128)
   Unrealized appreciation of CMBS bonds and
     non-agency MBS bonds                             --        --             --             --         5,850            5,850
                                                  ------     -----     ----------    -----------       -------         --------

Balances - December 31, 1996                      24,840     $ 248     $  228,753    $  (147,729)      $ 5,093         $ 86,365
                                                  ======     =====     ==========    ===========       =======         ========
</TABLE>

                See Notes to Consolidated Financial Statements.

                                      F-5
<PAGE>

                  ASSET INVESTORS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                       Year Ended December 31,
                                                             -------------------------------------------
                                                                 1996            1995            1994
                                                             ---------        ---------       ----------
Cash Flows From Operating Activities
<S>                                                          <C>              <C>             <C>
   Net income                                                $   9,673        $  14,440       $   13,358
   Adjustments to reconcile net income
     to net cash flows from operating activities:
     Accretion of discounts on non-agency MBS bonds              2,998            1,331              338
     Equity in earnings of Commercial Assets                    (1,875)          (1,742)          (1,354)
     Issuance of Common Stock for the elimination of DERs          825               --               --
     (Increase) decrease in other assets                          (148)            (138)             375
     Increase (decrease) in accounts payable and accrued
        liabilities                                                197           (1,022)           1,845
     Net gain on sale of assets                                     --           (5,369)         (12,646)
     Amortization of CMO Ownership Interests                        --              923            7,738
     Write-down of CMO Ownership Interests                          --               --            2,715
                                                               -------        ---------       ----------

   Net Cash Provided By Operating Activities                    11,670            8,423           12,369
                                                               -------        ---------       ----------

Cash Flows From Investing Activities
   Acquisition of non-agency MBS bonds                         (15,893)         (23,965)         (33,624)
   Principal collections on non-agency MBS bonds                 2,769            2,017              599
   Indemnifications from non-agency MBS bonds                      382              807              137
   Dividends from Commercial Assets                              1,988            2,430              911
   Principal collections on CMO Ownership Interests                 --            2,086            8,548
   Proceeds from the sale of assets                                 --           25,038           17,194
   Release of restricted cash upon repayment of
      secured notes payable                                         --           15,862            1,201
                                                             ---------        ---------       ----------

   Net Cash (Used By) Provided By Investing Activities         (10,754)          24,275           (5,034)
                                                             ---------        ---------       ----------

Cash Flows From Financing Activities
   Dividends paid                                               (9,128)          (8,981)          (4,232)
   Increase (decrease) in short-term borrowings, net             3,000           (2,758)          (1,482)
   Repayment of secured notes payable                               --          (30,592)         (11,408)
   Issuance of Common Stock                                        301               --           17,208
                                                            ----------        ---------       ----------

   Net Cash Used By Financing Activities                        (5,827)         (42,331)              86
                                                            ----------        ---------       ----------

Cash and Cash Equivalents
   (Decrease) increase                                          (4,911)          (9,633)           7,421
   Beginning of year                                             5,328           14,961            7,540
                                                            ----------        ---------       ----------

   End of year                                              $      417        $   5,328       $   14,961
                                                            ==========        =========       ==========
</TABLE>


                See Notes to Consolidated Financial Statements.

                                      F-6
<PAGE>

                  ASSET INVESTORS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


A.       The Company

         Asset  Investors  Corporation  was  incorporated  under Maryland law on
October 14, 1986. The Common Stock is listed on the NYSE under the symbol "AIC."
The Company's assets primarily are non-agency MBS bonds and shares of Commercial
Assets' common stock.

B.       Summary of Significant Accounting Policies

         Principles of  Consolidation - The  consolidated  financial  statements
include the accounts of the Company and its wholly-owned corporate subsidiaries.
All significant  intercompany  balances and transactions have been eliminated in
consolidation.  The Company's  investment in Commercial Assets is recorded under
the equity  method.  The Company has  recorded  its  proportionate  share of the
unrealized holding losses on the CMBS bonds of Commercial Assets.

         Non-agency  MBS  Bonds  - The  Company's  non-agency  MBS  bonds  (also
referred to as high-yield bonds backed by home mortgage loans) are acquired at a
significant  discount to par value.  The amortized  cost of the  non-agency  MBS
bonds is equal to the outstanding  principal amount net of unamortized  discount
and allowances for credit  losses.  The Company  records an allowance for credit
losses when it acquires a non-agency MBS bond in an amount equal to the expected
future credit losses allocated to the subordinate bond. Future credit losses are
estimated  using a methodology  which assumes  defaults on mortgage  loans reach
their highest  levels during years three through five of the mortgage  loan. The
allowance for credit  losses is adjusted for realized  credit losses and changes
in estimates of future credit  losses.  Earnings from  non-agency  MBS bonds are
recognized  based upon the relationship of cash flows received during the period
and  estimates  of future cash flows to be received  over the life of the bonds.
The  subordinate  non-agency  MBS bonds owned by the Company  generally  are not
scheduled to receive principal  prepayments for at least their first five years.
The  principal  repayments  from the  subordinate  bonds  after year five may be
reduced by credit  losses  allocated  to the bonds  during the first five years.
Accordingly,  the pricing  discount is generally not amortized into income until
after year five when the  effects of credit  losses are more  determinable.  The
effect  of  this  income  recognition   methodology  is  to  defer  income  from
amortization of the  significant  discount on the bonds until later periods when
the  ultimate  cash flows  from the  subordinate  non-agency  MBS bonds are more
predictable.

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

         Income  Taxes - The Company  operates  in a manner  that  permits it to
qualify for the income tax treatment accorded to a REIT. If it so qualifies, the
Company's REIT income, with certain limited  exceptions,  will not be subject to
federal income tax at the corporate level.  Accordingly,  no provision for taxes
has been made in the consolidated financial statements.


                                      F-7
<PAGE>

         In order to maintain  its status as a REIT,  the Company  generally  is
required, among other things, to distribute annually to its shareowners at least
95% of its  REIT  income  reduced  by its NOL  carryover.  The  Company  also is
required to meet certain asset, income and stock ownership tests.

         Statements  of  Operations  - In 1993,  the Company  began a program of
liquidating its CMO Ownership  Interests and acquiring  credit-sensitive  assets
(non-agency MBS bonds and shares of Commercial Assets). Accordingly, the Company
classified as liquidating  operations its revenues from CMO Ownership  Interests
along with expenses directly allocable to the CMO Ownership Interests, including
interest on  borrowings  collateralized  by CMO Ownership  Interests.  All other
revenues  and  expenses  of  the  Company,   including   corporate  general  and
administrative expenses, are classified as ongoing operations.

         Net Income (Loss) Per Share - Net income (loss) per share for the years
ended  December  31,  1996,  1995 and 1994 was based  upon the  weighted-average
number of shares of Common Stock  outstanding  during each such year. The effect
of  unexercised  stock  options was not material  with respect to net income per
share in 1996, 1995 and 1994.

         Statements of Cash Flows - For purposes of reporting  cash flows,  cash
maintained in bank accounts,  money market funds and overnight cash  investments
are  considered  to be cash and cash  equivalents.  The  Company  made  interest
payments of $72,000,  $903,000 and  $2,972,000  for the years ended December 31,
1996, 1995 and 1994, respectively.

        Non-cash investing and financing activities for the years ended December
31, 1996, 1995 and 1994 were as follows (in thousands):
<TABLE>
<CAPTION>

                                                                        1996              1995               1994
                                                                      --------          --------           --------

<S>                                                                   <C>               <C>                <C>
Dividends declared but not yet received from Commercial Assets        $     --          $     --           $    552

Unrealized holding gains (losses) on debt securities                  $  5,850          $   (757)          $     --

Distributions of Common Stock pursuant to DERs                        $     87          $    366           $    171

Distributions of Common Stock as consideration for the
elimination of DERs                                                   $    825          $     --           $     --

Dividends declared but not yet paid                                   $     --          $     --           $    726
</TABLE>


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

        Reclassifications - Certain reclassifications have been made in the 1995
and 1994  consolidated  financial  statements to conform to the  classifications
used in the current year.


                                      F-8
<PAGE>

C.       Non-agency MBS Bonds

         As of December 31, 1996,  the Company owned 214  non-agency  MBS bonds,
with an aggregate  outstanding  principal  balance on the date of acquisition of
$246,400,000 and an aggregate total cost of $73,087,000.  The net carrying value
of the  Company's  non-agency  MBS  bonds  was as  follows  (dollar  amounts  in
thousands):
<TABLE>
<CAPTION>

                                                                                         Outstanding Balance
                                                                                           at December 31,
                                                                                    -----------------------------
                                                         Price (1)     Coupon (2)      1996              1995
                                                         -----         ------       -----------       -----------
Non-agency MBS bonds collateralized by:
<S>                                                       <C>           <C>         <C>               <C>
   30-year fixed-rate mortgage loans                      31.4%         7.2%        $   161,331       $   116,757
   15-year fixed-rate mortgage loans                      36.6          6.7              21,241            16,611
   Adjustable-rate mortgage loans                         24.9          7.3               4,488             4,149
   Lesser quality mortgage loans(3)                       58.9          8.6              10,097            14,083
   Other subordinate non-agency MBS bonds (4)             27.3          6.9              27,422            28,565
                                                          ----          ---           ---------         ---------
                                                          34.2%         7.2%            224,579           180,165
                                                          ====          ===
Less:
   Allowance for credit losses                                                         (116,413)          (71,365)
   Unamortized discount                                                                 (46,087)          (56,446)
                                                                                      ---------         ---------

Amortized cost                                                                           62,079            52,354
   Net unrealized holding gains                                                           6,000               399
                                                                                    -----------       -----------

Total net book value                                                                $    68,079       $    52,753
                                                                                    ===========       ===========
<FN>
---------------------------------
1    Weighted-average price as a percentage of the principal balance of the non-
     agency MBS bonds.
2    Weighted-average coupon of non-agency MBS bonds at December 31, 1996.
3    The  lesser  quality  mortgage  loans,  commonly  referred  to as "B and C"
     mortgage  loans,  are  mortgage  loans made to  borrowers  who have  credit
     histories  of a lower  overall  quality  than most  borrowers,  generally a
     result of previous repayment  difficulties,  brief job histories,  previous
     bankruptcies or other causes and are adjustable-rate mortgages. The average
     price of these  bond  classes is higher  because  they  represent  a larger
     percentage of their  respective  bond issuances  than other  non-agency MBS
     bonds.
4    The non-agency  MBS bonds that are backed by "other subordinate, non-agency
     MBS bonds" are also known as "re-REMICs."
</FN>
</TABLE>

         The Company's  non-agency  MBS bonds are subject to the risk of default
and foreclosure loss from the approximately $43,700,000,000 principal balance of
non-conforming  mortgage loans that, on December 31, 1996, backed its bonds. The
subordinate  non-agency  MBS bonds owned by the Company  represent,  on average,
 .51% of the bond  issuances  that are  collateralized  by these  mortgages.  The
future  credit  losses for each bond are limited to the  outstanding  balance of
each bond (averaging $1,049,000 at December 31, 1996).

         The  allowance  for credit  losses is: (i)  increased or decreased  for
changes in the Company's  expectations  of future credit losses;  (ii) increased
for expectations of future credit losses when a non-agency MBS bond is acquired;
and (iii) reduced by actual credit losses allocated to the Company's  non-agency
MBS bonds.  The activity in the  allowance  for credit  losses  during the years
ended December 31, 1996 and 1995 was as follows (in thousands):


                                      F-9
<PAGE>

                                                      1996               1995
                                                   ----------         ----------

Balance at the beginning of the year               $   71,365         $  22,075
Additions to the allowance for credit
  losses on non-agency MBS bonds                       58,259            51,680
Credit losses (net of indemnifications
  of $382 and $807, respectively)                     (13,211)           (2,390)
                                                   ----------         ---------

Balance at the end of the year                     $  116,413         $  71,365
                                                   ==========         =========


         The  mortgages   which   comprise  the  collateral  for  the  Company's
non-agency  MBS bonds are secured by single  family  residences in 53 states and
U.S.  territories.  Approximately  37%,  8%  and 6% of the  mortgage  loans  are
collateralized   by  properties  in   California,   New  York  and  New  Jersey,
respectively.

         Subsequent  to  year-end,  the Company  entered  into an  agreement  to
contribute its  non-agency MBS bonds into a structured  transaction in which the
Company will retain a small equity  interest.  The Company  anticipates that the
estimated  $6,000,000  unrealized  holding gain at December  31,  1996,  will be
recognized in 1997 earnings.

D.    Investment in Commercial Assets

         On December  31,  1996 and 1995,  the Company  owned  2,761,126  shares
(approximately 27%) of the common stock of Commercial Assets.  Commercial Assets
is a  REIT  which  manages  ownership  interests  in  commercial  mortgage  loan
securitizations  of multi-family  real estate.  The mortgages which comprise the
collateral  for   Commercial   Assets'  CMBS  bonds  are  secured  by  apartment
communities and mobile home parks in 36 states. Approximately 26%, 13% and 8% of
the  mortgage  loans are  collateralized  by  properties  in Texas,  Arizona and
Georgia,  respectively.  Presented below is the summarized financial information
of Commercial Assets as reported by Commercial Assets (in thousands):



Balance Sheets                                           December 31,
                                               ---------------------------------
                                                 1996                    1995
                                               ---------              ----------

CMBS bonds, net of $3,389 and
   $4,245 of unrealized holding losses         $  61,460               $  69,503
Cash and other assets                             10,946                   2,087
                                               ---------               ---------

   Total Assets                                   72,406                  71,590
                                               ---------               ---------

Short-term borrowings                                 --                     700
Other liabilities                                    487                     425
                                               ---------               ---------

   Total Liabilities                                 487                   1,125
                                               ---------               ---------

Stockholders' Equity                           $  71,919               $  70,465
                                               =========               =========


                                      F-10
<PAGE>

Statements of Income                                Year Ended December 31,
                                            ------------------------------------
                                              1996           1995          1994
                                            -------        -------       -------

CMBS bonds                                  $ 9,838        $ 8,980       $ 5,938
Interest                                        319            189         1,126
                                            -------        -------       -------
   Total revenues                            10,157          9,169         7,064
                                            -------        -------       -------

Management fees                               1,425          1,151           598
General and administrative                      805          1,393         1,220
Elimination of dividend equivalent rights       966             --            --
Interest                                          2            249           319
                                            -------        -------       -------
   Total expenses                             3,198          2,793         2,137
                                            -------        -------       -------

Net income                                  $ 6,959        $ 6,376       $ 4,927
                                            =======        =======       =======


         According to Commercial  Assets,  at December 31, 1996 and 1995, it had
$3,389,000 and  $4,245,000,  respectively,  of unrealized  holding losses on its
CMBS bonds. The Company's share of these unrealized holding losses on CMBS bonds
of $907,000  and  $1,156,000,  respectively,  is recorded as a reduction  in the
carrying  value of its  investment  in  Commercial  Assets and as a component of
stockholders' equity.

E.       Liquidating Operations

         The Company, as of December 31, 1995, had substantially  liquidated its
investment  in CMO Ownership  Interests.  In 1995,  the Company's  balance sheet
reflected all the CMO Ownership  Interests at their net carrying  amount and the
statements of operations  reflected  earnings from CMO Ownership  Interests on a
net  basis  as  liquidating  operations.  The  components  of the CMO  Ownership
Interests at December 31, 1995, and earnings from liquidating operations for the
two years then ended are as follows:


CMO Subsidiaries:
   Restricted cash                                                    $   1,150
   Accrued interest receivable                                              228
   CMO issuance costs, net                                                   41
   Mortgage collateral                                                   32,391
   Unamortized discount, net of premium,
      on mortgage collateral                                               (364)
                                                                      ---------

      CMO Subsidiaries - assets                                          33,446
                                                                      ---------

   Accrued interest payable                                                 454
   CMO Bonds                                                             32,874
   Unamortized discount on CMO Bonds                                     (1,302)
   Reserve                                                                1,052
                                                                      ---------

      CMO Subsidiaries - liabilities                                     33,078
                                                                      ---------

   Total CMO Ownership Interests, net                                 $     368
                                                                      =========


                                      F-11
<PAGE>

                                                      Year Ended December 31,
                                                  ------------------------------
                                                    1995                 1994
                                                  --------             ---------
Revenues
    CMO Ownership Interests                       $  1,734             $   2,082
    Interest income                                    225                   728
    Net gain on sale of CMO Ownership Interests      5,369                12,646
                                                  --------             ---------
       Total revenues                                7,328                15,456
                                                  --------             ---------

Expenses
    Management fees                                    234                   496
    General and administrative                          23                   339
    Interest                                           564                 2,724
                                                  --------             ---------
       Total expenses                                  821                 3,559
                                                  --------             ---------

Earnings from liquidating operations              $  6,507             $  11,897
                                                  ========             =========

         During the years ended  December  31, 1995 and 1994,  the  Company,  as
issuer of certain CMO  Ownership  Interests,  exercised the Call Rights on these
interests,  recognizing net gains of $2,153,000 and  $12,833,000,  respectively.
The exercise of Call Rights resulted in the sale of $45,698,000 and $184,491,000
principal amount of mortgage  collateral from CMO  subsidiaries  during 1995 and
1994, respectively, and the early redemption of the related CMO bonds.

         On March 30, 1995, Asset Investors Securitization Corporation, a wholly
owned  subsidiary of the Company  "Asset  Securitization"  sold 28 CMO Ownership
Interests  and repaid the  related  outstanding  secured  notes  payable.  As of
December 31, 1994, the company  recognized  $1,205,000 of net holding losses for
book  income  purposes  related to the 28 CMO  Ownership  Interests  sold.  As a
result, no gain or loss was recorded on the sale of the CMO Ownership  Interests
and repayment of the secured notes in 1995.  During the years ended December 31,
1995 and 1994,  the Company  earned book  income  from Asset  Securitization  of
$733,000 and $3,306,000 (including $4,664,000 of gains from the exercise of Call
Rights in 1994), respectively.

        On November 10, 1995, the Company sold 23 CMO Ownership Interests with a
net  carrying  value  of  $2,315,000  for  $5,517,000.  The  sale  substantially
liquidated the Company's holdings of CMO Ownership Interests.

F.       Short-Term Borrowings

         On July 19, 1995, the Company obtained a one-year, $1,000,000 unsecured
line of credit.  The line of credit was renewed for an  additional  year on July
19, 1996.  Advances under this line bear interest at the prime rate. At December
31, 1996 and 1995, there were no borrowings under this line of credit.

         On July 24, 1996, the Company  secured a $10,000,000  revolving  credit
and term loan agreement with a bank.  The loan is  collateralized  by certain of
the Company's  non-agency  MBS bonds with a net carrying value of $19,461,000 at
December 31, 1996.  At December 31,  1996,  $3,000,000  was borrowed  under this
credit  facility at an average  effective  interest rate of 8.25%.  The loan was
repaid subsequent to year-end as a result of the structured  transaction for the
non-agency MBS bonds. One of the Company's  Independent Directors is a member of
the Board of Directors of the parent holding company of the bank.


                                      F-12
<PAGE>

         At December 31, 1995, the Company was able to borrow $9,456,000 under a
credit  facility  secured by certain  non-agency MBS bonds based on the value of
the pledged collateral.  There were no borrowings  outstanding under this credit
facility at December 31, 1995 and this credit facility lapsed in 1996.

         The Company as of December 31, 1995, had several  repurchase  agreement
facilities  collateralized by certain non-agency MBS bonds. The collateral value
and interest rate related to the repurchase  agreements were subject to periodic
adjustment.  At December  31,  1995,  the Company was able to borrow  $9,155,000
under eight repurchase agreements, based on the value of the pledged collateral.
The Company canceled these repurchase agreement facilities in 1996.

G.       Fair Value of Financial Instruments

         The following  methods and  assumptions  were used to estimate the fair
value of each type of  financial  instrument.  The  estimates of fair value have
been determined by the Company using available market  information and valuation
methodologies.  Considerable  judgment  was  required  to  interpret  the market
information  and develop the  estimates of fair value.  EXCEPT FOR THE ESTIMATED
FAIR  VALUE  OF THE  NON-AGENCY  MBS  BONDS  BASED  ON THE  PROPOSED  STRUCTURED
TRANSACTION,  THE ESTIMATES OF FAIR VALUE  PRESENTED  HEREIN ARE NOT NECESSARILY
INDICATIVE  OF THE  AMOUNTS  THE  COMPANY  COULD  REALIZE  IN A  CURRENT  MARKET
EXCHANGE. THE USE OF DIFFERENT MARKET ASSUMPTIONS AND/OR VALUATION METHODOLOGIES
MAY HAVE A  MATERIAL  EFFECT ON THE  ESTIMATES  OF FAIR  VALUE.  THE FAIR  VALUE
ESTIMATES  PRESENTED  HEREIN ARE BASED ON  PERTINENT  INFORMATION  AVAILABLE  TO
MANAGEMENT  AS OF FEBRUARY 28, 1997.  FUTURE  ESTIMATES OF FAIR VALUE MAY DIFFER
SIGNIFICANTLY FROM THE AMOUNTS PRESENTED HEREIN.

        *     Cash and cash  equivalents,  other assets,  accounts  payable and
              accrued  liabilities,   management  fees  payable  and  short-term
              borrowings - the carrying  amounts  approximate fair value because
              of the short maturity of these instruments.

        *     Non-agency  MBS  bonds - there is no  exchange  or  other  active
              market  from  which to  obtain a quoted  market  price  for  these
              financial instruments.  At December 31, 1995, the estimate of fair
              value was  determined by  multiplying  the  outstanding  principal
              balance by current  prices of  non-agency  MBS bonds with  similar
              characteristics. At December 31, 1996, the estimated fair value of
              the non-agency MBS bonds was based upon the anticipated  proceeds,
              net of transaction costs, from contributing the portfolio into the
              proposed structured transaction as contemplated by the 1997 Plan.

        *     Investment in Commercial  Assets - the fair value was  determined
              based upon the closing price of the Commercial Assets common stock
              on the American Stock Exchange, Inc. as of the end of the year.


        The carrying  amounts and fair values of the  Company's  non-agency  MBS
bonds and investment in Commercial  Assets at December 31, 1996 and 1995, are as
follows (in thousands):


                                      F-13
<PAGE>
<TABLE>
<CAPTION>
                                                        December 31, 1996                  December 31, 1995
                                                  ---------------------------         --------------------------
                                                  Amortized                           Amortized
                                                    Cost           Fair Value           Cost          Fair Value
                                                  --------          ---------         --------        ----------
<S>                                               <C>               <C>               <C>              <C>
Non-agency MBS bonds                              $ 62,079          $ 68,079          $ 52,354         $ 52,753
                                                  ========          ========          ========         ========

Investment in Commercial Assets                   $ 19,361          $ 18,638          $ 19,225         $ 15,531
                                                  ========          ========          ========         ========


</TABLE>

H.       Common Stock

         On December 16,  1994,  the Company  sold  10,053,794  shares of Common
Stock  pursuant  to the Rights  Offering,  at a price to the public of $1.90 per
share,  resulting in net proceeds to the Company of $17,208,000.  Shares sold in
the Rights Offering were sold at $1.90 per share,  $2.04 less than the $3.94 per
share book value immediately prior to the completion of the Rights Offering.

I.       Stock Option Plan

         The Company has its 1986 Stock  Option Plan,  as restated  November 15,
1990,  as amended (the "Stock  Option  Plan") for the issuance of  non-qualified
stock options to its directors  and officers.  As of January 1, 1996,  the Stock
Option Plan permitted the issuance of up to an aggregate of 1,502,639  shares of
Common Stock. Pending extension of the plan agreement, the issuance of 1,234,000
shares of Common  Stock will be  permitted  as of January 1, 1997.  The exercise
price for stock  options may not be less than 100% of the fair  market  value of
the  shares of  Common  Stock at the date of  grant.  Each of the stock  options
granted to date expire five years from the date of grant.

         Prior to May 1996,  stock  options  granted under the Stock Option Plan
automatically accrued Dividend Equivalent Rights "DERs" based on: (i) the number
of shares  underlying  the  unexercised  portion of the option;  (ii)  dividends
declared on the outstanding  shares of the Company between the option grant date
and the option  exercise  date;  and (iii) the market price of the shares on the
dividend  record  date.  DERs were  paid in shares of Common  Stock (or in other
property  that   constituted   the  dividend)  at  the  time  of  each  dividend
distribution.  During the years ended  December  31,  1996,  1995 and 1994,  the
Company incurred $87,000,  $337,000 and $180,000,  respectively,  of general and
administrative   expenses  from  DERs  covering  26,794,   128,857  and  82,627,
respectively,  of shares of Common Stock which were subject to issuance pursuant
to options granted under the Stock Option Plan.

         At their annual meeting in May 1996, the Company's shareowners approved
an amendment to the 1986 Stock Option Plan which  permitted the Company to issue
shares of Common  Stock to the holders of options who  voluntarily  relinquished
their right to receive  DERs in the  future.  The  issuance  of Common  Stock in
exchange  for the right to receive  DERs in the future  resulted  in a one-time,
non-cash  charge to 1996 earnings of $825,000 and the issuance of 244,391 shares
of Common  Stock.  The effect of the  amendment  will be to reduce  general  and
administrative  expenses from the accrual of DERs from options granted under the
Stock Option Plan.

         Presented  below is a summary of the  changes in stock  options for the
three years ended  December 31, 1996. As of December 31, 1996,  the  outstanding
options have  exercise  prices  ranging from $1.61 to $3.37 and have a remaining
weighted-average life of 3.7 years.


                                      F-14
<PAGE>
<TABLE>
<CAPTION>
                                                                         Average
                                                                         Exercise
                                                                          Price                    Shares
                                                                        ---------                 ---------
<S>                                                                     <C>                         <C>
Outstanding-December 31, 1993                                           $   9.97                    393,617

     Granted                                                                2.44                    188,750
     Forfeited                                                              7.05                    (33,723)
     Issued in connection with the Rights Offering                            --                    388,993
                                                                        --------                  ---------
Outstanding-December 31, 1994                                               4.42                    937,637

     Granted                                                                2.37                    165,000
     Expired                                                                4.10                   (132,448)
     Forfeited                                                              1.68                     (2,564)
                                                                        --------                  ---------
Outstanding-December 31, 1995                                               3.80                    967,625

     Granted                                                                3.26                    631,000
     Exercised                                                              1.41                   (213,093)
     Forfeited                                                              1.68                     (1,602)
     Expired                                                                7.95                   (348,637)
                                                                        --------                  ---------
Outstanding-December 31, 1996                                           $   2.57                  1,035,293
                                                                        ========                  =========

</TABLE>

        Certain  options  granted  to date  vest over a two year  period.  As of
December 31, 1996, 1995 and 1994, 726,543,  805,122, and 776,349,  respectively,
of the outstanding options were exercisable.

         The Company has elected to follow  Accounting  Principles Board Opinion
No.  25,  "Accounting  for  Stock  Issued  to  Employees"  (APB 25) and  related
Interpretations  in accounting  for its employee  stock options  rather than the
alternative  fair value  accounting  provided for under FASB  Statement No. 123,
"Accounting  for Stock-Based  Compensation."  Under APB 25, because the exercise
price of the Company's  employee  stock  options  equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.

         Pro forma  information  regarding  net income and earnings per share is
required  by  Statement  123,  and has been  determined  as if the  Company  had
accounted  for its employee  stock  options  under the fair value method of that
Statement.  The fair value for these  options was estimated at the date of grant
using an option pricing model.

         Option  valuation  models  require  the  input  of  highly   subjective
assumptions including the expected stock price volatility. Because the Company's
stock options have characteristics  significantly different from those of traded
options,  and because changes in the subjective input assumptions can materially
affect the fair value estimate,  in management's opinion, the existing models do
not  necessarily  provide a  reliable  single  measure  of the fair value of its
employee stock options.

         During  the years  ended  December  31,  1996 and 1995,  the  estimated
weighted-average  grant-date  fair value of options  granted was $.13 per option
and $.17 per option, respectively, and the estimated total fair value of options
granted was $84,000 and  $22,000,  respectively  The pro forma net income of the
Company  reflecting the fair value of options  granted was $9,589,000  ($.39 per
share) and  $14,418,000  ($.60 per share) for the years ended  December 31, 1996


                                      F-15
<PAGE>

and 1995, respectively.  The estimated fair value of the options is amortized to
expense over the options'  vesting  period.  The Company  assumed a life of five
years and risk-free  interest rate equal to the Five-Year U.S.  Treasury rate on
the date the  options  were  granted.  In  addition,  the  expected  stock price
volatility  and  dividends  growth rates were  estimated  based upon  historical
averages over the three years ended December 31, 1996.

J.       Other Matters

         The Company  operates  under a  Management  Agreement  with the Manager
which is extended annually and currently is in effect through December 31, 1997.
Pursuant to the  Management  Agreement,  the Manager  advises the Company on its
business and oversees its day-to-day  operations  subject to the  supervision of
the Company's Board of Directors. During the years ended December 31, 1996, 1995
and  1994,  the  Company  incurred  combined  Incentive  Fees and  Base  Fees of
$1,061,000,  $731,000 and  $372,000,  respectively.  The Company  also  incurred
Administrative   Fees  pursuant  to  the   Management   Agreements  and  certain
administration  agreements  entered  into with the  Manager in  connection  with
certain of the  Company's  CMO Ownership  Interests  and  non-agency  MBS bonds.
Administrative  Fees  incurred for the years ended  December 31, 1996,  1995 and
1994 were $732,000, $914,000 and $1,440,000, respectively.

         The Company's  day-to-day  operations are performed by Financial  Asset
Management  LLC,  (the  "Manager")  pursuant to the  Management  Agreement.  The
Management  Agreement was approved by a majority of the  Independent  Directors.
Prior to April 1, 1996,  the Company was managed by Financial  Asset  Management
Corporation,  a wholly owned subsidiary of MDC Holdings, Inc. ("MDC"). Effective
April 1, 1996,  Financial  Asset  Management LLC assumed the  obligations of the
Management  Agreement.  From April 1, 1996,  through  September  30,  1996,  the
Manager was 80% owned by two wholly owned  subsidiaries  of MDC and 20% owned by
Spencer I. Browne who was at the time the President, Chief Executive Officer and
a Director of the Company.  On September 30, 1996, MDC acquired Mr. Browne's 20%
interest in the  Manager and then sold 100% of the Manager to an investor  group
led by Terry  Considine  and Thomas L. Rhodes.  MDC received  sales  proceeds of
$11,450,000,  including  $6,000,000  of  cash  and  $5,450,000  of  subordinated
convertible  notes. The notes are payable at specified dates during the next ten
years and are convertible, under certain circumstances,  into as much as a 47.6%
ownership interest in the Manager.

         In connection with the sale, Larry A. Mizel resigned as Chairman of the
Board of Directors and Mr. Browne resigned as President, Chief Executive Officer
and a Director of the Company. Terry Considine and Thomas L. Rhodes were elected
as  Co-Chairmen  of the Board of Directors and Co-Chief  Executive  Officers and
Leslie B. Fox was elected as President of the Company.

         The Company's restructuring plan also provides for consideration of the
Company's  acquisition of the Manager,  a step which would result in the Company
becoming  self-managed and fully integrated.  A special committee of Independent
Directors has been established to evaluate this transaction.

         The  Company's  Certificate  of  Incorporation  permits  the  Board  of
Directors  to issue  additional  classes  of stock  without  further  shareowner
approval.  As of December  31,  1996,  the Company has not issued any classes of
stock other than its Common Stock.

         The  officers  and  certain  directors  of the  Company  also  serve as
officers, directors or both of Commercial Assets.


                                      F-16
<PAGE>

        During  1996,  1995 and 1994,  0%,  12% and 100%,  respectively,  of the
dividends distributed to the Company's shareowners were Excess Inclusion income.
Excess  Inclusion  income  results  from holding  residual  interests in REMICs.
Excess  Inclusion  income  may not be  reduced by any  expenses  or  deductions,
including  normal  operating  expenses,  losses from the Company's CMO Ownership
Interests  and  NOLs.  Dividends  paid to  shareowners  of the  Company  will be
characterized  as Excess  Inclusion income to the extent that such dividends are
attributable to Excess Inclusion  income realized by the Company.  Distributions
of Excess Inclusion income are taxable as ordinary income to shareowners.

        During 1995,  20% of the  dividends  distributed  constituted  return of
capital distributions. There were no return of capital distributions in 1996.

         At December 31, 1996,  the Company's  NOL  carryover was  approximately
$96,000,000 and its capital loss carryover was  approximately  $35,000,000.  The
NOL  carryover  may be used to offset  all or a portion  of the  Company's  REIT
income,  and as a result,  to reduce the amount of income that the Company  must
distribute to shareowners to maintain its status as a REIT. The NOL carryover is
scheduled  to expire  between  2007 and 2009 and the capital  loss  carryover is
scheduled to expire between 1998 and 2000.

K.       Selected Quarterly Financial Data (Unaudited)

         Presented  below is  selected  quarterly  financial  data for the years
ended December 31, 1996 and 1995 (in thousands, except per share data):
<TABLE>
<CAPTION>

                                                                  Three Months Ended
                                      ----------------------------------------------------------------------------
1996                                    December 31,       September 30,         June 30,            March 31,
------------------------------------- ------------------ ------------------- ------------------ ------------------

<S>                                        <C>                 <C>                 <C>                <C>
Revenues                                   $    3,427          $   3,327           $   3,417          $   3,353
Net income                                      2,609              2,576               2,085              2,403
Net income per share                              .10                .11                 .08                .10
Dividends per share                              .095               .095                .090               .090
Closing stock prices (2)
   High                                             4              3-3/4               3-3/4              3-3/8
   Low                                          3-1/2              3-3/8               3-1/8              2-3/4
Common Stock outstanding(3)                    24,772             24,738              24,500             24,365

1995
------------------------------------- ------------------ ------------------- ------------------ ------------------
Revenues:
   Ongoing operations                    $      3,376       $      3,164        $      2,429       $      1,902
   Liquidating operations                       3,234 (1)            228                 136              3,730 (1)
Net income                                      5,848              2,715               1,870              4,007
Net income per share                              .25                .11                 .07                .17
Dividends per share                              .090               .090                .080               .080
Closing stock prices (2)
   High                                         3-3/8              2-7/8               2-5/8              2-3/8
   Low                                          2-5/8              2-3/8               2-1/4              1-5/8
Common Stock outstanding(3)                    24,336             24,294              24,259             24,227
<FN>
------------------------
1    Includes gains on sales of CMO Ownership Interests.
2    As reported on the NYSE Composite Tape.
3    Weighted average for the period indicated.
</FN>
</TABLE>


                                      F-17
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS



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


         We have audited the accompanying  balance sheets of Commercial  Assets,
Inc. as of December  31, 1996 and 1995,  and the related  statements  of income,
stockholders'  equity and cash  flows for each of the three  years in the period
ended December 31, 1996. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

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

         In our opinion,  the  financial  statements  referred to above  present
fairly, in all material  respects,  the financial position of Commercial Assets,
Inc. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended  December 31, 1996 in
conformity with generally accepted accounting principles.



                                                               ERNST & YOUNG LLP
Phoenix, Arizona
February 10, 1997


                                      F-18
<PAGE>

                             COMMERCIAL ASSETS, INC.

                                 BALANCE SHEETS

                          (Dollar amounts in thousands)

<TABLE>
<CAPTION>

                                                                                                December 31,
                                                                                        ---------------------------
                                                                                           1996             1995
                                                                                        ----------       ----------
Assets

<S>                                                                                     <C>              <C>
   Cash and cash equivalents                                                            $    8,277       $      598
   Accrued interest receivable                                                                 597              675
   Restricted cash                                                                           1,982              768
   CMBS bonds                                                                               61,460           69,503
   Other assets, net                                                                            90               46
                                                                                        ----------       ----------

     Total Assets                                                                       $   72,406       $   71,590
                                                                                        ==========       ==========

Liabilities

   Accounts payable and accrued liabilities                                             $      189       $      133
   Management fees payable                                                                     298              292
   Short-term notes payable                                                                     --              700
                                                                                        ----------       ----------

     Total Liabilities                                                                         487            1,125
                                                                                        ----------       ----------

Stockholders' Equity

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

   Common  Stock,  par  value  $.01 per  share,  75,000,000  shares  authorized;
     10,315,809 and 10,142,034 shares issued and outstanding, respectively
                                                                                               103              102

   Additional paid-in capital                                                               76,559           75,523

   Cumulative dividends declared                                                           (20,295)         (12,897)
   Cumulative net income                                                                    18,941           11,982
                                                                                        ----------       ----------
     Dividends in excess of net income                                                      (1,354)            (915)
                                                                                        ----------       ----------

   Net unrealized holding losses on CMBS bonds                                              (3,389)          (4,245)
                                                                                        ----------       ----------

     Total Stockholders' Equity                                                             71,919           70,465
                                                                                        ----------       ----------

     Total Liabilities and Stockholders' Equity                                         $   72,406       $   71,590
                                                                                        ==========       ==========
</TABLE>


                       See Notes to Financial Statements.

                                      F-19
<PAGE>

                             COMMERCIAL ASSETS, INC.

                              STATEMENTS OF INCOME

                      (In thousands, except per share data)
<TABLE>
<CAPTION>


                                                                             Year Ended December 31,
                                                                -----------------------------------------------
Revenues                                                          1996                1995                1994
                                                                ---------           ---------          ---------

<S>                                                             <C>                 <C>                <C>
   CMBS bonds                                                   $   9,838           $   8,980          $   5,938
   Interest                                                           319                 189              1,126
                                                                ---------           ---------          ---------

     Total Revenues                                                10,157               9,169              7,064
                                                                ---------           ---------          ---------

Expenses

   Management fees                                                  1,425               1,151                598
   General and administrative                                         805               1,393              1,220
   Elimination of DERs                                                966                  --                 --
   Interest                                                             2                 249                319
                                                                ---------           ---------          ---------

     Total Expenses                                                 3,198               2,793              2,137
                                                                ---------           ---------          ---------


Net Income                                                      $   6,959           $   6,376          $   4,927
                                                                =========           =========          =========



Net income per share                                            $     .68           $     .63          $     .49

Weighted-average shares outstanding                                10,247              10,104             10,047

Dividends per share
     Regular dividends                                          $     .68           $     .68          $     .50
     Special dividends                                                .04                  --                .03
                                                                ---------           ---------          ---------
                                                                $     .72           $     .68          $     .53
                                                                =========           =========          =========
</TABLE>


                       See Notes to Financial Statements.

                                      F-20
<PAGE>

                             COMMERCIAL ASSETS, INC.

                       STATEMENTS OF STOCKHOLDERS' EQUITY

              For the Years Ended December 31, 1996, 1995 and 1994

                                 (In thousands)
<TABLE>
<CAPTION>


                                                                                                      Net
                                                                                                   Unrealized
                                                                     Additional   Dividends In      Holding             Total
                                               Common Stock           Paid-In       Excess of      Losses on         Stockholders'
                                         Shares         Amount        Capital      Net Income      CMBS Bonds           Equity
                                         ------         ------        -------      ----------      ----------         ---------

<S>                                      <C>           <C>          <C>            <C>              <C>               <C>
Balances - December 31, 1993              10,039       $  100       $  74,900      $    (24)        $    --           $  74,976

Issuance of Common Stock                      14            1              94            --              --                  95
Net income                                    --           --              --         4,927              --               4,927
Dividends                                     --           --              --        (5,326)             --              (5,326)
                                         -------       ------       ---------      --------         -------           ---------

Balances - December 31, 1994              10,053          101          74,994          (423)             --              74,672

Issuance of Common Stock                      89            1             529            --              --                 530
Net income                                    --           --              --         6,376              --               6,376
Dividends                                     --           --              --        (6,868)             --              (6,868)
Unrealized depreciation of CMBS bonds         --           --              --            --          (4,245)             (4,245)
                                         -------       ------       ---------      --------         -------           ---------

Balances - December 31, 1995              10,142          102          75,523          (915)         (4,245)             70,465

Issuance of Common Stock                     174            1           1,036            --              --               1,037
Net income                                    --           --              --         6,959              --               6,959
Dividends                                     --           --              --        (7,398)             --              (7,398)
Unrealized appreciation of CMBS bonds         --           --              --            --             856                 856
                                         -------       ------       ---------      --------         -------           ---------

Balances - December 31, 1996              10,316       $  103       $  76,559      $ (1,354)        $(3,389)          $  71,919
                                         =======       ======       =========      ========         =======           =========
</TABLE>


                       See Notes to Financial Statements.

                                      F-21
<PAGE>

                             COMMERCIAL ASSETS, INC.

                            STATEMENTS OF CASH FLOWS

                                 (In thousands)

<TABLE>
<CAPTION>

                                                                            Year Ended December 31,
                                                                   --------------------------------------------
                                                                      1996            1995               1994
                                                                   --------         --------          ---------
Cash Flows From Operating Activities
<S>                                                                <C>              <C>               <C>
   Net income                                                      $  6,959         $  6,376          $   4,927
   Adjustments  to reconcile net income to net cash flows from
     operating activities:
     Amortization of discount on CMBS bonds and other assets         (2,155)            (638)              (331)
     Issuance of Common Stock for elimination of DERs                   941               --                 --
     Decrease (increase) in accrued interest receivable                  78                6               (569)
     Increase in accounts payable and accrued liabilities               157              329                481
     (Increase) decrease in other assets                                (60)              78                (76)
                                                                   --------         --------          ---------

Net Cash Provided By Operating Activities                             5,920            6,151              4,432
                                                                   --------         --------          ---------

Cash Flows From Investing Activities
   Principal collections from CMBS bonds                              9,857              554                377
   Acquisitions of CMBS bonds                                            --               --            (65,628)
   Acquisition of restricted cash                                        --               --                (96)
                                                                   --------         --------          ---------

Net Cash Provided By (Used In) Investing Activities                   9,857              554            (65,347)
                                                                   --------         --------          ---------

Cash Flows From Financing Activities
   Dividends paid                                                    (7,398)          (8,879)            (3,315)
   (Repayments) borrowings of short-term notes payable                 (700)          (9,595)            10,295
                                                                   --------         --------          ---------

Net Cash (Used In) Provided By Financing Activities                  (8,098)         (18,474)             6,980
                                                                   --------         --------          ---------

Cash and Cash Equivalents
   Increase (decrease)                                                7,679          (11,769)           (53,935)
   Beginning of period                                                  598           12,367             66,302
                                                                   --------         --------          ---------
   End of period                                                   $  8,277         $    598          $  12,367
                                                                   ========         ========          =========
</TABLE>


                       See Notes to Financial Statements.

                                      F-22
<PAGE>

                             COMMERCIAL ASSETS, INC.

                          NOTES TO FINANCIAL STATEMENTS



A.       Organization

         Commercial Assets, Inc. ("the Company") was incorporated under Maryland
law on August 11, 1993 by Asset Investors.  The Company commenced  operations on
October 12,  1993,  the date on which Asset  Investors  contributed  $75,000,000
($74,800,000  pursuant to the Contribution  Agreement plus $200,000 cash) to the
capital of the Company and distributed approximately 70% of the shares of Common
Stock of Commercial Assets, Inc. to Asset Investors' shareowners.  The Company's
Common Stock is listed on the American Stock Exchange under the symbol "CAX."

         The Company's  day-to-day  operations are performed by Financial  Asset
Management  LLC,  (the  "Manager")  pursuant  to  the  Management  Agreement,  a
year-to-year  agreement  currently in effect  through  December  31,  1997.  The
Management Agreement is subject to the approval of a majority of the Independent
Directors.  Prior to April 1, 1996,  the Company was managed by Financial  Asset
Management Corporation, a wholly owned subsidiary of MDC Holdings, Inc. ("MDC").
Effective April 1, 1996,  Financial Asset Management LLC assumed the obligations
of the Management  Agreement.  From April 1, 1996,  through  September 30, 1996,
Financial Asset Management LLC was 80% owned by two wholly owned subsidiaries of
MDC and 20% owned by Spencer I. Browne who was at the time the President,  Chief
Executive  Officer and a Director of the  Company.  On September  30, 1996,  MDC
acquired Mr.  Browne's 20% interest in Financial  Asset  Management LLC and then
sold 100% of the Manager to an investor group led by Terry  Considine and Thomas
L. Rhodes.  In connection with the sale,  Larry A. Mizel resigned as Chairman of
the Board of Directors and Mr. Browne  resigned as  President,  Chief  Executive
Officer and a Director of the Company. Terry Considine and Thomas L. Rhodes were
elected as Co-Chairmen of the Board of Directors and Co-Chief Executive Officers
and Leslie B. Fox was elected as President  of the  Company.  No change has been
made to the Management  Agreement  other than an extension,  and Financial Asset
Management LLC will continue its obligations under the Management Agreement.

         The Manager is subject to the supervision of the Board of Directors. As
part of its duties,  the Manager  presents  the Company  with asset  acquisition
opportunities  and furnishes the Board of Directors with information  concerning
the  acquisition,  holding  and  disposition  of  assets.  The  Company  has  no
employees.  Certain employees of the Manager have been designated as officers of
the Company.

         The Company owns, and the Manager  administers on the Company's behalf,
subordinate ownership interests in Commercial Mortgage Backed Securities,  "CMBS
bonds." The CMBS bonds are issued in commercial  mortgage  loan  securitizations
which generally are multi-class  issuances of debt securities  which are secured
and funded as to the payment of principal  and  interest by a specific  group of
mortgage loans on multi-family or other commercial real estate.

         To date, the Company's  primary emphasis has been on the acquisition of
credit support classes of commercial securitizations backed by mortgage loans on
multi-family real property.


                       See Notes to Financial Statements.

                                      F-23
<PAGE>

B.       Summary of Significant Accounting Policies

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

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

         Fair Value of Financial  Instruments  - The fair value of the Company's
CMBS  bonds  is  discussed  in Note C. The fair  value  of all  other  financial
instruments  of the  Company  generally  approximate  their  carrying  basis  or
amortized cost.

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

         In order to maintain  its status as a REIT,  the  Company is  required,
among other things,  to distribute  annually to its  shareowners at least 95% of
its REIT income and to meet certain  asset,  income and stock  ownership  tests.
Dividends  declared in 1996,  1995 and 1994  represented  ordinary income to the
shareowners, in accordance with the Code.

         Net  Income  Per Share - Net  income  per  share  for the  years  ended
December 31, 1996, 1995 and 1994 was based upon the  weighted-average  number of
shares of Common Stock  outstanding  during each such period.  In 1996, 1995 and
1994, the effect of  unexercised  stock options was not material with respect to
net income per share.

         Statements of Cash Flows - For purposes of reporting  cash flows,  cash
maintained in bank accounts,  money market funds and overnight cash  investments
are  considered  to be cash and cash  equivalents.  The  Company  paid  interest
expense in cash of $8,000,  $290,000 and  $278,000 for the years ended  December
31, 1996, 1995 and 1994, respectively.

         Non-cash  investing  and  financing  activities  for  the  years  ended
December 31, 1996, 1995 and 1994 were as follows (in thousands):


                                      F-24
<PAGE>
<TABLE>
<CAPTION>

                                                                    1996             1995              1994
                                                                  --------         --------          --------

<S>                                                                <C>             <C>               <C>
Principal   collections   on  CMBS   bonds   transferred   to
    restricted cash                                                $ 1,214         $    397          $    275

Unrealized holding gains (losses) on CMBS bonds                    $   856         $ (4,245)         $     --

Distributions of Common Stock pursuant to DERs                     $    96         $    376          $    227

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

Dividends declared but not yet paid                                $    --         $     --          $  2,011

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

C.       CMBS Bonds

         Based on the timing and amount of future credit losses estimated by the
Company, the weighted-average,  yield-to-maturity of the Company's CMBS bonds at
December 31, 1996 and 1995, was 11.9%. The  yield-to-maturity  on the CMBS bonds
acquired by the Company will be extremely  sensitive to defaults on the mortgage
loans  collateralizing such CMBS bonds and the severity of losses resulting from
such  defaults.  The losses are due to a decline in the value of the  properties
collateralizing  the mortgage loans  underlying  the Company's  CMBS bonds.  The
losses may not be apparent until the maturity dates of the mortgage loans as the
property  owner attempts to refinance or sell the property to repay the mortgage
loan. The  weighted-average  lives of the mortgage loans generally coincide with
the  weighted-average  lives  of  the  CMBS  bonds  owned  by the  Company.  The
weighted-average  lives listed in the table below indicate the approximate  time
until the maturity date of the Company's CMBS bonds.

         The Company's subordinate CMBS bonds provide credit support to the more
senior  bond  classes  of  the  related   commercial   securitization   and  are
collateralized by mortgage loans on multi-family  properties  located throughout
the country. Generally, any loss on an individual mortgage loan, which comprises
a portion of the collateral for all bond classes in a CMBS issuance, is absorbed
by the Company to the extent of the principal  balance and interest  payments of
the Company's  related CMBS bonds.  The mortgage loans  collateralizing  certain
CMBS bonds are held by a group of related entities,  none of which  individually
represent greater than 10% of the mortgage loans  collateralizing  the Company's
CMBS  bonds.  The  Company's  exposure to loss from its CMBS bonds is limited to
their amortized cost and restricted cash.

         In May 1996, two CMBS bonds (Aspen MHC,  Series  1994-1,  Classes C and
D-1) with an outstanding  principal balance of $9,664,000 and net carrying value
of $8,723,000 were redeemed eight years earlier than anticipated. The bonds were
acquired  on March  8,  1994,  for  $9,088,000,  or  84.3% of their  outstanding
principal balance.  Since the bonds were redeemed at par, $1,426,000 of discount
amortization was included in earnings during the year ended December 31, 1996.

         The outstanding balance of the mortgage loans  collateralizing the CMBS
bonds and the  outstanding  principal  of the CMBS  bonds that are senior to the


                                      F-25
<PAGE>

Company's  CMBS  bonds  was  $912,879,000  and  $818,291,000,  respectively,  at
December  31,  1996.  The Company  provided an  allowance  for credit  losses of
$12,720,000  at  December  31,  1996 and 1995 on certain of its CMBS  bonds.  At
December  31,  1996, a mortgage  loan with an  outstanding  balance of $788,000,
which  collateralizes  the Company's CMBS bonds, was foreclosed and subsequently
refinanced with a new property  owner.  During the years ended December 31, 1996
and 1995,  there were no credit  losses  charged to  operations  or  write-downs
charged  against the allowance for credit losses.  The mortgages  which comprise
the collateral for the Company's subordinate CMBS bonds are secured by apartment
complexes in 36 states,  with  concentrations in Texas (26%),  Arizona (13%) and
Georgia (8%).

         Pursuant to the provisions of certain of the Company's CMBS bonds, cash
collections which would otherwise be attributable to the Company's interests are
required to be set aside in reserve  accounts to support the eventual payment of
more senior  classes of CMBS bonds.  At December 31, 1996 and 1995,  the amounts
set aside of $1,982,000 and $768,000, respectively, are shown as restricted cash
on the balance sheet.

         Due to the complex nature of CMBS bonds, each instrument has a discrete
and unique risk/return  profile.  Not only do CMBS bonds vary significantly from
issuance to issuance,  but the  characteristics of the individual mortgage loans
underlying  the  securities of one issuance are distinct from the mortgage loans
underlying  certificates  of another  issuance.  There is no  exchange  or other
active  market from which to obtain a quoted  market  price for these  financial
instruments.  The  estimates of fair value have been  determined  by the Company
using available market information and valuation methodologies.
Considerable  judgment  was  required to interpret  the market  information  and
develop the estimates of fair value.

         THE  ESTIMATES  OF FAIR  VALUE  PRESENTED  HEREIN  ARE NOT  NECESSARILY
INDICATIVE  OF THE  AMOUNTS  THE  COMPANY  COULD  REALIZE  IN A  CURRENT  MARKET
EXCHANGE.  THE USE OF DIFFERENT MARKET ASSUMPTIONS,  VALUATION  METHODOLOGIES OR
BOTH MAY HAVE A MATERIAL  EFFECT ON THE ESTIMATES OF FAIR VALUE.  THE FAIR VALUE
ESTIMATES  PRESENTED  HEREIN ARE BASED ON  PERTINENT  INFORMATION  AVAILABLE  TO
MANAGEMENT  AS OF DECEMBER 31, 1996.  FUTURE  ESTIMATES OF FAIR VALUE MAY DIFFER
SIGNIFICANTLY FROM THE AMOUNTS PRESENTED HEREIN.

         The estimated fair value of the Company's CMBS bonds was $61,460,000 on
$89,297,000  of  outstanding  principal  of  bonds at  December  31,  1996,  and
$69,503,000 on  $100,368,000  of outstanding  principal of bonds at December 31,
1995. The estimate of fair value was  determined by discounting  the future cash
flows  before  estimates  of credit  losses of the CMBS bonds at interest  rates
equal to a spread over U.S.  Treasury rates with  comparable  terms to maturity.
The discount rates range from 10% to 27%. The interest rate spread over the U.S.
Treasury  rate was based  upon  current  market  information  of CMBS bonds with
similar  characteristics.  The fair value of CMBS bonds will fluctuate over time
due to, among other things,  changes in prevailing interest rates,  liquidity in
the CMBS bonds market,  paydowns on the mortgage loans  collateralizing the CMBS
bonds and changes in real estate  values of the related  commercial  properties.
The decline in fair value below  amortized  cost is considered  temporary,  and,
accordingly,   is  excluded  from  earnings  and  reported  as  a  component  of
stockholders' equity.

         Certain of the Company's  CMBS bonds are pledged as collateral  for the
Company's short-term notes payable (see Note D).


                                      F-26
<PAGE>

         Presented below is a schedule of the CMBS bonds owned by the Company as
of December 31, 1996 and 1995 (dollar amounts in thousands):

                                                                  Weighted-                                      Outstanding Balance
                                                       Maturity    Average     Date                  Senior        at December 31,
                Description                   Coupon     Date      Life(5)   Acquired   Rating    CMBS Bonds(4)    1996       1995
--------------------------------------------  ------   --------   --------   --------  --------   -------------  --------  --------
<S>                                            <C>      <C>         <C>      <C>        <C>         <C>         <C>        <C>
Kidder, Peabody Acceptance Corporation I,
  Series 1993-M2, Class E(1)                   8.88%     8/2021     3.7 yrs  11/16/93      BB       $ 79,744    $ 10,000   $ 10,000
Lehman Capital Corporation Trust
  Certificate, Series 1994-2(2)                6.50%    10/2003     6.8       2/24/94   Unrated                    2,143      2,143
Lehman Capital Corporation Trust
  Certificate, Series 1994-3                   6.50%    10/2003     6.8       2/24/94   Unrated      125,892       4,162      4,162
Aspen MHC, Series 1994-1, Class C(3)                                                                                  --      6,261
Aspen MHC, Series 1994-1, Class D-1(3)                                                                                --      3,596
Fannie Mae Multi-Family REMIC Trust
  1994-M2, Class C(6)                          7.99%     1/2001     3.9       3/30/94   Unrated      321,980      10,704     11,587
Fannie Mae Multi-Family REMIC Trust
  1994-M2, Class D(6)                          8.18%     1/2004     6.7       3/30/94   Unrated                   38,384     38,715
DLJ Mortgage Acceptance Corporation,
  Series 1994-MF4, Class B-3                   8.50%     4/2001     4.3       6/15/94      B          91,521       3,136      3,136
DLJ Mortgage Acceptance Corporation,
  Series 1994-MF4, Class C                     8.50%     4/2001     4.3       6/15/94   Unrated                    4,183      4,183
Kidder, Peabody Acceptance Corporation I,
  Series 1994-M1, Class C                      8.25%    11/2002     4.6      11/29/94      B         199,154       8,930      8,930
Kidder, Peabody Acceptance Corporation I,
  Series 1994-M1, Class D                      8.25%    11/2002     4.9      11/29/94   Unrated                    7,655      7,655
                                               ----                 ---                             --------    --------   --------
     Total outstanding balance                 8.15%                5.5 yrs                         $818,291      89,297    100,368
                                               ====                 ===                             ========

Unamortized discount(7)                                                                                          (12,077)   (14,393)
Allowance for credit losses(7)                                                                                   (12,720)   (12,720)
Unamortized acquisition costs(7)                                                                                     349        493
                                                                                                                 --------   --------
     Amortized cost                                                                                               64,849     73,748
Net unrealized holding losses(7)                                                                                  (3,389)    (4,245)
                                                                                                                --------   --------
Total net book value                                                                                            $ 61,460   $ 69,503
                                                                                                                ========   ========
<FN>
------------------------------------------------------------------
1    The Company has a 75.2% ownership interest in this CMBS bond.
2    The Company has a 51.7% ownership interest in this CMBS bond.
3    These bonds redeemed in May 1996.
4    The outstanding  principal  balance at December 31, 1996, of the CMBS
     bonds senior to the Company's subordinate CMBS bond classes. The amount is
     aggregated for classes from a single issuance.
5    Remaining weighted-average life at December 31, 1996.
6    Payment of principal and interest is not guaranteed by FNMA.
7    The amounts are specifically identified to individual CMBS bonds.
</FN>
</TABLE>


                                      F-27
<PAGE>

D.       Short-Term Notes Payable

         The Company renewed its Loan and Security  Agreement  collateralized by
four CMBS bonds (FNMA  94-M2C,  FNMA 94-M2D,  Kidder  94-M1C and Kidder  94-M1D)
through  November 29,  1997.  No  borrowings  were  outstanding  on this line at
December 31, 1996 or 1995 and $21,616,000 was available to be borrowed. Advances
bear  interest  based  upon a spread  over  the  LIBOR.  The  Loan and  Security
Agreement contains certain covenants with which the Company was in compliance at
December 31, 1996 and 1995.  The amount the Company will be able to borrow under
its  secured  credit  facility  is  subject  to  lender  approval  and will vary
depending on the value of the collateral pledged to secure such facility.

         On July 19, 1996,  the Company  renewed a one-year,  unsecured  line of
credit with a bank for  $1,000,000.  Advances  under this line bear  interest at
prime. Two of the Company's  Independent  Directors were members of the Board of
Directors of the holding  company of the bank during 1995 and 1996.  At December
31, 1996, no advances were  outstanding on this line of credit.  At December 31,
1995,  $700,000 was  outstanding  on this line of credit at an interest  rate of
8.5% per annum.

E.       Stock Option Plan

         The Company has a Stock Option Plan for the  issuance of  non-qualified
stock  options to its  directors  and  officers  which as of January 1, 1997 and
1996,  permits  the  issuance  of up to an  aggregate  of 947,693  and  701,948,
respectively,  shares of Common Stock.  The exercise price for stock options may
not be less than 100% of the fair market  value of the shares of Common Stock at
the date of the grant. Each of the stock options granted to date has a five-year
term.

         Prior to May 30, 1996,  stock  options  granted  under the Stock Option
Plan automatically accrued dividend equivalent rights ("DERs") based on: (i) the
number  of  shares  underlying  the  unexercised  portion  of the  option;  (ii)
dividends  declared on the outstanding  shares of the Company between the option
grant  date and the option  exercise  date;  and (iii) the  market  price of the
shares on the dividend record date. DERs were paid in shares of Common Stock (or
in other  property that  constituted  the dividend) at the time of each dividend
distribution.  During the years ended  December  31,  1996,  1995 and 1994,  the
Company incurred $96,000,  $376,000 and $227,000,  respectively,  of general and
administrative   expenses  from  DERs  covering   16,362,   63,566  and  36,485,
respectively,  shares of Common Stock which were subject to issuance pursuant to
options granted under the Plan.

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

         Presented  below is a summary of the  changes in stock  options for the
three years ended  December 31, 1996.  The options  outstanding  at December 31,
1993 were granted at the inception of the Company.  As of December 31, 1996, the
outstanding  options have exercise prices ranging from $5.62 to $7.50 and have a
remaining weighted-average life of 2.1 years.


                                      F-28
<PAGE>

                                                      Average
                                                      Exercise
                                                       Price             Shares
                                                      -------            -------
Outstanding - December 31, 1993                        $ 7.50            311,500
     Granted                                             6.32            169,500
                                                       ------            -------
Outstanding - December 31, 1994                          7.09            481,000

     Granted                                             6.15             92,500
                                                       ------            -------
Outstanding - December 31, 1995                          6.94            573,500

     Granted                                             5.86             82,500
     Forfeited                                           6.68              8,500
                                                       ------            -------
Outstanding - December 31, 1996                        $ 6.80            647,500
                                                       ======            =======

        As of December  31, 1996,  no options  have  expired or been  exercised.
Options  granted to date vest over a two year  period.  As of December 31, 1996,
1995 and 1994, 453,500, 484,875, and 318,375,  respectively,  of the outstanding
options were exercisable.

         The Company has elected to follow  Accounting  Principles Board Opinion
No.  25,  "Accounting  for  Stock  Issued  to  Employees"  (APB 25) and  related
Interpretations  in accounting  for its employee  stock options  rather than the
alternative  fair value  accounting  provided for under FASB  Statement No. 123,
"Accounting  for Stock-Based  Compensation."  Under APB 25, because the exercise
price of the Company's  employee  stock  options  equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.

         Pro forma  information  regarding  net income and earnings per share is
required  by  Statement  123,  and has been  determined  as if the  Company  had
accounted  for its employee  stock  options  under the fair value method of that
Statement.  The fair value for these  options was estimated at the date of grant
using an option pricing model.

         Option  valuation  models  require  the  input  of  highly   subjective
assumptions including the expected stock price volatility. Because the Company's
stock options have characteristics  significantly different from those of traded
options,  and because changes in the subjective input assumptions can materially
affect the fair value estimate,  in management's opinion, the existing models do
not  necessarily  provide a  reliable  single  measure  of the fair value of its
employee stock options.

         During  the years  ended  December  31,  1996 and 1995,  the  estimated
weighted-average,  grant-date  fair value of options  granted was $.45 and $.23,
respectively,  and the estimated total fair value of options granted was $27,000
and $30,000,  respectively.  The pro forma net income of the Company  reflecting
the fair value of options granted was $6,932,000 ($.68 per share) and $6,346,000
($.63 per share) for the years ended  December 31, 1996 and 1995,  respectively.
The  estimated  fair value of the  options  is  amortized  to  expense  over the
options' vesting period.  The Company assumed a life of five years and risk-free
interest rate equal to the Five-Year U.S.  Treasury rate on the date the options
were granted.  In addition,  the expected  stock price  volatility and dividends
growth rates were estimated based upon historical  averages over the three years
ended December 31, 1996.


                                      F-29
<PAGE>

F.       Other Matters

         The Company  operates  under a Management  Agreement  with the Manager,
pursuant to which the Manager  advises the Company on its  business and oversees
its day-to-day operations,  subject to the supervision of the Company's Board of
Directors.

         The Company's  day-to-day  operations are performed by Financial  Asset
Management  LLC,  (the  "Manager")  pursuant  to  the  Management  Agreement,  a
year-to-year  agreement  currently in effect  through  December  31,  1997.  The
Management Agreement is subject to the approval of a majority of the Independent
Directors.  Prior to April 1, 1996,  the Company was managed by Financial  Asset
Management Corporation, a wholly owned subsidiary of MDC Holdings, Inc. ("MDC").
Effective April 1, 1996,  Financial Asset Management LLC assumed the obligations
of the Management  Agreement.  From April 1, 1996,  through  September 30, 1996,
Financial Asset Management LLC was 80% owned by two wholly owned subsidiaries of
MDC and 20% owned by Spencer I. Browne who was at the time the President,  Chief
Executive  Officer and a Director of the  Company.  On September  30, 1996,  MDC
acquired Mr.  Browne's 20% interest in Financial  Asset  Management LLC and then
sold 100% of the Manager to an investor group led by Terry  Considine and Thomas
L. Rhodes. MDC received sales proceeds of $11,450,000,  including  $6,000,000 of
cash and $5,450,000 of subordinated  convertible notes. The notes are payable at
specified  dates during the next ten years and are  convertible,  under  certain
circumstances,  into as much as a 47.6%  ownership  interest in Financial  Asset
Management LLC.

         In connection with the sale, Larry A. Mizel resigned as Chairman of the
Board of Directors and Mr. Browne resigned as President, Chief Executive Officer
and a Director of the Company. Terry Considine and Thomas L. Rhodes were elected
as  Co-Chairmen  of the Board of Directors and Co-Chief  Executive  Officers and
Leslie B. Fox was elected as President  of the Company.  No change has been made
to the  Management  Agreement  other  than an  extension,  and  Financial  Asset
Management LLC will continue its obligations under the Management Agreement.

         During the years ended December 31, 1996,  1995 and 1994, the Company's
total  management fees were $1,425,000,  $1,151,000 and $924,000,  respectively,
consisting of: (i) Base Fees of $654,000,  $751,000 and $556,000,  respectively;
(ii)  Administrative  Fees of $58,000,  $65,000 and $42,000,  respectively;  and
(iii) Incentive Fees of $713,000,  $335,000 and $0, respectively.  There were no
acquisition  fees  incurred  during 1996 and 1995 while  $326,000  were incurred
during 1994.  Acquisition  Fees are capitalized as part of the cost of acquiring
CMBS bonds.

         The  Company's  Charter  authorizes  the  Board of  Directors  to issue
25,000,000  shares,  par value $.01 per share, of Preferred  Stock. To date, the
Company has not issued any classes of stock other than its Common  Stock and has
not  determined  the terms under which any other  classes  would be issued.  The
Charter  of the  Company  authorizes  the Board of  Directors,  without  further
shareowner  action,  to  fix  the  terms  of  the  Preferred  Stock,   including
preferences,  powers and rights  (including  voting rights) senior to the Common
Stock.

         The  officers  and  certain  directors  of the  Company  also  serve as
officers, employees, directors or all three of Asset Investors and the Manager.

         At  December  31,  1995,  the  shares  of  Common  Stock  owned  by MDC
represented 0.8% of the outstanding shares of Common Stock.


                                      F-30
<PAGE>

G.       Selected Quarterly Financial Data (unaudited)

         Presented  below is  selected  quarterly  financial  data for the years
ended December 31, 1996 and 1995 (in thousands, except per share data).
<TABLE>
<CAPTION>

                                                                       Three Months Ended,
                                             -----------------------------------------------------------------------
1996                                             December 31,      September 30,        June 30,       March 31,
-------------------------------------------- ----------------- ------------------ --------------- ------------------
<S>                                              <C>               <C>                <C>              <C>
Revenues                                              2,146             2,167              3,526            2,318
Net income                                            1,595             1,765              1,992            1,607
Net income per share                                    .16               .17                .19              .16
Regular dividends declared per share                    .17               .17                .17              .17
Special dividends declared per share                     --               .04                 --               --

Stock prices (1)
     High                                             6-3/4             6-1/2              6-1/4            6-1/8
     Low                                             6-3/16             5-7/8              5-3/4            5-3/4
Common Stock outstanding                         10,315,809        10,315,809         10,315,809       10,158,396

1995
-------------------------------------------- ----------------- ------------------ --------------- ------------------
Revenues                                             $2,325            $2,243             $2,240           $2,349
Net income                                            1,508             1,686              1,649            1,533
Net income per share                                    .15               .17                .16              .15
Regular dividends declared per share                    .17               .17                .17              .17

Stock prices (1)
     High                                                 6            6-5/16              6-1/2            6-3/8
     Low                                              5-5/8             5-3/4              5-3/4            5-1/2
Common Stock outstanding                         10,142,034        10,124,698         10,092,674       10,078,468

<FN>
---------------
1    Daily closing prices as reported on the AMEX Composite Tape.
</FN>
</TABLE>


                                      F-31
<PAGE>

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

          None.

                                    PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

      Name               Age        Position(s) Held with the Company
--------------------------------------------------------------------------------
Terry Considine          49    Co-Chairman of the Board of Directors (Class II)
                               and Co-Chief Executive Officer
Thomas L. Rhodes         57    Co-Chairman of the Board of Directors (Class III)
                               and Co-Chief Executive Officer
Leslie B. Fox            38    President and Chief Operating Officer
Kevin J. Nystrom         37    Senior Vice President and Chief Financial Officer
Elliot H. Kline          56    Independent Director (Class III) and Chairman of
                               the Audit Committee and Member of the Nominating
                               Committee
Richard L. Robinson      67    Independent Director (Class I) and Member of the
                               Audit and Nominating Committees
Tim Schultz              48    Independent Director (Class I) and Member of the
                               Audit and Nominating Committees
Bruce D. Benson          58    Director (Class II)
William J. White         59    Independent Director (Class I) and Member of the
                               Audit and Nominating Committees

         Terry  Considine  was  elected  Co-Chairman  of the Board and  Co-Chief
Executive  Officer of the Company and of  Commercial  Assets on October 1, 1996.
Since July 1994, Mr. Considine has also been Chairman of the Board of Directors,
President and Chief  Executive  Officer of Apartment  Investment  and Management
Company ("AIMCO"),  a REIT that owns and manages multi-family housing complexes.
He is the sole owner of  Considine  Investment  Co. and prior to July 1994,  was
owner of  approximately  75% of Property Asset  Management,  L.L.C.,  a Colorado
limited liability company, and its related entities  (collectively,  "PAM"), one
of the AIMCO  predecessors.  Mr.  Considine also became an owner and Director of
the Manager,  Financial Asset  Management LLC on October 1, 1996. He served as a
Colorado State Senator from 1987-1992 and in 1992 was the Republican nominee for
election to the United States Senate from Colorado.

        Thomas L.  Rhodes  was  elected  Co-Chairman  of the Board and  Co-Chief
Executive  Officer of the Company and of  Commercial  Assets on October 1, 1996.
Mr.  Rhodes has also been a Director of AIMCO since July 1994.  Mr.  Rhodes also
became an owner and Director of the Manager on October 1, 1996.  Mr.  Rhodes has
served as the President and a Director of National  Review  magazine since 1992.
From 1976 to 1992,  he held various  positions  at Goldman,  Sachs & Co. and was
elected a General  Partner in 1986. He also served as a Director of Underwriters
Reinsurance Corporation from 1987 to 1993 and was a member of the Advisory Board
of  TransTerra  Co.  during 1993.  He  currently  serves as a Director of Delphi
Financial  Group,  Inc.  and its  subsidiaries,  The  Lynde  and  Harry  Bradley
Foundation,  and the Reserve Special Portfolio Trusts. Mr. Rhodes is Chairman of


                                     - 21 -
<PAGE>

the Empire Foundation for Policy Research, a Trustee of The Heritage Foundation,
a Trustee of The Manhattan Institute,  a Board Member of the National Center for
Neighborhood Enterprise and a Member of the Council on Foreign Relations.

         Leslie B. Fox has served as President  and Chief  Operating  Officer of
the Company and of Commercial  Assets since  October  1996,  served as Executive
Vice President and Chief Operating  Officer of the Company and Commercial Assets
from February 1995 through  September 1996 and served as a Vice President of the
Company  from  November  1993 until  February  1995.  From  November  1993 until
February 1995, she was an Executive Vice President, Chief Investment Officer and
Assistant  Secretary  of  Commercial  Assets.  Ms. Fox has been  employed by the
Manager since  November 1993 and served as a Vice  President of the Manager from
February  1995 through  September  1996 and as President  since October 1, 1996.
From 1991 to 1993,  Ms. Fox was Senior Vice  President of NHP Capital  Corp.  in
Washington,  D.C., a subsidiary of NHP, Inc. From 1987 to 1991, Ms. Fox was Vice
President of Finance/MIS at NHP Property  Management  Inc., also a subsidiary of
NHP, Inc.

         Kevin J.  Nystrom  has  served  as  Senior  Vice  President  and  Chief
Financial  Officer of the Company and Commercial  Assets since October 1996, and
served as Vice  President  and Chief  Accounting  Officer  of the  Company  from
January  1993  through   September  1996  and  of  Commercial  Assets  from  its
organization  through  September 1996. He has been employed by the Manager since
September  1992.  Prior to joining the  Manager,  Mr.  Nystrom  held a series of
positions,  most  recently  as a Senior  Manager,  with  Deloitte & Touche  from
January 1985 to August 1992.

         Elliot H. Kline has served as a Director of the Company since September
1988, as a member of the Audit  Committee  since December 1988,  Chairman of the
Audit Committee since November 1990 and as a member of the Nominating  Committee
since  April 1989.  Dr.  Kline has served as  Executive-in-Residence  at Arizona
State University-West since August 1993. Dr. Kline served as President of In The
Interim   Management   Consulting,   a  firm   specializing   in  consulting  to
universities,  from 1989 to 1993. Dr. Kline served as the Dean of the College of
Business  Administration  at the  University of Denver from 1987 to 1989; as the
Dean and a Professor of the School of Business and Public  Administration at the
University  of the  Pacific  from  1977  to  1987;  and as the  Director  and an
Associate  Professor of the Institute of Public  Affairs and  Administration  at
Drake University from 1970 to 1977.

         Richard L.  Robinson  has served as a Director  of the Company and as a
member of the Nominating  Committee since January 1990 and a member of the Audit
Committee since August 1993. Mr. Robinson has served as Chairman of the Board of
Directors and Chief Executive  Officer of Robinson  Dairy,  Inc., a Denver-based
institutional dairy products manufacturer and distributor,  since 1975 and prior
thereto  served in various  executive  positions with that company for 20 years.
Mr.  Robinson  also  serves as a  Director  of First Bank  System,  Minneapolis,
Minnesota. He is active in numerous civic and charitable organizations,  is Past
Chairman of the Greater  Denver  Chamber of Commerce and a Past President of the
State Board of Agriculture, the governing body for the Colorado State University
System.

         Tim Schultz has been a Director of the Company since July 1994 and is a
member of the Audit and  Nominating  Committees.  He is President  and Executive
Director of the  Boettcher  Foundation,  a Colorado  not-for-profit,  charitable
corporation,  and from August 1994 until  November  1995,  he was  Chairman  and
President of Colorado Open Lands, a Colorado  not-for-profit  corporation.  From
1990 until August 1994,  he was employed by the law firm of Arnold & Porter as a
Consultant-Corporate/Government  Relations  with  responsibilities  ranging from
serving as  chairman  of a large land trust to  representing  clients'  needs in
connection with state and local government  issues.  From May 1987 to July 1990,
Mr. Schultz served as Executive Director of the State of Colorado  Department of
Local Affairs and from November 1983 to May 1987, as Commissioner of Agriculture


                                     - 22 -
<PAGE>

for the  State  of  Colorado  Department  of  Agriculture,  both  cabinet  level
positions.  From 1987 to 1991,  he served as Chairman of the  Colorado  Economic
Development Commission.

         Bruce D. Benson has served as a Director of the Company and  Commercial
Assets since October 1996 and previously served as a Director of the Company and
a member of the Nominating  Committee from February 1992 through  November 1993.
Effective  October 1, 1996,  Mr. Benson became an Owner of the Manager.  For the
past 28 years, he has been President and Owner of Benson Mineral Group,  Inc., a
domestic oil and gas production company located in Denver,  Colorado.  He serves
on numerous  Boards of Trustees and Boards of  Directors,  including  President,
Denver  Zoological  Foundation;  Chairman  and Past  President,  Boy  Scouts  of
America,  Denver  Area  Council;  Past  President  and the  Board  of  Trustees,
Berkshire  School,  Sheffield,   Massachusetts;  Past  Trustee,  Smith  College,
Northampton,   Massachusetts;  past  Chairman,  Colorado  Commission  on  Higher
Education; and past member, Board of Directors,  Colorado University Foundation.
In 1994, he was the Republican nominee for the Governor of Colorado.

         William J. White has served a Director  of the Company  since  December
1996. Mr. White has served as Chairman of Bigelow and Co., an investment banking
firm located in Denver,  Colorado  that  specializes  in municipal and corporate
finance,  since 1995.  From 1992 through 1995, Mr. White was President and owner
of First Denver  Financial  Corporation  and in 1991 and 1992,  was President of
Affiliated  Capital  Markets,  a division of Affiliated  National Bank. Prior to
these positions,  Mr. White served in various positions  culminating as Chairman
of Kirchner Moore and Company.

Compliance With Section 16(a) of the Exchange Act

         The Company's  executive  officers and Directors are required under the
Securities  Exchange  Act of 1934 to file  reports of  ownership  and changes in
ownership  of  securities  of the  Company  with  the  Securities  and  Exchange
Commission and the New York Stock  Exchange,  Inc.  Copies of those reports also
must be furnished  to the  Company.  Based solely upon a review of the copies of
reports  furnished  to the  Company and  written  representations  that no other
reports were required, the Company believes that for the year ended December 31,
1996, all required reports were filed on a timely basis.

Item 11. EXECUTIVE COMPENSATION.

Summary Compensation Table

         The Company does not pay a salary,  bonus or any other  compensation to
its  executive  officers,  other than stock  options and prior to May 28,  1996,
dividend equivalent rights ("DERs") related to stock options granted to officers
and others from time to time under the Stock Option  Plan.  The Company does not
have any long-term incentive programs. The Manager provides (at its expense) all
personnel necessary to conduct the regular business of the Company.  The Manager
receives  various  fees for  advisory  and other  services  performed  under the
management agreement between the Company and the Manager. All salaries,  bonuses
and other compensation (except stock options and DERs) received by the executive
officers of the Company are paid by the Manager.  The Manager has not  allocated
any portion of the compensation paid by it to the Company's  executive  officers
specifically for their services to the Company.

         The following table sets forth information regarding  compensation paid
to the Company's Chief Executive Officers:


                                     - 23 -
<PAGE>
<TABLE>
<CAPTION>

                                                                                    Long-Term Compensation (1)
                                                                                       Awards-Securities
                 Name and Principal Positions                       Year          Underlying Options (Shares)
-------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                   <C>
Spencer I. Browne, President and Chief Executive Officer
through September 30, 1996                                          1996                   200,000
                                                                    1995                    70,000
                                                                    1994                    99,977

Terry Considine, Co-Chief Executive Officer, effective
October 1, 1996                                                     1996                        --

Thomas L. Rhodes, Co-Chief Executive Officer, effective
October 1, 1996                                                     1996                        --
<FN>
------------------------
1   All options granted under the Stock Option Plan have an exercise price equal
    to 100% of the market  price of the Common  Stock on the date of grant,  are
    exercisable  for a five-year term and, prior to May 28, 1996,  automatically
    accrued  DERs  related to dividends  declared on the  outstanding  shares of
    Common Stock between the date the option was granted and the date the option
    was exercised.  Options  granted to Mr. Browne are fully vested.  Amounts do
    not reflect 9,023,  49,241 and 28,861 shares of Common Stock related to DERs
    which accrued during 1996, 1995 and 1994, respectively. Additionally, on May
    28, 1996, Mr. Browne  received 82,987 shares of Common Stock in exchange for
    the elimination of the accrual of DERs on stock options held by him.
</FN>
</TABLE>

Option Grants in 1996

The following  table reflects  information  regarding the options granted to the
Company's Chief Executive Officers during 1996.

<TABLE>
<CAPTION>

                                                                                           Potential Realizable
                                                                                             Value at Assumed
                                                                                             Annual Rates of
                                                                                               Stock Price
                                                                                             Appreciation for
                                               Individual Grants                               Option Term
                        ------------------------------------------------------------------------------------------
                                            Percent of
                             Number of         Total
                            Securities      Options/SARs     Exercise
                            Underlying       Granted to      or Base
                              Options       Employees in      Price           Expiration
         Name                Granted (1)      1996 (2)       ($/Share) (1)       Date           5%         10%
------------------------------------------------------------------------------------------------------------------
<S>                          <C>                <C>            <C>             <C>          <C>          <C>
    Spencer I. Browne        110,000            22.2%          3.125           04/09/01     $  94,972    $209,863
                              90,000            18.1%          3.375           07/30/01        83,921     185,442
                             ------------------------                                       ---------    --------
                             200,000            40.3%                                        $178,893    $395,305

    Terry Considine               --              --              --                 --            --          --

    Thomas L. Rhodes              --              --              --                 --            --          --


                                     - 24 -
<PAGE>

         There were no Stock Appreciation Rights ("SARs") granted by the Company
during December 31, 1996.
<FN>
-----------
1    See footnote 1 to the "Summary Compensation Table" above.

2    The Company  has no  employees.  The  percentage  reflected  relates to all
     options granted to employees of the Manager who are officers of the Company
     or to employees of the Manager whose time is devoted  substantially  to the
     Company. See "Summary Compensation Table" above.
</FN>
</TABLE>

 Aggregate Option Exercises During 1996 and Fiscal Year-End Option Value Table

         The  following  table  reflects the options  exercised by the Company's
Chief Executive Officers during the year ended December 31, 1996, and the number
of shares of Common Stock  covered by  exercisable  stock options as of December
31, 1996 (all stock options were exercisable at December 31, 1996).
<TABLE>
<CAPTION>

                                                                             Number of
                                                                             Securities           Value of
                                                                             Underlying         Unexercised
                                        Number of                          Unexercised         In-The-Money
                                     Shares Acquired                         Options at          Options at
                Name                   on Excerise   Value Realized (1) December 31, 1996  December 31, 1996 (2)
----------------------------------------------------------------------------------------------------------------
<S>                                      <C>             <C>                  <C>               <C>
Spencer I. Browne                        89,296          $180,491             304,135           $205,595

Terry Considine                              --                --                  --                 --

Thomas L. Rhodes                             --                --                  --                 --
<FN>
--------------------
1    The value was computed from the closing price of the Company's Common Stock
     on June 6, 1996, the date the options were exercised, or $3.375 per share.
2    The closing  price of the Company's Common  Stock on December 31, 1996, was
     $3.625 per share.
</FN>
</TABLE>

         Notwithstanding  anything  to  the  contrary  contained  in  any of the
Company's  filings  with  the  SEC  under  the  Securities  Act of  1933  or the
Securities  Exchange  Act of 1934,  the  following  Board  Report  on  Executive
Compensation shall not be incorporated into any future filings with the SEC.

Board Report on Executive Compensation

         The  Board  of  Directors  of  the  Company  has  not   established   a
Compensation Committee. The Board is responsible for determining grants of stock
options under the Stock Option Plan.  The Board believes that stock options link
management  and shareowner  interests and motivate  executives to make long-term
business and operating decisions that will serve to increase the long-term total
return to shareowners.

         The Board  awarded  stock  options  to the  executive  officers  of the
Company during 1996 as an incentive for the executive  officers with respect to,
among  other  things,  implementation  of the  Company's  business  plan  and as


                                     - 25 -
<PAGE>

compensation  for  attaining  performance  goals  as  determined  by the  Board.
Specifically,  when granting these options,  the Board  considered the following
specific  accomplishments  of management:  (i) the  significant  increase in the
Company's  stock price during 1996; (ii) the  acquisition of  approximately  $60
million par value at acquisition of high-yield,  non-agency bonds backed by home
mortgage loans in 1996;  (iii)  increasing the Company's net income from ongoing
operations and  distributions  to shareowners  during 1996; and (iv) through its
ownership of approximately 27% of Commercial Assets  participating in the market
for commercial real estate securitizations.

         Except with respect to  compensation  paid under the Stock Option Plan,
the Board has no role in setting the  compensation  policies of or the levels of
compensation  paid to the Company's  executive  officers  whether in the form of
salaries,  bonuses or other  annual  compensation.  Pursuant  to the  Management
Agreement,  such compensation is paid by the Manager. See "Summary  Compensation
Table" above.

                             THE BOARD OF DIRECTORS

             Terry Considine, Co-Chairman        Tim Schultz
             Thomas L. Rhodes, Co-Chairman       Bruce D. Benson
             Elliot H. Kline                     William J. White
             Richard L. Robinson

Compensation Paid to Directors

         During 1996, each Independent Director of the Company received a fee of
$2,500 a month plus $300 for each meeting of the Board of Directors or committee
thereof attended. In addition, all Directors are reimbursed for expenses related
to their attendance at Board of Directors and committee meetings.

         The former Chairman of the Board was granted  five-year,  non-qualified
stock options under the Stock Option Plan to purchase  110,000  shares of Common
Stock for $3.125 per share on April 9, 1996,  and to purchase  90,000  shares of
Common  Stock for $3.375 per share on July 30,  1996.  These  options  are fully
vested.

         The  Independent  Directors of the Company also are eligible to receive
grants of stock  options  under the Stock  Option  Plan.  During  the year ended
December  31,  1996,  Messrs.  Kline,  Robinson  and Schultz  each were  granted
non-qualified stock options to purchase 20,000 shares of Common Stock for $3.125
per share on April 9, 1996,  and to purchase  25,000  shares of Common Stock for
$3.375 per share on July 30, 1996. The options granted are exercisable as to 50%
on the date of grant and as to 25% on each of the two  succeeding  anniversaries
of the date of grant. See Note 1 to the Summary Compensation Table above for the
other material terms of these stock options.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The table below sets  forth,  as of February  28,  1997,  the number of
shares of Common Stock  beneficially  owned by each director and each  executive
officer of the Company named in the Summary  Compensation  Table,  individually,
and the number of shares  beneficially  owned by all of the Company's  directors
and executive  officers as a group,  which  information was furnished in part by
each such person.


                                     - 26 -
<PAGE>

<TABLE>
<CAPTION>
                                                                     Amount and Nature of
  Name of Beneficial Owner (1)         Beneficial Ownership (2)      Percent of Class (3)
  ---------------------------------------------------------------------------------------
<S>                                           <C>                          <C>
  Terry Considine                                  --                        *
  Thomas L. Rhodes                                 --                        *
  Elliot H. Kline                             186,222                        *
  Richard L. Robinson                         193,140                        *
  Tim Schultz                                  87,303                        *
  Bruce D. Benson                                  --                        *
  William J. White                                 --                        *
  All directors and executive
  officers as a group (nine persons)          493,869                      2.0%
<FN>
--------------------
*     Denotes  ownership of less  than 1% of  the outstanding shares  of  Common
      Stock.

1     Includes, where applicable,  shares of Common Stock owned by such person's
      minor children and spouse and by other related  individuals  and entities.
      Unless  otherwise  indicated,  such person has sole voting and  investment
      power as to the shares listed.

2     Includes the  following  shares of Common Stock which such persons had the
      right to acquire  within 60 days after  February  28,  1997,  through  the
      exercise of stock options  granted under the Stock Option Plan:  Elliot H.
      Kline - 107,848 shares;  Richard L. Robinson - 107,848 shares; Tim Schultz
      - 58,760  shares;  and all directors  and executive  officers as a group -
      292,956 shares.

3     All shares of Common Stock which a person had the right to acquire  within
      60 days after  February 28, 1997,  were deemed to be  outstanding  for the
      purpose of computing  the "Percent of Class" owned by such person but were
      not deemed to be outstanding  for the purpose of computing the "Percent of
      Class" owned by any other person. At February 28, 1997,  24,843,345 shares
      of Common Stock were outstanding.
</FN>
</TABLE>

         As of February 28, 1997, no person or group was known to the Company to
be a beneficial owner of more than 5% of its Common Stock.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Compensation Committee Interlocks and Insider Participation

        Messrs.  Considine  and Rhodes  each serve as an  Executive  Officer and
Director  of the  Company and Mr.  Benson  serves as a Director of the  Company.
Additionally,  Messrs.  Considine,  Rhodes  and  Benson  combined  have  an  82%
ownership interest in the Manager. The Manager receives management fees from the
Company under the Management Agreement. Messrs. Considine, Rhodes and Benson may
be deemed to have an  interest  in the  Management  Agreement,  even  though the
Management Agreement has been approved by the Independent Directors.

         From   time-to-time,   the  Company  engaged  PageWorks  +  Tri  Design
("PageWorks"),  a marketing and communications  firm owned by the brother-in-law
of the former Chairman of the Board, Mr. Mizel, for graphic design,  artwork and
other services  related to the Company's  shareowner  reports.  During 1996, the
Company paid PageWorks approximately $23,000.


                                     - 27 -
<PAGE>

                                     PART IV

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

     (a)          Documents filed as part of this report:

1.         The following consolidated financial statements of the Company and of
           Commercial Assets, Inc. (a significant, unconsolidated  subsidiary of
           the Company) are included in Part II, Item 8 of this Annual Report on
           Form 10-K:

    Asset Investors Corporation:                                            PAGE

             Report of Independent Auditors..............................    F-2

             Consolidated Balance Sheets as of December 31,
             1996 and 1995...............................................    F-3

             Consolidated Statements of Operations for the
             years ended December 31, 1996, 1995 and 1994................    F-4

             Consolidated  Statements of Stockholders'
             Equity for the years ended December 31, 1996,
             1995 and 1994...............................................    F-5

             Consolidated  Statements  of Cash Flows for the years
             ended December 31, 1996, 1995 and 1994......................    F-6

             Notes to Consolidated Financial Statements..................    F-7

    Commercial Assets, Inc. (a significant unconsolidated subsidiary
    of the Company):

             Report of Independent Auditors.............................    F-18

             Balance Sheets as of December 31, 1996 and 1995............    F-19

             Statements of Income for the years ended
             December 31, 1996, 1995 and 1994...........................    F-20

             Statements of Stockholders' Equity for the years
             ended December 31, 1996, 1995 and 1994.....................    F-21

             Statements of Cash Flows for the years ended
             December 31, 1996, 1995 and 1994...........................    F-22

             Notes to Financial Statements..............................    F-23


                                     - 28 -
<PAGE>

2.       Schedules to Consolidated Financial Statements:

                All financial statement schedules have been omitted because they
         are  inapplicable  or the  information  is  provided  in the  Company's
         consolidated  financial statements and notes thereto,  included in Part
         II, Item 8, of this Annual Report on Form 10-K.

3.       Exhibits:

         Exhibit     No. Description

         3.1         Certificate of Incorporation of Asset Investors Corporation
                     (the  "Registrant"),  as  amended  (incorporated  herein by
                     reference to Exhibit 3.1(b) to the Quarterly Report on Form
                     10-Q of the Registrant for the quarter ended June 30, 1989,
                     Commission File No. 1-9360, filed on August 14, 1989).

         3.2         By-laws  of  the   Registrant,   as  amended  and  restated
                     (incorporated  herein by  reference  to Exhibit  3.3 to the
                     Annual Report on Form 10-K of the Registrant for the fiscal
                     year ended  December 31, 1993,  Commission  File No. 1-9360
                     filed March 31, 1994).

         3.2(a)      June 21, 1994  Amendment  to the By-laws of the  Registrant
                     (incorporated  herein by reference to Exhibit 3.3(b) to the
                     Annual Report on Form 10-K of the Registrant for the fiscal
                     year ended  December 31, 1994,  Commission  File No. 1-9360
                     filed March 30, 1995).

         3.2(b)      March 15, 1995  Amendment to the By-laws of the  Registrant
                     (incorporated  herein by reference to Exhibit 3.3(c) to the
                     Annual Report on Form 10-K of the Registrant for the fiscal
                     year ended  December 31, 1994,  Commission  File No. 1-9360
                     filed March 30, 1995).

         3.2(c)      January  14,   1997,   Amendment  to  the  By-laws  of  the
                     Registrant.

         4           Form  of  certificate  representing  Common  Stock  of  the
                     Registrant  (incorporated  herein by  reference  to Exhibit
                     10.15 to the Annual  Report on Form 10-K of the  Registrant
                     for the fiscal year ended  December  31,  1988,  Commission
                     File No. 1-9360, filed on April 5, 1989).

         4.1         Automatic Dividend Reinvestment Plan relating to the Common
                     Stock of the Registrant, as amended (incorporated herein by
                     reference  to Exhibit 28 to the Annual  Report on Form 10-K
                     of the  Registrant  for the fiscal year ended  December 31,
                     1991, Commission File No. 1-9360, filed on March 30, 1992).

         4.2         Revolving Credit and Term Loan Agreement,  dated as of July
                     24,  1996,  by and  between the  Registrant  and First Bank
                     National  Association  (incorporated herein by reference to
                     Exhibit  4.1 to the  Quarterly  Report  on Form 10-Q of the
                     Registrant for the quarter ended June 30, 1996,  Commission
                     File No. 1-9360, filed on August 14, 1996).


                                     - 29 -
<PAGE>

         4.2(a)      Pledge Agreement, dated as of July 24, 1996, by and between
                     the   Registrant   and  First  Bank  National   Association
                     (incorporated  herein by reference to Exhibit 4.1(a) to the
                     Quarterly  Report  on Form 10-Q of the  Registrant  for the
                     quarter ended June 30, 1996,  Commission  File No.  1-9360,
                     filed on August 14, 1996).

         10.1*       Management  Agreement dated as of January 1, 1995,  between
                     the Registrant and Financial Asset  Management  Corporation
                     (incorporated herein by reference to Exhibit 10.1(b) to the
                     Quarterly  Report  on Form 10-Q of the  Registrant  for the
                     quarter ended March 31, 1995,  Commission  File No. 1-9360,
                     filed on May 15, 1995).

         10.1(a)*    Amendment to  Management  Agreement  dated as of January 1,
                     1996, between the Registrant and Financial Asset Management
                     Corporation  (incorporated  herein by  reference to Exhibit
                     10.1(a)  to  the  Quarterly  Report  on  Form  10-Q  of the
                     Registrant for the quarter ended March 31, 1996, Commission
                     File No. 1-9360, filed on May 15, 1996).

         10.1(b)*    Assignment  of Management  Agreements  dated as of April 1,
                     1996,  between  Financial Asset Management  Corporation and
                     Financial  Asset  Management  LLC  (incorporated  herein by
                     reference  to Exhibit  10.1(b) to the  Quarterly  Report on
                     Form 10-Q of the Registrant for the quarter ended March 31,
                     1996, Commission file No. 1-9360, filed on May 15, 1996).

         10.1(c)*    Amendment to the Management  Agreement  dated as of January
                     1,  1997,   between  the  Registrant  and  Financial  Asset
                     Management LLC.

         10.2*       Form of  Indemnification  Agreement  between the Registrant
                     and each Director of the Registrant (incorporated herein by
                     reference  to  Appendix  A to the  Proxy  Statement  of the
                     Registrant,  Commission  File  No.  1-9360,  dated  May 18,
                     1987).

         10.3*       1986  Stock  Option  Plan  of the  Registrant  as  restated
                     November  15, 1990  (incorporated  herein by  reference  to
                     Exhibit  A  to  the  Proxy  Statement  of  the  Registrant,
                     Commission File No. 1-9360, dated April 22, 1991).

         10.3(a)*    First Amendment to the Registrant's  1986 Stock Option Plan
                     as  restated  November  15,  1990  (incorporated  herein by
                     reference to Exhibit  10.9(b) to the Annual  Report on Form
                     10-K of the  Registrant  for the fiscal year ended December
                     31, 1992,  Commission  File No.  1-9360,  filed on April 5,
                     1993).

         10.3(b)*    Second Amendment to the Registrant's 1986 Stock Option Plan
                     as restated  November  15, 1990,  as amended  (incorporated
                     herein by reference to Exhibit 10.9(c) to the Annual Report
                     on Form 10-K of the  Registrant  for the fiscal  year ended
                     December 31, 1992,  Commission  File No.  1-9360,  filed on
                     April 5, 1993).


                                     - 30 -
<PAGE>

         10.3(c)*    Third Amendment to the Registrant's  1986 Stock Option Plan
                     as restated  November  15, 1990,  as amended  (incorporated
                     herein by  reference  to Exhibit  10.9(e) to the  Quarterly
                     Report on Form 10-Q of the Registrant for the quarter ended
                     September 30, 1993,  Commission  File No. 1-9360,  filed on
                     November 15, 1993).

         10.3(d)*    Fourth Amendment to the Registrant's 1986 Stock Option Plan
                     as restated November 15, 1990, as amended,  dated March 11,
                     1996  (incorporated  herein by reference to Exhibit 10.5(f)
                     to the Quarterly  Report on Form 10-Q of the Registrant for
                     the  quarter  ended  June  30,  1996,  Commission  File No.
                     1-9360, filed on August 14, 1996).

         10.3(e)*    Form of Non-Qualified  Stock Option  Agreement  pursuant to
                     the 1986 Stock Option Plan of the Registrant as amended and
                     restated through November 15, 1990 (incorporated here-in by
                     reference to Exhibit  10.9(b) to the Annual  Report on Form
                     10-K of the  Registrant  for the fiscal year ended December
                     31, 1991,  Commission  File No. 1-9360,  filed on March 30,
                     1992).

         10.4        Contribution Agreement, dated as of August 20, 1993, by and
                     between  the  Registrant  and   Commercial   Assets,   Inc.
                     (incorporated  herein by reference to Exhibit  10.19 to the
                     Quarterly  Report  on Form 10-Q of the  Registrant  for the
                     quarter  ended  September  30,  1993,  Commission  File No.
                     1-9360, filed on November 15, 1993).

         23          Independent Auditors' Consent - Ernst & Young LLP.

         27          Financial Data Schedule.

*    Management contract or compensatory plan or arrangement.

     (b)          Reports on Form 8-K

         No Current Reports on Form 8-K were filed by the Registrant  during the
fourth quarter of the period covered by this Annual Report on Form 10-K.


                                     - 31 -
<PAGE>

                                   SIGNATURES

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

                                                    ASSET INVESTORS CORPORATION
                                                           (Registrant)


Date:  March 24, 1997                             By  /s/ Terry Considine
                                                    ----------------------------
                                                      Terry Considine
                                                      Co-Chief Executive Officer

Date: March 24, 1997                              By  /s/ Thomas L. Rhodes
                                                    ----------------------------
                                                      Thomas L. Rhodes
                                                      Co-Chief Executive Officer

Date: March 24, 1997                              By  /s/ Kevin J. Nystrom
                                                    ----------------------------
                                                      Kevin J. Nystrom
                                                      Chief Financial Officer

Date: March 24, 1997                              By  /s/ Diane Schott Armstrong
                                                    ----------------------------
                                                      Diane Schott Armstrong
                                                      Controller

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.

              Name                    Capacity                     Date

/s/ Terry Considine                   Director                March 24, 1997
-----------------------------
    Terry Considine

/s/ Thomas L. Rhodes                  Director                March 24, 1997
-----------------------------
    Thomas L. Rhodes

/s/ Bruce D. Benson                   Director                March 24, 1997
-----------------------------
    Bruce D. Benson

/s/ Elliot H. Kline                   Director                March 24, 1997
-----------------------------
    Elliot H. Kline

/s/ Richard L. Robinson               Director                March 24, 1997
-----------------------------
    Richard L. Robinson

/s/ Tim Schultz                       Director                March 24, 1997
-----------------------------
    Tim Schultz

/s/ William J. White                  Director                March 24, 1997
-----------------------------
    William J. White


                                     - 32 -