SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

  

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

                   For the fiscal year ended December 31, 1995

                                       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                        (I.R.S. Employer
    incorporation or organization)                       Identification No.)

3600 South Yosemite Street, Suite 900                          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 15, 1996, 24,355,862 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 $71,000,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Form 10-K is incorporated by reference to the registrant's 1996
definitive  proxy  statement  to be  filed  with  the  Securities  and  Exchange
Commission no later than 120 days after the end of the registrant's fiscal year.

<PAGE>




                  ASSET INVESTORS CORPORATION AND SUBSIDIARIES

                                    FORM 10-K

                      FOR THE YEAR ENDED DECEMBER 31, 1995

                                TABLE OF CONTENTS

                                                                           PAGE

Part I
ITEM 1.    BUSINESS
           (a)    General Development of Business.........................   1
           (b)    Narrative Description of Business.......................   3
ITEM 2.    PROPERTIES.....................................................  18
ITEM 3.    LEGAL PROCEEDINGS..............................................  18
ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............  18

Part II
ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
           SHAREOWNER MATTERS.............................................  18
ITEM 6.    SELECTED FINANCIAL DATA........................................  19
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
           CONDITION AND RESULTS OF OPERATIONS............................  20
ITEM 8.    CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....... F-1
ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
           ACCOUNTING AND FINANCIAL DISCLOSURE............................  31

Part III
ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............  31
ITEM 11.   EXECUTIVE COMPENSATION.........................................  31
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
           MANAGEMENT.....................................................  31
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................  31

Part IV
ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
           REPORTS ON FORM 8-K............................................  31

SIGNATURES................................................................  35


                                      (i)

<PAGE>


                                     PART I

         Capitalized  terms not otherwise  defined in the narrative  below shall
         have the meanings  indicated in the "Summary of Definitions"  which may
         be  found  following  the  consolidated  financial  statements  of  the
         company.

Item 1.    BUSINESS.

         (a)      General Development of Business.

         Asset Investors Corporation (the "company") is a real estate investment
trust (REIT) that was incorporated by MDC under Maryland law in 1986. Its shares
of Common Stock are listed on the NYSE under the symbol  "AIC." Asset  Investors
manages  ownership  interests  in  residential   mortgage  loan  securitizations
(non-agency  MBS  bonds)  and  owns  approximately  27% of the  common  stock of
Commercial Assets, Inc. (AMEX: CAX).

         The company  operates  in a manner  that  permits it to qualify for the
income  tax  treatment  accorded  to a REIT  under  the Code.  Accordingly,  the
company's  REIT income and its Excess  Inclusion  income,  with certain  limited
exceptions,  are not  subject  to state or federal  income tax at the  corporate
level. In order to maintain its REIT status, the company will be required, among
other  things,  to  distribute  annually (as  determined  under the Code) to its
shareowners  at least  95% of the  greater  of its  REIT  income  or its  Excess
Inclusion income and to meet certain asset, income and stock ownership tests.

         The  company's  acquisition  and other  policies are  determined by its
Board of Directors.  The company's  By-laws require that a majority of the Board
of Directors  and each  committee  thereof be comprised of persons  constituting
Independent Directors.

         The company's  day-to-day  operations  are performed by the Manager,  a
subsidiary of MDC,  pursuant to a Management  Agreement  which is 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 or of MDC have been
designated as officers of the company.

         Effective April 1, 1996, Financial Asset Management LLC will assume the
obligations  of the  Management  Agreement  from the  Manager.  Financial  Asset
Management LLC is 80% owned by two  subsidiaries of MDC and 20% owned by Spencer
I. Browne, the President of the company.

         The  company  intends to  continue  its  business  and to  conduct  its
operations so as not to become regulated as an investment company under the 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
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.  The assets which the company may acquire could
be limited by the provisions of the 1940 Act. In connection with its acquisition
of  non-agency  MBS  bonds,  the  company  has  adopted  a policy  of  obtaining
substantial foreclosure and other rights with respect to the underlying mortgage


                                      -1-
<PAGE>


loans. As a result of obtaining such rights,  the company believes that such 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 such MBS bonds  constitute
Qualifying Interests, the company could be required: (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.

         Overview - During 1995,  the company  continued to acquire  residential
mortgage  loan-related assets that are less sensitive to mortgage interest rates
and  prepayments  than its CMO  Ownership  Interests.  While these assets should
benefit from an improving  economy,  they are  sensitive  to credit  risks.  The
company  acquired 159 non-agency MBS bonds (also referred to as high-yield bonds
backed  by  home  mortgage  loans)  during  1994  and  1995  with  an  aggregate
outstanding balance on the date of acquisition of $188,338,000. These non-agency
MBS bonds were  acquired  at a total  cost of  $57,588,000,  a  weighted-average
acquisition price of 35.8%, and currently have a  weighted-average  pass-through
coupon interest rate of 7.0%.

         Sale of CMO Ownership  Interests - From 1990 to 1993, mortgage interest
rates  fell to  their  lowest  levels  in over 25  years  which  resulted  in an
unprecedented high level of prepayments in 1992, 1993 and the first half of 1994
on the mortgage loans  underlying the company's GNMA, FNMA and  FHLMC-guaranteed
mortgage  certificates,  as homeowners  nationwide refinanced their mortgages to
lower their payments.  Prepayments  adversely affect the company's CMO Ownership
Interests  by  reducing  the  amount of its  interest  earning  assets  (and the
company's  future income  therefrom)  and by  permanently  reducing the positive
spread between the company's fixed-rate  agency-guaranteed mortgage certificates
and the weighted-average  interest cost of its remaining CMO Bonds. These assets
also generated  substantial amounts of Excess Inclusion income which the company
was required to  distribute  in dividends to maintain its status as a REIT. As a
result,  the company was required to distribute  much of its capital.  For these
reasons,  among  others,  the  company  has  sold  substantially  all of its CMO
Ownership Interests over the past three years.

         Formation of Commercial  Assets - In August 1993,  the company formed a
new REIT,  Commercial Assets. The company contributed  $75,000,000  ($74,800,000
pursuant to the Contribution  Agreement plus $200,000 of cash) to the capital of
Commercial   Assets   during  1993  and   distributed,   on  October  12,  1993,
approximately 70% of the shares of Commercial Assets, valued at $52,598,000,  to
the company's  shareowners as a taxable dividend.  The Distribution  satisfied a
significant portion of the company's REIT distribution requirements for 1993 and
1992, and diversified a portion of its assets. The company's capital was reduced
by the amount of the distribution.

         Commercial  Assets  acquires  and manages  debt  instruments  issued in
commercial   mortgage   loan    securitizations.    Commercial   mortgage   loan
securitizations  generally are multi-class  issuances of debt instruments  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 and
other collateral.  To date,  Commercial Assets has acquired  subordinate  credit
support   classes  of   commercial   securitizations   backed  by  mortgages  on
multi-family real estate.

                                      -2-
<PAGE>


         Acquisition  of 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."

         The company's  non-agency  MBS bonds have credit risk.  Non-agency  MBS
bonds are  collateralized by mortgage loans that do not meet GNMA, FNMA or FHLMC
guarantee  standards,  typically  because the mortgage  loans exceed agency size
limits  (e.g.,  currently  $207,000) or because the borrower does not meet other
agency credit  underwriting  criteria (a  "non-conforming  mortgage loan").  The
company  generally  acquires the  subordinate  class of the  non-agency MBS bond
which bears the first losses from the related Mortgage Collateral. 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 and servicer advances, the company, as the holder of
the  first-loss  class,  would  suffer a loss.  The loss would  equal the unpaid
principal balance plus foreclosure costs and servicer advances,  net of proceeds
from the foreclosure sale, mortgage insurance 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.

         The company  intends to use its available  funds to acquire  additional
non-agency  MBS bonds.  Although the company's  primary  emphasis will be on the
acquisition of subordinate unrated non-agency MBS bonds, future acquisitions may
include,  among  other  things,  rated  classes  of  residential  mortgage  loan
securitizations,  participations in residential real estate or other assets. The
company  also may  acquire or  originate  agency-guaranteed  and  non-conforming
mortgage   loans   which,   among   other   things,   may  be  used  for  future
securitizations.

         (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 credit support  non-agency MBS bonds  (substantially all of which
may be unrated)  and the market for unrated and  lower-rated  debt  interests in
commercial  mortgage  loan  securitizations  through its  ownership of shares in
Commercial  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 owns and intends to acquire.

         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.  The debt instruments issued in the
securitization  of  non-conforming  mortgage loans are known as "non-agency  MBS
bonds." The holder of a  non-conforming  mortgage loan will suffer a loss if the
borrower  defaults and the proceeds from the  foreclosure  sale of the mortgaged
property are less than the unpaid balance of the mortgage loan plus  foreclosure
costs and interest advances.  In contrast,  agency-guaranteed  mortgage loans or
CMO Bonds secured by agency-guaranteed  or insured mortgage  certificates do not
have credit risk because of the agency guarantee.

                                      -3-
<PAGE>


         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
senior bond classes and then to the  subordinated  non-agency  MBS 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,  higher-yielding,  credit support  non-agency MBS bond class (which
generally  incurs the first  losses).  The company has acquired,  and intends to
acquire in the future, the subordinate  non-agency MBS bond classes which, while
offering  the  potential  of a  substantially  higher yield than the more senior
classes,  have the greatest credit risk. Such MBS 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 does 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.

         Despite credit  underwriting of the  non-conforming  mortgage loans and
the borrowers 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  non-agency
MBS bond classes.

         A substantial portion of the non-conforming mortgage loans that are the
collateral  for the  company's  non-agency  MBS bonds had an original  principal
balance that  generally  (but not in all cases) did not exceed 80% of the lesser
of the  appraised  value of the mortgaged  residential  property or the purchase
price of such property as of the date the loan was originated.  The ratio of the
loan  amount to the  appraised  value or  purchase  price is  referred to as the
loan-to-value ratio. The loan-to-value ratio of a mortgage loan may be higher or
lower on any date  subsequent to  origination of the loan as a result of changes
in the  value of the  property  securing  the  mortgage  loan and as a result of
principal payments on the mortgage loan. If the loan-to-value  ratio on the date
a mortgage  loan is  originated  is above 80%, the borrower  generally  (but not
always) is required  to  purchase  private  mortgage  insurance  at the time the
mortgage loan is originated.  The effect of the mortgage  insurance is to reduce
the  loan-to-value  ratio at the origination date to generally less than 75%. In
addition, the borrower must meet certain credit underwriting criteria.

         An  illustration  of  a  non-conforming  mortgage  loan  securitization
follows.  The example assumes the existence of a home with an appraised value of
$375,000  securing a  non-conforming  mortgage loan with a principal  balance of
$300,000.  If an issuer purchased 1,000 similar $300,000  mortgage loans secured
by 1,000 homes with an aggregate appraised value of $375,000,000, it could issue
a total of  $300,000,000  principal  amount of non-agency MBS bonds,  assuming a
loan-to-value ratio of 80%.

                                      -4-
<PAGE>


         Based on,  among other  things,  recent  non-conforming  mortgage  loan
securitizations,  94% of the aggregate  principal amount of non-agency MBS bonds
issued   (approximately   $282,000,000)  would  be  "senior"  investment  grade,
non-agency MBS bonds,  5.5% of the aggregate  principal amount of non-agency MBS
bonds issued (approximately  $16,500,000) would be "subordinate"  non-agency MBS
bonds and the remaining 0.5% of the aggregate principal amount of non-agency MBS
bonds  issued  (approximately   $1,500,000)  would  be  unrated  credit  support
non-agency  MBS  bonds.  In the event of a default by any of the  homeowners  in
making their  mortgage loan payments and upon  foreclosure of that mortgage loan
and sale of the mortgaged property,  to the extent that the foreclosure sale did
not  result in net  proceeds  at least  equal to the  principal  balance  of the
mortgage  loans  then  outstanding,  including  foreclosure  costs and  interest
advances, the shortfall generally first would reduce the principal amount of the
unrated credit support  non-agency MBS bond. THE DIAGRAM BELOW  ILLUSTRATES  THE
MECHANICS OF A NON-CONFORMING  MORTGAGE LOAN SECURITIZATION AND DOES NOT REFLECT
AN ACTUAL  ISSUANCE OF NON-AGENCY MBS BONDS,  WHICH MAY BE MATERIALLY  DIFFERENT
FROM THE EXAMPLE.



   1,000 Homes      $300,000,000 Aggregate          Non-Conforming Mortgage 
                       Principal Amount of             Loan Securitization 
                     Non-Conforming Mortgage             Structure (2,3)
                           Loans (1)
[Illustration
 of a house]             [Illustration                     $282,000,000
                          of a Mortgage                Total principal amount 
                          Certificate]                 of AAA, AA, A and BBB-
                                                         Rated Senior Non-
                                                         Agency MBS Bonds


                                                            $16,500,000
                                                     Total Principal Amount
                                                       of BB and B-Rated,
                         $300,000,000                Subordinate Non-Agency
                        Deeds of Trust                      MBS Bonds
                     First Mortgage Liens       
                              
                                                             $1,500,000 (*)
 $375,000,000
   Aggregate 
Appraised Value
                         $75,000,000                        $75,000,000
                     Aggregate Homeowners'             Aggregate Homeowners'
                  Equity Based on Appraised         Equity Based on Appraised
                           Value                              Value




   * Total Principal Amount of Unrated Credit Support Non-Agency MBS Bonds
---------------


                                      -5-
<PAGE>


(1)  1,000  mortgage  loans each with a principal  balance of $300,000.  In this
     example,  the  amount  of  each  mortgage  is no  greater  than  80% of the
     appraised  value of the home.  As a result,  no  homeowner  is  required to
     obtain private mortgage insurance.
(2)  The principal  amount of each  non-agency MBS bond class (often referred to
     as  "splits")  is  determined  by the rating  agency  based on, among other
     things, its determination as to the quality of the non-conforming  mortgage
     loans and the  likelihood  of timely  payment of interest and  principal on
     each of the non-agency MBS bond classes.
(3)  In the event a mortgage loan is  foreclosed  and the proceeds from the sale
     of the property  securing the mortgage  loan,  including  private  mortgage
     insurance,  is less than the unpaid principal balance of the mortgage loan,
     including  foreclosure  costs and  interest  advances,  the unrated  credit
     support  non-agency MBS bonds will suffer a loss  notwithstanding  the fact
     that, in the aggregate,  there is significant homeowners' equity supporting
     the  remaining   non-conforming  mortgage  loans  comprising  the  Mortgage
     Collateral for the non-conforming mortgage loan securitization.


         After originating and funding or purchasing the non-conforming mortgage
loans that will comprise the  collateral  for the  non-conforming  mortgage loan
securitization,  the issuer  transfers the  non-conforming  mortgage  loans to a
trustee for  safekeeping.  The non-agency MBS bond represents an interest in the
securitization. As homeowners make their monthly mortgage loan payments to their
respective  mortgage loan servicers,  the payments are remitted by the servicers
to the trustee.  The trustee  collects  these  payments and holds them until the
next scheduled non-agency MBS bond payment date, generally monthly.

         On each payment date,  the trustee first makes  payments of interest to
the senior  classes  followed  by  principal  payments to these  classes.  Next,
interest and principal  payments are made to the credit  support  classes,  most
often in their order of seniority as determined  by the terms of the  indenture.
Prepayments  of  principal  on the  non-conforming  mortgage  loans  backing the
non-agency  MBS bonds are generally  allocated to the senior  classes during the
first five  years.  After that  period,  the credit  support  classes  receive a
portion of the prepayments that increases over time.

         Yield  Considerations  on  Non-agency  MBS  Bonds - The  yields  on the
unrated  credit  support  non-agency  MBS bonds  acquired by the company will be
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 non-agency MBS
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  disposition  costs and interest  advances)  will be
allocated  first to the company's  credit support  non-agency MBS bonds prior to
being allocated to the more senior  non-agency MBS bond classes.  The non-agency
MBS bonds the company owns and intends to acquire are speculative and subject to
special risks,  including a substantially  greater risk of loss of principal and
non-payment of interest than the more senior rated bonds.

         The  Effect of  Prepayments  on  Non-agency  MBS Bonds - The  aggregate
amount of  distributions  on the company's  non-agency MBS bonds and their yield
also will be affected to a lesser  extent by the amount and timing of  principal
prepayments on the mortgage loans  comprising  the Mortgage  Collateral.  To the
extent the more senior  tranches of non-agency  MBS bonds are  outstanding,  all
prepayments of principal on the  non-conforming  mortgage  loans  comprising the
Mortgage Collateral will be paid to the holders of more senior classes, and none
will be paid to the  company  during the first five  years,  and in some cases a
longer  period,  after the original  issue date of the company's  non-agency MBS
bonds.  This  subordination  of the credit support  non-agency MBS bonds to more


                                      -6-
<PAGE>


senior classes may affect  adversely the yield on the non-agency MBS bonds owned
or acquired by the company.  Even if there are no actual  losses on the Mortgage
Collateral,  interest and principal payments are made on the more senior classes
before  interest  and  principal  are paid to the holders of the credit  support
class.  Because the company is acquiring the non-agency MBS bonds at significant
discounts from their outstanding  principal  balances,  if the company estimates
the  yield on a  non-agency  MBS  bond  based on a  faster  rate of  payment  of
principal than actually occurs,  the company's yield on that non-agency MBS bond
will be lower than anticipated.

         Because  the rate and  timing of  principal  payments  on the  Mortgage
Collateral  will depend on future  events and on a variety of other factors over
which the company has no control,  no assurances can be given as to such rate or
the timing of principal payments on the non-agency MBS bonds the company owns or
acquires.

         Unlike debt interests  which have a definite  maturity  date,  absent a
complete  reduction of principal as a result of allocated  realized losses,  the
maturity  date of a  non-agency  MBS bond may  occur  sooner  or later  than its
anticipated  maturity  date due to the rate and  timing  of  prepayments  on the
non-conforming  mortgage loans comprising the Mortgage  Collateral.  In order to
compare  more  easily  the  rate at  which a pool of  single-family  residential
mortgage loans prepays (i.e., their "prepayment  speed"),  the Public Securities
Association, a national statistical analysis organization,  created a Prepayment
Assumption  Model as a reference  standard for  measuring  future  single-family
residential  mortgage loan prepayment  rates known as "PSA." One hundred percent
PSA (i.e., 100% of the Prepayment  Assumption Model) assumes prepayment rates of
0.2% per annum of the then unpaid  principal  balance of such mortgage  loans in
the first month of the life of such mortgage  loans and an  additional  0.2% per
annum in each month thereafter (for example, 0.4% per annum in the second month)
until the 30th month.  A 100% PSA rate means that 6% of the remaining  aggregate
principal  amount of the  non-conforming  mortgage loans comprising the Mortgage
Collateral  pays off each year,  after the mortgage loan is 30 months old, until
all the  mortgage  loans are paid in full; a 200% PSA rate means that 12% of the
remaining  aggregate  principal amount of the Mortgage  Collateral pays off each
year;  and a 300% PSA rate means that 18% of the remaining  principal  amount of
the Mortgage  Collateral  pays off each year.  The PSA curve is not a historical
description of the prepayment  experience of any specific pool of  single-family
residential   mortgage  loans  or  a  prediction  of  the  anticipated  rate  of
prepayments of any pool of such mortgage loans.

<TABLE>
<CAPTION>

THE PUBLIC SECURITIES ASSOCIATION PREPAYMENT ASSUMPTION MODEL

CONSTANT PREPAYMENT RATE

Years           0       1               2               3               4                               30
-----           -       -               -               -               -                               --
<S>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>
100 PSA 0.00%   1.20%   2.40%   3.60%   4.80%   6.00%   6.00%   6.00%   6.00%   6.00%   6.00%   6.00%   6.00%
200 PSA 0.00%   2.40%   4.80%   7.20%   9.60%   12.00%  12.00%  12.00%  12.00%  12.00%  12.00%  12.00%  12.00%
300 PSA 0.00%   3.60%   7.20%   10.80%  14.40%  18.00%  18.00%  18.00%  18.00%  18.00%  18.00%  18.00%  18.00%
</TABLE>

The graph is a  representation  of prepayments (100 PSA, 200 PSA and 300 PSA) as
expressed as an annual percentage of the outstanding mortgage balance over time.


                                      -7-
<PAGE>


         The actual rate of principal prepayments on the non-conforming mortgage
loans  comprising  the Mortgage  Collateral  may be  influenced  by a variety of
economic,  geographic,  social and other  factors.  In  general,  if  prevailing
mortgage loan interest rates fall below the interest rates on the non-conforming
mortgage loans comprising the Mortgage Collateral,  such non-conforming mortgage
loans and the Mortgage  Collateral  likely would be subject to higher prepayment
rates than if prevailing  mortgage  loan  interest  rates remain at or above the
interest rates on such non-conforming  mortgage loans.  Conversely,  if mortgage
loan interest rates rise above the interest rates on the non-conforming mortgage
loans  comprising  the  Mortgage  Collateral,  the rate of  prepayment  would be
expected to decrease.  Other factors affecting the rate of prepayments,  as well
as defaults  and  foreclosures,  of  single-family  residential  mortgage  loans
include  changes in  mortgagors'  housing needs,  job  transfers,  unemployment,
mortgagors'  net equity in the mortgaged  properties and changes in the value of
the mortgaged properties.

         The rate and  timing of  principal  prepayments  on the  non-conforming
mortgage  loans  comprising  the Mortgage  Collateral  may affect the  company's
actual yield on the non-agency  MBS bonds it acquires,  even if the average rate
of principal  prepayments  is consistent  with the company's  expectations.  The
actual  rate of  principal  prepayments  on the  Mortgage  Collateral  cannot be
predicted, and there is no assurance that the Mortgage Collateral will prepay at
any given percentage of PSA.

         The Effect of Mortgage Defaults on Non-agency Bonds - To facilitate the
standardization  of the  measurement  of the rates of default on  non-conforming
mortgage  loans  relative  to a model,  the Public  Securities  Association  has
defined a standardized  benchmark  default curve,  known as the "SDA curve." The
standard default  assumption  ("SDA") represents an assumed rate of default each
month  relative  to the then  outstanding  performing  principal  balance of the
non-conforming mortgage loans comprising the Mortgage Collateral.  The SDA curve
assists the company and others in analyzing  the  non-agency  MBS bonds they are
considering for acquisition.

<TABLE>
<CAPTION>
THE PUBLIC SECURITIES ASSOCIATION STANDARD DEFAULT ASSUMPTION MODEL

ANNUALIZED DEFAULT RATE

MONTHS     1        31       61       91       121      151      181      221      241      271      301      331      360
------     -        --       --       --       ---      ---      ---      ---      ---      ---      ---      ---      ---
<S>        <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>    
100% SDA   0.00020  0.00600  0.00600  0.00306  0.00030  0.00030  0.00030  0.00030  0.00030  0.00030  0.00030  0.00030  0.00030
 50% SDA   0.00010  0.00300  0.00300  0.00153  0.00015  0.00015  0.00015  0.00015  0.00015  0.00015  0.00015  0.00015  0.00015
 30% SDA   0.00006  0.00180  0.00180  0.00095  0.00010  0.00010  0.00010  0.00010  0.00010  0.00010  0.00010  0.00010  0.00010
</TABLE>

The graph is a  representation  of 100% SDA, 50% SDA and 30% SDA as expressed as
an annual percentage of the outstanding mortgage balance over time.


                                      -8-
<PAGE>


         The SDA curve gives the annualized  default rate on a hypothetical pool
of non-conforming mortgage loans as a function of the age of the mortgage loans.
100% SDA assumes that the monthly  default rate starts at an annualized  rate of
0.02% in month one.  The rate  increases  by 0.02%  every  month after month one
until it reaches an annualized rate of 0.60% a month. Defaults remain at 0.60% a
month from  month 30 through  month 60.  From  month 61 through  month 120,  the
default rate  declines  monthly by 0.0095%,  from 0.60% a month to 0.03% a month
where it remains  constant.  Zero  percent  SDA assumes  there are no  defaults.
Correspondingly,  50% SDA assumes half the default rates of 100% of SDA. The SDA
curve  reflects the  historical  fact that defaults on  non-conforming  mortgage
loans  generally  occur with greater  frequency in years three through five of a
non-conforming  mortgage  loan.  The SDA does  not  purport  to be a  historical
description  of default  experience or a prediction of the  anticipated  rate of
default of any specific  pool of  non-conforming  mortgage  loans,  particularly
those owned by the company, but merely a standard to compare and analyze default
risk in non-agency MBS bonds.

         The Effect of Loss Severity on Non-agency MBS Bonds - While the rate of
default  or SDA and the rate and  timing of  prepayments  on the  non-conforming
mortgage loans  comprising the Mortgage  Collateral are important in determining
the  anticipated  yield on an unrated  credit  support  non-agency MBS bond, the
anticipated  severity of the loss (i.e., the total loss on each foreclosure sale
as  a  percentage  of  the  remaining   outstanding   principal   balance  of  a
non-conforming mortgage loan) is significantly more important in determining the
anticipated  yield on a  non-agency  MBS  bond.  The  single-family  residential
properties are the primary  security (and in some cases,  the only security) for
the  non-conforming  mortgage  loans  comprising  the Mortgage  Collateral.  The
severity of the losses on defaulted mortgage loans through a foreclosure sale of
the  single-family  residential  properties is extremely  important  because the
entire amount of such losses generally will be allocated to, and will reduce the
remaining  principal  balance of, the company's  credit  support  non-agency MBS
bonds. The severity of loss takes into account the anticipated decline in market
value of the home,  foreclosure costs and interest  advances.  In addition,  the
higher the coupon rate of the mortgage  loan,  the higher the interest  advances
through the foreclosure sale.

         For example,  assume that a mortgagor purchased a home for $375,000 and
obtained  a  mortgage  loan of  $300,000  (a  loan-to-value  ratio  of 80%)  and
defaulted on the mortgage loan. Upon the  foreclosure  sale of the home securing
the mortgage  loan, a loss severity  percentage of 20% would result in an actual
loss of $60,000 ($300,000 x 20%). As the holder of the first-loss credit support
non-agency  MBS bond,  the  actual  loss would be  allocated  to, and reduce the
principal balance of, the company's non-agency MBS bond by $60,000.

         In addition, the company believes that the rate of default and severity
of loss may be higher  on  non-conforming  mortgage  loans  which  are  cash-out
refinances,  limited documentation mortgage loans, Second Tier mortgage loans or
ARMs,  than  for  other  types of  non-conforming  mortgage  loans.  The rate of
default,  timing of prepayments  and the severity of loss on defaulted  mortgage
loans through  foreclosure sale will be affected by general economic  conditions
of the region of the country in which the related homes are located. The risk of
defaults   and  actual  loss  is  greater  in  regions   experiencing   weak  or
deteriorating  economies which generally are accompanied by, among other things,
increasing  unemployment,  natural  disasters,  falling  property  values or all
three.  The Mortgage  Collateral for the non-agency MBS bonds currently owned by
the company is  geographically  concentrated  in California  and the New England
states.

         Illustration  of  Cash  Generated  from  and  Losses   Allocated  to  a
Non-agency MBS Bond - The company  receives a high cash return on its non-agency
MBS bonds  because the monthly  scheduled  principal  and interest  payments are
computed on the outstanding principal balance of the bonds even though they were
acquired at a significant discount. Presented below are the computations of cash
that would be generated  during the first year of holding a  hypothetical  first
loss,  non-agency MBS bond.

                                      -9-
<PAGE>


Principal balance of a first loss,
 non-agency MBS bond                                                $ 1,000,000
Acquisition cost                                                             25%
                                                                    -----------
Cost of first loss, non-agency MBS bond                                $250,000
                                                                    ===========

Scheduled  principal and interest  payment on the  non-agency  MBS bonds in year
one:
         Interest (7.5% coupon)                                     $     74,687
         Principal                                                         9,218
                                                                    ------------
                                                                    $     83,905
                                                                    ============

Cash-on-cash return in year one ($83,905 / $250,000)                       33.6%
                                                                    ============



         Presented  below  is an  example  of  the  effects  of a  loss  from  a
foreclosed mortgage loan that backs the hypothetical  non-agency MBS bond at the
end of the first year.
<TABLE>
<S>                                                                       <C>            <C>           <C>

Original balance of foreclosed mortgage with an 8.0% coupon and 30-year term                           $    400,000
Outstanding balance of the foreclosed mortgage at the end of year one                                       396,658

                                                                           Outstanding    Acquisition     Economic
                                                                             Balance         Cost         Interest
                                                                             -------         ----         --------
Outstanding balance of the first loss non-agency MBS bond at the end
    of year one                                                           $  990,782          25%       $   247,696
Foreclosure loss at the end of year one assuming a 20% loss severity
    ($396,658 x 20%)                                                          79,332          25%            19,833
                                                                          ----------                    -----------
Adjusted balance after allocated loss of the first loss non-agency
    MBS bond                                                              $  911,450          25%       $   227,863
                                                                          ==========                    ===========


Scheduled principal and interest payment in year two based on
  the adjusted balance of the non-agency MBS bond:
         Interest (7.5% coupon)                                                                         $    68,054
         Principal                                                                                            9,139
                                                                                                        -----------
                                                                                                        $    77,193
                                                                                                        ===========

Cash-on-cash return adjusted for the loss ($77,193 / $250,000)                                                 30.9%
                                                                                                        ===========
</TABLE>

         The  original  investment  in the  first  loss  non-agency  MBS bond of
$250,000 would be returned within three years ($83,905 per year) if there are no
credit  losses.  If the bond is  allocated a loss of $79,332  from the  mortgage
foreclosure of a $400,000  mortgage at the end of year one, the annual cash flow
is reduced by $6,712 to $77,193  and the pay back period is  increased  from 3.0
years to 3.2 years.

THE PRECEDING  ILLUSTRATION  IS ONLY INTENDED TO BE AN EXAMPLE OF CASH GENERATED
AND LOSSES  ALLOCATED TO A  NON-AGENCY  MBS BOND AND DOES NOT REFLECT ANY ACTUAL
NON-AGENCY  MBS BONDS OWNED OR TO BE ACQUIRED  BY THE  COMPANY.  THE ACTUAL CASH
GENERATED  AND LOSSES  ALLOCATED TO SUCH MBS BONDS ARE LIKELY TO DIFFER FROM THE
ILLUSTRATION.

                                      -10-
<PAGE>


         Illustration of Potential Yields on the Company's  Non-agency MBS Bonds
- The table below  illustrates the sensitivity of the  yield-to-maturity  of the
company's portfolio of non-agency MBS bonds to a range of potential  prepayments
and defaults on the mortgage loans backing the non-agency MBS bonds.

         The computed pre-tax yields-to-maturity on the company's non-agency MBS
bonds are computed  from:  (i) the amortized cost of the non-agency MBS bonds at
December 31, 1995; and (ii) future cash flows from the company's  non-agency MBS
bonds. The computations  were prepared based upon the assumptions  that: (i) the
non-conforming mortgage loans backing the non-agency MBS bonds prepay at each of
the indicated  percentages of PSA; (ii) defaults occur monthly at rates equal to
the SDAs indicated;  (iii)  liquidation of a defaulted  non-conforming  mortgage
loan through  foreclosure  sale occurs 12 months  after the default;  and (iv) a
loss  severity  of 10%,  20% and 30% in the  month in which  the  non-conforming
mortgage loans first defaulted.  To the extent these  assumptions are incorrect,
the computed yields would be different.

<TABLE>
<CAPTION>

              Illustration of Potential Pre-Tax Yields-to-Maturity
                      of the Company's Non-Agency MBS Bonds

                                                    Potential Pre-tax
                                            Yield-to-Maturity (in percentages)
                                            ----------------------------------
                                          Half                          Double
                      Loss Severity      Assumed        Assumed         Assumed
Prepayment Rate       Percentage (2)       SDA          SDA (3)           SDA   
-------------------   --------------    ---------      --------         --------
<S>                         <C>           <C>             <C>            <C>  
Half Expected PSA           10%           29.4%           27.6%          23.5%
                            20            27.6            23.4           13.8
                            30            25.5            18.6            6.1

Expected PSA (1)            10            32.0            30.6           27.2
                            20            30.5            27.1           18.2
                            30            28.9            22.7            9.8

Double Expected PSA         10            36.0            34.9           32.4
                            20            34.8            32.3           25.9
                            30            33.6            29.3           18.1
---------------
<FN>
1    Prepayment speeds ranging from 200 PSA to 300 PSA.
2    Expressed as a percentage of loss of principal amount of mortgage loans.
3    Future default rates ranging from 30 SDA to 100 SDA.
</FN>
</TABLE>

         The pre-tax yields set forth above were  calculated by determining  the
monthly discount rate which, when applied to the assumed stream of cash flows to
be paid on the  company's  non-agency  MBS  bonds,  would  cause the  discounted
present value of such assumed  stream of cash flows to equal the amortized  cost
of the company's non-agency MBS bonds at December 31, 1995 of $52,354,000. These
yields  do not take  into  account  the  different  interest  rates at which the
company would reinvest payments of interest and principal on such non-agency MBS
bond.

         THE  PRECEDING  TABLE IS FOR THE PURPOSES OF  ILLUSTRATION  ONLY. IT IS
HIGHLY UNLIKELY THAT THE  NON-CONFORMING  MORTGAGE LOANS COMPRISING THE MORTGAGE
COLLATERAL  WILL BE  PREPAID,  OR  THAT  THE  ACTUAL  LOSSES  WILL BE  INCURRED,
ACCORDING TO ONE PARTICULAR PATTERN.  FOR THIS REASON, AND BECAUSE THE TIMING OF


                                      -11-
<PAGE>


CASH FLOWS IS CRITICAL TO DETERMINING  YIELDS,  THE  YIELDS-TO-MATURITY  IN THIS
EXAMPLE ARE LIKELY TO DIFFER FROM THE ACTUAL YIELDS ON THE  NON-AGENCY MBS BONDS
OWNED BY THE COMPANY,  AND SUCH  DIFFERENCES  MAY BE  MATERIAL.  THERE CAN BE NO
ASSURANCE THAT THE MORTGAGE  COLLATERAL WILL PREPAY AT ANY PARTICULAR RATE, THAT
THE ACTUAL  LOSSES WILL BE INCURRED AT ANY  PARTICULAR  LEVEL OR THAT THE ACTUAL
YIELDS  EARNED BY THE COMPANY WILL  CONFORM TO THE YIELDS IN THIS  ILLUSTRATION.
THE UNRATED CREDIT SUPPORT  NON-AGENCY MBS BONDS THE COMPANY OWNS AND INTENDS TO
ACQUIRE ARE SPECULATIVE AND SUBJECT TO SPECIAL RISKS,  INCLUDING A SUBSTANTIALLY
GREATER RISK OF LOSS OF PRINCIPAL AND  NON-PAYMENT OF INTEREST THAN MORE SENIOR,
RATED MBS BONDS. IN THE EVENT OF SUBSTANTIAL LOSSES, THE COMPANY MAY NOT RECOVER
THE FULL AMOUNT OF THE NET CARRYING VALUE OF ITS NON-AGENCY MBS BONDS.

         Commercial  Assets,   Inc.  -  During  1993,  the  company  contributed
$75,000,000  ($74,800,000  pursuant to the Contribution  Agreement plus $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.  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 company has been
advised by  Commercial  Assets  that it intends to operate in a manner that will
permit it to qualify as a REIT for federal income tax purposes.

         The process of commercial  mortgage loan  securitization  is similar to
the process of single-family  mortgage loan  securitization.  Commercial  Assets
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  from  defaults on 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.  Asset Investors
will not be subject to corporate  income tax on the  dividends it receives  from
its shares of  Commercial  Assets stock as long as it maintains  its status as a
REIT.

         CMO Ownership  Interests - The  company's  CMO Ownership  Interests had
historically  consisted  of CMO  Subsidiaries,  CMO  Residuals  and Acquired CMO
Classes.  CMO Subsidiaries and CMO Residuals entitled the company to receive its
proportionate share of the positive  difference between:  (i) the cash flow from
the Mortgage  Collateral  pledged to secure the related CMO Bonds  together with
reinvestment  income  thereon,  if any;  and (ii) the amount  required  for debt
service payments on such CMO Bonds together with  administrative  expenses (such
difference  is referred  to as "Excess  Cash  Flow,"  residual  cash flow or the
residual).  The company has  liquidated  substantially  all of its CMO Ownership
Interests.

Subsidiaries of the Company

         At December  31,  1995,  the company  had four  wholly-owned  corporate
subsidiaries:  Asset Mortgage Funding, Asset Funding, Asset Acceptance and Asset
Southwest.  Each of these entities is a limited-purpose finance subsidiary which
was created for the purpose of issuing CMOs.

                                      -12-
<PAGE>

Competition

         In acquiring  mortgage-related  assets, including non-agency MBS bonds,
the company (and Commercial  Assets in connection with CMBS bonds) competes with
other REITs,  savings and loan  associations,  banks,  mortgage bankers,  mutual
funds,  pension funds,  professional money managers,  insurance  companies,  and
others,  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,  among other things,  because of the company's status as a REIT, may have
more flexibility than the company in conducting their business operations.  As a
result of such competition,  the market prices the company pays for its acquired
assets may increase.

Capital Resources

         Substantially  all of the  proceeds  received by the  company  from the
issuance of Common Stock has been used to acquire  assets.  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.

         Without further shareowner approval, the company is authorized to issue
up to 50,000,000  shares of Common Stock, of which 24,355,862 shares were issued
and outstanding as of February 15, 1996.

         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 dividends on Common Stock, restrictions
on dividends for other  corporate  purposes and  preferences to holders of a new
class of stock in the  distribution of assets upon  liquidation.  As of February
15, 1996, 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 is administered by KeyCorp Shareholder Services, Inc.
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
through the Reinvestment Plan.

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 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
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


                                      -13-
<PAGE>


rights with respect to the underlying  mortgage  loans. As a result of obtaining
such rights,  the company  believes  that such MBS bonds  constitute  Qualifying
Interests for the purpose of the 1940 Act.

         More  than 55% of the  company's  consolidated  assets  are  Qualifying
Interests. If the Commission or its staff were to take a different position with
respect to whether such 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.

         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 advisor,  the sponsor, a
director or an affiliate of any 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.

Management Agreement

         The company has entered  into  annual  Management  Agreements  with the
Manager  through  December  31,  1996.  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 is 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. The Base Fee is equal to 3/8 of 1%
of the "average  invested  assets" of the company and its  subsidiaries for such


                                      -14-
<PAGE>


year. In 1993,  1994 and 1995, the Incentive Fee was based on the company's cash
distributions to shareowners. The Manager was entitled to the Incentive Fee only
after  the  company's  shareowners  first  received  a return  on the  company's
stockholders'  equity  equal  to the  "Ten-Year  U.S.  Treasury  Rate"  plus one
percent. Twenty percent of the company's distributions in excess of this minimum
return to shareowners  was paid to the Manager as the Incentive Fee. The Manager
also performs  certain bond  administration  and other related  services for the
company pursuant to the Management  Agreement and receives an Administrative Fee
for such  services in  relation to the  complexity  of the  transaction  and the
services required.

         In 1996,  the  Management  Agreement  was  amended to provide  that the
Incentive Fee be based on the company's net income calculated in accordance with
generally accepted accounting  principles  ("GAAP").  As of January 1, 1996, the
Incentive  Fee provides that the Manager will receive 20% of the amount by which
GAAP net income  exceeds the product of the "Ten-Year  U.S.  Treasury Rate" plus
one percent multiplied by the company's stockholders equity.

         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.

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
Code),  to its  shareowners,  at least 95% of the  greater of its REIT income or
Excess  Inclusion  income.  So long as the company meets the REIT  qualification
requirements, including its distribution requirements, the company expects that,
with limited exceptions, its REIT income and Excess Inclusion 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
and Excess Inclusion 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.

                                      -15-
<PAGE>

         If the company fails to satisfy the foregoing Income  Requirements but:
(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, then the company will
continue  to  qualify  as a REIT but will be subject to a 100% tax on certain of
its non-qualifying income.

         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";  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 the greater of its REIT
income or Excess Inclusion income. 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.  Because of the  nature of the  company's  income  from its assets and its
deductions with respect to its  obligations,  under certain  circumstances,  the
company may  generate  REIT income in excess of its cash flow.  At December  31,
1995, the company had a NOL carryover of approximately $101,000,000. 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.  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 or Excess
Inclusion   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.

                                      -16-
<PAGE>


         Excess Inclusion Income - Between 1987 and 1995, a significant  portion
of the cash  dividends  distributed  to the company's  shareowners  consisted of
Excess Inclusion income.  Excess Inclusion income is attributable to certain CMO
issuances  for  which an  election  has been made to be  treated  as a REMIC for
federal  income tax purposes.  Excess  Inclusion  income is the amount of income
from a residual interest in a REMIC which exceeds a specified return as provided
in the Code.  The company's  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.  During 1995,  1994 and 1993,  12%,
100%  and  100%,  respectively,  of the  cash  dividends  paid to the  company's
shareowners was Excess Inclusion income.

         Between 1993 and 1995,  the company sold  substantially  all of its CMO
Ownership  Interests that generated Excess Inclusion  income.  As a result,  the
amount of Excess Inclusion income to be generated in future years is expected to
be  negligible.  The  company's  ownership  interests in  Commercial  Assets and
non-agency MBS bonds do not generate Excess Inclusion income.

         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 ITS 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.

         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 bring or  maintain  ownership  of the  Common  Stock in
conformity 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


                                      -17-
<PAGE>


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  and MDC have been  designated  as
officers 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 15, 1996, 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 1995.
                                     PART II

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

         Asset  Investors  Corporation  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:
<TABLE>
<CAPTION>

                                   High                Low             Dividends
                                   ----                ---             ---------
1995
----
<S>                               <C>                 <C>                <C>
   First Quarter                  $2-3/8              $1-5/8             $.08
   Second Quarter                  2-5/8               2-1/4              .08
   Third Quarter                   2-7/8               2-3/8              .09
   Fourth Quarter                  3-3/8               2-5/8              .09

1994
----
   First Quarter                   2-1/2               1-7/8              .05
   Second Quarter                  3-3/8               2                  .07
   Third Quarter                   2-7/8               2-1/2              .07
   Fourth Quarter                  2-3/4               1-3/4              .14(1)
----------------
<FN>
(1)  Consisted of a regular dividend of $.08 per share and two special dividends
     of $.03 per share each.
</FN>
</TABLE>

                                      -18-
<PAGE>


          As of  February  15,  1996,  24,355,862  shares of Common  Stock  were
outstanding and were held by 3,222 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. The data as of December
31, 1995 and 1994,  and for each of the three years in the period ended December
31,  1995,  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,
                                                               -----------------------
                                          1995            1994           1993             1992            1991
                                          ----            ----           ----             ----            ----
                                        
Revenues from:
<S>                                     <C>             <C>            <C>             <C>              <C>      
    Ongoing operations                  $  10,871       $   3,448      $    1,126      $        --      $      --
    Liquidating operations                  7,328          15,456         (41,697)(2)      (24,874)        41,649
                                        ---------       ---------      ----------      -----------      ---------
                                        $  18,199       $  18,904      $  (40,571)     $   (24,874)     $  41,649
                                        =========       =========      ==========      ===========      =========

Net income (loss) from:
    Ongoing operations                  $   7,933       $   1,461      $   (3,105)     $    (2,482)     $  (1,696)
    Liquidating operations                  6,507          11,897         (47,913)(2)      (29,640)        30,869
                                        ---------       ---------      ----------      -----------      ---------
                                        $  14,440       $  13,358      $  (51,018)     $   (32,122)     $  29,173
                                        =========       =========      ==========      ===========      =========

Net income (loss) per share             $    0.60       $    0.92      $    (3.64)(2)  $    (2.30)     $    2.09
                                       
Dividends per share                     $    0.34       $    0.33      $     3.99(3)   $      1.18      $    2.70

Weighted-average shares
   outstanding                             24,279          14,548          14,024           13,986         13,953
</TABLE>
<TABLE>
<CAPTION>

Balance Sheet Data:
                                                                    December 31,
                                                                    ------------
                                          1995            1994            1993             1992           1991
                                          ----            ----            ----             ----           ----
 
<S>                                    <C>            <C>              <C>             <C>               <C>     
Total assets                           $   79,653     $   109,539      $   94,250      $   241,116       $266,861
Secured notes payable                          --          30,592          42,000           48,000             --
Total stockholders' equity                 78,759          72,965(4)       47,187(5)       153,316        201,941
Book value per share                   $     3.23     $      3.01(4)   $     3.35(5)   $     10.96       $  14.44
-------------------------- 
<FN>
(1)  In 1993,  the company began to liquidate  its CMO  Ownership  Interests and
     acquire  credit-sensitive  assets  (non-agency  MBS  bonds  and  shares  of
     Commercial   Assets)  that  should  benefit  from  an  improving   economy.
     Accordingly,  the  company  has  classified  as  revenues  and income  from
     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 being  generated  by ongoing
     operations.
(2)  Includes $24,399,000 ($1.74 per share) of cumulative effect
     of an accounting  change from adoption of FAS 115,  Accounting  for Certain
     Investments in Debt and Equity  Securities.  


                                      -19-
<PAGE>


(3)  Includes $.25 per share in cash and $3.74 per share in shares of Commercial
     Assets, Inc. common stock.
(4)  Includes  $17,208,000 of net proceeds and  10,053,794  shares of Common
     Stock from 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>


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

         Capitalized  terms not otherwise  defined in the narrative  below shall
         have the meaning indicated in the "Summary of Definitions" which may be
         found following the consolidated financial statements of the company.

                          RESULTS OF OPERATIONS FOR THE
                  YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

         The table below summarizes the company's  results of operations  during
the three years ended December 31, 1995 (in thousands, except per share data).
<TABLE>
<CAPTION>

                                                         Year Ended December 31,
                                                         -----------------------
                                                     1995          1994          1993
                                                     ----          ----          ----
Ongoing Operations:
    Revenues
<S>                                                <C>          <C>           <C>     
      Non-agency MBS bonds                         $  8,499     $   1,531     $     --
      Equity in earnings of Commercial Assets         1,742         1,354          187
      Interest and other income                         630           563          939
                                                   --------     ---------     --------

                                                     10,871         3,448        1,126
                                                   --------     ---------     --------
    Expenses
      Management fees                                   980           253            --
      General and administrative                      1,895         1,586         4,231
      Interest expense                                   63           148            --
                                                   --------     ---------     ---------
                                                      2,938         1,987         4,231
                                                   --------     ---------     ---------

    Earnings (loss) from ongoing operations           7,933         1,461        (3,105)
                                                   --------     ---------     ---------

Liquidating Operations:
    Revenues
      CMO Ownership Interests                         1,734         2,082       (37,151)
      Interest income                                   225           728           604
      Net gain (loss) on the sale of assets           5,369        12,646        (5,150)
                                                  ---------    ----------    ----------
                                                      7,328        15,456       (41,697)
                                                  ---------    ----------    ----------

</TABLE>


                                      -20-
<PAGE>


<TABLE>
<CAPTION>

                                                         Year Ended December 31,
                                                         -----------------------
                                                     1995          1994          1993
                                                     ----          ----          ----
    Expenses
<S>                                                     <C>            <C>         <C>  
      Management fees                                   234            496         1,013
      General and administrative                         23            339           350
      Interest expense                                  564          2,724         4,853
                                                  ---------     ----------    ----------
                                                        821          3,559         6,216
                                                  ---------     ----------    ----------

    Earnings (loss) from liquidating operations       6,507         11,897       (47,913)
                                                  ---------     ----------    ----------

Book income (loss)                                $  14,440     $   13,358    $  (51,018)
                                                  =========     ==========    ==========

Earnings (loss) from ongoing
 operations per share                             $     .33     $      .10    $     (.22)
Earnings (loss) from liquidating
 operations per share                                   .27            .82         (3.42)
                                                  ---------     ----------    ----------
Book income (loss) per share                      $     .60     $      .92    $    (3.64)
                                                  =========     ==========    ==========


Estimated REIT Income (Loss):
    Ongoing operations                            $  13,172     $    3,401    $   (1,476)
    Liquidating operations                           (6,507)       (25,521)      (14,337)
                                                  ---------     ----------    ----------

Estimated REIT income (loss)                      $   6,665     $  (22,120)   $  (15,813)
                                                  =========     ==========    ==========
Estimated REIT income (loss) per share            $     .27     $    (1.52)   $    (1.13)
                                                  =========     ==========    ==========


Excess Inclusion income                           $     636     $    3,769    $   30,665
                                                  =========     ==========    ==========
Excess Inclusion income per share                 $     .03     $      .26    $     2.19
                                                  =========     ==========    ==========


Dividends                                         $   8,255     $    4,959    $   56,107
                                                  =========     ==========    ==========
Dividends per share                               $     .34     $      .33    $     3.99
                                                  =========     ==========    ==========

Weighted-average shares outstanding                  24,279         14,548        14,024
</TABLE>

         In 1993, the company began to liquidate its CMO Ownership Interests and
acquire  credit-sensitive  assets (non-agency MBS bonds and shares of Commercial
Assets) that should benefit from an improving economy.  Accordingly, 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.  Earnings from
liquidating operations will be negligible in future years, primarily as a result
of the sale of substantially all CMO Ownership Interests.

         In December 1994, the company completed a Rights Offering that 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.

                                      -21-
<PAGE>


Book Income

         Non-agency  MBS Bonds - Book income from the company's  non-agency  MBS
bonds  increased  significantly  during 1995 compared with 1994 primarily due to
the  acquisition  of 74  non-agency  MBS bonds  during 1995 with an  outstanding
principal balance of $99,398,000 and a  weighted-average  coupon at December 31,
1995 of 6.9% and a full year of earnings on the 85 non-agency MBS bonds acquired
during  1994  with  an  outstanding  principal  balance  of  $88,940,000  and  a
weighted-average  coupon at December 31, 1995 of 7.0%. As the company  continues
to acquire  non-agency  MBS bonds,  earnings  from  non-agency  MBS bonds should
continue to increase.

         The company's  effective book yield on its non-agency MBS bonds for the
years ended December 31, 1995 and 1994, taking into consideration an estimate of
future credit  losses,  was 18.7% and 15.0%,  respectively.  The effective  book
yield on the company's non-agency MBS bonds increased during 1995 primarily from
the decrease in the weighted-average  purchase price of the non-agency MBS bonds
from 40.3% at  December  31,  1994 to 35.8% at  December  31,  1995.  Also,  the
weighted-average  interest rate on the non-agency MBS bonds  increased from 6.9%
at December 31, 1994 to 7.0% at December  31, 1995.  As a result of the decrease
in the  weighted-average  purchase  price  together  with  the  increase  in the
weighted-average  coupon of the company's  non-agency MBS bonds during 1995, the
effective  interest  rate  received by the  company  (stated  coupon  divided by
purchase  price)  increased from 16.4% at December 31, 1994 to 19.6% at December
31, 1995.

         The  company  records  an  allowance  for  credit  losses at the time a
non-agency  MBS bond is  acquired  which  reduces  the amount of book income the
company  records from these assets to the effective book yield.  At December 31,
1995 and  1994,  the  allowance  for  credit  losses  related  to the  company's
non-agency  MBS bonds  was  $71,365,000  and  $22,075,000,  respectively,  on an
outstanding  principal  balance of $180,165,000 and  $88,011,000,  respectively.
Based on the cost of the  applicable  non-agency  MBS bonds,  the  allowance for
credit losses had an economic value (allowance  multiplied by the purchase price
percentage)  at  December  31,  1995 and  1994 of  $18,332,000  and  $7,387,000,
respectively.

         The  allowance  for  credit  losses  is  increased  by  the  amount  of
anticipated  future  credit  losses when the company  acquires a non-agency  MBS
bond. The allowance for credit losses is decreased by credit losses allocated to
the  subordinate  non-agency  MBS  bonds  owned  by  the  company,  net  of  any
indemnification  payments  received.  Book income,  however,  is impacted by any
changes in estimates of future  credit  losses.  The company  believes  that the
current  balance of the allowance for credit losses is adequate to absorb future
credit losses allocated to its non-agency MBS bonds.  This assumes,  among other
things,  no  significant  changes in general  economic  conditions or widespread
natural  disasters  which  may  impact  adversely  the  credit  quality  of  the
underlying  mortgage  loans as a result  of a  reduction  in the  values  of the
single-family home securing the loans.

         As of  December  31,  1995,  there  were  247  mortgage  loans  (out of
approximately   140,000)  in  foreclosure  that   collateralize   the  company's
non-agency MBS bonds,  with an outstanding  principal balance of $51,988,000 and
an amortized  cost of  $18,016,000.  The company's  economic  exposure to credit
losses is equal to the  principal  loss  multiplied  by the  company's  original
purchase  price  percentage,   net  of  indemnification  claims  collected.  The
company's  economic  exposure  to  credit  losses  from  the  mortgage  loans in
foreclosure is dependent upon: (i) the net amount recovered from the foreclosure
sale of the defaulted mortgage loans plus any indemnifications  available,  less
related foreclosure costs and servicing advances; and (ii) the purchase price of
the related  non-agency MBS bonds.  The company's  economic loss with respect to
any  one  non-agency  MBS  bond  is  limited  to the  bond's  acquisition  price


                                      -22-
<PAGE>


(currently  averaging $358,000) less principal and interest payments received by
the company through the foreclosure date.

         For the year ended December 31, 1995, the outstanding principal balance
of the company's  non-agency  MBS bonds was reduced by $3,056,000 as a result of
the allocation of credit losses on the home mortgage loan collateral backing the
bonds.  The net  economic  loss to the company as a result of  allocated  credit
losses on the  company's  non-agency  MBS bonds was  $151,000 for the year ended
December  31,  1995.  This  economic  loss is net of $807,000  collected  by the
company from indemnification agreements.

         The company  anticipates  that the amount of credit losses allocated to
the company's  non-agency MBS bonds will increase in future periods.  The Public
Securities  Association  SDA model assumes that  defaults on mortgage  loans are
generally  highest  during years three  through five of the life of the mortgage
loan. Most of the mortgage loans that  collateralize  the company's  subordinate
non-agency  MBS bonds  were  originated  in 1993  through  1995 and have not yet
reached the years during which defaults are anticipated to be at their highest.

         On December 31, 1995,  the company  changed the  classification  of its
non-agency MBS bonds from held-to-maturity to available-for-sale.  The change in
classification  is not  attributable  to any  current  plans  to  liquidate  its
non-agency  MBS bonds;  however,  from time to time,  the company  may  evaluate
opportunities  to sell a non-agency  MBS bond as part of its efforts to maximize
portfolio value and increase  shareowner returns.  Accordingly,  the company has
classified its non-agency MBS bonds as available-for-sale, carried at fair value
in the financial  statements.  Unrealized  holding gains of $399,000 at December
31, 1995 from the company's  non-agency MBS bonds were excluded from earnings in
1995 and reported as a net amount in stockholders' equity until realized.

         Commercial Assets - Commercial  Assets commenced  operations on October
12, 1993 and had only limited  operations in 1993 and the first quarter of 1994.
Commercial  Assets has reported that it has acquired,  since its  inception,  11
CMBS bonds from six  securitizations  at a cost of $74,433,000.  At December 31,
1995,  1994 and 1993,  these CMBS bonds had  outstanding  principal  balances of
$100,368,000,  $101,319,000 and $10,000,000,  respectively, and weighted-average
coupons  of 8.24%,  8.25% and 8.88%,  respectively.  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, 1995 and 1994 was  $1,742,000  and  $1,354,000,  respectively.  The
increase  was  due to a full  year of  earnings  in 1995  from  the  $91,971,000
principal amount of CMBS bonds acquired during 1994. Commercial Assets completed
the  investment  of its  original  $75,000,000  of  capital  in 1994 and has not
acquired any CMBS bonds in 1995.  Commercial  Assets reported to the company its
earnings and dividends should remain  relatively  stable subject to, among other
things,  no additional  acquisitions  of CMBS bonds,  and stable expense levels,
credit losses and principal prepayments on the CMBS bonds.

         CMO Ownership  Interests - The company's book income from CMO Ownership
Interests  decreased  during 1995 compared to 1994 primarily due to the exercise
of Call Rights and the sale of CMO  Ownership  Interests  in 1994 and 1995.  The
improvement in 1994 over 1993 is due to lower  prepayments in the second half of
1994  compared  with  1993  and the  reduction  in the  carrying  amount  of the
company's CMO  Ownership  Interests at December 31, 1993 pursuant to a change in
accounting  principle.  As a result of the sales of CMO  Ownership  Interests in
1994 and 1995, future book income from these assets will not be material.

                                      -23-
<PAGE>


         Net Gain on Sale of Assets - During the years ended  December 31, 1995,
1994 and 1993, the company exercised Call Rights on its CMO Ownership  Interests
resulting in gains of $2,153,000, $12,883,000 and $1,062,000,  respectively. The
exercise of these Call Rights during the years ended December 31, 1995, 1994 and
1993  reduced  the  outstanding  principal  amount  of  the  company's  Mortgage
Collateral by $45,698,000, $184,491,000 and $22,320,000, respectively.

         On March 30, 1995, Asset Securitization sold 28 CMO Ownership Interests
and repaid the 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,  1994 and 1993,  the
company  earned  book  income  (loss)  from Asset  Securitization  of  $733,000,
$3,306,000 and ($19,882,000)  (including $4,664,000 and $1,949,000 of gains from
the   exercise   of  Call  Rights  in  1994  and  1993),   respectively.   Asset
Securitization was liquidated in May 1995.

         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 is included in earnings from liquidating operations in 1995.

         During  June 1993,  the company sold 21 CMO Ownership Interests  for an
aggregate of $29,200,000, resulting in a net loss of $6,225,000.

         Interest  and Other  Income - Interest  and other  income from  ongoing
operations increased during 1995 compared with 1994 due to an increase in income
from other sources,  which was partially  offset by 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. Interest income decreased during
1994 as compared with 1993 because the company had significant  cash reserves in
1993 prior to the capitalization of Commercial Assets.

         Interest  income  from  liquidating  operations  decreased  during 1995
compared with 1994 because it was earned  primarily from restricted cash for the
secured notes  payable.  Restricted  cash was used to repay the secured notes on
March 30, 1995.  Interest income from  liquidating  operations  increased during
1994 compared with 1993 due to higher interest rates.

         General  and  Administrative  Expenses  -  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.  General and administrative  expenses from ongoing  operations  decreased
during 1994  compared  with 1993  primarily  due to costs  including DER expense
incurred in 1993 in  connection  with the  distribution  of shares of Commercial
Assets.   General  and  administrative   expenses  from  liquidating  operations
decreased during 1995 compared with 1994 and 1993 because of the  discontinuance
of  amortization  of debt issue costs  resulting  from the sale of CMO Ownership
Interests.

         At its  annual  meeting  in May 1996,  the  company  intends to solicit
shareowner  approval of an amendment to the Stock  Option  Plan.  The  amendment
would  permit the company to issue shares of Common Stock in 1996 to the holders
of options who voluntarily give up their right to receive shares of Common Stock
in the future  pursuant to DERs. If approved,  the amendment will also eliminate
provisions  in the  Stock  Option  Plan  that  permit  the  issuance  of DERs in
connection with stock options granted in the future.  The effect of the proposal
will be to reduce general and administrative expenses from DERs by approximately
$220,000  in 1996  and  approximately  $300,000  per year in  subsequent  years.


                                      -24-
<PAGE>


However, the issuance of Common Stock in exchange for the right to receive DERs,
if approved,  will result in a one-time charge to 1996 earnings of approximately
$750,000 and issuance of approximately 250,000 shares of Common Stock.

         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 1995 compared with 1994 and 1993
due to  acquisitions  of non-agency  MBS bonds during 1994 and 1995.  Also, as a
result of higher  dividends in 1995  compared  with 1994,  the company  incurred
$517,000 of Incentives  Fees in 1995  compared to $137,000 of Incentive  Fees in
1994.  Management Fees included in liquidating  operations decreased during 1995
compared  with 1994 and 1993 due to sales and calls of CMO  Ownership  Interests
and collateral  repayments during 1994 and 1995.  Effective January 1, 1996, the
method of calculating  Administrative  Fees and Incentive Fees was changed which
should result in higher fees during 1996.

         Effective April 1, 1996, Financial Asset Management LLC will assume the
obligations  of the  Management  Agreement  from the  Manager.  Financial  Asset
Management LLC is 80% owned by two  subsidiaries of MDC and 20% owned by Spencer
I. Browne, the President of the company.

         Interest  Expense  -  Interest  expense  on  the  company's   borrowing
facilities,  primarily included in liquidating operations, decreased during 1995
compared  with  1994,  principally  due  to the  repayment  of  $11,408,000  and
$30,592,000, respectively, of the secured notes payable in 1994 and in the first
quarter of 1995.  The effective  interest  rate under the  company's  short-term
borrowing  facilities during 1995, 1994 and 1993 was 7.21%,  5.02% and 3.93% per
annum, respectively.

         Accounting  Change  - The book  loss in 1993  includes  the  cumulative
effect of an accounting change of $24,399,000. On December 31, 1993, the company
adopted  FAS  115,  Accounting  for  Certain  Investments  in  Debt  and  Equity
Securities.  In  accordance  with FAS 115, if the fair value of a CMO  Ownership
Interest or non-agency  MBS bond declines below its amortized cost basis and the
decline  is  considered  to be "other  than  temporary,"  the cost  basis of the
individual asset must be written down to its fair value as a new cost basis. The
amount of the  write-down  is  reflected  in the  company's  current book 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 of the asset exceeds the
related  projected cash flow from the CMO Ownership  Interest and non-agency MBS
bond discounted at a risk-free rate of return.

REIT Income

         The company's estimated REIT income from ongoing operations during 1995
improved  over  1994  and  1994  improved  over  1993  due  to  $11,256,000  and
$2,639,000,  respectively, of higher REIT earnings from non-agency MBS bonds and
$414,000 and $1,270,000,  respectively,  of 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 1994 and 1995.

         The company's  estimated  REIT losses from  liquidating  operations for
1995  were  significantly  less  than  1994  primarily  due to  high  levels  of
prepayments  of the Mortgage  Collateral  underlying the company's CMO Ownership
Interests  during the first half of 1994. The high levels of prepayments in 1994
resulted in significant  amounts of non-cash  interest expense from amortization
of the  discounts on the company's  CMO Bonds.  Also,  many of the CMO Ownership
Interests sold during 1995 and 1994 were generating REIT losses. The company was
able to eliminate these losses as a result of the sales. The company's REIT loss


                                      -25-
<PAGE>


increased  during 1994  compared with 1993  primarily  because of the sale of 21
REMIC assets in June 1993 which  generated  REIT income during the first half of
1993.

         The estimated REIT losses from liquidating  operations during the years
ended  December  31,  1995  and  1994  included   $2,568,000   and   $4,778,000,
respectively,  of  interest  expense  related to the  write-off  of  unamortized
discount  from CMO Bonds  redeemed  during  the period in  conjunction  with the
exercise  of Call  Rights.  Exclusive  of the  interest  expense  related to the
exercise of Call Rights,  the company earned estimated REIT income of $9,233,000
compared with REIT losses of  $17,342,000  for the years ended December 31, 1995
and 1994, respectively.

         The company recognized approximately  $24,350,000 of net capital losses
during the year ended December 31, 1995. The net capital losses are not included
in  REIT  income,   but  increased  the  company's  capital  loss  carryover  to
approximately  $35,100,000 at December 31, 1995. For the year ended December 31,
1994, the company  recognized  $5,550,000 of net capital gains which reduced the
company's  capital loss carryover of  $16,300,000  from 1993, as required by the
Code.

Excess Inclusion Income

         The company's  Excess Inclusion income for the years ended December 31,
1995,  1994 and 1993 was $636,000,  $3,769,000  and  $30,665,000,  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 Carryover

         The  company's  NOL  carryover  was  approximately  $101,000,000  as of
December 31, 1995.  The NOL can be used to reduce the company's  requirement  to
distribute at least 95% of its REIT income.

Reconciliation of REIT Income and Book Income

         Substantially all of the difference between REIT income and book income
is due to: (i) capital gains and losses on the sales of assets recorded for book
income  purposes  that for REIT  purposes  are reduced to zero by the  company's
capital loss carryover;  (ii) 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;  and
(iii)  differences in the calculation of discount and premium  amortization  for
REIT income  compared to book income,  attributable  to non-agency MBS bonds and
CMO Ownership Interests.

Dividend Distributions

         During 1995,  the company  declared  regular  dividends 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.  The company does not
anticipate that a material portion of future dividends will be return of capital
distributions. During 1994, the company declared regular dividends of $3,809,000
($.27 per share) and special  dividends of $1,150,000  ($.06 per share).  During
1993,  the  company  paid  $3,509,000  ($.25 per  share) in cash  dividends  and
distributed to its shareowners  approximately  70% of the outstanding  shares of


                                      -26-
<PAGE>


common  stock  of  Commercial   Assets.  The  value  of  the  Commercial  Assets
Distribution on a fully-distributed basis was estimated to be $52,598,000 ($3.74
per share).

         Since its  inception,  the company  has  distributed  dividends  to its
shareowners totaling $229,239,000 ($17.29 per share). The distributions included
cash dividends of $176,641,000 ($13.55 per share) and 7,040,043 shares of common
stock of Commercial  Assets (one-half share of common stock of Commercial Assets
for every share of Common Stock  owned).  The amount of  previously  distributed
dividends is not necessarily  indicative of the amount of future dividends which
may be declared and paid by the company, if any.

                         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 sources and uses of the company's cash
for the years ended December 31, 1995, 1994 and 1993 (in thousands).
<TABLE>
<CAPTION>

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

Cash Generated By Ongoing Operations:
    Non-agency MBS bonds:
<S>                                                                  <C>               <C>             <C>       
       Interest                                                      $   9,830         $   1,869       $       --
       Principal and indemnifications                                    2,824               736               --
    Dividends from Commercial Assets                                     2,430               911              193

Cash Generated By (Used In) Liquidating Operations:
    CMO Ownership Interests                                              4,743            21,083          110,249
    Restricted cash for secured notes payable                           15,862             1,201           (8,700)
    Sale of assets                                                      25,038            17,194           30,393

Total expenses, net of interest income and other                        (4,064)           (2,035)          (7,117)
                                                                     ---------         ---------       ----------

Cash Generated By Operations                                         $  56,663         $  40,959       $  125,018
                                                                     =========         =========       ==========

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

Dividends Paid                                                       $   8,981         $   4,232       $    3,509
                                                                     =========         =========       ==========

Acquisitions:
    Non-agency MBS Bonds                                             $  23,965         $  33,624       $       --
    CMO Ownership Interests                                                 --                --            4,250
    Capital Contribution to Commercial Assets                               --                --           75,000
                                                                     ---------         ---------       ----------

       Total Acquisitions                                            $  23,965         $  33,624       $   79,250
                                                                     =========         =========       ==========

Repayment of Debt                                                    $  33,350         $  12,890       $   38,172
                                                                     =========         =========       ==========
</TABLE>

                                      -27-
<PAGE>


         The company's cash from ongoing operations continues to increase due to
acquisitions of non-agency MBS bonds. Dividends from Commercial Assets increased
in 1995  compared  with  1994  and  1993 due to  acquisitions  of CMBS  bonds by
Commercial Assets in 1994. Commercial Assets has stated that its dividend should
remain  stable  in the  future  assuming,  among  other  things,  no  additional
acquisitions  of CMBS  bonds,  and  stable  expense  levels,  credit  losses and
principal prepayments on the CMBS bonds.

         Cash from liquidating operations, primarily consisting of CMO Ownership
Interests, is declining because of the exercises of Call Rights and sales of CMO
Ownership  Interests in 1994 and 1995.  As a result of these  transactions,  the
company  expects no  significant  cash flow from its CMO Ownership  Interests in
future years.

         The company has available sources of liquidity from several  Repurchase
Agreements  and a credit  facility  which  expires on December 23, 1996, in each
case  collateralized  by certain  non-agency MBS bonds. The collateral value and
interest  rate  related to these  borrowing  agreements  are subject to periodic
adjustment.  At December  31, 1995,  the company was able to borrow  $18,611,000
under  these  agreements,  based on the  value  of the  pledged  collateral.  At
December 31, 1995, there were no borrowings  under the Repurchase  Agreements or
credit facility.

         On July 19, 1995, the company obtained a one-year, $1,000,000 unsecured
line of credit.  Advances  under this line bear  interest at the prime rate.  At
December 31, 1995, there were no borrowings under this line of credit.

         The cash  generated by the company's  non-agency MBS bonds is dependent
upon the credit  losses  allocated  to the bonds.  The  amount of  defaults  and
resulting  credit losses on the company's  non-agency  MBS bonds may be impacted
adversely  by natural  disasters  not  generally  insured  against by a standard
homeowners  insurance  policy (e.g.,  floods,  earthquakes,  etc.) in geographic
areas  in  which  residential   properties  that   collateralize  the  company's
non-agency  MBS bonds are  located.  The company is unable to predict the impact
natural  disasters  may have on the company's  income.  The company has provided
$71,365,000  of  allowances  for credit  losses at  December  31, 1995 to absorb
future credit  losses,  including  losses from natural  disasters not covered by
standard homeowners policies.

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 another  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.

                                      -28-
<PAGE>


         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 FAIR VALUE.  THE FAIR VALUE
ESTIMATES  PRESENTED  HEREIN ARE BASED ON  PERTINENT  INFORMATION  AVAILABLE  TO
MANAGEMENT  AS OF DECEMBER 31, 1995.  FUTURE  ESTIMATES OF FAIR VALUE MAY DIFFER
SIGNIFICANTLY FROM THE AMOUNTS PRESENTED HEREIN.

         At  December  31,  1995,  the  estimated  fair  value of the  company's
ownership interest in Commercial Assets was $15,531,000, compared to $15,876,000
and  $17,257,000  at December 31, 1994 and 1993,  respectively.  The decrease in
fair value was due to the decrease in the trading price per share from $6.25 per
share at December  31,  1993 to $5.75 per share at December  31, 1994 and $5.625
per share at December 31,  1995.  At February  15,  1996,  the closing  price of
Commercial Assets was $6.00 per share.

         The December 31, 1995 and 1994  estimated  fair value of the  company's
non-agency  MBS bonds  approximated  their carrying  values of  $52,753,000  and
$32,544,000,  respectively.  The  increase  in the  fair  value  was  due to the
acquisition  of 74  non-agency  MBS bonds  during 1995 offset by  $2,824,000  of
principal repayments and indemnifications paid on and $1,331,000 of amortization
of the  non-agency  MBS bonds  during  1995.  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.

          The net estimated fair value of the company's CMO Ownership  Interests
classified as  available-for-sale  was $368,000 at December 31, 1995 as compared
with an estimated  fair value of  $15,319,000  at December 31, 1994. The company
owned no CMO Ownership Interests  classified as held-to-maturity at December 31,
1995  compared  with  assets  with an  estimated  fair value of  $9,000,000  and
$49,400,000 at December 31, 1994 and 1993,  respectively.  The decreases are due
to the sales of CMO Ownership Interests in 1994 and 1995.

Investment Company Act of 1940

         The company  intends to conduct its  business  operations  so as not to
become  regulated  as an  investment  company  under the 1940 Act.  The 1940 Act
exempts   entities   that,   directly  or  indirectly   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
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.  The assets  which the  company  may  acquire,
therefore, may be limited by the provisions of the 1940 Act.

         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 such MBS bonds constitute  Qualifying Interests for the purpose of
the 1940 Act and that the  company  should not be  required  to  register  as an
investment  company.  If the  Commission  or its staff were to take a  different
position with respect to whether such MBS bonds constitute Qualifying Interests,
the  company  could be  required  either:  (i) to change  the manner in which it


                                      -29-
<PAGE>


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 shares of
Common Stock..

Other

         Certain  statements  in this Form 10-K  Annual  Report,  the  company's
Summary Annual Report to Shareowners,  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   earning    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  estimated  1996  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;  competition;  the availability of additional  non-agency
MBS bonds at approximately  the same prices  currently paid by the company;  the
company's  ability to maintain or reduce expense levels and the assumption  that
losses on non-agency MBS bonds do not exceed the company's estimates.

         Congressional  considerations of major reform to the federal tax system
have been  increasing  over the past year.  Proposed tax plans  currently  being
sponsored by various  members of Congress,  include  variations of a consumption
tax (sales  tax) and flat tax.  Under the current  tax  system,  deductions  are
allowed for  mortgage  interest  and  property  taxes.  Tax reform may reduce or
eliminate  these  deductions.  The likelihood of major tax reform and the impact
such reform would have on, among other  things:  (i) the value of single  family
homes that collateralize the mortgage loans backing the company's non-agency MBS
bonds and the value of multi-family  properties that  collateralize the mortgage
loans backing the CMBS bonds of Commercial Assets;  (ii) values of the company's
non-agency MBS bonds; and (iii) the company's  financial  position or results of
operations, are not determinable.




                                      -30-
<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, 1995 and 1994.......    F-3

      Consolidated  Statements of Operations for the years ended
         December 31, 1995, 1994 and 1993................................    F-4

      Consolidated Statements of Stockholders' Equity for the years
         ended December 31, 1995, 1994 and 1993..........................    F-5

      Consolidated Statements of Cash Flows for the years ended
         December 31, 1995, 1994 and 1993................................    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-23

      Balance Sheets as of December 31, 1995 and 1994....................   F-24

      Statements of Income for the years ended December 31, 1995
         and 1994 and for the period from October 12, 1993 (date
         operations commenced) to December 31, 1993......................   F-25

      Statements of  Stockholders'  Equity for the years ended
         December 31, 1995 and 1994 and for the period from 
         October 12, 1993 (date operations commenced) to
         December 31, 1993...............................................   F-26

      Statements of Cash Flows for the years ended December 31, 1995
         and 1994 and for the period from October 12, 1993 (date
         operations commenced) to December 31, 1993......................   F-27

      Notes to Financial Statements......................................   F-28





                                       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, 1995 and 1994, and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for each of the three years in the period ended  December 31, 1995.  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, 1995 and 1994,
and the results of their  consolidated  operations and their cash flows for each
of the three years in the period  ended  December  31, 1995 in  conformity  with
generally accepted accounting principles.

         As discussed in Note B to the consolidated  financial  statements,  the
company changed its method of accounting for CMO Ownership  Interests  effective
as of December 31, 1993.




                                                               ERNST & YOUNG LLP



Phoenix, Arizona
February 9, 1996








 
                                      F-2
<PAGE>




<TABLE>
<CAPTION>

                                   ASSET INVESTORS CORPORATION AND SUBSIDIARIES
                                            CONSOLIDATED BALANCE SHEETS
                                           (Dollar amounts in thousands)

                                                                         December 31,
                                                                         ------------
                                                                 1995                  1994
                                                                 ----                  ----

Assets
<S>                                                            <C>                 <C>         
   Cash and cash equivalents                                   $    5,328          $     14,961
   Restricted cash for secured notes payable                           --                15,862
   Non-agency MBS Bonds                                            52,753                32,544
   Investment in Commercial Assets                                 19,225                21,068
   CMO Ownership Interests                                            368                22,490
   Other assets, net                                                1,979                 2,614
                                                               ----------          ------------

       Total Assets                                            $   79,653          $    109,539
                                                               ==========          ============

Liabilities
   Accounts payable and accrued liabilities                    $      416          $      2,698
   Management fees payable to Manager                                 478                   526
   Short-term borrowings                                               --                 2,758
   Secured notes payable                                               --                30,592
                                                               ----------          ------------

       Total Liabilities                                              894                36,574
                                                               ----------          ------------

Stockholders' Equity
   Common  Stock,  par  value  $.01  per  share,
     50,000,000  shares  authorized 24,355,862 and
     24,212,002 shares issued and
     outstanding                                                      244                   242
   Additional paid-in capital                                     227,546               227,182

   Cumulative dividends                                          (229,239)             (220,984)
   Cumulative net income                                           80,965                66,525
                                                               ----------          ------------
     Dividends in excess of net income                           (148,274)             (154,459)

   Unrealized holding losses on debt securities                      (757)                   --
                                                               ----------          ------------

       Total Stockholders' Equity                                  78,759                72,965
                                                               ----------          ------------

       Total Liabilities and Stockholders' Equity              $   79,653          $    109,539
                                                               ==========          ============
</TABLE>

                                  See Notes to Consolidated Financial Statements


                                       F-3
<PAGE>



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

                                                                                    Year Ended December 31,
                                                                                    -----------------------
Ongoing Operations:                                                        1995              1994             1993
   Revenues                                                                ----              ----             ----
<S>                                                                      <C>               <C>             <C>       
      Non-agency MBS bonds                                               $   8,499         $   1,531       $       --
      Equity in earnings of Commercial Assets                                1,742             1,354              187
      Interest and other income                                                630               563              939
                                                                         ---------         ---------       ----------
           Total Revenues                                                   10,871             3,448            1,126
                                                                         ---------         ---------       ----------

   Expenses
      Management fees                                                          980               253               --
      General and administrative                                             1,895             1,586            4,231
      Interest expense                                                          63               148               --
                                                                         ---------         ---------       ----------
           Total Expenses                                                    2,938             1,987            4,231
                                                                         ---------         ---------       ----------

Earnings (loss) from ongoing operations                                      7,933             1,461           (3,105)
                                                                         ---------         ---------       ----------


Liquidating Operations:
   Revenues
      CMO Ownership Interests                                                1,734             2,082          (12,752)
      Interest income                                                          225               728              604
      Net gain (loss) on sale of assets                                      5,369            12,646           (5,150)
                                                                         ---------         ---------       ----------
           Total Revenues                                                    7,328            15,456          (17,298)
                                                                         ---------         ---------       ----------

   Expenses
      Management fees                                                          234               496            1,013
      General and administrative                                                23               339              350
      Interest expense                                                         564             2,724            4,853
                                                                         ---------         ---------       ----------
           Total Expenses                                                      821             3,559            6,216
                                                                         ---------         ---------       ----------

Earnings (loss) from liquidating operations                                  6,507            11,897          (23,514)
                                                                         ---------         ---------       ----------

Net income (loss) before cumulative effect of accounting change             14,440            13,358          (26,619)
Cumulative effect of accounting change                                          --                --          (24,399)
                                                                         ---------         ---------       ----------
Net income (loss)                                                        $  14,440         $  13,358       $  (51,018)
                                                                         =========         =========       ==========

Net income (loss) before cumulative effect of accounting change
      per share                                                          $     .60         $     .92       $    (1.90)
Cumulative effect of accounting change per share                                --                --            (1.74)
                                                                         ---------         ---------       ----------
Net income (loss) per share                                              $     .60         $     .92       $    (3.64)
                                                                         =========         =========       ==========

Weighted-average shares outstanding                                         24,279            14,548           14,024

Cash dividends per share                                                 $     .34         $     .33       $      .25
Commercial Assets stock dividend per share                               $      --         $      --       $     3.74
</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, 1995, 1994 AND 1993
                                 (In thousands)


<TABLE>
<CAPTION>

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

<S>                                  <C>          <C>        <C>           <C>             <C>          <C>       
Balances - December 31, 1992         13,986       $  140     $  208,909    $   (55,733)    $    --      $  153,316

   Issuance of Common Stock              94            1            995             --          --             996
   Net (loss)                            --           --             --        (51,018)         --         (51,018)
   Dividends                             --           --             --        (56,107)         --         (56,107)
                                    -------       ------     ----------    -----------     -------       ---------

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
                                    =======       ======     ==========    ===========     =======      ==========

</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,
                                                                                  -----------------------
                                                                        1995              1994               1993
                                                                        ----              ----               ----
Cash Flows From Operating Activities
<S>                                                                 <C>               <C>                <C>        
   Net income (loss)                                                $  14,440         $  13,358          $  (51,018)
   Cumulative effect of accounting change                                  --                --              24,399
                                                                    ---------         ---------          ----------
   Net income (loss) before cumulative effect of accounting
      change                                                           14,440            13,358             (26,619)
   Adjustments to reconcile net income (loss) to net cash flows
      from operating activities:
      Amortization of discounts on non-agency MBS bonds                 1,331               338                  --
      Amortization of CMO Ownership Interests                             923             7,738              40,213
      Write-down of CMO Ownership Interests                                --             2,715              15,334
      (Increase) decrease in other assets                                (138)              375               1,581
      (Decrease)   increase  in  accounts  payable  and  accrued
          liabilities                                                  (1,022)            1,845                 206
      Equity in earnings of Commercial Assets                          (1,742)           (1,354)               (187)
      Net (gain) loss on sale of assets                                (5,369)          (12,646)              5,150
                                                                    ---------         ---------          ----------

   Net Cash Provided By Operating Activities                            8,423            12,369              35,678
                                                                    ---------         ---------          ----------

Cash Flows From Investing Activities
   Proceeds from the sale of assets                                    25,038            17,194              30,393
   Decrease (increase) in restricted cash for secured notes
     payable                                                           15,862             1,201              (8,700)
   Principal collections on non-agency MBS bonds                        2,824               736                  --
   Dividends from Commercial Assets                                     2,430               911                 193
   Principal collections on CMO Ownership Interests                     2,086             8,548              67,454
   Acquisition of non-agency MBS bonds, CMO Ownership Interests
     and investment in Commercial Assets                              (23,965)          (33,624)             (4,450)
                                                                    ---------         ---------          ----------

   Net Cash Provided By (Used By) Investing Activities                 24,275            (5,034)             84,890
                                                                    ---------         ---------          ----------

Cash Flows From Financing Activities
   Decrease in short-term borrowings, net                              (2,758)           (1,482)            (32,172)
   Dividends paid                                                      (8,981)           (4,232)             (3,509)
   Decrease in secured notes payable                                  (30,592)          (11,408)             (6,000)
   Payments on the Contribution Agreement                                  --                --             (74,800)
   Issuance of Common Stock                                                --            17,208                  --
                                                                   ----------         ---------          ----------

   Net Cash (Used By) Provided By Financing Activities                (42,331)               86            (116,481)
                                                                   ----------         ---------          ----------

Cash and Cash Equivalents
   (Decrease) increase                                                 (9,633)            7,421               4,087
   Beginning of year                                                   14,961             7,540               3,453
                                                                   ----------        ----------          ----------
   End of year                                                     $    5,328        $   14,961          $    7,540
                                                                   ==========        ==========          ==========
</TABLE>

                 See Notes to Consolidated Financial Statements

                                       F-6
<PAGE>





                  ASSET INVESTORS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         Capitalized  terms not otherwise  defined in the narrative  below shall
         have the meaning indicated in the "Summary of Definitions" which may be
         found following these financial statements.

A.       The Company

         Asset  Investors  Corporation  was  incorporated  under Maryland law on
October 14, 1986 by MDC. The Common Stock is listed on the NYSE under the symbol
"AIC." The company's  assets  primarily are non-agency MBS bonds (which it began
acquiring in the second  quarter of 1994) and the  ownership of shares of common
stock of Commercial Assets.

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 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.

         On December 31, 1995,  the company  changed the  classification  of its
non-agency MBS bonds from held-to-maturity to available-for-sale.  The change in
classification  is not  attributable  to any  current  plans  to  liquidate  its
non-agency  MBS  bonds;  however,  from time to time the  company  may  evaluate
opportunities  to sell a non-agency  MBS bond as part of its efforts to maximize
portfolio value and increase  shareowner returns.  Accordingly,  the company has
classified its non-agency MBS bonds as available-for-sale, carried at fair value
in the financial  statements.  Unrealized  holding gains for  available-for-sale
securities  are  excluded  from  earnings  and  reported  as  a  net  amount  in
stockholders' equity until realized.

                                       F-7
<PAGE>


         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  currently  operates in a manner intended to
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  income tax at the  corporate  level.  Accordingly,  no
provision for taxes has been made in the consolidated financial statements.

         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 the 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) that should benefit from
an improving  economy.  Accordingly,  the company has  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,  1995,  1994 and 1993 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 1995 and 1994 and was  antidilutive  with  respect  to the net loss per
share in 1993.

         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  in  cash  of  $903,000,   $2,972,000  and
$3,980,000 for the years ended December 31, 1995,  1994 and 1993,  respectively.
Non-cash financing activities of the company during the years ended December 31,
1995,  1994 and 1993 were $366,000,  $171,000 and $996,000,  respectively,  from
distribution  of Common Stock  pursuant to DERs.  During the year ended December
31, 1993,  additional  non-cash  investing and financing  activities  were:  the
capital  contribution to Commercial  Assets,  $74,800,000,  the  distribution of
Commercial  Assets common stock,  $52,598,000,  and  distribution  of Commercial
Assets common stock as DERs, $1,771,000.

         Reclassifications  -  Certain  reclassifications  have been made in the
1994  and  1993   consolidated   financial   statements   to   conform   to  the
classifications used in the current year.

         Accounting  Change - On December 31, 1993, the company adopted FAS 115,
Accounting for Certain  Investments in Debt and Equity Securities and recognized
a $24,399,000  charge to income from the  cumulative  effect of adopting the new
standard.

                                       F-8
<PAGE>


C.       Non-agency MBS Bonds

         Through  December 31, 1995,  the company  acquired 159  non-agency  MBS
bonds,  with  an  aggregate   outstanding  principal  balance  on  the  date  of
acquisition of $188,338,000 and an aggregate total cost of $57,588,000.  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)        1995               1994
                                                         ------       -------          ----               ----
                                                        
Non-agency MBS bonds collateralized by:
<S>                                                       <C>            <C>          <C>               <C>      
   30-year fixed-rate mortgage loans                      32.8%          7.1%         $116,757          $  56,955
   15-year fixed-rate mortgage loans                      38.1           6.6            16,611             12,364
   Adjustable-rate mortgage loans                         27.2           7.3             4,149              4,219
   B and C mortgage loans(3)                              56.6           6.7            14,083             14,473
   Other subordinate non-agency MBS bonds(4)              27.3           6.9            28,565                 --
                                                          ----           ---          --------          ---------
                                                          35.8%          7.0%          180,165             88,011
                                                          ====           ===
Less:
   Allowance for credit losses                                                         (71,365)           (22,075)
   Unamortized discount                                                                (56,446)           (33,392)
                                                                                    ----------          ---------

Amortized cost                                                                          52,354             32,544
   Net unrealized holding gains                                                            399                 --
                                                                                    ----------          ---------

Total net book value                                                                $   52,753          $  32,544
                                                                                    ==========          =========
---------------------------------
<FN>
(1)  Weighted-average  price as a  percentage  of the  principal  balance of the
     non-agency MBS bonds acquired.
(2)  Weighted-average  coupon of non-agency MBS bonds at  December  31,  1995.
(3)  The B and C mortgages  are lesser  quality,  adjustable-rate  mortgages and
     include  $8,112,000 and $8,165,000,  respectively,  of "B" rated non-agency
     MBS bonds at December 31, 1995 and 1994.
(4)  Referred to as re-REMICs.
</FN>
</TABLE>

         The allowance  for credit losses is adjusted as follows:  (i) increased
or decreased for changes to the company's  expectations of future credit losses;
(ii)  increased  for  allowances  established  when  non-agency  MBS  bonds  are
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, 1995 and 1994 was as follows (in thousands):
<TABLE>

                                                                                        1995               1994
                                                                                        ----               ----
                                                                                        
<S>                                                                                     <C>               <C>      
Balance at the beginning of the year                                                $   22,075          $      --
Allowance related to non-agency MBS bonds acquired during the period                    51,680             22,269
Credit losses (net of indemnifications of $807,000 and $137,000, respectively,
    for 1995 and 1994)                                                                  (2,390)              (194)
                                                                                    ----------          ---------

Balance at the end of the year                                                      $   71,365          $  22,075
                                                                                    ==========          =========
</TABLE>

         As of  December  31,  1995,  there  were  247  mortgage  loans  (out of
approximately   140,000)  in  foreclosure  that   collateralize   the  company's
non-agency MBS bonds,  with an outstanding  principal balance of $51,988,000 and


                                       F-9
<PAGE>


an amortized  cost of  $18,016,000.  The company's  economic  exposure to credit
losses from the mortgage  loans in  foreclosure  is dependent  upon: (i) the net
amount recovered from the foreclosure sale of the defaulted mortgage loans, less
related foreclosure costs and servicing advances; and (ii) the purchase price of
the related  non-agency MBS bonds.  The company's  economic loss with respect to
any one non-agency MBS bond is limited to the bond's acquisition price less cash
received through the foreclosure date.

         The principal  amount of the credit  support  classes of non-agency MBS
bonds  acquired by the company  represents a small  percentage  of the principal
amount  of the  total  non-agency  MBS  bonds  issued  to  securitize  a pool of
residential   mortgage  loans.  At  December  31,  1995,  the   weighted-average
percentage of the principal  amount of the credit  support  non-agency MBS bonds
owned by the  company  represented  0.53% of the  principal  amount of the total
non-agency  MBS bonds  issued in the related  securitizations.  The  outstanding
principal  balance of the mortgage loans  collateralizing  all of the non-agency
MBS bonds  within  the bond  issuances  in which the  company  owns  subordinate
non-agency MBS bonds and the outstanding principal balance of the non-agency MBS
bonds   senior  to  the   company's   subordinate   non-agency   MBS  bonds  was
$34,288,987,000 and $34,108,822,000, respectively, at December 31, 1995.

         The  mortgages   which   comprise  the  collateral  for  the  company's
non-agency  MBS bonds are secured by single  family  residences in 52 states and
U.S.  territories.  Approximately  43%,  8%  and 6% of the  mortgage  loans  are
collateralized   by  properties  in   California,   New  York  and  New  Jersey,
respectively.

D.       Investment in Commercial Assets

         On December  31,  1995 and 1994,  the company  owned  2,761,126  shares
(approximately 27%) of the common stock of Commercial Assets. Commercial Assets,
Inc. 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  24%, 13% and 10%
of the mortgage  loans are  collateralized  by properties in Texas,  Florida and
Arizona,  respectively.  Presented below is the summarized financial information
of Commercial Assets as reported by Commercial Assets (in thousands):




<TABLE>
<CAPTION>

Balance Sheets                                                      December 31,
--------------                                                      ------------
                                                            1995                  1994
                                                            ----                  ----
<S>                                                       <C>                   <C> 
CMBS bonds, net of $4,245 of unrealized
  holding losses at December 31, 1995                     $  69,503             $  74,046
Cash and other assets                                         2,087                13,558
                                                          ---------             ---------

   Total Assets                                              71,590                87,604
                                                          ---------             ---------

Short-term borrowings                                           700                10,295
Other liabilities                                               425                 2,637
                                                          ---------             ---------

   Total Liabilities                                          1,125                12,932
                                                          ---------             ---------

Stockholders' Equity                                      $  70,465             $  74,672
                                                          =========             =========
</TABLE>



                                      F-10
<PAGE>



<TABLE>
<CAPTION>

Statements of Income                                                                      Period From
                                                                                          October 12,
                                                                                           1993(1) to
                                                          Year Ended December 31,         December 31,
                                                          1995               1994             1993
                                                          ----               ----             ----


<S>                                                      <C>              <C>                <C>  
CMBS bonds                                               $ 8,980          $ 5,938            $ 125
Other revenues                                               189            1,126              869
                                                         -------          -------            -----
   Total revenues                                          9,169            7,064              994
                                                         -------          -------            -----

Management fees                                            1,151              598                6
General and administrative expenses                        1,393            1,220              309
Interest on borrowings                                       249              319               --
                                                         -------          -------            -----
   Total expenses                                          2,793            2,137              315
                                                         -------          -------            -----

Net income                                               $ 6,376          $ 4,927            $ 679
                                                         =======          =======            =====
------------------
<FN>
(1)  Date operations commenced.
</FN>
</TABLE>

         At  December  31,  1995,   Commercial  Assets  recorded  $4,245,000  of
unrealized   holding  losses  on  its  CMBS  bonds.  The  company  recorded  its
proportionate  share  of  these  unrealized  holding  losses  on CMBS  bonds  of
$1,156,000, as a reduction in the carrying value of its investment in Commercial
Assets and as a component of stockholders' equity.

E.       CMO Ownership Interests

         In prior periods, certain of the company's CMO Ownership Interests that
were considered equity ownership interests in a CMO issuance, in accordance with
the EITF Issue 89-4  consensus,  were  presented on a gross basis on the balance
sheets  and  statements  of  operations.  Accordingly,  the book  values  of the
Mortgage  Collateral  and CMO Bonds  were  presented  separately  as assets  and
liabilities,  respectively,  on the  balance  sheets,  and  interest  income  on
Mortgage Collateral and interest expense on CMO Bonds were presented  separately
as income and expenses, respectively, on the statements of operations.

         Due to significant sales of CMO Ownership Interests and a change in the
type of  assets  the  company  has been  acquiring  since  1993,  CMO  Ownership
Interests  represented  less than one percent of the  company's  total assets at
December 31, 1995. Substantially all of the remaining CMO Ownership Interests of
the company are at, or are nearing, the end of their economic lives.

         Beginning  in 1995,  the  company  presented  all of its CMO  Ownership
Interests under the Prospective Method. The company's balance sheets reflect all
the CMO Ownership  Interests at their net carrying  amount and the statements of
operations  reflect earnings from CMO Ownership  Interests on a net basis. Below
is certain  information  relating to the company's  CMO Ownership  Interests (in
thousands):



                                      F-11
<PAGE>


<TABLE>
<CAPTION>



                                                             December 31,
                                                             ------------
                                                        1995                1994
                                                        ----                ----
CMO Subsidiaries:
<S>                                                 <C>                 <C>         
   Restricted cash                                  $    1,150          $    109,830
   Accrued interest receivable                             228                11,250
   CMO issuance costs, net                                  41                   586
   Mortgage Collateral                                  32,391               934,975
   Unamortized discount, net of premium,
     on Mortgage Collateral                               (364)               (2,013)
                                                    ----------          ------------

      CMO Subsidiaries - assets                         33,446             1,054,628
                                                    ----------          ------------

   Accrued interest payable                                454                17,781
   CMO Bonds                                            32,874             1,027,641
   Unamortized discount on CMO Bonds                    (1,302)              (60,390)
   Reserve                                               1,052                53,937
                                                    ----------          ------------

      CMO Subsidiaries - liabilities                    33,078             1,038,969
                                                    ----------          ------------

   Minority interest                                        --                 3,003
                                                    ----------          ------------

      Total CMO Subsidiaries                               368                12,656

CMO Residuals and Acquired CMO Classes                      --                 9,834
                                                    ----------          ------------

Total CMO Ownership Interests, net                  $      368          $     22,490
                                                    ==========          ============
</TABLE>

         During the years ended  December 31, 1995,  1994 and 1993,  the company
exercised the Call Rights on certain CMO Ownership  Interests,  recognizing  net
gains of $2,153,000,  $12,833,000 and $1,062,000,  respectively. The exercise of
Call Rights  resulted in the sale of $45,698,000,  $184,491,000  and $22,320,000
principal amount of Mortgage  Collateral from CMO Subsidiaries during 1995, 1994
and 1993, respectively, and the early redemption of the related CMO Bonds.

         At December  31, 1994,  $79,658,000  in  restricted  cash was held by a
trustee  representing  proceeds from the sale of Mortgage  Collateral related to
the exercise of Call Rights pending the redemption of the related CMO Bonds. The
restricted  cash was used  primarily  to redeem  CMO Bonds  with an  outstanding
principal  balance of  $76,019,000  at December 31, 1994 at par on January 1 and
February 1, 1995.

         On March 30, 1995, Asset Securitization sold 28 CMO Ownership Interests
classified as available-for-sale for $14,927,000. No gain or loss was recognized
at the time of the sale;  however,  the  company  recognized  $1,205,000  of net
holding  losses related to the assets sold as of December 31, 1994. The proceeds
from the sale and  $15,569,000 of restricted cash for secured notes payable were
used to repay the $28,437,000 outstanding principal balance of the secured notes
and  $355,000  of accrued  interest,  and to provide  $1,704,000  of cash to the
company.

         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-12
<PAGE>


F.       Short-Term Borrowings

         The company has several Repurchase Agreement facilities  collateralized
by certain  non-agency MBS bonds. The collateral value and interest rate related
to the Repurchase Agreements are 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. At December 31, 1995,
there were no  borrowings  outstanding  under these  Repurchase  Agreements.  At
December 31, 1994,  borrowings under these Repurchase Agreements had an original
maturity  of 30 days,  an  effective  interest  rate of 7.38%  and an  aggregate
outstanding principal balance of $658,000.

         The company has entered into a credit facility with a bank that extends
through  December 23, 1996 secured by certain  non-agency MBS bonds. At December
31, 1995, the company was able to borrow  $9,456,000  under the credit facility,
based on the  value of the  pledged  collateral.  The  credit  facility  is also
subject to certain financial covenants, with which the company is in compliance,
and bears interest,  payable monthly,  based on one-month LIBOR. At December 31,
1995,  there  were no  borrowings  outstanding  under the  credit  facility.  At
December  31, 1994,  $2,100,000  was  borrowed  under the credit  facility at an
effective interest rate of 7.49%.

         On July 19, 1995, the company obtained a one-year, $1,000,000 unsecured
line of  credit.  Advances  under  this line bear  interest  at prime  rate.  At
December 31, 1995, there were no borrowings under this line of credit.

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. 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 DECEMBER 31, 1995. FUTURE ESTIMATES OF
FAIR VALUE MAY DIFFER SIGNIFICANTLY FROM THE AMOUNTS PRESENTED HEREIN.

              Cash and cash  equivalents,  restricted  cash  for  secured  notes
              payable, 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.   The  estimate  of  fair  value  was  determined  by
              multiplying the outstanding principal balance at December 31, 1995
              by  current   prices  of   non-agency   MBS  bonds  with   similar
              characteristics.

                                      F-13
<PAGE>


              Investment  in Commercial  Assets - the fair value was  determined
              based upon the closing price of the Commercial Assets common stock
              as of the end of 1995.

              CMO  Ownership  Interests - there is no  exchange or other  active
              market  from  which to  obtain a quoted  market  price  for  these
              financial  instruments.  Instead,  the  estimate of fair value was
              determined  by  calculating  the  discounted  present value of the
              projected Excess Cash Flow.

              The  carrying  amounts  and fair  values  of  certain  of the
company's  financial  instruments  at December 31, 1995 and 1994, are as follows
(in thousands):
<TABLE>
<CAPTION>

                                                      December 31, 1995                 December 31, 1994
                                                      -----------------                 -----------------
                                                 Amortized                          Amortized
                                                   Cost           Fair Value          Cost           Fair Value
                                                   ----           ----------          ----           ----------

<S>                                            <C>               <C>               <C>              <C>         
Non-agency MBS bonds                           $     52,354      $     52,753      $     32,544     $     32,544
                                               ============      ============      ============     ============

Investment in Commercial Assets                $     19,225      $     15,531      $     21,068     $     15,876
                                               ============      ============      ============     ============

CMO Ownership Interests
    Available-for-sale                         $        368      $        368      $     15,319     $     15,319
    Held-to-maturity                                     --                --             7,171            9,000
                                               ------------      ------------      ------------     ------------
                                               $        368      $        368      $     22,490     $     24,319
                                               ============      ============      ============     ============
</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.  On
December 31, 1995 and 1994, the shares of Common Stock owned by MDC  represented
approximately 1.2% of the outstanding shares of Common Stock.

I.       Stock Option Plan

         The company has a Stock Option Plan for the  issuance of  non-qualified
stock options to its directors, officers and key personnel of the Manager which,
as of January 1, 1996 and 1995,  permitted the issuance of up to an aggregate of
1,502,639 and 1,319,970 shares of Common Stock, respectively. 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.  Under  the  Stock  Option  Plan,
unexercised stock options accrue DERs based on: (i) the number of shares covered
by the option; (ii) the amount of the dividend; and (iii) the stock price on the
dividend  record  date.  Each of the stock  options  granted to date expire five
years from the date of grant.




                                      F-14
<PAGE>



         Presented  below is a summary of the  changes in stock  options for the
three years ended December 31, 1995:

<TABLE>
<CAPTION>

                                                              Average
                                                              Option
                                                               Price            Shares
                                                               -----            ------
<S>                                                          <C>                <C>    
Outstanding-December 31, 1992                                $  11.98           331,500

     Granted                                                     4.75           143,286
     Canceled                                                    8.95           (81,169)
                                                             --------           -------
Outstanding-December 31, 1993                                    9.97           393,617

     Granted                                                     2.44           188,750
     Canceled                                                    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
     Canceled                                                    4.05          (135,012)
                                                             --------          --------
Outstanding-December 31, 1995                                $   3.80           967,625
                                                             ========          ========
</TABLE>


         No options  were  exercised  during the three years ended  December 31,
1995.

         During 1995, 1994 and 1993, the company recognized expense of $337,000,
$180,000  and  $100,000,  respectively,  associated  with  the  accrual  of DERs
covering  128,857,  82,627 and 27,430 shares of Common Stock,  respectively.  In
1995 and 1994,  143,860 and 67,624  shares,  respectively,  of Common Stock were
distributed  in connection  with DERs. In connection  with the  distribution  of
Commercial  Assets common stock in 1993,  the company  recognized  $1,771,000 in
expense  related to the accrual of DERs covering  237,393 shares of common stock
of Commercial Assets.

J.       Other Matters

         The company has entered into a series of management agreements with the
Manager through  December 31, 1996.  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,  the
majority of whom are Independent Directors.  During the years ended December 31,
1995, 1994 and 1993, the company incurred combined  Incentive Fees and Base Fees
of $731,000,  $372,000 and  $592,000,  respectively.  The company also  incurred
Administrative Fees pursuant to the Management  Agreements referred to above 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, 1995,  1994 and
1993 were $914,000, $1,440,000 and $1,582,000, respectively.

         Effective April 1, 1996, Financial Asset Management LLC will assume the
obligations  of the  Management  Agreement  from the  Manager.  Financial  Asset
Management LLC is 80% owned by two  subsidiaries of MDC and 20% owned by Spencer
I. Browne, the President of the company.

                                      F-15
<PAGE>


         In December 1986, the company  entered into a  participation  agreement
(the "CMO  Participation  Agreement")  which  provides  that during the time the
Manager  serves as advisor to the  company,  if either MDC, the company or their
respective  affiliates  propose  to  issue  a  CMO  or  are  presented  with  an
opportunity to acquire a CMO instrument, MDC or the company is required to offer
the other the opportunity to participate in such  transaction on an equal basis.
In the event of such participation, the company and MDC each will be responsible
for  their  proportionate  share of the  issuance  or  acquisition  cost and the
administration costs of the related CMO issuance and will be entitled to receive
their proportionate share, if any, of cash flow and income therefrom.

         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,  1995,  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,  MDC and  certain of MDC's
affiliates, including the Manager.

         During 1995,  1994 and 1993, 12%, 100% 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.

         The company  has an NOL  carryover  of  approximately  $101,000,000  at
December 31, 1995, which can be used to reduce the company's  requirement  under
the Code to  distribute  at least 95% of REIT  income  but does not  reduce  the
requirement to distribute  95% of Excess  Inclusion  income.  As of December 31,
1995,  the  company  also  has  a  capital  loss   carryover  of   approximately
$35,100,000, which expires beginning in 1998.




                                      F-16
<PAGE>



K.       Selected Quarterly Financial Data (Unaudited)

          Presented  below is selected  quarterly  financial  data for the years
ended December 31, 1995 and 1994 (in thousands, except per share data):
<TABLE>
<CAPTION>

                                                                  Three Months Ended
                                      ----------------------------------------------------------------------------
                                          December 31,       September 30,         June 30,            March 31,
                                      ------------------ ------------------- ------------------ ------------------
1995
------------------------------------- ------------------ ------------------- ------------------ ------------------
Revenues:
<S>                                      <C>                <C>                 <C>                <C>         
   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                               .09                .09                 .08                .08
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

1994
------------------------------------- ------------------ ------------------- ------------------ ------------------
Revenues:
   Ongoing operations                    $      1,424       $      1,045        $        760       $        219
   Liquidating operations                       3,682              1,612               2,323              7,839
Net income                                      3,669              1,344               1,830              6,515
Net income per share                              .23                .10                 .13                .46
Dividends per share                               .14(4)             .07                 .07                .05
Closing stock prices (2)
   High                                         2-3/4              2-7/8               3-3/8              2-1/2
   Low                                          1-3/4              2-1/2               2                  1-7/8
Common Stock outstanding(3)                    15,885             14,111              14,100             14,080

------------------------
<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.
(4)  Consisted of a regular dividend of $.08 per share and two special dividends
     of $.03 per share each.
</FN>
</TABLE>




                                      F-17
<PAGE>



                           ASSET INVESTORS CORPORATION
                             SUMMARY OF DEFINITIONS

      When the following  terms are used in the text, they will be understood to
have the meanings indicated below.

Acquired  CMO  Class - A CMO  Class  acquired  by the  company  which  does  not
constitute a CMO Subsidiary or CMO Residual.

Administrative  Fee - A fee,  of up to  $35,000  per  annum  per  CMO  Ownership
Interest,  and up to  $3,500  per  annum  per  non-agency  MBS  bond,  for  bond
administration  and  other  services  related  to the  company's  CMO  Ownership
Interests and non-agency  MBS bonds paid pursuant to the  Management  Agreement,
consulting agreements and other management agreements.

agency - GNMA, FNMA or FHLMC.

AMEX - American Stock Exchange, Inc.

ARMs - Adjustable-rate mortgages.

Asset Acceptance - Asset Investors Acceptance,  Inc., a wholly-owned  subsidiary
of the company incorporated under Colorado law.

Asset Funding - Asset Investors Funding Corporation,  a wholly-owned  subsidiary
of the company incorporated under Delaware law.

Asset  Mortgage  Funding  - Asset  Investors  Mortgage  Funding  Corporation,  a
wholly-owned subsidiary of the company incorporated under Delaware law.

Asset   Securitization   -  Asset  Investors   Securitization   Corporation,   a
wholly-owned subsidiary of the company incorporated under Delaware law.

Asset Southwest - Asset Investors Southwest,  Inc., a wholly-owned subsidiary of
the company incorporated under Colorado law.

B and C  mortgage  loans -  Mortgage  loans made to  borrowers  who have  credit
histories of a lower overall  quality than most  borrowers  generally  resulting
from previous repayment difficulties, brief job histories, previous bankruptcies
or other causes.

Base  Fee - An  annual  management  fee  equal  to 3/8  of 1% of  the  company's
consolidated  Average  Invested Assets (as defined in the Management  Agreement)
which is payable quarterly to the Manager pursuant to the Management Agreement.

book income - Income computed in accordance with generally  accepted  accounting
principles.

By-laws - The By-laws of the company, as amended from time to time.

                                      F-18
<PAGE>


Call Rights - The rights  provided in the Indenture of a CMO Bond that allow the
issuer of the CMO Bond to sell the Mortgage  Collateral  and redeem the bonds at
par at a  predetermined  date or if the  outstanding  bond balance falls below a
predetermined amount (for example, 10% of the original bond balance). 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.

CMBS bond - Commercial  mortgage-backed  security,  a debt  instrument  which is
secured by mortgage loans on commercial real property.

CMOs - Collateralized  mortgage  obligations.  CMOs are multi-class issuances of
bonds which are secured and funded as to the payment of interest  and  repayment
of principal by the Collateral.

CMO Class or CMO Bond - A debt obligation  resulting from the issuance of a CMO.
A CMO Class may represent the right to receive interest only,  principal only, a
proportionate  amount of interest  and  principal  (each,  respectively,  an "IO
Class," "PO Class" and "Regular Class") or a disproportionate amount of interest
and principal.

CMO  Ownership  Interest  - A  CMO  Residual,  Acquired  CMO  Class  and/or  CMO
Subsidiary.

CMO Residual - A non-equity ownership interest in a CMO issuance.

CMO Subsidiary - An equity ownership interest in a CMO issuance.

Code - The Internal Revenue Code of 1986, as amended.

Collateral - A specific group of mortgage loans or mortgage-backed  certificates
and other collateral pledged to secure an issuance of CMOs.

Commercial Assets - Commercial  Assets,  Inc., a publicly-traded  REIT formed by
the company in August 1993, incorporated under Maryland law. (AMEX: CAX)

Commission - The Securities and Exchange Commission.

Common Stock - Asset  Investors  Corporation  common  stock,  par value $.01 per
share, listed on the New York Stock Exchange, Inc. under the symbol "AIC."

company - Asset Investors Corporation, a Maryland corporation.

Contribution  Agreement  - The  contribution  agreement  between the company and
Commercial Assets, Inc. dated as of August 20, 1993.

DERs - Dividend  equivalent  rights as defined in the 1986 Stock Option Plan, as
amended.  Option  holders  earn  shares  of Common  Stock  equal to the value of
dividends received as if the options were outstanding.

Distribution - The company's  distribution  of  approximately  70% of the common
stock of Commercial Assets to the company's shareowners on October 12, 1993.

EITF - Emerging  Issues Task  Force,  a task force of the  Financial  Accounting
Standards Board.


                                      F-19
<PAGE>


Excess Cash Flow - The company's  proportionate  share of the difference between
(i) the cash flow from the Collateral pledged to secure the related CMO issuance
together with reinvestment  income thereon, if any; and (ii) the amount required
for debt service  payments on such CMO  issuance  together  with  administrative
expenses.

Excess  Inclusion  income - Excess  Inclusion income is attributable to residual
interests  of a REMIC.  Excess  Inclusion  income is the amount of income from a
residual interest in a REMIC which exceeds a specified return as provided in the
Code.  Excess  Inclusion income cannot be reduced by any expenses or reductions,
including  normal  operating  expenses,  losses from the company's CMO Ownership
Interests and NOLs.

FAS 115 - Statement of Financial  Accounting  Standards No. 115,  Accounting for
Certain Investments in Debt and Equity Securities.

FHLMC - Federal Home Loan Mortgage Corporation.

FHLMC Certificate - A FHLMC mortgage certificate.

FNMA - Federal National Mortgage Association.

FNMA Certificate - A FNMA mortgage pass-through certificate.

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.

GNMA - Government National Mortgage Association.

GNMA Certificate - A  fully-modified  pass-through  mortgage-backed  certificate
guaranteed by GNMA.

Incentive Fee - In 1993, 1994 and 1995, an annual management fee equal to 20% of
the dollar amount by which cash  distributions to shareowners (as defined in the
Management  Agreement) of the company exceeds an amount equal to the Average Net
Worth (as defined in the Management  Agreement) of the company multiplied by the
Ten-Year U.S.  Treasury Rate (as defined in the Management  Agreement)  plus one
percent,  payable quarterly to the Manager pursuant to the Management Agreement.
In 1996, an annual management fee equal to 20% of the dollar amount by which the
company's net income computed in accordance with generally  accepted  accounting
principles  exceeds  an  amount  equal to the  company's  Average  Net Worth (as
defined in the Management  Agreement)  multiplied by the Ten-Year U.S.  Treasury
Rate (as defined in the  Management  Agreement)  plus one percent,  also payable
quarterly to the Manager pursuant to the Management Agreement.

Indenture - A formal agreement  between the issuer of each of the company's CMOs
and the related bondholders.

Independent  Director  -  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


                                      F-20
<PAGE>


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."

Issue 89-4 - The consensus reached by the EITF on Issue No. 89-4, Accounting for
a Purchased Investment in a Collateralized  Mortgage Obligation Instrument or in
a Mortgage-Backed Interest-Only Certificate (see "Prospective Method").

LIBOR - The London Interbank Offered Rate on Eurodollar deposits.

loss  severity  percentage  - The rate of  losses on the  outstanding  principal
balance of defaulted mortgage loans.

Management  Agreement - The one-year  management  agreement entered into between
the company and the Manager or its successors.

Manager - Financial Asset  Management  Corporation,  a Delaware  corporation and
indirect subsidiary of MDC.

MDC - M.D.C.  Holdings,  Inc., a Delaware corporation and the indirect parent of
the Manager.

Mortgage Certificates - GNMA Certificates, FNMA Certificates, FHLMC Certificates
and Private Certificates owned by the company.

Mortgage Collateral - Mortgage Certificates and Mortgage Loans, which secure CMO
Bonds and non-agency MBS bonds.

Mortgage Loans - Mortgage loans which are secured by single-family,  residential
(one- to four-unit) property.

NYSE - New York Stock Exchange, Inc.

NOL - Net operating loss.

non-agency   MBS  bonds  -  Debt   interests  in   residential   mortgage   loan
securitizations   collateralized   by   pools  of   non-conforming   (non-agency
guaranteed) single-family (one- to four-unit) mortgage loans.

Prepayment  Assumption Model - The prepayment model used to measure  prepayments
on pools of mortgage loans.

Private Certificates - Private pass-through mortgage certificates,  owned by the
company, representing undivided beneficial interests in pools of Mortgage Loans.

Prospective Method - The accounting method used by the company for CMO Ownership
Interests.

PSA - A standardized  measurement  of prepayments of mortgages  developed by the
Public Securities Association, a national statistical analysis organization.

Qualifying  Interests  -  Mortgages  and other  liens on and  interests  in real
estate.

                                      F-21
<PAGE>


REIT - A real estate investment trust as defined in the Code.

REIT income/loss - Taxable income/loss computed as prescribed for REITs prior to
consideration  of any NOL carryovers and prior to the "dividends paid deduction"
(including the dividends paid deduction for dividends related to capital gains).

REMIC - A pass-through  tax entity known as a "real estate  mortgage  investment
conduit"  created by the Tax Reform Act of 1986 to facilitate the structuring of
mortgage-asset transactions.

Repurchase Agreements - Financial transactions involving the sale and subsequent
repurchase  of an  identical  security  on a  specified  date at two  different,
pre-negotiated  prices.  Because Repurchase Agreements require the same security
to be returned when the transaction is completed, these agreements are perceived
as and accounted for as collateralized borrowing/lending arrangements.

Rights  Offering - On December 16,  1994,  the company  completed a  one-for-one
Rights  Offering of its Common Stock.  Subscriptions  for  10,053,794  shares of
Common Stock were received at a price of $1.90 per share.

Second Tier  mortgage  loans - Mortgage  loans made to borrowers who have credit
histories of a lower overall quality than most borrowers. These credit histories
generally  result from previous  repayment  difficulties,  brief job  histories,
previous bankruptcies or other causes. The loan-to-value ratio for a second tier
mortgage loan is typically lower than the loan-to-value ratio on most mortgages,
and the coupon for a second  tier  mortgage  loan is  typically  higher than the
coupon on most mortgage loans.

Standard  Default  Assumption  (SDA) - A  standardized  benchmark  default curve
developed by the Public  Securities  Association used for the measurement of the
rates of default on mortgage loans.

Stock Option Plan - The company's  1986 Stock Option Plan, as restated  November
15, 1990, as amended.

1940 Act - The Investment Company Act of 1940, as amended.



                                      F-22
<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.  at  December  31, 1995 and 1994,  and the  related  statements  of income,
stockholders'  equity and cash flows for the years ended  December  31, 1995 and
1994,  and for the period from October 12, 1993 (date  operations  commenced) to
December 31, 1993.  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. at December 31, 1995 and 1994,  and the results of its  operations  and its
cash flows for the years ended  December  31, 1995 and 1994,  and for the period
from October 12, 1993 (date  operations  commenced)  to December  31,  1993,  in
conformity with generally accepted accounting principles.



                                                               ERNST & YOUNG LLP
Phoenix, Arizona
February 9, 1996






                                     

                                      F-23
<PAGE>

                                                   
                             COMMERCIAL ASSETS, INC.

                                 BALANCE SHEETS

                          (Dollar amounts in thousands)

<TABLE>
<CAPTION>

                                                                                               December 31,
                                                                                               ------------
                                                                                           1995             1994
                                                                                           ----             ----
Assets

<S>                                                                                     <C>              <C>       
   Cash and cash equivalents                                                            $      598       $   12,367
   Accrued interest receivable                                                                 675              681
   Restricted cash                                                                             768              371
   CMBS bonds                                                                               69,503           74,046
   Other assets, net                                                                            46              139
                                                                                        ----------       ----------

     Total Assets                                                                       $   71,590       $   87,604
                                                                                        ==========       ==========

Liabilities

   Accounts payable and accrued liabilities                                             $      133       $      381
   Management fees payable                                                                     292              245
   Dividends payable                                                                            --            2,011
   Short-term notes payable                                                                    700           10,295
                                                                                        ----------       ----------

     Total Liabilities                                                                       1,125           12,932
                                                                                        ----------       ----------

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;
     10,142,034 and 10,052,794 shares issued and outstanding, respectively
                                                                                               102              101

   Additional paid-in capital                                                               75,523           74,994

   Cumulative dividends declared                                                           (12,897)          (6,029)
   Cumulative net income                                                                    11,982            5,606
                                                                                        ----------       ----------
   Dividends in excess of net income                                                          (915)            (423)
                                                                                        ----------       ----------

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

     Total Stockholders' Equity                                                             70,465           74,672
                                                                                        ----------       ----------

     Total Liabilities and Stockholders' Equity                                         $   71,590       $   87,604
                                                                                        ==========       ==========
</TABLE>

                       See Notes to Financial Statements.


                                      F-24
<PAGE>



                             COMMERCIAL ASSETS, INC.

                              STATEMENTS OF INCOME

                      (In thousands, except per share data)

<TABLE>
<CAPTION>

                                                                                                      Period from
                                                                                                October 12, 1993 (date
                                                                                                 operations commenced)
                                                                   Year Ended December 31,           to December 31,
Revenues                                                          1995                1994                1993
--------                                                          ----                ----                ----
                                                                     

<S>                                                             <C>                 <C>                <C>      
   CMBS bonds                                                   $   8,980           $   5,938          $     125
   Interest                                                           189               1,126                869
                                                                ---------           ---------          ---------

     Total Revenues                                                 9,169               7,064                994
                                                                ---------           ---------          ---------

Expenses

   Management fees                                                  1,151                 598                  6
   General and administrative                                       1,393               1,220                309
   Interest                                                           249                 319                 --
                                                                ---------           ---------          ---------

     Total Expenses                                                 2,793               2,137                315
                                                                ---------           ---------          ---------


Net Income                                                      $   6,376           $   4,927          $     679
                                                                =========           =========          =========



Net income per share                                            $     .63           $    0.49          $    0.07
Weighted-average shares outstanding                                10,104              10,047             10,039
Dividends per share                                             $     .68           $    0.53          $    0.07

</TABLE>




                       See Notes to Financial Statements.

                                      F-25
<PAGE>



                           COMMERCIAL ASSETS, INC.

                       STATEMENTS OF STOCKHOLDERS' EQUITY

        For the Years Ended December 31, 1995 and 1994 and for the Period
     from October 12, 1993 (Date Operations Commenced) to December 31, 1993

                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                                  Unrealized
                                                                                                   Holding
                                                                   Additional    Dividends In       Losses              Total
                                             Common Stock            Paid-In       Excess of          on            Stockholders'
                                          Shares       Amount        Capital      Net Income      CMBS Bonds           Equity
                                          ------       ------        -------      ----------      ----------           ------
<S>                                       <C>         <C>          <C>             <C>              <C>               <C>      
Issuance of Common Stock                   10,039     $  100       $  74,900       $     --         $    --           $  75,000
Net income                                     --         --              --            679              --                 679
Dividends                                      --         --              --           (703)             --                (703)
                                          -------     ------       ---------       --------         -------           ---------

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


                       See Notes to Financial Statements.

                                      F-26
<PAGE>



                             COMMERCIAL ASSETS, INC.

                            STATEMENTS OF CASH FLOWS

                                 (In thousands)
<TABLE>
<CAPTION>


                                                                                                       Period from
                                                                                                    October 12, 1993
                                                                                                    (date operations
                                                                                                      commenced) to
                                                                     Year Ended December 31,           December 31,
                                                                     1995              1994               1993
                                                                     ----              ----               ----
Cash Flows From Operating Activities
<S>                                                                <C>               <C>                <C>      
   Net income                                                      $  6,376          $   4,927          $     679
   Adjustments  to reconcile net income to net cash flows from
     operating activities:
     Amortization of discount on CMBS bonds and other assets           (638)              (331)               (11)
     Decrease (increase) in accrued interest receivable                   6               (569)              (112)
     Increase in accounts payable and accrued liabilities               329                481                240
                                                                   --------          ---------          ---------

Net Cash Provided By Operating Activities                             6,073              4,508                796
                                                                   --------          ---------          ---------

Cash Flows From Investing Activities
   Principal collections from CMBS bonds                                554                377                 --
   Acquisitions of CMBS bonds                                            --            (65,628)            (8,709)
   Increase in restricted cash                                           --                (96)                --
                                                                   --------          ---------          ---------

Net Cash Provided By (Used In) Investing Activities                     554            (65,347)            (8,709)
                                                                   --------          ---------          ---------

Cash Flows From Financing Activities
   Dividends paid                                                    (8,879)            (3,315)              (703)
   (Repayments) borrowings of short-term notes payable               (9,595)            10,295                 --
   Decrease (increase) in other assets                                   78                (76)               (82)
   Proceeds from Contribution Agreement                                  --                 --             74,800
   Proceeds from issuance of Common Stock                                --                 --                200
                                                                   --------          ---------          ---------

Net Cash (Used In) Provided By Financing Activities                 (18,396)             6,904             74,215
                                                                   --------          ---------          ---------

Cash and Cash Equivalents
   (Decrease) increase                                              (11,769)           (53,935)            66,302
   Beginning of period                                               12,367             66,302                 --
                                                                   --------          ---------          ---------
   End of period                                                   $    598          $  12,367          $  66,302
                                                                   ========          =========          =========
</TABLE>


                       See Notes to Financial Statements.

                                      F-27
<PAGE>



                             COMMERCIAL ASSETS, INC.

                          NOTES TO FINANCIAL STATEMENTS



         Capitalized  terms not otherwise  defined in the narrative  below shall
have the meaning indicated in the "Summary of Definitions" which may be found at
the end of the financial statements.

A.       Organization

         Commercial  Assets,  Inc. was incorporated under Maryland law on August
11, 1993 by Asset  Investors.  The company  commenced  operations on October 12,
1993, the date on which Asset  Investors  contributed  $75,000,000  ($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  "Distribution").
The company's Common Stock is listed on the AMEX under the symbol "CAX."

         The company's  day-to-day  operations  are performed by the Manager,  a
subsidiary of MDC,  pursuant to a Management  Agreement  which is subject to the
approval of a majority of the company's  Independent  Directors.  The Manager is
subject to the supervision of the company's  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 portfolio  assets.  The company has no
employees.

         The company owns, and the Manager  administers on the company's behalf,
subordinate ownership interests in CMBS bonds issued in commercial mortgage loan
securitizations.   Commercial  mortgage  loan   securitizations   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, accounts and other collateral.

         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.

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.
Adjustments  to the  estimate of future  credit  losses are  included in current
period earnings.

         On December 31, 1995,  the company  changed the  classification  of its
CMBS bonds from held-to-maturity to  available-for-sale.  Accordingly,  the CMBS
bonds are  carried  at fair  value in the  financial  statements.  The change in
classification  is not attributable to any immediate plans to liquidate its CMBS
bonds,  but  instead,  is  intended  to give the company  added  flexibility  in
managing its CMBS bond portfolio and assist the shareowners in understanding the
fair  value  of  the  company's  net  assets.   Unrealized  holding  losses  for


                                      F-28
<PAGE>


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  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. The
company  currently  intends  to  distribute  100%  of  its  REIT  income  to its
shareowners within the time limits prescribed by the Code. Dividends declared in
1995,  1994  and  1993  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, 1995 and 1994 and for the period from October 12, 1993 to December
31, 1993, was based upon the  weighted-average  number of shares of Common Stock
outstanding during each such period. In 1995 and 1994, the effect of unexercised
stock  options was not material with respect to net income per share and was not
dilutive in 1993.

         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 $290,000,  $278,000  and $0 for the years ended  December 31,
1995 and 1994 and for the period from  October 12,  1993 to December  31,  1993,
respectively.  The company had  non-cash  investing  activities  of $397,000 and
$275,000  for the years ended  December  31, 1995 and 1994,  respectively,  from
principal  collections on CMBS bonds transferred to restricted cash. The company
had non-cash financing  activities of $74,800,000 during the period from October
12,  1993 to December  31,  1993,  from  capital  contributions  pursuant to the
Contribution Agreement.




                                      F-29
<PAGE>



C.       CMBS Bonds

         Presented below is a schedule of the CMBS bonds owned by the company as
of December 31, 1995 and 1994 (dollar amounts in thousands).
<TABLE>
<CAPTION>

                                                              Weighted-                                        Outstanding Balance
                                                   Maturity    Average      Date                Senior           at December 31,
         Description                      Coupon     Date      Life(5)    Acquired   Rating   CMBS Bonds(4)     1995         1994
         -----------                      ------   --------  ----------   --------   ------   ----------      ---------     ------
Kidder,  Peabody Acceptance
  Corporation I, Series 1993-M2,
<S>      <C>                               <C>       <C>        <C>       <C>   <C>           <C>           <C>           <C>     
  Class E(1)                               8.88%     8/2021     4.7       11/16/93      BB    $   84,048    $ 10,000      $ 10,000
Lehman Capital Corporation
  Trust Certificate, Series 1994-2(2)      6.50%    10/2003     7.8        2/24/94   Unrated                   2,143         2,143
Lehman Capital Corporation
  Trust Certificate, Series 1994-3         6.50%    10/2003     7.8        2/24/94   Unrated     127,446       4,162         4,162
Aspen MHC, Series 1994-1, Class C(3)       9.00%     3/2024     4.5        3/08/94      BB                     6,261         6,815
Aspen MHC, Series 1994-1, Class D-1(3)     9.00%     3/2024    14.4        3/08/94   Unrated      95,159       3,596         3,596
Fannie Mae Multi-Family REMIC Trust
  1994-M2, Class C(6)                      7.99%     1/2001     4.8        3/30/94   Unrated                  11,587        11,681
Fannie Mae Multi-Family REMIC Trust
  1994-M2, Class D(6)                      8.18%     1/2004     7.4        3/30/94   Unrated     383,755      38,715        39,018
DLJ Mortgage Acceptance Corporation,
  Series 1994-MF4, Class B-3               8.50%     4/2001     5.3        6/15/94      B                      3,136         3,136
DLJ Mortgage Acceptance Corporation,
  Series 1994-MF4, Class C                 8.50%     4/2001     5.3        6/15/94   Unrated      93,653       4,183         4,183
Kidder, Peabody Acceptance 
  Corporation I, Series 1994-M1, Class C   8.25%    11/2002     5.6       11/29/94      B                      8,930         8,930
Kidder, Peabody Acceptance
  Corporation I, Series 1994-M1, Class D   8.25%    11/2002     5.9       11/29/94   Unrated     236,499       7,655         7,655
                                           ----                 ---                           ----------    --------      --------
     Total outstanding balance             8.24%                6.5                           $1,020,560     100,368       101,319
                                           ====                 ===                           ==========

Unamortized discount                                                                                         (14,393)      (15,106)
Allowance for credit losses                                                                                  (12,720)      (12,720)
Unamortized acquisition costs                                                                                    493           553
                                                                                                            --------      --------
     Amortized cost                                                                                           73,748        74,046
Net unrealized holding losses                                                                                 (4,245)           --
                                                                                                            --------      --------
Total net book value                                                                                        $ 69,503      $ 74,046
                                                                                                            ========      ========
---------------------------------------------------------------
<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)    There is a bond class subordinate to Aspen 94-1C and Aspen 94-1D with an 
       outstanding balance at December 31, 1995, of $11,986,000.
(4)    The outstanding  principal balance at December 31, 1995, of the CMBS bonds
       senior to the company's  subordinate CMBS bond classes.  The amount is 
       combined for classes from a single issuance.
(5)    Remaining weighted-average life at December 31, 1995, in years.
(6)    Payment of principal and interest is not guaranteed by FNMA.
</FN>
</TABLE>



                                      F-30
<PAGE>



         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 1995 and 1994,  was 11.9%.  The yield 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 above 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  and mobile home
parks  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  first 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.

         The outstanding balance of the mortgage loans  collateralizing the CMBS
bonds and the  outstanding  principal  of the CMBS  bonds that are senior to the
company's CMBS bonds was $1,133,901,000  and  $1,020,560,000,  respectively,  at
December 31, 1995.  The company has provided an allowance  for credit  losses of
$12,720,000  at  December  31,  1995 and 1994 on certain of its CMBS  bonds.  At
December 31, 1995,  there were no delinquent  mortgage loans that  collateralize
the  company's  CMBS bonds.  During the years ended  December 31, 1995 and 1994,
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  and
mobile home parks in 36 states,  with  concentrations  in Texas  (24%),  Florida
(13%) and Arizona (10%).

         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, 1995 and 1994,  the amounts
set aside of $768,000 and $371,000, respectively, is 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


                                      F-31
<PAGE>


ESTIMATES  PRESENTED  HEREIN ARE BASED ON  PERTINENT  INFORMATION  AVAILABLE  TO
MANAGEMENT  AS OF DECEMBER 31, 1995.  FUTURE  ESTIMATES OF FAIR VALUE MAY DIFFER
SIGNIFICANTLY FROM THE AMOUNTS PRESENTED HEREIN.

         The estimated  fair value of the  company's  CMBS bonds at December 31,
1995 and 1994 was $69,503,000  and  $70,000,000,  respectively.  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 21%. 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 E).

D.       Contribution Agreement

         In August 1993,  the company  entered into the  Contribution  Agreement
with Asset  Investors.  In connection  with the  Contribution  Agreement,  Asset
Investors  contributed  $74,800,000  to the initial  capital of the company.  In
addition,  based on the  number  of  shares  of  Asset  Investors  Common  Stock
outstanding on October 1, 1993, the record date of the  Distribution:  (i) Asset
Investors  distributed  7,040,043  shares  of Common  Stock to Asset  Investors'
shareowners  on the basis of one share of Common  Stock for every two  shares of
Asset Investors Common Stock outstanding on the record date of the distribution;
and (ii)  Asset  Investors  retained  2,998,518  shares of Common  Stock.  As of
October 12, 1993, 10,038,561 shares of Common Stock were outstanding.

         The terms of the  Contribution  Agreement  provide  that,  among  other
things,  neither  Asset  Investors nor the company shall assume any liability or
obligation  of the other.  Each party has agreed to indemnify  the other against
any such liability or obligation.  The Contribution  Agreement  further provides
that the company will not acquire interests in single-family (one- to four-unit)
securitizations   and  that  Asset  Investors  will  not  acquire  interests  in
commercial  securitizations,  including  commercial  securitizations  secured by
multi-family residential properties.

E.       Short-Term Notes Payable

         On November 29, 1994, the company  entered into a $50,000,000  Loan and
Security  Agreement which is currently  collateralized  by four CMBS bonds (FNMA
94-M2C,  FNMA 94-M2D,  Kidder 94-M1C and Kidder  94-M1D),  pursuant to which the
company  can  borrow  amounts  based  upon the value of the  collateral  pledged
through  November 29, 1996.  Advances bear interest based upon a spread over the
LIBOR with a term that most closely  approximates  the term of the advance.  The
Loan and Security  Agreement  contains certain  covenants with which the company
was in compliance at December 31, 1995 and 1994. No borrowings were  outstanding
on this line at December 31, 1995, and $21,616,000 was available to be borrowed.
At December 31, 1994,  $4,000,000 was borrowed at an effective  interest rate of
8.06%.

                                      F-32
<PAGE>


         On April 12, 1994,  the company  entered  into a one-year  secured note
payable which was paid in full on April 11, 1995. The note was collateralized by
two CMBS bonds. Interest on the note was based on a spread over one-month LIBOR.
At December 31, 1994,  $6,295,000  was borrowed  under this loan at an effective
interest rate of 8.37% per annum.

         On July 19, 1995, the company  entered into a one-year,  unsecured line
of credit with a bank for  $1,000,000.  Advances bear interest at prime.  Two of
the company's Independent Directors are members of the Board of Directors of the
holding  company of the bank. At December 31, 1995,  $700,000 was outstanding on
this line of credit at an  interest  rate of 8.50% per annum.  The  advance  was
repaid in January 1996.

F.       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, 1996 and
1995,  permits the issuance of up to an aggregate of 601,420 and 600,528  shares
of Common  Stock.  On January  1st of each year,  the number of shares of Common
Stock available under the Stock Option Plan increases automatically by an amount
equal to one  percent of the  number of shares of Common  Stock  outstanding  on
December 31st of the previous year. 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  expires in five
years.

         Stock options granted under the Stock Option Plan automatically  accrue
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 are paid in shares of
Common Stock (or in other property that constitutes the dividend) at the time of
each dividend  distribution.  During the years ended  December 31, 1995 and 1994
and the period from October 12, 1993 to December 31, 1993, the company  incurred
$376,000,  $227,000 and  $22,000,  respectively,  of general and  administrative
expenses from DERs covering 63,566, 36,485 and 3,422, respectively, of shares of
Common Stock which are subject to issuance pursuant to options granted under the
Plan.

          Presented  below is a summary of the changes in stock  options for the
two years ended December 31, 1995. The options  outstanding at December 31, 1993
were granted at the inception of the company.

                                                        Average
                                                      Option 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
                                                         ======          =======

         No options have been exercised or canceled during 1995 and 1994.

                                      F-33
<PAGE>


G.       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 majority of whom are Independent Directors.

         Effective April 1, 1996, Financial Asset Management LLC will assume the
obligations  of the  Management  Agreement  from the  Manager.  Financial  Asset
Management LLC is 80% owned by two  subsidiaries of MDC and 20% owned by Spencer
I. Browne, the President and a Director of the company.

         During the years  ended  December  31, 1995 and 1994 and for the period
from October 12, 1993 to December 31, 1993, the company's total  management fees
were  $1,151,000,   $924,000  and  $6,000,  respectively,   consisting  of:  (i)
Acquisition  Fees  of $0,  $326,000  and $0,  respectively;  (ii)  Base  Fees of
$751,000,  $556,000 and $5,000,  respectively;  and (iii) Administrative Fees of
$65,000, $42,000 and $1,000, respectively, pursuant to the Management Agreement.
Incentive  Fees of $335,000  were incurred  during 1995. No Incentive  Fees were
incurred  during 1994 and the period from October 12, 1993 to December 31, 1993.
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, MDC and certain
related entities, including the Manager.

         At December 31, 1995,  1994 and 1993,  the shares of Common Stock owned
by MDC represented 0.8% of the outstanding shares of Common Stock.



                                      F-34
<PAGE>




H.       Selected Quarterly Financial Data (unaudited)

         Presented  below is  selected  quarterly  financial  data for the years
ended December 31, 1995 and 1994, (in thousands, except per share data).
<TABLE>
<CAPTION>

                                                                          Three Months Ended,
                                                                          -------------------
                                                 December 31,      September 30,        June 30,           March 31,
                                                 ------------      -------------        --------           ---------
1995
-------------------------------------------- ----------------- ------------------ --------------- ------------------
<S>                                              <C>               <C>                <C>              <C>   
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
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


1994
-------------------------------------------- ----------------- ------------------ --------------- ------------------
Revenues                                             $2,262            $2,052             $1,881             $869
Net income                                            1,588             1,509              1,377              453
Net income per share                                    .16               .15                .13              .05
Dividends declared per share
                                                        .20               .14                .12              .07
Stock prices (1)
     High                                             6-1/2             7-1/4              7-3/8            6-3/4
     Low                                              5-1/2             6-3/8              6-1/8            6-1/4
Common Stock outstanding                         10,052,794        10,052,794         10,041,983       10,041,983
---------------
<FN>
(1)    As reported on the AMEX Composite Tape.

</FN>
</TABLE>



                                      F-35
<PAGE>



                             COMMERCIAL ASSETS, INC.
                             SUMMARY OF DEFINITIONS

             When  the  following  terms  are  used in the  text,  they  will be
understood to have the meanings indicated below.

Acquisition Fee - a one-time fee paid to the Manager  pursuant to the Management
Agreement  for  performing  due  diligence  procedures  in  connection  with the
acquisition  by the  company  of each  asset  equal  to 0.5% of the cost of such
acquisition.

Administration  Fee - a fee of up to  $10,000  per  annum  which  is paid to the
Manager  pursuant  to the  Management  Agreement  for  administration  and other
services  related to each of the company's CMBS bonds.  If the company owns more
than one class of a commercial securitization the Manager is entitled to receive
an additional fee of $2,500 per annum for each additional class.

Asset Investors - Asset Investors Corporation, a Maryland corporation.

AMEX - American Stock Exchange, Inc.

Base Fee - an annual  management  fee equal to 1% of the company's  consolidated
Average Invested Assets as defined in the Management  Agreement which is payable
quarterly to the Manager pursuant to the Management Agreement.

By-laws - the by-laws, as amended, of the company.

Charter - the corporate charter, as amended, of the company.

CMBS bond -  commercial  mortgage-backed  security,  which is a debt  instrument
which is secured by mortgage loans on commercial real property.

Code - the Internal Revenue Code of 1986, as amended.

Commission - the Securities and Exchange Commission.

Common Stock - the common stock, par value of $.01 per share, of the company.

company - Commercial Assets, Inc., a Maryland corporation.

Contribution  Agreement - the contribution agreement between Asset Investors and
the company, dated as of August 20, 1993.

CPR - constant prepayment rate.

DERs - dividend  equivalent  rights,  as defined in the  company's  Stock Option
Plan.

Excess  Inclusion  income - is  attributable  to residual  interests of a REMIC.
Excess  Inclusion  income is the amount of income from a residual  interest in a
REMIC which exceeds a specified return as provided in the Code. Excess Inclusion


                                      F-36
<PAGE>


income  cannot be  reduced  by any  expenses  or  deductions,  including  normal
operating expenses and net operating losses.

FAS 115 - Statement of Financial  Accounting  Standards No. 115,  Accounting for
Certain Investments in Debt and Equity Securities.

first loss - a first loss security is the most  subordinate  class of a security
having  multiple  classes  and is the first to bear the risk of  default  on the
underlying collateral.

GAAP - generally accepted accounting principles.

Incentive  Fee - an annual  management  fee equal to 20% of the dollar amount by
which the annual  REIT  income of the  company  exceeds  an amount  equal to the
Average  Net Worth (as  defined  in the  Management  Agreement)  of the  company
multiplied  by the Ten-Year  U.S.  Treasury  Rate (as defined in the  Management
Agreement) plus 1%, payable  quarterly to the Manager pursuant to the Management
Agreement.

Independent  Director  -  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."

1940 Act - the Investment Company Act of 1940, as amended.

LIBOR - the London Interbank Offered Rate on Eurodollar deposits.

loss  severity  percentage  - the rate of  losses on the  outstanding  principal
balance of defaulted mortgage loans.

Management  Agreement - the one-year management  agreements entered into between
the company and the Manager dated as of October 12, 1993, and amended  effective
as of January 1, 1994, 1995 and 1996.

Manager - Financial  Asset  Management  Corporation,  an indirect,  wholly-owned
subsidiary of MDC.

MDC - M.D.C. Holdings, Inc., a Delaware corporation.

Mortgage-backed  bonds -  instruments  that,  directly or  indirectly,  evidence
interests  in,  or are  secured  by and  payable  from,  mortgage  loans on real
property.

Mortgage Collateral - mortgage loans which secure Mortgage-backed bonds.

NYSE - New York Stock Exchange, Inc.

Preferred Stock - preferred stock, par value $.01 per share, of the company.

REIT - a real estate investment trust, as defined in the Code.

                                      F-37
<PAGE>


REIT  income - taxable  income  computed  as  prescribed  for REITs prior to the
"dividends paid deduction" (including the dividends paid deduction for dividends
related to capital gains).

REMIC - a pass-through  tax entity known as a "real estate  mortgage  investment
conduit"  created by the Tax Reform Act of 1986 to facilitate the structuring of
mortgage asset transactions.

Stock Option Plan - the Commercial Assets, Inc. 1993 Stock Option Plan.

Subordinate  CMBS bond - class of CMBS bonds that provide credit  enhancement to
the more senior  investment  grade  classes.  May be the bonds that absorbed the
first losses from the related Mortgage Collateral.




                                      F-38
<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.

          Information  required to be set forth  hereunder  has been omitted and
will be  incorporated by reference to the company's Proxy Statement for its 1996
Annual Meeting of Shareowners, when filed.

Item 11. EXECUTIVE COMPENSATION.

          Information  required to be set forth  hereunder  has been omitted and
will be  incorporated by reference to the company's Proxy Statement for its 1996
Annual Meeting of Shareowners, when filed.

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

          Information  required to be set forth  hereunder  has been omitted and
will be  incorporated by reference to the company's Proxy Statement for its 1996
Annual Meeting of Shareowners, when filed.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

          Information  required to be set forth  hereunder  has been omitted and
will be  incorporated by reference to the company's Proxy Statement for its 1996
Annual Meeting of Shareowners, when filed.




                                      -31-
<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  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, 1995 and 1994..................    F-3

                           Consolidated Statements of Operations
                             for the years ended December 31, 1995,
                             1994 and 1993...............................    F-4

                           Consolidated  Statements of Stockholders'
                             Equity for the years ended December 31,
                             1995, 1994 and 1993.........................    F-5

                           Consolidated  Statements  of Cash Flows
                             for the years ended December 31, 1995,
                             1994 and 1993...............................    F-6

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

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

                           Report of Independent Auditors................   F-23

                           Balance Sheets as of December 31, 1995
                             and 1994....................................   F-24

                           Statements of Income for the years ended
                             December 31, 1995 and 1994 and for the
                             period from October 12, 1993 (date
                             operations commenced) to December 31,
                             1993........................................   F-25

                           Statements  of  Stockholders'  Equity 
                             for the years ended December 31, 1995
                             and 1994 and for the period from
                             October 12, 1993 (date operations commenced)
                             to December 31, 1993........................   F-26

                           Statements  of Cash Flows for the years ended
                             December 31, 1995 and 1994 and for the 
                             period from October 12, 1993 (date
                             operations commenced) to December 31, 1993..   F-27


                           Notes to Financial Statements.................   F-28

                                      -32-
<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).

                  3.3(a)            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).

                  3.3(b)            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).

                  3.3(c)            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).

                  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).

                  10.1(b)           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).

                  10.4              CMO  Participation  Agreement,  dated  as of
                                    December  15,  1986,  among the  Registrant,
                                    Holdings   and  Yosemite   Financial,   Inc.
                                    (incorporated herein by reference to Exhibit
                                    10.10 to the  Quarterly  Report on Form 10-Q
                                    of the Registrant for the quarter ended June
                                    30, 1988,  Commission File No. 1-9360, filed
                                    on August 15, 1988).

                                      -33-
<PAGE>


                  10.8              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).

                  10.9(a)           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).

                  10.9(b)           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).

                  10.9(c)           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).

                  10.9(d)           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).

                  10.9(e)           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).

                  10.19             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                Consent  of  Independent  Auditors - Ernst &
                                    Young LLP.

                  27                Financial Data Schedule.

                  28                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). (b) Reports on Form 8-K

                                      -34-
<PAGE>


         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.

                                   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 27, 1996                     By  /s/ Spencer I. Browne
                                         -----------------------
                                         Spencer I. Browne
                                         President and Chief Executive Officer

Date: March 27, 1996                     By  /s/ Paris G. Reece III
                                         ------------------------
                                         Paris G. Reece III
                                         Executive Vice President and
                                         Chief Financial Officer

Date: March 27, 1996                     By  /s/ Kevin J. Nystrom
                                         ----------------------
                                         Kevin J. Nystrom
                                         Vice President and Chief Accounting
                                         Officer

         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/ Larry A. Mizel                       Director            March 27, 1996
-----------------------------
    Larry A. Mizel

/s/ Spencer I. Browne                    Director            March 27, 1996
-----------------------------
    Spencer I. Browne

/s/ Elliot H. Kline                      Director            March 27, 1996
-----------------------------
    Elliot H. Kline

/s/ Richard L. Robinson                  Director            March 27, 1996
-----------------------------
    Richard L. Robinson

/s/ Tim Schultz                          Director            March 27, 1996
-----------------------------
    Tim Schultz


                                      -35-
<PAGE>