SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                 --------------

                                  FORM 10-K/A
                                (Amendment No. 1)

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

  (Mark one)

      X    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
           For the fiscal year ended December 31, 1998

                                       OR

           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
           For the transition period from ____________ to ___________

                          Commission file 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.)

  3410 South Galena Street, Suite 210                             80231
            Denver, Colorado                                    (Zip Code)

(Address of Principal Executive Offices)

       Registrant's telephone number, including area code: (303) 614-9400

           Securities registered pursuant to section 12(b) of the Act:

    Title of Each Class             Name of Each Exchange on Which Registered

       Common Stock,                      New York Stock Exchange, Inc.

  par value $.01 per share

          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. [ ]

As of March 5, 1999, 5,563,943 shares of 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 $72,215,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy  statement  for the  Registrant's  1999 Annual  Meeting of
Stockholders are incorporated by reference into Part III of this Annual Report.

<PAGE>

                           ASSET INVESTORS CORPORATION

                                Table of Contents

                           Annual Report on Form 10-K

                   For the Fiscal Year Ended December 31, 1998

Item                                                                        Page

                                     PART I

1.   Business................................................................  1
          Company Background.................................................  2
          Industry Background................................................  2
          Financial Information about Industry Segments......................  2
          Development of Management Team.....................................  2
          Growth and Operating Strategies....................................  3
          Competition........................................................  6
          Taxation of the Company............................................  6
          Regulations........................................................  7
          Insurance..........................................................  8
          Capital Resources..................................................  8
          Dividend Reinvestment Plan.........................................  8
          Restrictions on and Redemptions of Common Stock....................  8
          Employees..........................................................  9
2.   Properties..............................................................  9
3.   Legal Proceedings....................................................... 11
4.   Submission of Matters to a Vote of Security Holders..................... 11

                                 PART II

5.   Market For Registrant's Common Equity and Related Stockholder
       Matters............................................................... 12
6.   Selected Financial Data................................................. 12
7.   Management's Discussion and Analysis of Financial Condition and
     Results of Operations................................................... 14
          Results of Operations.............................................. 14
          Liquidity and Capital Resources.................................... 18
          Funds From Operations.............................................. 19
          Year 2000 Compliance............................................... 20
7a.  Quantitative and Qualitative Disclosures About Market Risk.............. 21
8.   Financial Statements and Supplementary Data............................. 21
9.   Changes in and Disagreements with Accountants on Accounting and
       Financial Disclosure.................................................. 22

                                PART III

10.  Directors and Executive Officers of the Registrant...................... 22
11.  Executive Compensation.................................................. 23
12.  Security Ownership of Certain Beneficial Owners and Management.......... 23
13.  Certain Relationships and Related Transactions.......................... 23

                                 PART IV

14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K........ 23

                                      (i)
<PAGE>

                                     PART I

Introduction

The Private  Securities  Litigation  Reform Act of 1995 provides a "safe harbor"
for  forward-looking  statements in certain  circumstances.  Certain information
included in this report,  our Annual Report to Stockholders and our filings with
the  Securities  and Exchange  Commission  under the  Securities Act of 1933, as
amended,  and the  Securities  Exchange  Act of  1934,  as  amended,  as well as
information  communicated  orally or in  writing  between  the dates of such SEC
filings,  constitute  "forward-looking  statements"  within  the  meaning of the
Private  Securities  Litigation  Reform Act of 1995. Such statements may include
projections of our cash flow,  dividends and anticipated  returns on real estate
investments.  Such  forward-looking  statements involve known and unknown risks,
uncertainties  and other factors that may cause our actual results,  performance
or achievements to be materially different from any future results,  performance
or achievements  expressed or implied by the  forward-looking  statements.  Such
factors  include:  general  economic  and  business  conditions;  interest  rate
changes;  financing and refinancing  risks; risks inherent in owning real estate
or  debt  secured  by  real  estate;   future  development  rate  of  homesites;
competition;  the  availability  of real estate  assets at prices which meet our
investment  criteria;  our  ability to reduce  expense  levels,  implement  rent
increases, use leverage and other risks set forth in our SEC filings.

In this  report,  the words "the  Company,"  "we," "our" and "us" refer to Asset
Investors  Corporation,  a Maryland  corporation  and,  where  appropriate,  our
subsidiaries.

Item 1.  Business.

Company Background

We are a Maryland  corporation formed in 1986, and we have elected to be treated
for United States federal income tax purposes as a real estate  investment trust
or "REIT." We are a self-administered  and self-managed  company in the business
of owning, acquiring,  developing and managing manufactured home communities. As
of December 31, 1998,  we held  interests  as owner,  ground  lessee or mortgage
lender (including  participating  mortgages) in 23 manufactured home communities
and two  recreational  vehicle parks with a total of 4,640  developed  homesites
(sites with homes in place),  890 sites ready for homes,  1,960 sites  available
for future  development  and 180  recreational  vehicle sites.  In addition,  we
managed eleven communities for affiliates and third-party  owners. Our shares of
common stock are listed on the New York Stock Exchange ("NYSE") under the symbol
"AIC."

We  primarily  conduct our  business  through  our  subsidiary  Asset  Investors
Operating  Partnership  and where  appropriate  its other  subsidiary  companies
(which we collectively  refer to as the Operating  Partnership).  As of December
31, 1998, we owned 76% of the Operating  Partnership.  The Operating Partnership
also owns 27% of the common stock of Commercial Assets,  Inc., a publicly-traded
REIT that is listed on the  American  Stock  Exchange  under the  symbol  "CAX."
Commercial Assets is also engaged in the ownership,  acquisition and development
of  manufactured  home  communities.  In  addition  to  acquiring  and  managing
manufactured  homes for our own  account,  we also  perform  these  services for
Commercial Assets, for which we are paid a management fee by Commercial Assets.

Our principal executive offices are located at 3410 S. Galena Street, Suite 210,
Denver, Colorado 80231 and our telephone number is(303) 614-9400.

                                     - 1 -
<PAGE>

Industry Background

A manufactured home community is a residential subdivision designed and improved
with sites for the placement of manufactured homes and related  improvements and
amenities.  Manufactured  homes  are  detached,  single-family  homes  which are
produced  off-site by manufacturers and installed on sites within the community.
Manufactured  homes are  available  in a variety  of  designs  and floor  plans,
offering many amenities and custom options.

Modern   manufactured  home  communities  are  similar  to  typical  residential
subdivisions containing centralized entrances,  paved streets, curbs and gutters
and  parkways.  The  communities  frequently  provide  a  clubhouse  for  social
activities and recreation and other  amenities,  which may include golf courses,
swimming  pools,  shuffleboard  courts and  laundry  facilities.  Utilities  are
provided by or arranged for by the owner of the community. Community lifestyles,
primarily  promoted  by  resident  managers,  include a wide  variety  of social
activities  that promote a sense of  neighborhood.  The  communities  provide an
attractive and affordable  housing  alternative for retirees,  empty nesters and
start-up or single-parent families.  Manufactured home communities are primarily
characterized  as "all  age"  communities  and  "adult"  communities.  In  adult
communities,  as least 80% of the tenants  must be at least 55 years old, and in
all age communities there is no age restriction on tenants.

The owner of a home in our communities leases from us the site on which the home
is located. Typically, the leases are on a month-to-month or year-to-year basis,
renewable upon the consent of both parties or, in some instances, as provided by
statute. In some circumstances,  we offer a 99-year lease to tenants in order to
enable the tenant to have some benefits of an owner of real property,  including
creditor  protection  laws  in  some  states.  These  leases  can be  cancelled,
depending on state law, for  non-payment of rent,  violation of community  rules
and regulations or other specified  defaults.  Generally,  rental rate increases
are made on an annual  basis.  The size of these rental rate  increases  depends
upon the policies that are in place at each community.  Rental  increases may be
based on fixed dollar amounts,  percentage  amounts,  inflation indexes, or they
may  depend  entirely  on  local  market  conditions.  We own  interests  in the
underlying land, utility connections,  streets, lighting, driveways, common area
amenities and other capital  improvements and are responsible for enforcement of
community  guidelines and  maintenance.  Each homeowner  within the manufactured
home  communities  is  responsible  for the  maintenance  of his or her home and
leased site, including lawn care in some communities.

The ownership of manufactured home communities, once fully occupied, tends to be
a stable,  predictable asset class. The cost and effort involved in relocating a
home to another  manufactured home community  generally  encourages the owner of
the home to resell it within the community.

Financial Information about Industry Segments

We operate in one industry segment, the ownership and management of real estate.
See the  consolidated  financial  statements  including their notes in Item 8 of
this report on Form 10-K.

Development of Management Team

In February  1998,  Mr. Bruce E. Moore became our President and Chief  Operating
Officer.  Mr. Moore has over 20 years  experience in various aspects of the real
estate industry including  manufactured home communities.  Mr. Moore is employed
full time under a three year  employment  agreement which provides that, in lieu
of cash salary,  he was granted a 10-year  option to purchase  250,000 shares of


                                     - 2 -
<PAGE>

our common  stock at a per share  price of  $19-3/8.  The option  vests in three
equal annual installments commencing in February of 1999.

Growth and Operating Strategies

We measure our economic  profitability  based on Funds From Operations  ("FFO"),
less an  annual  capital  replacement  reserve  of at  least  $50 per  developed
homesite.  This reserve is  management's  estimate  based on its  experience  in
owning,  operating and managing  manufactured home communities.  We believe that
the  presentation  of FFO when  considered with the financial data determined in
accordance  with generally  accepted  accounting  principles,  provides a useful
measure of our performance. However, FFO does not represent cash flow and is not
necessarily  indicative of cash flow or liquidity available to us, nor should it
be  considered  as an  alternative  to net income as an  indicator  of operating
performance.  The Board of Governors of the National  Association of Real Estate
Investment  Trusts  (also  known as NAREIT)  defines  FFO as net income  (loss),
computed in accordance with generally accepted accounting principles,  excluding
gains and losses from debt restructuring and sales of property, plus real estate
related  depreciation  and  amortization  (excluding  amortization  of financing
costs),  and  after  adjustments  for  unconsolidated   partnerships  and  joint
ventures.  We calculate FFO beginning  with the NAREIT  definition and including
adjustments for:

   o   the minority interest in the Operating Partnership owned by persons other
       than us,
   o   costs we incurred in order to become  self-managed,  and
   o   amortization of management contracts.

We believe that the  presentation  of FFO provides  investors with  measurements
which help facilitate an understanding of our ability to make required  dividend
payments,  capital  expenditures  and principal  payments on our debt. Since FFO
excludes  unusual and  nonrecurring  expenses as well as depreciation  and other
real estate related expenses,  FFO may be materially  different from net income.
Therefore,  FFO should not be considered as an  alternative to net income or net
cash flows from operating activities, as calculated in accordance with generally
accepted accounting principles, as an indication of our operating performance or
liquidity.

FFO is not  necessarily  indicative  of cash  available  to fund our cash needs,
including  our  ability  to  make  distributions.  We use FFO in  measuring  our
operating  performance  because  we  believe  that the  items  that  result in a
difference  between  FFO and net  income do not  impact  the  ongoing  operating
performance  of a real estate  company.  Also, we believe that other real estate
companies,  analysts and investors  utilize FFO in analyzing the results of real
estate companies.  Our basis of computing FFO is not necessarily comparable with
that of other REITs.

Our primary objective is to maximize  stockholder value by increasing the amount
and  predictability  of FFO on a per share  basis,  less a reserve  for  capital
replacements. We seek to achieve this objective primarily by:

   o   improving   net   operating   income  from  our  existing   portfolio  of
       manufactured home communities;
   o   acquiring  additional  communities  at values that are accretive on a per
       share basis;
   o   earning  increased  management fees as Commercial  Assets invests in more
       manufactured home communities; and
   o   as  Commercial  Assets' FFO  increases,  our share of their FFO similarly
       increases.

                                     - 3 -
<PAGE>

Company Policies

Management  has  adopted  specific  policies  to  accomplish  our  objective  of
increasing the amount and predictability of our FFO on a per share basis, less a
reserve for capital replacements. These policies include:

   o   selectively  acquiring  manufactured home communities that have potential
       long-term  appreciation  of  value  through,  among  other  things,  rent
       increases, expense efficiencies and in-park homesite development;
   o   developing and  maintaining  resident  satisfaction  and a reputation for
       quality  communities through maintenance of the physical condition of our
       communities   and  providing   activities   that  improve  the  community
       lifestyle;
   o   improving  the  profitability  of  our  communities   through  aggressive
       management  of  occupancy,  community  development  and  maintenance  and
       expense controls;
   o   using debt  leverage to increase  our  financial  returns;
   o   reducing  our  exposure  to  interest  rate   fluctuations  by  utilizing
       long-term,  fixed-rate,  fully-amortized  debt  to pay off  higher  cost,
       short-term debt;
   o   ensuring the  continued  maintenance  of our  communities  by providing a
       minimum $50 per developed homesite per year for capital replacements;
   o   seeking to reduce our  exposure  to  downturns  in  regional  real estate
       markets by diversifying our portfolio of communities  since currently 72%
       of our properties are in Florida and 16% are in Arizona; and
   o   recruiting and retaining capable community management personnel.

Future Acquisitions

In 1997, when we decided to enter the manufactured home community  business,  we
began to  implement  a business  plan which  called  for the  investment  of our
capital in the acquisition of manufactured home  communities.  During the second
half of 1997  and  during  1998,  we have  focused  on  identifying  acquisition
opportunities  that we believe  provide  returns that are accretive to our funds
from operations on a per share basis.

Our acquisition of interests in manufactured  home communities takes many forms.
In many cases we acquire  fee title to the  community.  When a  community  has a
significant  number of  unleased  homesites,  we seek a stable  return  from the
community  during the  development  and  lease-up  phase  while also  seeking to
participate in future increased  earnings after development is completed and the
sites are leased. We seek to accomplish this goal by making loans to development
companies in return for  participating  mortgages that are  non-recourse  to the
borrowers and secured by the property.  In general, our participating  mortgages
earn  interest  at fixed  rates and, in  addition,  participate  in a profits or
revenues from the community.  This profit participation right generally entitles
us to 50% of the net income and cash flow generated by the community.

We believe that acquisition  opportunities for manufactured home communities are
attractive at this time because of:

   o   the increasing  acceptability  of and demand for  manufactured  homes, as
       shown by the growth in the number of individuals  living in  manufactured
       homes; and
   o   the  continued  constraints  on  development  of  new  manufactured  home
       communities.

                                     - 4 -
<PAGE>

We are actively seeking to acquire additional  communities on our own behalf and
on behalf of Commercial  Assets,  and we are currently engaged in various stages
of negotiations relating to the possible acquisition of a number of communities.
The acquisition of interests in additional  communities could also result in our
becoming  increasingly  leveraged  as we incur  debt in  connection  with  these
transactions.

In 1998, we invested $60 million to acquire interests in seven manufactured home
communities that are located primarily in Arizona and Florida. These communities
have a total of 1,726 developed homesites,  56 sites ready for homes (sites with
homes in place) and 171 sites available for future development.

When evaluating potential acquisitions, we consider such factors as:

   o   the location and type of property;
   o   the value of the homes located on the leased land;
   o   the  improvements,  such as  golf  courses  and  swimming  pools,  at the
       property;
   o   the current and  projected  cash flow of the  property and our ability to
       increase cash flow;
   o   the potential for capital appreciation of the property;
   o   the terms of tenant leases, including the potential for rent increases;
   o   the tax and regulatory environment of the community in which the property
       is located;
   o   the potential  for  expansion of the physical  layout of the property and
       the number of sites;
   o   the occupancy and demand by residents for properties of a similar type in
       the vicinity;
   o   the credit of the residents in a community;
   o   the prospects for liquidity through sale, financing or refinancing of the
       property;
   o   the competition  from  existing  manufactured  home  communities;
   o   the potential for the construction of new communities in the area; and
   o   the replacement cost of the property.

In order to allocate investments between us and Commercial Assets, the companies
have agreed that Commercial  Assets will invest at least $50 million of its cash
resources in the acquisition of communities before we invest any further cash in
the  acquisition  of  communities.   Thereafter,   the  companies  will  make  a
determination  with respect to each  acquisition on a case-by-case  basis. As of
December 31, 1998,  Commercial  Assets had invested $23 million in  communities.
Notwithstanding  the above, we may acquire  communities if a material portion of
the purchase price is paid for in units of limited partnership  interests in the
Operating Partnership ("OP Units") or our common stock.

Fees and Earnings from Commercial Assets

We manage  Commercial  Assets and own 27% of  Commercial  Assets'  common stock.
Under the terms of our management  agreement with Commercial  Assets, we receive
the following fees:

   o   Acquisition  Fees  equal to 0.5% of the cost of each real  estate-related
       asset acquired by Commercial Assets;
   o   Base  Fees  equal  to 1% per year of the net  book  value  of  Commercial
       Assets' real estate-related assets;
   o   Incentive  Fees  equal to 20% of the amount by which  Commercial  Assets'
       REIT income exceeds (a) its average net worth,  multiplied by (b) 1% over
       the ten year United States Treasury rate.

                                     - 5 -
<PAGE>

In the third quarter of 1998,  Commercial  Assets entered the manufactured  home
community   business  and  began  acquiring   interests  in  manufactured   home
communities  identified  by us. As of December 31, 1998,  Commercial  Assets had
acquired  interests  in six  communities  at a cost of $23  million.  Commercial
Assets paid us Base Fees and  Acquisition  Fees  totaling  $87,000 and $124,000,
respectively,  during 1998  primarily  due to Commercial  Assets'  investment in
communities. No Incentive Fees were paid by Commercial Assets during 1998.

The management agreement has a term of one-year,  subject to annual renewal. The
board of directors of Commercial Assets has renewed the management agreement for
one more year. In addition,  the  management  agreement  has been amended.  This
amendment  provides  that,  during  1999,  Incentive  Fees  will be  based  upon
Commercial Assets' FFO, less an annual capital  replacement  reserve of at least
$50 per developed homesite, instead of its REIT income. Both your management and
Commercial  Assets  believe that this amendment will cause our Incentive Fees to
be tied more  closely to the  economic  profitability  of  Commercial  Assets as
Commercial Assets is now engaged in the manufactured home community business.

Although  there can be no  assurance  of such,  we expect  Commercial  Assets to
continue to acquire interests in communities during 1999.

Expansion of Existing Communities

We will seek to  increase  the number of  homesites  and the amount of  earnings
generated from our existing  portfolio of manufactured home communities  through
marketing campaigns aimed at increasing  occupancy.  We will also seek expansion
through future acquisitions and expansion of the number of sites available to be
leased to residents if justified  by local market  conditions  and  permitted by
zoning and other  applicable laws. As of December 31, 1998, we held interests in
twelve  communities with 890 sites ready for homes and 1,960 sites available for
future development.

Competition

There are numerous housing  alternatives that compete with our manufactured home
communities in attracting  residents.  Our properties compete for residents with
other  manufactured  home communities,  multifamily  rental  apartments,  single
family homes and  condominiums.  The number of competitors in a particular  area
could have a material  effect on our ability to attract and  maintain  residents
and on the rents we are able to charge for homesites.  In acquiring  assets,  we
compete  with  other  REITs,  pension  funds,  insurance  companies,  and  other
investors,  many of  which  have  greater  financial  resources  than we do.  In
addition,  Commercial  Assets is also  involved in acquiring  manufactured  home
communities.

Taxation of the Company

We have elected to be taxed as a REIT under the  Internal  Revenue Code of 1986,
as amended (the  "Code"),  and we intend to operate in a manner which will allow
us to avail ourselves of the beneficial tax provisions applicable to REIT's. Our
qualification as a REIT depends on our ability to meet the various  requirements
imposed  by the  Code,  such as  specifications  relating  to  actual  operating
results,  distribution levels and diversity of stock ownership. In addition, our
ability to qualify as a REIT  depends in part upon the actions of third  parties
over which we have no control,  or only limited  influence.  For  instance,  our
qualification  depends upon the conduct of certain entities with which we have a
direct or indirect relationship,  in our capacity as a lender, lessor, or holder
of  non-controlling  equity  interests.  Our  qualification  also  depends  upon
Commercial Assets' continued qualification as a REIT.

                                     - 6 -
<PAGE>

If we  qualify  for  taxation  as a REIT,  we will  generally  not be subject to
Federal corporate income tax on our net income that is currently  distributed to
stockholders.  This treatment substantially eliminates the "double taxation" (at
the corporate and stockholder  levels) that generally results from investment in
a  corporation.  If we fail to qualify as a REIT in any taxable year, we will be
subject to Federal income tax at regular  corporate  rates on our taxable income
(including any applicable alternative minimum tax). We have a net operating loss
("NOL")  carryover  of  approximately  $95  million  which may,  subject to some
restrictions and limitations, be used to offset taxable income in the event that
we fail to qualify as a REIT. Additionally, even if we qualify as a REIT, we may
be subject to certain  state and local  income and other  taxes,  and to Federal
income and excise taxes on our undistributed income.

If in any taxable year we fail to qualify as a REIT and as a result, incur a tax
liability,  we might need to borrow funds or liquidate  certain  investments  in
order to pay the applicable tax. In this situation, we would not be compelled to
make distributions as required for entities claiming REIT status under the Code.
Moreover,  unless  we  would be  entitled  to  relief  under  certain  statutory
provisions,  we  would be  disqualified  from  treatment  as a REIT for the four
taxable years following the year during which qualification is lost. Although we
currently  intend to operate in a manner  designed  to qualify as a REIT,  it is
possible that future economic,  market,  legal, tax or other  considerations may
cause us to fail to qualify as a REIT,  or may cause the Board of  Directors  to
revoke the REIT election.

We and our  stockholders  may be subject to state or local  taxation  in various
state  or local  jurisdictions,  including  those  in which we or they  transact
business or reside. The state and local tax treatment  conferred upon us and our
stockholders may not conform to the Federal income tax treatment.

Regulations

General

Manufactured home communities,  like other housing alternatives,  are subject to
various laws,  ordinances and  regulations,  including  regulations  relating to
recreational  facilities  such as swimming  pools,  clubhouses  and other common
areas.  We believe that we have obtained the necessary  permits and approvals to
operate each of our properties in conformity with these laws.

Americans with Disabilities Act

Our current  properties and any newly acquired  communities must comply with the
Americans with  Disabilities  Act (the "ADA").  The ADA generally  requires that
public  facilities,  such as clubhouses,  swimming pools and recreation areas be
made accessible to people with disabilities. As we previously mentioned, many of
our  communities  have  public  facilities.   In  order  to  comply  with  these
requirements  we have made  improvements  at our  communities in order to remove
barriers to access.  If we should ever fail to comply  with ADA  regulations  we
could be fined or we could be forced to pay  damages  to private  litigants.  We
have made those  changes  required by the ADA which we believe are  appropriate,
and we believe that our properties are in compliance  with the  requirements  of
the ADA. We believe  that any further  costs  related to ADA  compliance  can be
recovered  by cash flow  from the  individual  properties  without  causing  any
material adverse effect.  If ongoing changes involve a greater  expenditure than
we currently  anticipate,  or if the changes must be made on a more  accelerated
basis than we anticipate,  our ability to make expected  distributions  could be
adversely affected.

                                     - 7 -
<PAGE>

Rent Control Legislation

State and local  laws,  principally  in  Florida,  might  limit our  ability  to
increase  rents on some of our  properties,  and  thereby,  limit our ability to
recover increases in operating  expenses and the costs of capital  improvements.
Enactment  of  rent  control  laws  has  been  considered  from  time to time in
jurisdictions in which we operate. We presently expect to maintain  manufactured
home  communities  and may purchase  additional  properties  in markets that are
either subject to rent control laws or in which such legislation may be enacted.

Insurance

We believe that our properties are covered by adequate fire,  flood and property
insurance  policies.  It is our  policy to  purchase  insurance  policies  which
contain commercially  reasonable deductibles and limits from reputable insurers.
We also believe that we have obtained adequate title insurance policies insuring
fee title to properties we have acquired.

Capital Resources

We have  used  our  available  cash  balances,  our FFO  and our  long-term  and
short-term  financing  arrangements  to provide  working  capital to support our
operations,  to pay dividends and to acquire assets. Future acquisitions will be
financed by the most  appropriate  sources of  capital,  perhaps  including  our
available cash balances; undistributed FFO; long-term, secured debt; short-term,
secured  debt;  or the  issuance  of  additional  equity  securities,  including
interests in the Operating Partnership. This flexibility allows us to offer more
choices of  "acquisition  currency" to potential  sellers of  manufactured  home
communities  including the ability to defer some or all of the tax  consequences
of a sale.  We believe that this  flexibility  may offer sellers an incentive to
enter into transactions with us on favorable terms.

Without  further  stockholder  approval,  we  are  authorized  to  issue  up  to
50,000,000  shares of common  stock.  As of March 5, 1999,  5,563,943  shares of
common stock were issued and  outstanding.  The Board of Directors is authorized
to  issue  additional  classes  of stock  (including  preferred  stock)  without
stockholder  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 adversely  affect  existing  stockholders.  Future  offerings of stock may
result in the reduction of the net tangible book value per outstanding share and
a reduction  in the market  price of the stock.  We are unable to  estimate  the
amount,  timing or nature of such future  offerings as any such  offerings  will
depend on general market  conditions or other  factors.  As of March 5, 1999, we
have not authorized or issued additional classes of stock.

Dividend Reinvestment Plan

In 1998,  we  terminated  our Automatic  Dividend  Reinvestment  Plan due to the
administrative costs related to the plan.

Restrictions on and Redemptions of Common Stock

To  qualify  to be  taxed  as a REIT,  we must  comply  with  certain  ownership
limitations  with  respect to shares of our common  stock.  Our  Certificate  of
Incorporation provides that shares of common stock generally may not be owned by
a person if the  ownership  of shares by such  person  would  exceed 9.8% of our
outstanding shares or would result in the imposition of a tax on us.

                                     - 8 -
<PAGE>

Our Certificate of Incorporation empowers the Board of Directors, at its option,
to redeem  shares of common  stock or to restrict  transfers of shares to comply
with the requirements  described above. The redemption price we would pay if the
Board of  Directors  exercises  this option to redeem  shares  would be the fair
market value of the common stock as  reflected in the latest  quotations  on the
New York Stock Exchange.  Our Certificate of Incorporation also provides that if
anyone acquires shares of our common stock in a manner or in a volume that would
result in our  disqualification  as a REIT under the Code,  that  acquisition is
deemed void to the fullest extent  permitted under the law and the acquirer will
be  deemed  never to have  had an  interest  in the  shares.  Furthermore,  if a
transaction  is determined to be void or invalid,  the acquirer may be deemed to
have acted as agent on our behalf in acquiring  such shares and may be deemed to
hold such shares on our behalf.

Each stockholder is required, upon demand, to disclose to the Board of Directors
in writing any information with respect to the direct and indirect  ownership of
shares of our common stock as the Board of Directors  deems necessary or prudent
in order to protect our tax status.

Employees

Our employees perform various acquisition and management  functions.  Brandywine
Financial  Services  Corporation and its affiliates  provide our properties with
employees that perform property management,  maintenance and sales services. Mr.
Bruce Moore was the founder and Chief Executive  Officer of Brandywine  prior to
becoming our President and Chief Operating Officer in February 1998. In addition
to our eight employees, approximately 260 Brandywine employees devote their full
attention to our  communities.  We reimburse  Brandywine  for the costs of these
employees. None of these employees are represented by a union, and we have never
experienced a work stoppage. We believe that we maintain satisfactory  relations
with our employees.

Item 2.  Properties.

The  manufactured  home  communities  in which we have  interests  are primarily
located  in  Florida  and  Arizona  and  are  concentrated  in  or  around  four
metropolitan  areas.  We hold interests in these  communities  as owner,  ground
lessee or mortgage lender  (including  participating  mortgages).  The following
table  sets  forth  the  states  in which  the  communities  in which we held an
interest on December 31, 1998 are located:
<TABLE>
<CAPTION>

                                                                        Number of Sites
                                           --------------------------------------------------------------------------
                                                                                 Available for
                         Number of                             Ready for            Future            Recreational
                        Communities          Developed           Homes            Development           Vehicles
                      ----------------     ---------------    -------------     ----------------     ----------------
<S>                           <C>               <C>                <C>                <C>
Florida                       18                3,724              782                1,960                  --
Arizona                        4                  798              109                   --                 120
New Jersey                     1                   90               --                   --                  --
Pennsylvania                   1                   28               --                   --                  --
California                     1                   --               --                   --                  65
                             ---               ------             ----               ------                ----
   Total                      25                4,640              891                1,960                 185
                             ===               ======             ====               ======                ====

</TABLE>

                                     - 9 -
<PAGE>

The following  table sets forth  information  regarding each  manufactured  home
community in which we held an interest and those  manufactured  home communities
which we manage for others:

<TABLE>
<CAPTION>

                                                                  Average                         Sites
                                          Developed               Monthly   RV    Sites Ready  Available for  Year(s)
  Community                Location       Homesites  Occupancy(1)  Rent    Sites  for Homes     Development  Developed
----------------------------------------------------------------------------------------------------------------------
Owned Communities
<S>                   <C>                    <C>       <C>         <C>     <C>      <C>           <C>    <C>
Brentwood West        Mesa, AZ               350       100%        $274    --         --            --   1972/1987
Cardinal Court        Largo, FL              138        99          255    --         --            --   1959/1965
Caribbean Cove        Orlando, FL            255       100          264    --         31            --      1984
Forest View           Homosassa, FL          187        99          219    --        124 (3)        --   1987/1997
Gulfstream Harbor     Orlando, FL            379        99          304    --          3           171      1980
Gulfstream Harbor II  Orlando, FL            286        99          293    --         22            --      1988
Marina Dunes          Marina, CA              --        --           --    65         --            --      1979
Mullica Woods         Egg Harbor City, NJ     90       100          440    --         --            --      1985
Park Royale           Pinellas Park, FL      258        95          331    --         51 (3)        --      1971
Pinewood              St. Petersburg, FL     220        98          277    --         --            --      1976
Pleasant Living       Riverview, FL          245       100          266    --         --            --      1979
Salem Farm            Bensalem, PA            28       100          417    --         --            --      1988
Serendipity           Ft. Myers, FL          338        99          265    --         --            --   1971/1974
Stonebrook            Homosassa, FL          121        99          237    --         97 (3)        --   1987/1997
Sun Valley            Tarpon Springs, FL     261       100          333    --         --            --      1972
Westwind I (2)        Dunedin, FL            195        99          313    --         --            --      1970
Westwind II (2)       Dunedin, FL            189       100          332    --         --            --      1972
                                          --------------------------------------------------------------
    Subtotal                               3,540        99          286    65        328           171
                                          --------------------------------------------------------------

Participating Mortgage Communities (3)
Blue Heron Pines      Punta Gorda, FL        116       100          227    --        131           212   1983/1998
Blue Star             Apache Junction, AZ     30       100          216   120         --            --      1955
Brentwood             Hudson, FL              69        93          171    --         74            74      1984
Lost Dutchman         Apache Junction, AZ    150       100          237    --        109            --   1971/1979
Royal Palm            Haines City, FL        222        99          204    --         64           175   1971/1993
Savanna Club          Port St. Lucie, FL       7       100          198    --         --         1,328      1998
Sun Lake              Grand Island, FL       238        98          240    --        185            --      1980
Sun Valley            Apache Junction, AZ    268       100          237    --         --            --      1984
                                          --------------------------------------------------------------
    Subtotal                               1,100        99          224   120        563         1,789
                                          ==============================================================
Total Communities                          4,640        99%        $270   185        891         1,960
                                          ==============================================================

Communities Managed for Commercial Assets
Cannery Village       Newport Beach, CA       --        --%       $  --    --         --            30
Casa Encanta          Mesa, AZ               111        87          350    --         --            --
Cypress Greens        Lakeland, FL            85       100          184    --         22            --
Fiesta Village        Mesa, AZ               175        98          273    --         --           206
Riverside             Ruskin, FL             220       100          418    --         24           942
Southern Palms        Mesa, AZ                51       100          203    --         --            --
                                          --------------------------------------------------------------
    Subtotal                                 642        97          319    --         46         1,178
                                          --------------------------------------------------------------

Communities Managed for Others
Countryside           Brooksville, FL         73        99          129    --         38            --
Edgewater             Seminole, FL           130       100          157    --         --            --
Golden Crest          Dunedin, FL            176        97          336    --         --            --
Lakewood              Vero Beach, FL         329        98          292    --         47            --
Windward              Spring Hill, FL        199       100          232    --         55            --
                                          --------------------------------------------------------------
    Subtotal                                 907        99          251    --        140            --
                                          --------------------------------------------------------------
Total Communities                          1,549        98%        $281    --        186         1,178
                                          ==============================================================

<FN>

(1) Excludes recreational vehicle sites, which are leased on a seasonal basis.
(2) We are the ground lessee of these communities.
(3) We hold notes receivable secured by mortgages on these sites. The notes earn
    interest and participate in profits or revenues from the sites.
</FN>
</TABLE>

                                     - 10 -
<PAGE>


Owned  Properties.   At  December  31,  1998,  we  owned  16  manufactured  home
communities  and  one  recreational  vehicle  park  containing  3,540  developed
homesites,  56 sites ready for homes, 171 sites available for future development
and 65 recreational  vehicle sites. These properties  contain,  on average,  221
homesites, with the largest property containing 379 homesites.  These properties
offer residents a range of amenities,  including swimming pools,  clubhouses and
tennis courts.

At December  31,  1998,  nine of these  properties  are  encumbered  by mortgage
indebtedness totaling $40,506,000.  These properties represent approximately 73%
of  our  developed   homesites.   The  nine  properties  securing  our  mortgage
indebtedness  have a combined net book value of $77,021,000 and the indebtedness
has a weighted  average interest rate of 6.8% and a weighted average maturity of
10 years. As of December 31, 1998, 78% of our outstanding debt was long-term and
22% was short-term debt. See the financial  statements included elsewhere in our
Annual Report on Form 10-K for additional information about our indebtedness.

Properties  Involving  Participating  Mortgages.  At December 31, 1998,  we held
$27,604,000  in   participating   mortgages   involving  10  manufactured   home
communities  and  one  recreational  vehicle  park  containing  1,100  developed
homesites,  830  sites  ready  for  homes,  1,790  sites  available  for  future
development and 120  recreational  vehicle sites.  $10,769,000 of  participating
mortgages is secured by two  manufactured  home communities and the recreational
vehicle park.  These mortgages  mature in 2007, have interest rates ranging from
10% to 15%, pay us additional  interest  equal to 3% of gross  revenues from the
properties  and pay us 50% of the net proceeds from a sale of the  properties in
excess of the  participating  mortgages.  These  mortgages may be prepaid at any
time. In connection with a prepayment, we receive 11% of the gross revenues from
the properties until the properties are sold.

The other  participating  mortgage is  $16,835,000  at December  31, 1998 and is
secured by eight  manufactured  home  communities.  This mortgage bears interest
ranging from 10% to 13%,  provides for borrowings up to $20,000,000  and matures
in 2018. During the first five years,  interest is payable based on the net cash
flow of the secured properties.  As additional  compensation,  we receive 50% of
both (a) any  profits  and net cash flows from the  properties  in excess of the
stated  interest  rate and (b) any net sales  proceeds  from the  properties  in
excess of the amount of the  mortgage.  The mortgage may be prepaid at any time;
however,  our 50%  share of  profits  and net cash  flows  continues  until  the
properties are sold.

Item 3.  Legal Proceedings.

At  March  5,  1999,  there  were no  material  legal  proceedings,  pending  or
threatened,  to  which  we  were a  party  or to  which  any  of our  respective
properties were subject.

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

No  matters  were  submitted  to a vote of our  stockholders  during  the fourth
quarter of 1998.



                                     - 11 -
<PAGE>



                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

Our 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
                                              ---------------             -------------               -------------
1998

<S>                                           <C>                           <C>                          <C>
    First Quarter                             $    20-7/8                   $       16                   $    --
    Second Quarter                                19-5/16                       15-7/8                      .250
    Third Quarter                                 17-5/16                      13-5/16                      .250
    Fourth Quarter                               14-15/16                       12-1/8                      .250

1997

    First Quarter                             $    21-1/4                   $   16-1/4                   $  .475
    Second Quarter                                 18-1/8                       16-1/4                      .300
    Third Quarter                                  21-7/8                       16-7/8                      .325
    Fourth Quarter                                 22-1/2                           17                      .350
</TABLE>

As of  March  5,  1999,  5,563,943  shares  of  common  stock  were  issued  and
outstanding  and were held by 2,448  stockholders  of record.  We estimate there
were an additional  11,000 beneficial owners on that date whose shares were held
by banks, brokers or other nominees.

We, as a REIT, are required to distribute  annually to stockholders at least 95%
of our  "REIT  taxable  income,"  which,  as  defined  by the Code and  Treasury
regulations,  is generally equivalent to net taxable ordinary income. We measure
economic  profitability  and intend to pay regular dividends to our stockholders
based on FFO, less an annual  reserve for capital  replacements  of at least $50
per  developed  homesite,  during the  relevant  period.  The future  payment of
dividends, however, will be at the discretion of the Board of Directors and will
depend  on  numerous  factors  including,   our  financial  condition,   capital
requirements,  the annual distribution  requirements under the provisions of the
Code applicable to REITs, and such other factors as the Board of Directors deems
relevant.

On April 21, 1998,  6,400  shares of common  stock were issued to  non-executive
directors  in  lieu  of  annual  director  fees as a  private  placement  of our
securities.  The  non-executive  directors  were given the  option of  receiving
either (1) $15,000 and 800 shares of common  stock or (2) 1,600 shares of common
stock.  The $18.75 per share value was equal to the  closing  stock price on the
date of issuance.

Item 6.  Selected Financial Data.

Our selected financial data set forth below, has been derived from and should be
read in conjunction with our audited consolidated financial statements including
their notes.  Financial  data as of December 31, 1998 and 1997,  and for each of
the three years in the period ended December 31, 1998, is included  elsewhere in
this report on Form 10-K.



                                     - 12 -
<PAGE>



Operating and Balance Sheet Data (in thousands, except per share data):
<TABLE>
<CAPTION>

                                                                          Year Ended December 31,
                                                       --------------------------------------------------------------
                                                         1998         1997         1996         1995         1994
                                                      -----------  -----------   ----------   ----------   ----------
RENTAL PROPERTY OPERATIONS
<S>                                                   <C>          <C>           <C>          <C>          <C>
Rental and other property revenues                    $ 10,479     $  3,104      $     --     $     --     $     --
Interest on participating mortgages                      3,174           --            --           --           --
Equity in earnings of rental property joint ventures        --          466            --           --           --
Property operating expenses                             (4,039)      (1,398)           --           --           --
Depreciation                                            (2,685)        (693)           --           --           --
                                                      -----------  -----------   ----------   ----------   ----------
                                                         6,929        1,479            --           --           --
                                                      -----------  -----------   ----------   ----------   ----------
SERVICE OPERATIONS
Property management income, net                            156           69            --           --           --
Commercial Assets  management fees                         155           --            --           --           --
Amortization of management contracts                    (2,894)        (744)           --           --           --
                                                      -----------  -----------   ----------   ----------   ----------
                                                        (2,583)        (675)           --           --           --
                                                      -----------  -----------   ----------   ----------   ----------

Non-agency MBS bonds revenues                               50        2,966        11,513        8,499        1,531
Equity in earnings of Commercial Assets                    975        3,663         1,875        1,742        1,354
General and administrative expenses                     (1,393)      (1,042)       (1,145)      (1,895)      (1,586)
Interest and other income                                  871        1,808           136          630          563
Interest expense                                        (2,485)        (368)          (88)         (63)        (148)
Costs incurred to acquire management contract           (2,092)      (6,553)           --           --           --
Management fees to former manager                           --         (570)       (1,793)        (980)        (253)
Earnings from liquidating operations                        --           --            --        6,507       11,897
Elimination of DERs                                         --           --          (825)          --           --
Gain on sale of bonds                                       --        6,484            --           --           --
                                                      -----------  -----------   ----------   ----------   ----------

INCOME BEFORE MINORITY INTEREST                            272        7,192         9,673       14,440       13,358
Minority interest in Operating Partnership                 (60)          62            --           --           --
                                                      -----------  -----------   ----------   ----------   ----------

NET INCOME                                            $    212     $  7,254      $  9,673     $ 14,440     $ 13,358
                                                      ===========  ===========   ==========   ==========   ==========
Per Share Amounts:
   Basic earnings                                     $   0.04     $   1.44      $   1.97     $   2.97     $   4.59
   Diluted earnings                                   $   0.04     $   1.43      $   1.95     $   2.96     $   4.58
   Dividends                                          $   0.75     $   1.45      $   1.85     $   1.70     $   1.65

Weighted-Average Common Shares Outstanding               5,094        5,022         4,919        4,856        2,910
Weighted-Average Common Shares And Common Share
   Equivalents Outstanding                               5,113        5,061         4,966        4,883        2,914

                                                                             December 31,
                                                  -------------------------------------------------------------------
                                                     1998          1997           1996          1995          1994
                                                  -----------    ----------     ---------     ---------     ---------

Real estate, before accumulated depreciation      $ 101,941      $ 41,419       $     --      $     --      $     --
Investments in participating mortgages and
   joint ventures                                    27,604        25,415             --            --            --
Investment in Commercial Assets                      20,706        20,866         19,361        19,225        21,068
Total assets                                        158,226       119,161         90,344        79,653       109,539
Secured notes payable                                51,006        10,677             --            --        30,592
Minority interest in Operating Partnership           25,649        22,362             --            --            --
Stockholders' equity                                 78,636        83,515         86,365        78,759        72,965

</TABLE>

                                     - 13 -
<PAGE>

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

                          RESULTS OF OPERATIONS FOR THE

                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

The following  discussion and analysis of consolidated results of operations and
financial  condition  should  be  read  in  conjunction  with  our  consolidated
financial  statements  included elsewhere in this report. In 1997, we decided to
change our business from the ownership of high-risk,  residential collateralized
mortgage-backed  securities  to  the  ownership,  acquisition,  development  and
management of manufactured  home  communities.  This decision helped us to avoid
the  volatility  incurred  by other  owners of these  securities  following  the
capital  market crisis in the third quarter of 1998.  During the last year and a
half we have been focused on the investment of our capital in the acquisition of
manufactured  home  communities.  Since our  capital  has not yet been  entirely
invested into this new business, our financial performance, and consequently our
stock price, has been adversely affected during this period.

Comparison of 1998 to 1997

Rental Property

Income from rental  properties  totaled  $6,929,000  during 1998 and  $1,479,000
during 1997.  The increase  between 1997 and 1998 was due to our  acquisition of
communities   during  those  years.  Our  first   acquisition  of  interests  in
manufactured home communities occurred in May 1997, and as of December 31, 1997,
we had invested $69 million in 19  communities.  During 1998, we had invested an
additional $60 million in seven communities.

Inflation

We do not believe that changes in inflation rates would have a material  adverse
effect on our business. In fact, we believe that inflation may positively impact
our business,  in light of the fact that manufactured home communities represent
a more  affordable  housing  choice  for many  people  than  other  alternatives
available,  increased  inflation  rates may allow us to demand  increased  rents
without losing tenants.

Service Operations

During 1998, we earned  $156,000 in property  management  income versus  $69,000
during 1997.  Property  management  income  increased during 1998 as compared to
1997 because  property  management  contracts  were not acquired until May 1997.
Amortization  of management  contracts  increased from $744,000 to $2,894,000 in
1997 and 1998,  respectively,  due to our  acquisition  of  property  management
contracts in May 1997 and our  acquisition of the Commercial  Assets  management
agreement in November  1997.  Similarly,  fee revenue from  managing  Commercial
Assets was $155,000 in 1998 and $0 in 1997.

Equity in Earnings of Commercial Assets

Income from our 27% interest in Commercial Assets for 1998 was $975,000 compared
to $3,663,000  for 1997.  Prior to November  1997,  Commercial  Assets  received
income  from a  portfolio  of  collateralized  mortgage  backed  securities.  It
resecuritized  its  portfolio  in November  1997 and  temporarily  invested  the
proceeds in short-term  investments while considering  alternative  investments.
Commercial  Assets  announced  that it intended to invest in  manufactured  home
communities  in the third  quarter of 1998,  and as of December 31, 1998, it has
invested $23 million in such communities.  Commercial Assets reported to us that


                                     - 14 -
<PAGE>

the  $10,265,000  decrease  in  Commercial  Assets'  net income  during  1998 as
compared to 1997 was primarily due to: (1) a $3,954,000  decrease as a result of
lower yields during 1998 on short-term investments and interests in manufactured
home communities compared to yields on collateralized mortgage backed securities
during  1997,  (2) a  $5,786,000  non-recurring  gain on the  sale of the  bonds
recognized in 1997, and (3) a non-recurring  $500,000 expense in 1998 related to
the cost of investigating marina investments.

Non-agency MBS Bonds

In March 1997, we sold our portfolio of unrated credit support debt interests in
non-conforming  residential mortgage loan  securitizations  known as "non-agency
MBS bonds" in order to reduce risk  associated  with this type of investment and
to maximize  long-term,  risk-adjusted  returns to  stockholders.  Consequently,
income from  non-agency MBS bonds decreased to $50,000 during 1998 compared with
$2,966,000 for 1997. Revenues from non-agency MBS bonds subsequent to March 1997
represent  income from a small  residual  interest  retained  from the sale.  No
income has been recognized from the retained  residual  interest after the first
quarter of 1998, and we anticipate  receiving minimal, if any, additional income
in the future from such retained interest.

Management Fees

We incurred  $570,000 of management fees to our manager during 1997.  There were
no management fees in 1998 due to our acquisition of our management agreement in
November 1997.

General and Administrative Expenses

Our general and  administrative  expenses were  $1,393,000  for 1998 compared to
$1,042,000 for 1997. Expenses increased in 1998 by $351,000 primarily because of
$500,000 in personnel and related expenses  incurred as a result of our becoming
self-administered  and  self-managed  in November  1997.  The cost  increase was
partially  offset by $100,000 of nonrecurring  costs incurred in 1997 related to
our reverse stock split.

Interest and Other Income

Interest and other income for 1998 was $871,000 compared to $1,808,000 for 1997.
The proceeds from the restructuring of the non-agency MBS bonds were temporarily
invested until they were used to acquire manufactured home communities.  By June
1998,  we had used  substantially  all of the  proceeds to acquire  communities.
Therefore,  we do not expect  significant  interest  income in the  future.  The
average interest rate on our temporary investments was 5.4% during both 1998 and
1997.

Interest Expense

Interest  expense  increased in 1998 by $2,117,000 as compared to 1997 primarily
due to borrowings used to acquire  manufactured home communities as follows: (1)
$479,000  on  approximately  $11  million  assumed in  connection  with the 1997
acquisitions  of  four  manufactured   home   communities,   (2)  $1,288,000  on
approximately   $40  million   borrowed  in  mid-1998  in  connection  with  the
acquisition of four  additional  communities  and (3) $382,000 of amortized loan
costs related to the 1998 borrowings.

                                     - 15 -
<PAGE>

Costs Incurred to Acquire Management Contract

During 1998, we achieved  annualized  returns before  depreciation on certain of
our real estate investments in excess of 9% for a period of six months. Pursuant
to the November 1997 acquisition of our management  contract,  we issued 120,000
OP  Units  to the  former  manager  and  recognized  a  $2,073,000  expense  for
additional  consideration paid to the former manager. During 1997, we recognized
$6,553,000 of expense related to the purchase of our management contract.

Gain on Sale of Bonds

In connection with the  resecuritization  of the non-agency MBS bonds, a gain of
$7,359,000  was recognized  during 1997 reduced by both  $1,472,000 of Incentive
Fees related to the gain and an additional fee of $600,000  incurred in exchange
for the  manager  agreeing  to  continue  as a loss  mitigation  advisor  on the
non-agency MBS bonds. In addition, during the fourth quarter of 1997, we entered
into a transaction for the sale of interests in other bonds that had no carrying
value on our books.  As a result of this  transaction,  a net gain of $1,197,000
was recognized in 1997.

Comparison of year ended December 31, 1997 to year ended December 31, 1996

Rental Property and Service Operations

From May 1997 through  December  1997,  we invested $69 million in  manufactured
home  communities and related assets.  As of December 31, 1997, we had interests
in 19 manufactured home communities. In 1997, we earned $3,104,000 of rental and
other property  revenues and $466,000 of equity in earnings of real estate joint
ventures and incurred  $1,398,000 of property operating expenses and $693,000 of
depreciation related to the acquired communities. In addition, we earned $69,000
of property  management  income less  $744,000  of  amortization  related to the
management contracts acquired.

Equity in Earnings of Commercial Assets

Income  from  our 27%  interest  in  Commercial  Assets  for  1997  and 1996 was
$3,663,000 and $1,875,000,  respectively.  Commercial Assets reported to us that
the $6,747,000 increase in Commercial Assets' net income is primarily because of
the  $5,786,000  non-recurring  gain  from the  1997  sale of its  portfolio  of
collateralized mortgage-backed securities and the $966,000 non-recurring expense
in 1996 for the  elimination  of dividend  equivalent  rights  under  Commercial
Assets' stock option plan.

Non-agency MBS Bonds

Income  from our  non-agency  MBS bonds  decreased  to  $2,966,000  during  1997
compared with $11,513,000 for 1996 primarily due to the  resecuritization of the
bonds in March 1997.  Revenues of $966,000 from the non-agency MBS bonds,  since
the resecuritization, represent income from the retained equity interest.

Management Fees

In  November  1997,  stockholders  approved a proposal to acquire our manager in
order  to  become  a  self-managed  and  self-administered  REIT.  Prior  to the
acquisition,  the  manager  received  various  fees for the  advisory  and other
services performed,  and the manager provided all personnel and related overhead
necessary to conduct our regular business.

                                     - 16 -
<PAGE>

Management  fees decreased to $570,000  during 1997 compared with $1,793,000 for
1996 primarily due to the  resecuritization of the non-agency MBS bonds in March
1997.  The  manager  received  administrative  fees  of up to  $3,500  for  each
non-agency MBS bond and base fees on invested assets. Base fees were not paid on
cash  or  short-term  investment  balances.   Therefore,  as  a  result  of  the
resecuritization,  administrative fees were eliminated,  base fees declined, and
lower net income  exclusive of the gain on the  restructuring  resulted in lower
incentive fees. In addition,  all fees were discontinued upon our acquisition of
the manager in November 1997.

We  incurred  $322,000  of  acquisition  fees  during  1997,   relating  to  the
acquisition of manufactured  home  communities and management  contracts.  These
acquisition  fees are  capitalized and will be amortized over the estimated life
of the related assets. No acquisition fees were incurred in 1996.

General and Administrative Expenses

General and administrative  expenses decreased by $103,000 in 1997 compared with
1996 due primarily to (1) a $87,000 non-recurring expense for the elimination of
dividend  equivalent  rights in 1996, (2) a $40,000  reduction in accounting and
consulting fees, and (3) a $90,000 decrease in costs associated with stockholder
relations;  partially offset by $100,000 of non-recurring  costs in 1997 related
to our reverse stock split.

Interest and Other Income

Interest and other income increased significantly during 1997 compared with 1996
because  of higher  cash  balances  subsequent  to the  resecuritization  of the
non-agency MBS bonds. The average  interest rate on our cash investments  during
1997 was 5.4%.

Interest Expense

Interest  expense  during 1997  includes  $342,000 on the secured  notes payable
assumed with the acquisition of four  manufactured  home communities and $26,000
of interest on the $3 million of short-term  borrowings  outstanding at December
31,  1996.  The  $88,000  of  interest  expense  during  1996 was on  short-term
borrowings.

Costs Incurred to Acquire Management Contract

During the fourth  quarter of 1997,  we  recognized  a  $6,553,000  nonrecurring
expense related to our purchase of our management contract, including $6,105,000
of non-cash expense from the issuance of OP Units to the former manager.

Gain on Sale of Bonds

The  1997  gains  from  the  sale of  non-agency  MBS and  other  bonds  totaled
$6,484,000. There were no such gains in 1996.

NOL and Capital Loss Carryovers

At December 31, 1998, our NOL carryover was  approximately  $95,000,000  and our
capital  loss  carryover  was   approximately   $20,000,000.   Subject  to  some
limitations,  the NOL  carryover  may be used to offset  all or a portion of our
REIT  income,  and as a result,  to  reduce  the  amount of income  that we must
distribute to  stockholders  to maintain our status as a REIT. The NOL carryover


                                     - 17 -
<PAGE>

is scheduled to expire  between 2007 and 2009 and the capital loss  carryover is
scheduled to expire in 2000 and 2001.

Dividend Distributions

During 1998, we  distributed  $4,916,000  ($0.75 per share) to holders of common
stock and OP Units  compared  to 1997  distributions  of  $7,749,000  ($1.45 per
share) and 1996 distributions of $9,128,000 ($1.85 per share). Eighty percent of
1998 dividends and seventy-five percent of 1997 dividends  constituted return of
capital  distributions,  which are not taxable to the stockholders to the extent
of their basis in their stock. Return of capital  distributions were not made in
1996.

                         LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 1998, we had cash and cash  equivalents  of  $1,426,000.  Our
principal   activities  that  demand  liquidity  include  our  normal  operating
activities, payments of principal and interest on outstanding debt, acquisitions
of  or  additional   investments  in   properties,   payments  of  dividends  to
stockholders  and  distributions  made  to  limited  partners  in the  Operating
Partnership.

Our net cash  provided  by  operating  activities  was  $6,841,000  during  1998
compared to $3,931,000  during 1997.  The increase was primarily a result of (1)
increased  cash flow from the ownership  and  management  of  manufactured  home
communities  due to  acquisitions in 1997 and 1998 offset by decreased cash flow
from the non-agency MBS bonds and short-term investments we held in 1997 and (2)
costs in 1997 in the amount of $448,000  associated  with the acquisition of our
management contract.

In 1998,  the net cash used by investing  activities was  $58,897,000,  compared
with 1997 in which $27,479,000 of net cash was provided by investing activities.
Investing  activities  in 1998 were  primarily  related  to the  acquisition  of
manufactured home communities,  whereas,  investing activities in 1997 primarily
consisted of the  restructuring  of bonds net of the acquisition of interests in
real estate. The restructuring of bonds in 1997 provided $69,807,000 of cash, of
which $46,344,000 was used to acquire interests in real estate.

Net cash provided by financing activities was $31,680,000 in 1998, compared with
net cash used by financing activities of $10,025,000 in 1997. This difference is
primarily  due to  short-term  and  long-term  borrowings  in  1998  versus  our
repayment of short-term borrowings in 1997.

We have a line of credit with a bank which matures in September  2000.  The line
of credit is secured by 1,015,674 shares of our Commercial  Assets common stock.
Advances  under this line of credit bear  interest at the 30-day LIBOR rate plus
1.75%. The line of credit is limited to the lesser of (1) $5,000,000, (2) 65% of
the  product of the  trading  price of  Commercial  Assets  common  stock  times
1,015,674 or (3) 65% of the purchase price of certain  unpledged real estate. As
of December 31, 1998, the limit was $4,000,000 and $2,000,000 was outstanding on
this line of credit.

As of December 31, 1998, 52% of our real estate and 34% of our total assets were
encumbered by debt. We had total outstanding  indebtedness of $51.0 million, all
of which was secured by various  manufactured  home  communities,  participating
mortgages or shares of  Commercial  Assets  stock.  Of our  indebtedness,  $40.5
million,  or 79.4%,  was  non-recourse  secured,  long-term  financing and $10.5
million, or 20.6%, was secured short-term financing.  We expect to refinance the
short-term debt with non-recourse  secured,  long-term  financing in 1999. As of
December 31, 1998,  none of the long-term  financing  and all of the  short-term
financing bears interest at variable rates. The  weighted-average  interest rate
on the  secured,  long-term  notes  payable  was  6.8%  with a  weighted-average


                                     - 18 -
<PAGE>

maturity  of 10 years.  The  weighted-average  interest  rate on our  short-term
financing was 7.5%.

We expect to meet our long-term  liquidity  requirements  in excess of 12 months
through long-term, secured borrowings, the issuance of OP Units and other equity
securities and cash generated by operations.

                              FUNDS FROM OPERATIONS

We measure  our  economic  profitability  based on FFO,  less an annual  capital
replacement reserve of at least $50 per developed homesite.  We believe that the
presentation  of FFO when  considered  with the  financial  data  determined  in
accordance  with generally  accepted  accounting  principles,  provides a useful
measure of our performance. However, FFO does not represent cash flow and is not
necessarily  indicative of cash flow or liquidity available to us, nor should it
be  considered  as an  alternative  to net income as an  indicator  of operating
performance.  The Board of Governors of NAREIT defines FFO as net income (loss),
computed in accordance with generally accepted accounting principles,  excluding
gains and losses from debt restructuring and sales of property, plus real estate
related  depreciation  and  amortization  (excluding  amortization  of financing
costs),  and  after  adjustments  for  unconsolidated   partnerships  and  joint
ventures.  We calculate FFO  beginning  with the NAREIT  definition  and include
adjustments for:

   o   the minority interest in the Operating Partnership owned by persons other
       than us,
   o   costs we incurred in order to become self-managed,  and
   o   amortization of management contracts.

We believe that the  presentation  of FFO provides  investors with  measurements
which help facilitate an understanding of our ability to make required  dividend
payments,  capital  expenditures  and principal  payments on our debt. Since FFO
excludes  unusual and  nonrecurring  expenses as well as depreciation  and other
real estate related expenses,  FFO may be materially  different from net income.
Therefore,  FFO should not be considered as an  alternative to net income or net
cash flows from operating activities, as calculated in accordance with generally
accepted accounting principles, as an indication of our operating performance or
liquidity.

FFO is not  necessarily  indicative  of cash  available  to fund our cash needs,
including  our  ability  to  make  distributions.  We use FFO in  measuring  our
operating  performance  because  we  believe  that the  items  that  result in a
difference  between  FFO and net  income do not  impact  the  ongoing  operating
performance  of a real  estate  company.  Also,  we believe  other  real  estate
companies,  analysts and investors  utilize FFO in analyzing the results of real
estate companies.  Our basis of computing FFO is not necessarily comparable with
that of other REITs.



                                     - 19 -
<PAGE>



For 1998 and 1997, our FFO was as follows (in thousands):
<TABLE>
<CAPTION>

                                                                                     1998                 1997
                                                                                  ----------           ----------
<S>                                                                                <C>                  <C>
Income before minority interest in Operating Partnership                           $    272             $  7,192
Gain on sale of bonds                                                                    --               (6,484)
Real estate depreciation                                                              2,685                  693
Real estate depreciation in joint ventures                                               --                  155
Amortization of management contracts                                                  2,894                  744
Equity in Commercial Assets' adjustments for FFO                                        146               (1,546)
Costs incurred to acquire management contract                                         2,092                6,553
                                                                                   --------             --------
Funds From Operations (FFO)                                                        $  8,089             $  7,307
                                                                                   ========             ========

Weighted average common shares and OP Units outstanding                               6,540                5,254
                                                                                   ========             ========
</TABLE>


<TABLE>
<CAPTION>

For 1998 and 1997, our net cash flows were as follows (in thousands):

                                                                                     1998                 1997
                                                                                  ----------           ----------
<S>                                                                               <C>                 <C>
Cash provided by operating activities                                             $   6,841           $    3,931
Cash provided by (used in) investing activities                                     (58,897)              27,479
Cash provided by (used in) financing activities                                      31,680              (10,025)

</TABLE>

                              YEAR 2000 COMPLIANCE

Year 2000  issues  have arisen  because  many  existing  computer  programs  and
chip-based  embedded technology systems use only the last two digits to refer to
a year,  and  therefore do not  properly  recognize a year that begins with "20"
instead of the familiar "19". If not corrected, many computer applications could
fail or create erroneous results.  The following disclosure provides information
regarding the current status of our Year 2000 compliance program.

Our  hardware and  software  systems are  currently  Year 2000  compliant.  Upon
failure of any system,  data included in critical  software  (such as rent-rolls
and  certain  record-keeping   systems)  could  be  transferred  to  alternative
commercially  available  software at a  reasonable  cost and within a reasonable
time period. Consequently,  we would be able to continue our business operations
without any material interruption or material effect on our business, results of
operations or financial condition.  In addition, we anticipate that any hardware
or software that we acquire (including upgrades to existing systems) between now
and December 31, 1999 will be Year 2000 compliant.

Disruptions in the economy generally  resulting from Year 2000 issues could also
materially adversely affect us. Moreover,  because a large number of our tenants
may be dependent on social  security  payments to pay their rents,  a failure of
the  Social  Security  Administration  to cause  their  systems  to be Year 2000
compliant may result in a material adverse effect on our operations.  The Social
Security  Administration  has  announced  that they will have their systems Year
2000  compliant  before  January 1, 2000. We have received oral  representations
from our third party vendors  indicating that they are  substantially  Year 2000
compliant.

We believe that the cost of  modification  or  replacement of our less essential
accounting and reporting  software and hardware that is not currently  compliant
with Year 2000  requirements,  if any,  will not be  material  to our  financial
position or results of operations.

Our worst  case  scenario  would be in the event that the U.S.  Social  Security
Administration  were unable to process their  payments to our tenants,  in which
case large  numbers of our  tenants may be unable to pay their rent when due. If


                                     - 20 -
<PAGE>

this were to  occur,  we may be unable to  continue  to  service  our debt as it
becomes due and  foreclosure  proceedings  on our affected  properties  could be
commenced by our lenders.  We have no contingency plan with respect to potential
Year 2000  related  problems.  We note,  however,  that on  December  28,  1998,
President   Clinton   publicly   announced   that  the  U.S.   Social   Security
Administration would be fully Year 2000 compliant before the end of 1999.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

Our  principal  exposure to market risk is through our various debt  instruments
and borrowings.  The following is a list of these debt instruments and borrowing
arrangements.

We have $30.3 million of 6.5% non-recourse, secured long-term notes payable that
mature in 2018. We do not have significant  exposure to changing  interest rates
on these notes as the rate is fixed and the notes are fully amortizing.

We have $10.2  million of  non-recourse,  secured  long-term  notes payable that
mature in October 2000 with a principal payment at maturity of $9.4 million. The
rates on these  notes  range  from  7.5% to 8.25%  and are  fixed.  We intend to
refinance  these notes  during 1999 or 2000 with  long-term,  fully  amortizing,
fixed rate debt.  While changes in interest rates would affect the cost of funds
borrowed in the future to  refinance  the  existing  debt,  we believe  that the
effect,  if any,  of  near-term  changes  in  interest  rates  on our  financial
position,  results of  operations  or cash flows  would not be  material  as the
existing debt is fixed rate until October 2000.

We have $8.5  million  of  recourse,  secured  short-term  financing  that bears
interest at the London  Interbank  Offered Rate  ("LIBOR")  plus 2.5%.  If LIBOR
increased immediately by 1%, our annual net income would decrease by $85,000 due
to an increase in interest expense on this $8.5 million note payable.  We expect
to refinance this debt with non-recourse, secured, fixed rate, long-term debt in
1999.  We have  loan  commitments  from a lender  for  amounts  in excess of the
existing loan amount for 20 year,  fully amortized debt with fixed rates ranging
from 6.75% to 6.86%.  If such  expected  refinancing  occurs,  we would not have
significant  exposure to changing  interest rates. If the loan is not refinanced
with fixed rate,  fully  amortized  debt, then changes in LIBOR would affect the
cost of funds borrowed in the future.

We have a recourse,  secured  line of credit  that bears  interest at LIBOR plus
1.75%.  As of December  31,  1998,  the  outstanding  balance was $2.0  million.
Accordingly,  changes in LIBOR  would  affect the cost of funds  borrowed in the
future.  If LIBOR  increased  immediately by 1% then our annual net income would
decrease  by $20,000  due to an  increase  in  interest  expense on this line of
credit, based on the outstanding balance at December 31, 1998.

Item 8.  Financial Statements and Supplementary Data.

The  independent  auditor's  reports,   consolidated  financial  statements  and
schedules listed in the accompanying  index are filed as part of this report and
incorporated  herein by reference.  See "Index to Financial  Statements" on page
F-1.

                                     - 21 -
<PAGE>

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

We have had no changes in nor any disagreements with our accountants relating to
accounting or financial disclosure.

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.

The information set forth under the caption "Board of Directors and Officers" in
the proxy  statement in connection  with our 1999 Annual Meeting of Stockholders
which is to be filed  after the date this report on Form 10-K is filed is hereby
incorporated by reference.

Executive Officers of the Registrant

The Executive Officers of the Company as of December 31, 1998 are:

      Name         Age               Position with the Company
--------------------------------------------------------------------------------
Terry Considine    51    Chairman of the Board of Directors and Chief Executive
                         Officer
Thomas L. Rhodes   59    Vice Chairman of the Board of Directors
Bruce E. Moore     56    President and Chief Operating Officer
David M. Becker    39    Chief Financial Officer, Secretary and Treasurer

Terry  Considine  has been our  Chairman  of the  Board of  Directors  and Chief
Executive  Officer  since April 1998.  From  September  1996 to April 1998,  Mr.
Considine  served as our  Co-Chairman  of the Board of  Directors  and  Co-Chief
Executive  Officer.  Mr.  Considine  also  serves  as  Chairman  of the Board of
Directors and Chief Executive Officer of Commercial Assets. He is the sole owner
of Considine  Investment  Co., and since July 1994,  he has been the Chairman of
the Board of Directors and Chief Executive  Officer of Apartment  Investment and
Management Company.

Thomas L.  Rhodes has been our Vice  Chairman  of the Board of  Directors  since
April 1998.  From September 1996 to April 1998, Mr. Rhodes served as Co-Chairman
of the Board of Directors and Co-Chief Executive Officer. From September 1996 to
April 1998,  Mr. Rhodes also served as  Commercial  Assets'  Co-Chairman  of the
Board  of  Directors  and  Co-Chief  Executive  Officer.  Mr.  Rhodes  has  been
Commercial  Assets' Vice Chairman of the Board since April 1998.  Mr. Rhodes has
also been a Director  of AIMCO  since July  1994.  Mr.  Rhodes has served as the
President and a Director of National  Review  magazine since 1992.  From 1976 to
1992,  he held  various  positions  at  Goldman,  Sachs & Co. and was  elected a
General Partner in 1986. He currently  serves as a Director of Delphi  Financial
Group, Inc. and its subsidiaries, Delphi International, Ltd., Oracle Reinsurance
and The  Lynde and Harry  Bradley  Foundation.  Mr.  Rhodes  is  Trustee  of The
Heritage Foundation.

Bruce E. Moore was  appointed as our President  and Chief  Operating  Officer in
February  1998.  He also  serves as  President  and Chief  Operating  Officer of
Commercial  Assets. Mr. Moore is the founder and was the Chief Executive Officer
of Brandywine Financial Services Corporation and its affiliates,  a private real
estate  firm  specializing  in  various  aspects  of the  real  estate  industry
including  asset  management,  consulting,   development,  property  management,
brokerage and capital formation. He is a certified public accountant and holds a
Masters in  Accounting  and a Bachelor of Science in Economics  from the Wharton
School of the  University  of  Pennsylvania.  Mr.  Moore is a Director  and past
President of the Media Youth Center,  and a past  advisory-board  member for the
Department of Recreation  and  Intercollegiate  Athletics for the  University of


                                     - 22 -
<PAGE>

Pennsylvania.  In addition, Mr. Moore is a member of the National Association of
Real Estate Investment Trusts and the International Council of Shopping Centers.

David M. Becker has  functioned as our Chief  Financial  Officer,  Secretary and
Treasurer  since  December 1997 and was appointed to such  positions in February
1998.  Since  December  1997,  Mr.  Becker  has also  served as Chief  Financial
Officer,  Secretary and Treasurer of Commercial Assets and was appointed to such
positions in April 1998.  From  September 1995 until joining us, he was both the
Chief  Financial  Officer  of  Westfield  Development  Company,  Inc.  and  Vice
President-Finance  of The  Frederick  Ross Co.,  related  companies  involved in
commercial real estate development, brokerage and management. Prior to September
1995,  he held  various  executive  positions  with  CONCORD  Services,  Inc., a
privately-held  company  involved  in  multiple  businesses  including  trading,
manufacturing  and  finance.  CONCORD  Services,  Inc.  declared  bankruptcy  in
February 1995. In addition,  Mr. Becker was Chief Financial  Officer and General
Counsel of Ramtron  International  Corporation,  a  publicly-held  semiconductor
manufacturer,  from October 1989 until July 1994.  Mr. Becker is an attorney and
certified public accountant.  He received a B.A. from the University of Northern
Iowa and a J.D. from the University of Denver.

There  are no  family  relationships  between  any of  the  executive  officers,
directors or persons nominated or chosen by us to become a director or executive
officer and there are no arrangements or understandings pursuant to which any of
them were selected as directors or officers.  Except as described above, none of
the persons  nominated  to become  directors  or  executive  officers  have been
involved in any legal  proceedings  during the past five years that are material
to an evaluation of the ability or integrity of such persons.

The  information set forth under the caption  "Compliance  with Section 16(a) of
the Exchange Act" in the proxy statement is hereby incorporated by reference.

Item 11.  Executive Compensation.

The  information  set forth under the  captions  "Summary  Compensation  Table",
"Options/SAR Grants in Last Fiscal Year" and "Aggregate  Option/SAR Exercises in
Last Fiscal Year and Fiscal Year-end  Options/SAR Values" in the proxy statement
is hereby incorporated by reference.

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

The  information  set forth under the  caption  "Security  Ownership  of Certain
Beneficial Owners and Management" in the proxy statement is hereby  incorporated
by reference.

Item 13.  Certain Relationships and Related Transactions.

The information set forth under the caption "Certain  Relationships  and Related
Transactions" in the proxy statement is hereby incorporated by reference.

                                     PART IV

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

(a)(1)   The financial statements listed in the Index to Financial Statements on
         Page F-1 of this report are filed as part of this report.

                                     - 23 -
<PAGE>

(a)(2)   The  financial  statement  schedules  listed in the Index to  Financial
         Statements on Page F-1 of this report are filed as part of this report.
         All other  schedules  are omitted  since they are not  applicable,  not
         required,  or the  information  required  to be set  forth  therein  is
         included in the financial statements, or in notes thereto.

(a)(3)   The Exhibit Index is included on page 23 of this report.

(b)      Reports on Form 8-K for the quarter ended December 31, 1998:

         No current  reports on Form 8-K were  filed by the  Company  during the
fourth quarter of 1998.



                                     - 24 -
<PAGE>



                          INDEX TO FINANCIAL STATEMENTS

ASSET INVESTORS CORPORATION                                                 Page

Financial Statements:
   Report of Independent Auditors..........................................  F-2
   Consolidated Balance Sheets as of December 31, 1998 and 1997............  F-3
   Consolidated Statements of Income for the years ended December 31,
      1998, 1997 and 1996..................................................  F-4
   Consolidated Statements of Stockholders' Equity for the years
      ended December 31, 1998, 1997 and 1996...............................  F-5
   Consolidated Statements of Cash Flows for the years ended
      December 31, 1998, 1997 and 1996.....................................  F-6
   Notes to Consolidated Financial Statements..............................  F-7

Financial Statement Schedules:
   Schedule III -- Real Estate and Accumulated Depreciation................ F-22
   Schedule IV -- Mortgage Loans on Real Estate............................ F-24


COMMERCIAL ASSETS, INC. (a significant unconsolidated subsidiary of
 the Company)

Financial Statements:
   Report of Independent Auditors.......................................... F-26
   Consolidated Balance Sheets as of December 31, 1998 and 1997............ F-27
   Consolidated Statements of Income for the years ended
      December 31, 1998, 1997 and 1996..................................... F-28
   Consolidated Statements of Stockholders' Equity for the
      years ended December 31, 1998, 1997 and 1996......................... F-29
   Consolidated Statements of Cash Flows for the
      years ended December 31, 1998, 1997 and 1996......................... F-30
   Notes to Consolidated Financial Statements.............................. F-31

Financial Statement Schedules:
   Schedule III -- Real Estate and Accumulated Depreciation................ F-42
   Schedule IV -- Mortgage Loans on Real Estate............................ F-44





                                     F - 1
<PAGE>



                         REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Asset Investors Corporation
Denver, Colorado

         We have audited the accompanying  consolidated  balance sheets of Asset
Investors Corporation and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated  statements of income,  stockholders' equity and cash flows
for each of the three years in the period ended  December  31, 1998.  Our audits
also  included the  consolidated  financial  statement  schedules  listed in the
accompanying   index.   These   financial   statements  and  schedules  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements and schedules 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, 1998 and 1997,
and the  consolidated  results of their operations and their cash flows for each
of the three years in the period  ended  December  31, 1998 in  conformity  with
generally  accepted  accounting  principles.  Also, in our opinion,  the related
financial  statement  schedules,  when  considered  in  relation  to  the  basic
consolidated  financial  statements taken as a whole,  presents  fairly,  in all
material respects the information set forth therein.

                                                            /s/ERNST & YOUNG LLP

Denver, Colorado
January 29, 1999



                                     F - 2
<PAGE>



<TABLE>
<CAPTION>

                  ASSET INVESTORS CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                      (In thousands, except per share data)

                                                                                              December 31,
                                                                                  ----------------------------------
                                                                                      1998                  1997
                                                                                  -------------         ------------
ASSETS

<S>                                                                                 <C>                   <C>
Real estate, net of accumulated depreciation of $3,378 and $693                     $   98,563            $   40,726
Investments in participating mortgages                                                  27,604                    --
Investments in and notes receivable from real estate joint ventures                         --                25,415
Cash and cash equivalents                                                                1,426                21,802
Investment in Commercial Assets                                                         20,706                20,866
Other assets, net                                                                        9,927                10,352
                                                                                    ----------            ----------
       Total Assets                                                                 $  158,226            $  119,161
                                                                                    ==========            ==========

LIABILITIES

Secured long-term notes payable                                                     $   40,506            $   10,677
Secured short-term financing                                                            10,500                    --
Accounts payable and accrued liabilities                                                 2,935                 2,607
                                                                                    ----------            ----------
                                                                                        53,941                13,284
                                                                                    ----------            ----------

MINORITY INTEREST IN OPERATING PARTNERSHIP                                              25,649                22,362

STOCKHOLDERS' EQUITY
Common Stock, par value $.01 per share, 50,000 shares authorized
5,016 and 5,108 shares issued and outstanding, respectively                                 50                    51
Additional paid-in capital                                                             229,948               231,221
Dividends in excess of accumulated earnings                                           (151,362)             (147,757)
                                                                                    ----------            ----------
                                                                                        78,636                83,515
                                                                                    ----------            ----------
       Total Liabilities and Stockholders' Equity                                   $  158,226            $  119,161
                                                                                    ==========            ==========
</TABLE>


                 See Notes to Consolidated Financial Statements.

                                     F - 3
<PAGE>



                  ASSET INVESTORS CORPORATION AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

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

                                                                             Year Ended December 31,
                                                                  -------------------------------------------
                                                                    1998             1997             1996
                                                                  ---------        ---------        ---------
RENTAL PROPERTY OPERATIONS
<S>                                                               <C>              <C>              <C>
Rental and other property revenues                                $  10,479        $   3,104        $      --
Interest on participating mortgages                                   3,174               --               --
Equity in earnings of real estate joint ventures                         --              466               --
Property operating expenses                                          (4,039)          (1,398)              --
Depreciation                                                         (2,685)            (693)              --
                                                                  ---------        ---------        ---------
Income from rental property operations                                6,929            1,479               --
                                                                  ---------        ---------        ---------

SERVICE OPERATIONS
Property management income, net                                         156               69               --
Commercial Assets management fees                                       155               --               --
Amortization of management contracts                                 (2,894)            (744)              --
                                                                  ---------        ---------        ---------
Loss from service operations                                         (2,583)            (675)              --
                                                                  ---------        ---------        ---------

Non-agency MBS bonds revenues                                            50            2,966           11,513
Equity in earnings of Commercial Assets                                 975            3,663            1,875
Management fees to former manager                                        --             (570)          (1,793)
General and administrative expenses                                  (1,393)          (1,042)          (1,145)
Interest and other income                                               871            1,808              136
Interest expense                                                     (2,485)            (368)             (88)
Costs incurred to acquire management contract                        (2,092)          (6,553)              --
Elimination of DERs                                                      --               --             (825)
Gain on sale of bonds                                                    --            6,484               --
                                                                  ---------        ---------        ---------

INCOME BEFORE MINORITY INTEREST                                         272            7,192            9,673
Minority interest in Operating Partnership                              (60)              62               --
                                                                  ---------        ---------        ---------

NET INCOME                                                        $     212        $   7,254        $   9,673
                                                                  =========        =========        =========

BASIC EARNINGS PER SHARE                                          $    0.04        $    1.44        $    1.97
                                                                  =========        =========        =========
DILUTED EARNINGS PER SHARE                                        $    0.04        $    1.43        $    1.95
                                                                  =========        =========        =========

DIVIDENDS DECLARED PER SHARE                                      $    0.75        $    1.45        $    1.85
                                                                  =========        =========        =========

Weighted-Average Common Shares Outstanding                            5,094            5,022            4,919
Weighted-Average Common Shares and Common Share Equivalents
  Outstanding                                                         5,113            5,061            4,966

</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, 1998, 1997 AND 1996

                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                           Dividends In    Accumulated
                                                          Common Stock        Additional    Excess of         Other         Total
                                                 --------------------------     Paid-In    Accumulated   Comprehensive Stockholders'
                                                 Shares (a)     Amount (a)   Capital (a)     Earnings         Income        Equity
                                                 ----------    -----------   -----------     --------         ------        ------

<S>                                                 <C>         <C>          <C>           <C>                <C>          <C>
BALANCES - DECEMBER 31, 1995                        4,919       $  49        $  227,741    $  (148,274)       $  (757)     $ 78,759

   Comprehensive Income
      Net income                                       --          --                --          9,673             --         9,673
      Unrealized appreciation of CMBS bonds
        and non-agency MBS bonds                       --          --                --             --          5,850         5,850
                                                   ------       -----        ----------    -----------        -------      --------
           Comprehensive Income                        --          --                --          9,673          5,850        15,523
                                                   ------       -----        ----------    -----------        -------      --------
   Issuance of Common Stock                            97           1             1,210             --             --         1,211
   Dividends                                           --          --                --         (9,128)            --        (9,128)
                                                   ------       -----        ----------    -----------        -------      --------
BALANCES - DECEMBER 31, 1996                        5,016          50           228,955       (147,729)         5,093        86,365

   Comprehensive Income
      Net income                                       --          --                --          7,254             --         7,254
      Reversal of unrealized holding gains upon
        restructuring of bonds                         --          --                --             --         (5,093)       (5,093)
                                                   ------       -----        ----------    -----------        -------      --------
           Comprehensive Income                        --          --                --          7,254         (5,093)        2,161
                                                   ------       -----        ----------    -----------        -------      --------
   Issuance of Common Stock                            92           1             2,270             --             --         2,271
   Dividends                                           --          --                --         (7,282)            --        (7,282)
                                                   ------       -----        ----------    -----------        -------      --------
BALANCES - DECEMBER 31, 1997                        5,108          51           231,221       (147,757)            --        83,515
   Issuance of Common Stock                            29          --               434             --             --           434
   Repurchase of Common Stock                        (121)         (1)           (1,707)            --             --        (1,708)
   Net income                                          --          --                --            212             --           212
   Dividends                                           --          --                --         (3,817)            --        (3,817)
                                                   ------       -----        ----------    -----------        -------      --------
BALANCES - DECEMBER 31, 1998                        5,016       $  50        $  229,948    $  (151,362)       $    --      $ 78,636
                                                   ======       =====        ==========    ===========        =======      ========
<FN>
(a)      Amounts  have been  restated to reflect the impact of the  one-for-five
         reverse stock split,  which was approved by the Company's  stockholders
         in November 1997.
</FN>
</TABLE>

                 See Notes to Consolidated Financial Statements.

                                     F - 5
<PAGE>

<TABLE>
<CAPTION>

                  ASSET INVESTORS CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)

                                                                                  Year Ended December 31,
                                                                         -----------------------------------------
                                                                            1998            1997           1996
                                                                         ---------       ---------      ----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                     <C>             <C>             <C>
   Net income                                                           $     212       $   7,254       $   9,673
   Adjustments to reconcile net income to net cash flows from
     operating activities:
     Depreciation and amortization                                          5,962           1,437              --
     Minority interest in Operating Partnership                                60             (62)             --
     Equity in earnings of Commercial Assets                                 (917)         (3,663)         (1,875)
     Costs incurred to acquire management contract                          2,073           6,105              --
     Accrued interest on participating mortgages                             (566)             --              --
     Amortization of non-agency MBS bonds                                      --             469           2,998
     Equity in earnings of real estate joint ventures                          --            (466)             --
     Elimination of dividend equivalent rights                                 --              --             825
     Increase in other assets                                                 (83)           (647)           (148)
     Increase (decrease) in accounts payable and accrued liabilities          100             (12)            197
     Gain on sale of assets                                                    --          (6,484)             --
                                                                          -------         -------         -------
       Net cash provided by operating activities                            6,841           3,931          11,670
                                                                          -------         -------         -------
CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of real estate                                                (57,832)        (31,502)             --
   Investments in participating mortgages, net                             (1,611)             --              --
   Investments in and advances to real estate joint ventures                   --         (14,842)             --
   Capital replacements                                                      (531)            (55)             --
   Dividends from Commercial Assets                                         1,077           3,065           1,988
   Acquisition of non-agency MBS bonds                                         --              --         (15,893)
   Principal collections and indemnifications on non-agency
     MBS bonds                                                                 --             547           3,151
   Distributions from real estate joint ventures                               --             459              --
   Proceeds from the restructuring of assets                                   --          69,807              --
                                                                        ---------       ---------       ---------
     Net cash provided by (used in) investing activities                  (58,897)         27,479         (10,754)
                                                                        ---------       ---------       ---------
CASH FLOWS FROM FINANCING ACTIVITIES
   Payment of Common Stock dividends                                       (3,817)         (7,282)         (9,128)
   Payment of distributions to minority interest in Operating
     Partnership                                                           (1,099)           (467)             --
   Proceeds (paydowns) from secured short-term financing                   10,500          (3,000)          3,000
   Proceeds from secured notes payable borrowings                          30,280              --              --
   Payment of loan costs, including costs from interest rate hedges        (2,060)             --              --
   Principal paydown on secured long-term notes payable                      (451)           (196)             --
   Repurchase of Common Stock                                              (1,708)             --              --
   Proceeds from the issuance of Common Stock                                  35             920             301
                                                                       ----------      ----------      ----------
     Net cash provided by (used in) financing activities                   31,680         (10,025)         (5,827)
                                                                       ----------      ----------      ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR                               $    1,426      $   21,802      $      417
                                                                       ==========      ==========      ==========
</TABLE>

                 See Notes to Consolidated Financial Statements.

                                     F - 6
<PAGE>

                  ASSET INVESTORS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.       The Company

Asset Investors  Corporation  ("AIC" and,  together with its  subsidiaries,  the
"Company") is a Maryland  corporation that owns and operates  manufactured  home
communities  and has  elected  to be taxed  as a real  estate  investment  trust
("REIT").  AIC's Common Stock,  par value $.01 per share  ("Common  Stock"),  is
listed on the New York Stock  Exchange  under the symbol "AIC." In May 1997, AIC
contributed its net assets to Asset Investors Operating  Partnership,  L.P. (the
"Operating  Partnership")  in exchange for the sole general partner  interest in
the Operating  Partnership and substantially all of the Operating  Partnership's
initial  capital.  AIC owns 76% of the Operating  Partnership as of December 31,
1998. The Company also owns 27% of the Common Stock of Commercial  Assets,  Inc.
("CAX")  and  the  non-voting  stock  of both  AIC  Manufactured  Housing  Corp.
("AICMHC") and Asset Investors Equity,  Inc.  ("AIE").  CAX is a publicly-traded
REIT (American Stock Exchange,  Inc.: CAX) formed by the Company in August 1993.
AICMHC owns interests in manufactured  home community  management  contracts and
AIE manages CAX.

Prior to 1997,  the Company owned debt  interests in  residential  mortgage loan
securitizations   collateralized   by   pools  of   non-conforming   (non-agency
guaranteed)  single-family  mortgage loans ("non-agency MBS bonds"). In February
1997, the Company decided to resecuritize  the Company's asset base and redeploy
its assets in an attempt to both  reduce  risks  associated  with the  Company's
non-agency  MBS  bonds  and  maximize   long-term,   risk-adjusted   returns  to
stockholders.  In March  1997,  under the first step of such plan,  the  Company
transferred  its  portfolio  of  non-agency  MBS bonds into an owner  trust in a
structured  transaction in which the Company received  $67,671,000 cash proceeds
and retained a small residual interest.  Subsequently,  the Company has acquired
interests in 23 manufactured home communities and two recreational vehicle parks
with 4,640 developed homesites, 890 sites ready for homes, 1,960 sites available
for future development and 180 recreational vehicle sites.

Prior to November  1997,  the Company and CAX were  managed by  Financial  Asset
Management  LLC ("FAM").  An investor  group led by Terry  Considine,  Thomas L.
Rhodes and Bruce D. Benson acquired FAM in September 1996. Mr.  Considine is the
Chairman and Chief Executive  Officer of both the Company and CAX. Mr. Rhodes is
Vice  Chairman  and Mr.  Benson is a director  of both the  Company  and CAX. In
November 1997, the Company's stockholders approved the acquisition of the assets
and  operations of FAM in order to become a self-managed  and  self-administered
REIT.  The  $11,692,000  purchase  price  was paid by  issuing  676,700  limited
partnership  units of the Operating  Partnership ("OP Units") plus up to 240,000
additional OP Units if certain performance goals, including investment and share
price  targets,  are  achieved by the Company  within a specified  time  period.
During  the  third  quarter  of 1998,  the  Company  achieved  the  first set of
performance goals by realizing  annualized returns before depreciation in excess
of 9% on its real estate  investments for a period of six months. As a result of
achieving  these  goals,  the Company  issued  120,000 OP Units and  recorded an
additional cost of acquiring the management contract of $2,092,000.  This amount
was  expensed  in  1998.  The  issuance  of the  remaining  120,000  OP Units is
contingent upon the Company having a 90-day average per share price in excess of
$20.00 by June 1999.

                                     F - 7
<PAGE>

B.       Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated  financial  statements include the accounts of the Company, the
Operating Partnership and all majority owned subsidiaries. The minority interest
in the Operating Partnership represents the OP Units which are redeemable at the
option of the  holder.  When a holder  elects to  redeem OP Units,  the  Company
determines  whether  such OP Units will be redeemed for cash or shares of Common
Stock.  The  holders  of OP  Units  receive  the  same  amount  per OP  Unit  in
distributions  as the  holders  of Common  Stock  receive  in  dividends.  As of
December  31,  1998,  1,545,000  OP  Units  were  outstanding.  All  significant
intercompany  balances and transactions  have been eliminated in  consolidation.
The Company's investment in CAX is recorded under the equity method.

Rental Properties and Depreciation

Rental  properties are recorded at cost less  accumulated  depreciation,  unless
considered  impaired.  If events or  circumstances  indicate  that the  carrying
amount of a property may be impaired, the Company will make an assessment of its
recoverability  by  estimating  the future  undiscounted  cash flows,  excluding
interest charges, of the property.  If the carrying amount exceeds the aggregate
future cash flows,  the Company would recognize an impairment loss to the extent
the carrying  amount exceeds the fair value of the property.  As of December 31,
1998,  management  believes that no impairments exist based on periodic reviews.
No impairment losses were recognized for the years ended December 31, 1998, 1997
and 1996.

Depreciation is computed using the straight line method over an estimated useful
life of 25  years  for land  improvements  and  buildings  and  five  years  for
furniture and other equipment.  Significant renovations and improvements,  which
improve or extend the useful life of the asset,  are capitalized and depreciated
over the remaining  estimated life. In addition,  the Company capitalizes direct
and indirect  costs  (including  interest,  taxes and other costs) in connection
with the  development  of  additional  homesites  within its  manufactured  home
communities.  Maintenance,  repairs  and  minor  improvements  are  expensed  as
incurred.

Investments in Participating Mortgages

The Company has loans  secured by real estate which provide for an interest rate
return plus up to 50% of net  profits,  cash flows and sales  proceeds  from the
secured real estate.  The Company  accounts for these  investments as loans when
(a) the Company  does not have an interest  in the  borrower  and either (b) the
borrower has a substantial  equity  investment in the real estate  collateral or
(c) the  Company  has  recourse  to other  substantial  tangible  assets  of the
borrower.  As  such,  the  Company  records  interest  income  based on the rate
provided  for in the loan and records its share of any net profits or gains from
the sale of the underlying real estate when realized.  If the above requirements
are not met,  then the loan is  accounted  for as an equity  investment  in real
estate under the equity method of accounting.

Amortization

Included in other assets is the cost related to the  acquisition  of  management
contracts, which is being amortized over a period of three years.

                                     F - 8
<PAGE>

Revenue Recognition

The Company derives its income from the rental of homesites.  The leases entered
into by residents  for the rental of the site are generally for terms not longer
than one year and the rental revenues  associated with the leases are recognized
when earned and due from residents.  Property  management  revenues for services
provided to communities not owned by the Company are recognized when earned.

Interest on participating  mortgages is recorded based upon outstanding balances
and interest  rates per the terms of the  mortgages.  In  addition,  the Company
evaluates the  collectibility  of any unpaid  interest and provides  reserves as
necessary.  As of December 31, 1998, there is a $149,000 reserve for uncollected
interest on the participating mortgages.

Deferred Financing Costs

Fees and costs incurred in obtaining  financing are capitalized.  Such costs are
amortized  over the terms of the  related  loan  agreements  and are  charged to
interest expense.

Interest Rate Lock Agreements

Interest  rate lock  agreements  related to planned  refinancings  of identified
variable rate  indebtedness are accounted for as anticipatory  hedges.  Upon the
refinancing  of  such  indebtedness,  any  gain  or  loss  associated  with  the
termination of the interest rate lock agreement is deferred and recognized  over
the life of the refinanced indebtedness.

Income Taxes

AIC has elected to be taxed as a REIT as defined under the Internal Revenue Code
of 1986,  as amended  (the  "Code").  In order for AIC to qualify as a REIT,  at
least  95% of its  gross  income in any year  must be  derived  from  qualifying
sources. The activities of AICMHC and AIE are not qualifying sources.

As a REIT,  AIC  generally  will not be subject to federal  income  taxes at the
corporate level if it distributes at least 95% of its REIT taxable income to its
stockholders.  REITs are also  subject to a number of other  organizational  and
operational requirements. If AIC fails to qualify as a REIT in any taxable year,
its taxable  income will be subject to federal  income tax at regular  corporate
rates (including any applicable  alternative minimum tax). Even if AIC qualifies
as a REIT,  it may be  subject to certain  state and local  income  taxes and to
federal income and excise taxes on its undistributed income.

At  December  31,  1998,   AIC's  net  operating  loss  ("NOL")   carryover  was
approximately  $95,000,000  and its capital  loss  carryover  was  approximately
$20,000,000.  The NOL  carryover may be used to offset all or a portion of AIC's
REIT income,  and as a result,  to reduce the amount that AIC must distribute to
stockholders to maintain its status as a REIT. The NOL carryover is scheduled to
expire  between 2007 and 2009,  and the capital  loss  carryover is scheduled to
expire in 2000 and 2001.

Earnings Per Share

Basic  earnings  per  share  for  1998,   1997  and  1996  are  based  upon  the
weighted-average  number of shares of Common Stock outstanding  during each such
year.  Diluted  earnings per share  reflect the effect of dilutive,  unexercised
stock  options  of  19,000,   39,000  and  86,000  for  1998,   1997  and  1996,
respectively.   In  November  1997,  the  Company's   stockholders   approved  a


                                     F - 9
<PAGE>

one-for-five  reverse split of the Common  Stock.  Accordingly,  all  historical
weighted-average  share and per share  amounts have been restated to reflect the
reverse stock split.

Statements of Cash Flows

For purposes of reporting cash flows,  cash  maintained in bank accounts,  money
market funds and  highly-liquid  investments  with an initial  maturity of three
months or less are considered to be cash and cash equivalents.  The Company made
interest  payments  of  $1,975,000,  $349,000  and  $72,000  for the years ended
December 31, 1998, 1997 and 1996, respectively.

Non-cash  investing and  financing  activities  for 1998,  1997 and 1996 were as
follows (in thousands):

<TABLE>

                                                                         1998               1997             1996
                                                                       ---------         ---------        ---------
Issuance of OP Units for:

<S>                                                                    <C>               <C>              <C>
     Real estate acquisitions                                          $  2,145          $  10,922        $     --
     Acquisition of former manager                                        2,073             11,692              --
     Participating mortgages                                                 17                 --              --
Issuance of Common Stock for:
     Real estate acquisitions                                                --              1,250              --
     Services                                                               120                101              --
     Notes receivable                                                       279                 --              --
     Elimination of dividend equivalent rights                               --                 --             825
     Dividend equivalent rights                                              --                 --              87
Assumption of secured notes payable as consideration for real
  estate acquisitions                                                        --             10,873              --
Real estate acquired under earn-out agreements                               52                 --              --
Unrealized holding gains and losses on debt securities                       --              5,093           5,850
Receivables from minority interest in subsidiaries                          337                 --              --
Restructure of investments in and notes receivable from real
  estate joint ventures into participating mortgages                     25,415                 --              --

</TABLE>

Use of Estimates

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

Reclassifications

Certain  reclassifications  have  been  made in the 1997  and 1996  consolidated
financial statements to conform to the classifications used in the current year.
Such  reclassifications  have no material effect on the operations as originally
presented.


                                     F - 10
<PAGE>



Non-agency MBS Bonds

The Company's  non-agency  MBS bonds were acquired at a significant  discount to
par  value.  The  amortized  cost of the  non-agency  MBS bonds was equal to the
outstanding  principal  amount net of  unamortized  discount and  allowances for
credit losses. Earnings from non-agency MBS bonds were 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 Company classified its
non-agency  MBS  bonds  as  available-for-sale,  carried  at fair  value  in the
financial statements.  Unrealized holding gains on available-for-sale securities
were excluded from earnings and reported as a net amount in stockholders' equity
until realized.

C.       Investments in Manufactured Home Communities

During 1998,  the Company  acquired seven  manufactured  home  communities  with
approximately  1,730  developed  sites,  60 sites  ready for homes and 170 sites
available  for  development.  Total  investment  was  $59,977,000  consisting of
$57,832,000 of cash and $2,145,000 of OP Units.

During 1997, the Company  acquired nine  manufactured  home  communities and one
recreational  vehicle  park with  approximately  1,800  developed  sites and 100
recreational  vehicle sites. Total  consideration paid for these communities and
related  manufactured  home  community  management  contracts  was  $43,974,000,
consisting of  $20,929,000  of cash,  $10,922,000  of OP Units,  $10,873,000  of
assumed debt, and $1,250,000 of Common Stock.  These investments are recorded as
real  estate.  In  addition,  the  Company  made  $25,415,000  of  participating
mortgages  secured by eight  manufactured  home communities and one recreational
vehicle park with approximately 1,000 developed sites, 300 recreational  vehicle
sites,  800  sites  ready  for  homes  and  1,800  sites  available  for  future
development. These investments are recorded as participating mortgages.

The following  unaudited  pro-forma  information has been prepared  assuming the
resecuritization  of the non-agency MBS bonds,  the acquisition of the interests
in manufactured  home communities and management  contracts,  the acquisition of
the  former  manager  and CAX's  restructuring  of its bond  portfolio  had been
completed at the beginning of the periods  presented.  The  unaudited  pro-forma
information is presented for informational  purposes only and is not necessarily
indicative  of  what  would  have  occurred  if  the   restructurings   and  the
acquisitions  had been completed as of those dates.  In addition,  the pro-forma
information is not intended to be a projection of future results. The unaudited,
pro-forma  results of operations  for the years ended December 31, 1998 and 1997
are as follows (in thousands, except per share data):

<TABLE>
<CAPTION>

                                                                                       1998                  1997
                                                                                   ----------            ----------
Revenues                                                                           $   18,455            $   18,555
                                                                                   ==========            ==========

<S>                                                                                <C>                   <C>
Loss before gain on restructuring of bonds and minority interest                   $     (223)           $   (5,312)
Gain on restructuring of bonds                                                             --                 8,855
Minority interest in Operating Partnership                                                 49                  (779)
                                                                                   ----------            ----------
Net income (loss)                                                                  $     (174)           $    2,764
                                                                                   ==========            ==========

Basic earnings per share                                                           $     (.03)           $      .56
                                                                                   ==========            ==========

Diluted earnings per share                                                         $     (.03)           $      .55
                                                                                   ==========            ==========
</TABLE>

                                     F - 11
<PAGE>

The Company is actively seeking to acquire additional  communities and currently
is engaged in negotiations  relating to the possible  acquisition of a number of
communities.   At  any  time,  these  negotiations  are  at  various  stages  of
completion,   which  may  include  outstanding   contracts  to  acquire  certain
manufactured  home  communities,  subject  to  satisfactory  completion  of  the
Company's due diligence review.

D.       Real Estate

Real estate at December 31, 1998 and 1997 is as follows (in thousands):

                                                  1998             1997
                                                ---------        ------
Land                                            $ 11,226         $  5,286
Land improvements and buildings                   90,268           35,689
Furniture and other equipment                        447              444
                                                --------         --------
                                                 101,941           41,419
Less accumulated depreciation                     (3,378)            (693)
                                                --------         --------
Investment in real estate, net                  $ 98,563         $ 40,726
                                                ========         ========

Land  improvements and buildings  consist  primarily of  infrastructure,  roads,
landscaping, clubhouses, maintenance buildings and common amenities.

E.       Investments in Participating Mortgages

As of December  31,  1997,  the Company had  non-recourse  notes  receivable  of
$15,872,000  from joint  ventures in which the Company owned a 50% joint venture
interest.  Effective  January 1, 1998,  the  Company  sold its  interest  in the
various joint ventures to the other venturer and  consolidated the various notes
into a single note secured by a number of  manufactured  home  communities.  The
note  bears 10%  interest,  matures  in 20 years  and  provides  for  additional
advances up to a maximum of  $20,000,000.  In  addition,  the  Company  receives
additional interest up to 50% of the borrower's profit from such communities.

The following  table presents  unaudited  summary  financial  information of the
borrower with respect to the above participating mortgage as of and for the year
ended December 31, 1998 (in thousands):

                                                                (unaudited)
Rental and other property revenues                               $  1,783
Property operation expenses                                        (1,018)
Depreciation                                                         (419)
                                                                 --------
Income from rental property operations                                346
                                                                 --------

Net loss                                                           (1,069)

Real estate, net of accumulated depreciation                       20,421
Total assets                                                       26,921
Secured notes payable                                              26,757
Partners' deficit                                                  (1,334)
Total liabilities and partners' deficit                            26,921

                                     F - 12
<PAGE>

In  addition,  the  Company  has  non-recourse,  mortgage  loans  secured by two
contiguous  manufactured  home communities and one recreational  vehicle park in
Arizona.  The first mortgage loan bears 10% interest.  The second  mortgage loan
accrues 15% interest and paid 9% interest  through July 1998,  with the pay rate
increasing 1% annually for three years to a maximum of 12% per annum.  The third
mortgage  loan accrues 15% interest and is payable from any cash flows in excess
of the above  amounts.  These loans mature in April 2001.  The Company  receives
additional interest of 3% of gross revenues, increasing to 11% of gross revenues
in the event of a  refinancing  of the debt on the  communities,  and 50% of net
proceeds from a sale or  refinancing of the  communities.  In 1997, the mortgage
loans were  accounted  for as an equity  investment  in real  estate.  Effective
January 1, 1998,  the  Company  reclassified  the  investment  to  participating
mortgages.

As of December 31, 1998, the Company had investments in participating  mortgages
of  $27,604,000.  During 1998, the Company had earnings of $3,174,000 from these
mortgages.

F.       Investment in Commercial Assets

On December 31, 1998 and 1997, the Company owned 2,761,126 shares (approximately
27%) of the common stock of CAX. In November 1997, CAX sold or resecuritized its
entire  portfolio of commercial  mortgage loan  securitizations  of multi-family
real estate  ("CMBS  bonds") and  temporarily  invested  the  proceeds  until it
determined  which  type of real  estate  assets to invest  in.  During the third
quarter  of 1998,  CAX  announced  that it plans to  acquire  manufactured  home
communities,  and during 1998, it had invested  $23,000,000 for interests in six
communities.

Summarized financial information of CAX as reported by CAX is (in thousands):
<TABLE>
<CAPTION>

Balance Sheets                                                              December 31,
                                                               ---------------------------------
                                                                     1998                1997
                                                               ----------------    --------------
<S>                                                              <C>                  <C>
Cash and cash equivalents                                        $     3,292          $    74,153
Short-term investments                                                45,066                   --
Real estate                                                           13,908                   --
Investment in participating mortgages                                  9,328                   --
Other assets                                                           6,640                3,995
                                                                 -----------          -----------
Total assets                                                          78,234               78,148
Total liabilities                                                        980                  443
                                                                 -----------          -----------
Stockholders' equity                                             $    77,254          $    77,705
                                                                 ===========          ===========

</TABLE>




                                     F - 13
<PAGE>


<TABLE>
<CAPTION>

Statements of Income                                                        Year Ended December 31,
                                                                    ------------------------------------------
                                                                      1998              1997             1996
                                                                    -------           -------          -------
<S>                                                                <C>               <C>               <C>
Income from participating mortgages and leases                     $     537         $      --         $    --
CMBS bonds                                                               161             9,172           9,838
Interest and other income                                              3,874               945             319
General and administrative                                              (420)             (519)           (805)
Management fees                                                          (87)           (1,678)         (1,425)
Elimination of dividend equivalent rights                                 --                --            (966)
Interest expense                                                          --                --              (2)
Acquisition fees                                                        (124)               --              --
Reserve for costs related to previously considered investments          (500)               --              --
Gain on restructuring of bonds                                            --             5,786              --
                                                                   ---------         ---------         -------
Net income                                                         $   3,441         $  13,706         $ 6,959
                                                                   =========         =========         =======
</TABLE>

G.       Secured Long-Term Notes Payable

The following table  summarizes the Company's  secured  long-term notes payable,
all of which are non-recourse to the Company (in thousands):
<TABLE>
<CAPTION>

                                                                          December 31,
                                                              -------------------------------------
                                                                  1998                   1997
                                                              --------------         --------------
<S>                                                             <C>                    <C>
8.25% fixed rate notes maturing in October 2000                 $   4,519              $   4,805
7.50% fixed rate notes maturing in October 2000                     5,707                  5,872
6.50% fixed rate notes maturing in December 2018                   30,280                     --
                                                                ---------              ---------
                                                                $  40,506              $  10,677
                                                                =========              =========
</TABLE>

In 1998, the Company  entered into an interest rate lock agreement in connection
with expected debt financing.  The agreement had an aggregate  notional value of
$32,200,000,  fixed  the  interest  rate on the  expected  debt at 6.8%  and was
settled in September 1998. The Company  realized a loss on the hedge of $802,000
which was deferred and is being  amortized  over the terms of the related  notes
payable as a charge to interest expense.

Real estate  assets which secure the secured  notes payable had a net book value
of  $76,993,000 at December 31, 1998. The Company has $37,000 in escrow for real
estate taxes on the secured notes payable at December 31, 1998.

Scheduled  principal  payments  after  December  31, 1998 for the secured  notes
payable are (in thousands):

                   1999                                $   1,237
                   2000                                   10,567
                   2001                                      869
                   2002                                      927
                   2003                                      989
                   Thereafter                             25,917
                                                       ---------
                                                       $  40,506
                                                       =========

                                     F - 14
<PAGE>

H.       Secured Short-Term Financing

In September  1998, the Company  executed a $5,000,000  revolving line of credit
with a bank that bears interest at the London  Interbank  Offered Rate ("LIBOR")
plus 1.75% per annum (6.87% at December 31, 1998). The line of credit is secured
by  1,016,000  shares of the common stock of CAX held by the Company and matures
in August 2000. At December 31, 1998, $2,000,000 was outstanding.

In December 1998, the Company borrowed $8,500,000 in short-term financing from a
bank.  The  loan  is  secured  by the  Company's  $10,000,000  of  participating
mortgages  involving  two  communities  and  one  recreational  vehicle  park in
Arizona. The loan bears interest at LIBOR plus 2.5% (7.67% at December 31, 1998)
and matures in June 1999.  The Company may elect to extend the maturity to April
2001 at the same interest rate upon the payment of a 0.25% extension fee.

In  July  1998,  the  Company  borrowed  $39,000,000  of  non-recourse,  secured
short-term  financing,  which  bore  interest  at LIBOR  plus 1% per  annum.  In
connection with the financing and  extensions,  the Company paid loan fees equal
to 0.625% of the amount borrowed and incurred  $120,000 in other costs. The fees
and other costs have been included in interest  expense.  The proceeds from this
financing were used to acquire three  manufactured home communities and to repay
$7,000,000 of secured  short-term  financing  that the Company  borrowed in June
1998 in connection with the acquisition of another  manufactured home community.
The Company repaid the loan with proceeds from  long-term  secured notes payable
on its various properties and the $8,500,000 bank loan described above.

In 1996, the Company had a $10,000,000  secured  revolving  credit and term loan
agreement with a bank.  Borrowings of $3,000,000 under this credit facility were
repaid and the agreement was canceled during the first quarter of 1997.

I.       Commitments and Contingencies

In connection  with a participating  mortgage on a manufactured  home community,
the  Company  entered  into an earn-out  agreement  with  respect to  unoccupied
homesites.   The  Company  advances  an  additional   $17,000  pursuant  to  the
participating  mortgage for each newly occupied  homesite  either in the form of
cash or 946 OP Units,  as determined by the borrower.  During 1998,  the Company
advanced  $116,000 in cash and $17,000 in OP Units, and during 1997, the Company
advanced $17,000 in OP Units for newly occupied homesites.

In connection  with the  acquisition  of the assets and operations of its former
manager  in  November  1997,  the  Company  entered  in an  agreement  to  issue
additional OP Units upon the  achievement  of certain  performance  goals by the
Company.  Per the terms of the agreement,  the Company will be required to issue
an  additional  120,000 OP Units if the  Company's  average  stock price exceeds
$20.00 per share for any 90-day period prior to June 17, 1999.

At  December  31,  1998,  there were 890 sites  ready for homes and 1,960  sites
available for future development in properties which the Company has an interest
in. In connection with efforts to lease such sites, a sales corporation  markets
an inventory of homes located in the various  properties  to potential  tenants.
The Company's President owns 50% of the sales corporation. A portion of the cost
of this home  inventory  was  financed by the sales  corporation  with a line of
credit  guaranteed  by the  Company.  As of December 31,  1998,  $3,677,000  was
outstanding  under the line of credit.  The terms of the line of credit  require


                                     F - 15
<PAGE>

monthly  payments  of  interest  and  payment  of  principal  upon  sale  of the
inventory.  If the  inventory is not sold within one year,  monthly  payments of
principal are also required.

J.       Operating Segments

Investments in adult communities  constitute  substantially all of the Company's
portfolio of  manufactured  home  communities,  and as such,  management  of the
Company assesses the performance of the Company as one operating segment.

K.       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.

   o   Cash and cash equivalents,  accounts payable and accrued liabilities, and
       secured  short-term  financing - the carrying  amounts  approximate  fair
       value because of the short maturity of these instruments.

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

   o   Secured  long-term  notes payable - based upon borrowing  rates currently
       available to the Company,  the carrying  value of mortgage  notes payable
       approximates their fair value.

The  carrying  values  and fair  values of the  Company's  investment  in CAX at
December 31, 1998 and 1997, are as follows (in thousands):
<TABLE>
<CAPTION>

                                                           1998                                  1997
                                            ---------------------------------     -------------------------------
                                              Carrying Value       Fair Value      Carrying Value      Fair Value

<S>                                             <C>                 <C>               <C>                <C>
Investment in CAX                               $ 20,706            $ 16,739          $ 20,866           $ 18,465
                                                ========            ========          ========           ========
</TABLE>

L.       Common Stock and Dividends

During the third quarter of 1998, the Board of Directors  authorized the Company
to  repurchase  up to 800,000  shares of its Common Stock in the open market and
through privately negotiated transactions. The shares may be purchased from time
to time as market conditions warrant.  Through December 31, 1998, 121,250 shares
were repurchased at a cost of $1,708,000 ($14.09 per share).

In November 1997,  the Company's  stockholders  approved a one-for-five  reverse
split of the  Company's  Common  Stock.  The par value  per share and  number of
authorized  shares were not changed as a result of the reverse  stock split.  In
connection  with the  split,  $202,000  was  transferred  from  Common  Stock to
additional  paid-in  capital.  All  outstanding  OP Units and options  were also
adjusted to reflect the one-for-five reverse stock split.

During 1998, 1997 and 1996, the Company declared dividends totaling  $3,817,000,
$7,282,000  and  $9,128,000,  respectively.  In  addition,  holders  of OP Units
received  distributions  totaling  $1,099,000  and $467,000  from the  Operating


                                     F - 16
<PAGE>

Partnership during 1998 and 1997,  respectively.  The Operating  Partnership did
not exist in 1996.  During  1998 and  1997,  80% and 75%,  respectively,  of the
dividends distributed constituted return of capital distributions. There were no
return of capital distributions in 1996.

The Company's  Certificate  of  Incorporation  permits the Board of Directors to
issue additional classes of stock without further  stockholder  approval.  As of
December  31,  1998,  the Company has not issued any classes of stock other than
Common Stock.

M.       Non-agency MBS Bonds

In March 1997, the Company  resecuritized its portfolio of retained interests in
prior  securitizations  that  are  in  the  form  of  non-agency  MBS  bonds  by
transferring  them to a trust in which it retained  the  residual  interest  and
having the trust sell nonrecourse debt securities  representing senior interests
in the trust's  assets.  The Company  realized net proceeds of  $67,671,000  and
recorded a net gain of $5,287,000 from the sale. The Company's retained residual
interest in the trust  represents  the first-loss  class of the  portfolio,  and
accordingly,  no carrying  value was assigned to it because it was not practical
to estimate its fair value given the high risk and  unpredictable  nature of the
future cash flow expected to be attributed to the retained  residual  interests.
During  1997,  the Company  recognized  $2,966,000  of interest  income from the
non-agency MBS bonds of which $966,000 was from the retained residual  interest.
The Company  recorded  revenues of $50,000 from the retained  residual  interest
during 1998. As of December 31, 1998 and 1997,  the Company did not believe that
it would receive any incremental,  material cash flows. Given that circumstance,
the Company estimated the fair value of its retained residual  interests at zero
at those  subsequent  reporting  dates.  Consistent  with those  estimates,  the
Company has not received any material cash flows from the resecuritized  assets.
The trustee  notified the Company that its retained  residual  interest had been
eliminated  because of the extent of allocated realized losses on the underlying
assets  of the  trust (the non-agency  MBS bonds). Therefore,  the  value of the
retained residual interest was determined to be zero.

N.       Stock Option Plan

The Company has a Stock Incentive Plan (the "Stock Plan") for the issuance of up
to 3,000,000  qualified  and  non-qualified  stock  options and shares of Common
Stock to its directors,  officers,  employees and consultants.  As of January 1,
1999 and 1998, 833,000 and 152,000,  respectively,  related to outstanding stock
options.  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.  Stock
options  granted  through  December 31, 1997 have 5-year terms and stock options
granted  during 1998 have  10-year  terms.  All  outstanding  stock  options are
non-qualified stock options.

Prior to May 1996,  stock  options  granted  under the Stock Plan  automatically
accrued dividend equivalent rights ("DERs").  DERs were paid in shares of Common
Stock (or in other property that  constituted  the dividend) at the time of each
dividend distribution.  During 1996, the Company incurred $87,000 of general and
administrative  expenses from DERs  covering  5,000 shares of Common Stock which
were subject to issuance  pursuant to options  granted  under the Stock Plan. In
May 1996,  the  Company's  stockholders  approved an amendment to the Stock Plan
that  allowed  issuance of Common  Stock to the option  holders who  voluntarily
relinquished their right to receive DERs in the future. As a result, the Company
recorded a one-time  charge  against 1996 earnings of $825,000 and issued 49,000
shares of Common Stock.



                                     F - 17
<PAGE>


Presented below is a summary of the changes in stock options for the three years
ended December 31, 1998.
<TABLE>
<CAPTION>

                                                                    Weighted Average
                                                                     Exercise Price                  Shares
                                                                     --------------                  ------

<S>                  <C> <C>                                             <C>                         <C>
Outstanding-December 31, 1995                                            $  19.00                    194,000

     Granted                                                                16.32                    126,000
     Exercised                                                               7.05                    (43,000)
     Expired                                                                39.74                    (70,000)
                                                                         --------                -----------
Outstanding-December 31, 1996                                               12.86                    207,000

     Granted                                                                18.12                     21,000
     Exercised                                                              14.93                    (62,000)
     Expired                                                                16.67                    (14,000)
                                                                         --------                -----------
Outstanding-December 31, 1997                                               14.44                    152,000

     Granted                                                                19.31                    704,000
     Exercised                                                              13.85                    (23,000)
                                                                         --------                -----------
Outstanding-December 31, 1998                                            $  18.57                    833,000
                                                                         ========                ===========
</TABLE>

As of December  31,  1998,  outstanding  options  have the  following  ranges of
exercise prices and weighted average remaining lives:

<TABLE>
<CAPTION>

                                                        Ranges of Exercise Prices
                                              ---------------------------------------------------

                                              $5.95 to $8.41         $11.87         $15.62-$19.37       All Ranges
                                              --------------         ------         -------------       ----------
Outstanding stock options:
<S>                                               <C>                 <C>               <C>               <C>
    Number of options                             21,000              18,000            794,000           833,000
    Weighted average exercise price                $7.53              $11.87             $19.01            $18.57
    Weighted average remaining life             0.60 years         1.40 years          8.43 years        8.10 years
Exercisable stock options:
    Number of options                             21,000              18,000            112,000           151,000
    Weighted average exercise price                $7.53              $11.87             $16.82            $14.95
    Weighted average remaining life             0.60 years         1.40 years          4.03 years        3.20 years
</TABLE>

Options  granted  to date vest over  various  periods  up to four  years.  As of
December 31, 1998, 1997 and 1996, 151,000, 138,000 and 145,000, respectively, of
the  outstanding  options were  exercisable.  As of December 31, 1998,  1997 and
1996, the weighted  average  exercise  price of exercisable  options was $14.95,
$14.16 and $12.71, respectively.

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

Pro forma information regarding net income and earnings per share is required by
SFAS 123,  and has been  determined  as if the  Company  had  accounted  for its


                                     F - 18
<PAGE>

employee stock options under the fair value method of that  Statement.  The fair
value  for  these   options  was  estimated  at  the  date  of  grant  using  an
option-pricing model with the following weighted average assumptions:

<TABLE>
<CAPTION>

                                                                    1998               1997                1996
                                                              ---------------     --------------     ----------------
<S>                                                                 <C>                 <C>          <C>
Range of risk free interest rate                                    6.0%                6.2%           6.4% to 7.3%
Expected dividend yield                                             7.0%                9.5%               9.2%
Volatility factor of the expected market price of the
   Company's common stock                                         0.280               0.250               0.250
Weighted average expected life of options                       8.0 years           4.5 years           4.5 years

</TABLE>

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

During 1998, 1997 and 1996, the estimated weighted-average grant-date fair value
of options  granted was $2.91 per option,  $1.72 per option and $.65 per option,
respectively.  The  Company  assumed  lives of five to ten years  and  risk-free
interest  rates equal to the Five- or Ten-Year U.S.  Treasury  rates on the date
the options were granted  depending  on option term.  In addition,  the expected
stock price  volatility and dividends rates were estimated based upon historical
experience over the two years ended December 31, 1998.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options'  vesting  period.  The  Company's  pro
forma information follows (in thousands except for per share data):
<TABLE>
<CAPTION>

                                                                              1998            1997           1996
                                                                          ------------    ------------    -----------
<S>                                                                         <C>             <C>            <C>
Pro forma net income                                                        $  138          $7,219         $  9,589
Pro forma earnings per share:
    Basic                                                                   $ 0.03          $ 1.44         $   1.95
    Diluted                                                                 $ 0.03          $ 1.43         $   1.93
</TABLE>

O.       Savings Plan

In connection with the acquisition of its former manager,  the Company assumed a
401(k) defined-contribution  employee savings plan, which provides substantially
all employees the opportunity to accumulate  funds for  retirement.  The Company
may, at its discretion,  match a portion of the contributions from participating
employees.  During 1998, the Company matched $17,000 of employee  contributions.
The Company did not match any portion of employee contributions during 1997.

P.       Other Matters

Prior to November  1997,  FAM (the former  manager)  provided all  personnel and
related overhead  necessary to conduct the Company's  activities in exchange for
various  fees  provided  for in a  management  agreement  (the  "AIC  Management
Agreement").  In November 1997, the Company's stockholders approved the purchase
of FAM's assets and  operations for  $11,692,000 in connection  with the Company
becoming a self-managed and  self-administered  REIT. The initial purchase price


                                     F - 19
<PAGE>

and related costs were allocated  $6,553,000 to the AIC Management Agreement and
$5,936,000 to a management  agreement  pursuant to which the Company manages CAX
(the "CAX Management  Agreement").  The Company expensed the amount allocated to
the AIC  Management  Agreement  in 1997  and is  amortizing  the cost of the CAX
Management  Agreement  over three  years.  In addition  to the initial  purchase
price,  FAM  received  120,000  additional  OP Units in August 1998  because the
Company had annualized returns before depreciation in excess of 9% on certain of
its real estate  investments.  These OP Units were valued at $2,073,000  and are
expensed in 1998.

The CAX Management Agreement has been extended through December 31, 1999. During
1998,  the Company earned  management  fees of $155,000 under the CAX Management
Agreement  (net of  elimination  for the  Company's 27% ownership of CAX). As of
December 31, 1998 and 1997, the net book value of the CAX  Management  Agreement
was $3,743,000 and $5,722,000, respectively, and is included in other assets.

Through March 31, 1997,  the manager  received a "Base Fee," an "Incentive  Fee"
and an  "Administrative  Fee." The Base Fee was an annual fee equal to 3/8 of 1%
of the "average invested assets" of the Company for such year. The Incentive Fee
was equal to 20% of the amount of the  Company's  net income which was in excess
of the return on the Company's  "average net worth" equal to the "Ten-Year  U.S.
Treasury  rate" plus 1%. The  manager  received an  Administrative  Fee of up to
$3,500 per annum per  non-agency  MBS bond for certain bond  administration  and
other related  services.  In connection with the change in the Company's assets,
the AIC  Management  Agreement  was amended in April 1997,  to: (i) increase the
Base  Fee to 1% per  annum of  average  invested  assets;  (ii)  provide  for an
acquisition fee (the "Acquisition Fee") equal to 0.5% of the cost of real estate
investments  acquired;  and (iii) change the Incentive Fee to be calculated from
Funds From Operations ("FFO"), less an annual capital replacements reserve of at
least $50 per developed  homesite,  rather than net income.  In general,  FFO is
equal to the Company's net income plus (a)  depreciation  of rental  properties,
(b)  amortization  of  management  contracts,  and (c) minority  interest in the
Operating  Partnership.  The Administrative Fee was effectively  eliminated as a
result of the resecuritization of the Company's non-agency MBS bonds.

During 1997 and 1996,  the Company  incurred  the  following  fees under the AIC
Management Agreement (in thousands):

                                                       1997           1996
                                                   ------------    -----------
                  Base Fees                          $  272           $  230
                  Incentive Fees                         37              831
                  Administrative Fees                   261              732
                  Acquisition Fees                      322               --
                                                     ------           ------
                     Total                           $  892           $1,793
                                                     ======           ======

The Company  incurred  $1,771,000 of additional  Incentive Fees during 1997 from
its gain on the restructuring of its bonds plus an additional fee of $600,000 in
exchange for the Manager  agreeing to continue as a loss  mitigation  advisor on
the non-agency MBS bonds. Such fees were charged against the Company's gain from
such restructuring.



                                     F - 20
<PAGE>



Q.       Selected Quarterly Financial Data (Unaudited)

Presented below is selected quarterly financial data for 1998 and 1997. All data
has been  adjusted  for the  Company's  one-for-five  reverse  stock  split  (in
thousands, except per share data).

<TABLE>
<CAPTION>

                                                                    Three Months Ended
                                        ----------------------------------------------------------------------------
1998                                      December 31,       September 30,           June 30,          March 31,
--------------------------------------- ------------------ ------------------ ------------------ -------------------
<S>                                          <C>                 <C>                <C>                <C>
Revenues                                     $    4,840          $   4,436          $   3,419          $   3,255
Income from rental property operations            2,023              1,995              1,570              1,341
Net income (loss)                                   408             (1,368)               627                545
Basic earnings (loss) per share                    0.08              (0.27)              0.12               0.11
Diluted earnings (loss) per share                  0.08              (0.27)              0.12               0.11
Dividends per share                                0.25               0.25               0.25                 --
Closing stock prices 1
   High                                        14-15/16            17-5/16            19-5/16             20-7/8
   Low                                           12-1/8            13-5/16             15-7/8                 16
Weighted-average common shares outstanding        5,030              5,123              5,115              5,109
Weighted-average common shares and
   common shares equivalents outstanding          5,041              5,123              4,142              5,143

                                                                    Three Months Ended
                                        ----------------------------------------------------------------------------
1997                                      December 31,       September 30,           June 30,          March 31,
--------------------------------------- ------------------ ------------------ ------------------ -------------------

Revenues                                     $    4,431          $   2,868          $   2,320          $   2,516
Income from rental property operations              793                489                197                 --
Gain on restructuring of bonds                    1,197                 --                 --              5,287
Net income (loss)                                (3,249)             1,665              1,674              7,164
Basic earnings per share                           (.65)               .33                .32               1.44
Diluted earnings per share                         (.65)               .33                .32               1.43
Dividends per share                                .350              .325                .300               .475
Closing stock prices (1)
   High                                          22-1/2             21-7/8             18-1/8             21-1/4
   Low                                               17             16-7/8             16-1/4             16-1/4
Weighted-average common shares outstanding        5,057              5,048              5,012              4,968
Weighted-average common shares and
   common shares equivalents
   outstanding                                    5,057              5,093              5,035              5,003
------------------------
<FN>
(1)  As reported on the NYSE Composite Tape.
</FN>
</TABLE>




                                     F - 21
<PAGE>



                           ASSET INVESTORS CORPORATION

                                  SCHEDULE III

                    Real Estate and Accumulated Depreciation

                                December 31, 1998

                         (In Thousands Except Site Data)

<TABLE>
<CAPTION>

                                                                                                     December 31, 1998
                                                                                    ------------------------------------------------
                                                                           Cost                                     Total
                                                                         Capital-                                    Cost
                                                           Initial Cost    ized        Total Cost                   Net of
                                                        ---------------- Subsequ- ----------------------  Accumu-  Accumu-
                                                 Number       Buildings    uent         Buildings          lated    lated
                 Date                     Year     of           and         to             and            Depreci- Depreci- Encum-
 Property Name Acquired  Location      Developed Sites Land Improvements Acquis. Land Improvements Total   ation    ation  brances
 -----------------------------------------------------------------------------------------------------------------------------------
<S>             <C>  <C>              <C>        <C>   <C>   <C>        <C>     <C>     <C>      <C>       <C>    <C>      <C>
Brentwood West  1998 Mesa, AZ         1972/1987  350  $1,050 $ 12,768   $    3  $1,050  $12,771  $13,821   $  301 $13,520  $  6,930
Caribbean Cove  1998 Orlando, FL         1984    286     858    7,952       38     858    7,990    8,848      149   8,699        --
Cardinal Court  1997 Largo, FL        1959/1965  138     414    1,829       --     414    1,829    2,243      132   2,111        --
Forest View     1997 Homosassa, FL    1987/1997  180     927    1,950       78     927    2,028    2,955      142   2,813        --
Gulfstream      1998 Orlando, FL      1980/1988  861   2,664   20,976      158   2,664   21,134   23,798      382  23,416    18,450
Marina Dunes    1997 Marina, CA          1979     65     195    3,572       11     195    3,583    3,778      165   3,613        --
Mullica Woods   1998 Egg Harbor  City,   1985     90     270    3,399       18     270    3,417    3,687      115   3,572        --
Park Royale     1997 Pinellas Park, FL   1971    258     927    5,221       --     927    5,221    6,148      354   5,794     2,210
Pinewood        1997 St.   Petersburg,   1976    220     660    4,534       --     660    4,534    5,194      213   4,981     2,695
Pleasant Living 1997 Riverview, FL       1979    245     726    5,079      133     726    5,212    5,938      241   5,697     3,013
Salem Farm      1998 Bensalem, PA        1988     28      84    1,307       --      84    1,307    1,391       44   1,347        --
Serendipity     1998 Ft. Myers, FL    1971/1974  338   1,014    7,635       80   1,014    7,715    8,729      179   8,550     4,900
Stonebrook      1997 Homosassa, FL    1987/1997  118     654    1,483       15     654    1,498    2,152      111   2,041        --
Sun Valley      1997 Tarpon   Springs,   1972    261     783    5,974        9     783    5,983    6,766      402   6,364     2,308
Westwind I      1997 Dunedin, FL         1970    195      --    3,226       26      --    3,252    3,252      225   3,027        --
Westwind II     1997 Dunedin, FL         1972    189      --    3,210       31      --    3,241    3,241      223   3,018        --
                                               --------------------------------------------------------- ---------------------------
           Total                               3,822 $11,226  $90,115     $600  $11,226 $90,715 $101,941   $3,378 $98,563   $40,506
                                               =====================================================================================

</TABLE>


                                     F - 22
<PAGE>

                           ASSET INVESTORS CORPORATION
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                For the Years Ended December 31, 1998, 1997, 1996
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                                     Year Ended December 31,
                                                                           ------------------------------------------
                                                                             1998              1997             1996
                                                                           --------          -------          -------
Real Estate

<S>                                                                       <C>               <C>               <C>
    Balance at beginning of year                                          $   41,419        $      --         $    --
    Additions during the year:
       Real estate acquisitions                                               59,977           41,364              --
       Additions                                                                 583               55              --
       Dispositions                                                              (38)              --              --
                                                                          ----------        ---------         -------
    Balance at end of year                                                $  101,941        $  41,419         $    --
                                                                          ==========        =========         =======


Accumulated Depreciation

    Balance at beginning of year                                          $     (693)       $      --         $    --
    Additions during the year:
       Depreciation                                                           (2,685)            (693)             --
       Dispositions                                                               --               --              --
                                                                          ----------        ---------         -------
    Balance at end of year                                                $   (3,378)       $    (693)        $    --
                                                                          ==========        =========         =======
</TABLE>

See  Report of  Independent  Auditors  and  accompanying  notes to  consolidated
financial statements.



                                     F - 23
<PAGE>



                           ASSET INVESTORS CORPORATION
                                   SCHEDULE IV
                          MORTGAGE LOANS ON REAL ESTATE
                                December 31, 1998
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                                                           Principle
                                                                                                           Amount of
                                                                                                             Loans
                                                                                                           Subject to
                                        Final      Periodic                  Face         Carrying         Delinquent
                         Interest      Maturity    Payment     Prior      Amount of       Amount of       Principal or
    Description           Rate          Date        Terms      Liens      Mortgages       Mortgages        Interest
---------------------  ------------  ----------  ----------  ---------  --------------  ---------------  ---------------
<S>                        <C>          <C>           <C>    <C>        <C>             <C>              <C>
Lost Dutchman              (1)          4/2001        (1)    $     --   $    10,261     $     10,769     $          --
CADC (2)                   10%          2/2018        (2)       5,654        16,716           16,835                --
                                                             ---------  --------------  ---------------  ---------------
                                                             $  5,654   $    26,977     $     27,604     $          --
                                                             =========  ==============  ===============  ===============
<FN>

(1)  Mortgage  is  made up of  three  loans  secured  by two  manufactured  home
     communities  and one  recreational  vehicle park.  The first  mortgage loan
     bears 10% interest payable currently,  the second loan accrues 15% interest
     and paid 9% interest through July 1998 with pay rate increasing 1% annually
     for three years to a maximum of 12% per annum,  and the third loan  accrues
     15% interest payable from any remaining cash flows from the properties.
(2)  The loan is secured by  Brentwood,  Blue Heron Pines,  Royal Palm,  Savanna
     Club and Sun Lake  communities  and the  undeveloped  sites in Forest View,
     Park  Royale and  Stonebrook  communities.  Interest  is paid from any cash
     flows from the properties.
</FN>
</TABLE>



                                     F - 24
<PAGE>



                           ASSET INVESTORS CORPORATION
                                   SCHEDULE IV
                          MORTGAGE LOANS ON REAL ESTATE
                                December 31, 1998
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                                     Year Ended December 31,
                                                                           ------------------------------------------
                                                                             1998              1997             1996
                                                                           --------          -------          -------

<S>                                                                       <C>               <C>               <C>
    Balance at beginning of period                                        $       --        $      --         $    --

    Additions during period:
       Investments in participating mortgages                                  5,072               --              --
       Accrued interest                                                        3,204               --              --
       Restructure of investment in and notes receivable from real
    Deductions during period:
       Collections of principal                                               (3,450)              --              --
       Collections of interest                                                (2,458)              --              --
       Amortization of loan costs                                                (30)              --              --
       Reserve for uncollected interest                                         (149)              --              --
                                                                          ----------        ---------         -------

    Balance at close of period                                            $   27,604        $      --         $    --
                                                                          ==========        =========         =======
</TABLE>






                                     F - 25
<PAGE>



                         REPORT OF INDEPENDENT AUDITORS

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

We have  audited the  accompanying  consolidated  balance  sheets of  Commercial
Assets,  Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income,  stockholders' equity and cash flows for each
of the three  years in the period  ended  December  31,  1998.  Our audits  also
included  the  consolidated   financial   statement   schedules  listed  in  the
accompanying   index.   These   financial   statements  and  schedules  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements and schedules 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
Commercial  Assets,  Inc. and subsidiaries as of December 31, 1998 and 1997, and
the  consolidated  results of their  operations and their cash flows for each of
the three  years in the  period  ended  December  31,  1998 in  conformity  with
generally  accepted  accounting  principles.  Also, in our opinion,  the related
financial  statement  schedules,  when  considered  in  relation  to  the  basic
consolidated  financial  statements  taken as a whole,  presents  fairly  in all
material respects the information set forth therein.

                                                            /s/ERNST & YOUNG LLP
Denver, Colorado
January 29, 1999

                                      F - 26

<PAGE>

                    COMMERCIAL ASSETS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                      (In thousands, except per share data)

<TABLE>
<CAPTION>

                                                                     December 31,
                                                             ---------------------------------
                                                                  1998                1997
                                                             ---------------    --------------
ASSETS

<S>                                                             <C>                <C>
Cash and cash equivalents                                       $    3,292         $   74,153
Short-term investments                                              45,066                 --
Real estate, net of accumulated depreciation of $50                 12,628                 --
Investments in participating mortgages                               9,328                 --
Investment in real estate joint venture                              1,280                 --
Investment in and note receivable from Westrec                       4,011              1,710
CMBS bonds                                                           1,739              1,981
Other assets, net                                                      890                304
                                                                ----------         ----------
      Total Assets                                              $   78,234         $   78,148
                                                                ==========         ==========

LIABILITIES

Accounts payable and accrued liabilities                        $      872         $      368
Management fees payable to related parties                             108                 75
                                                                ----------         ----------
                                                                       980                443
                                                                ----------         ----------

STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share,  25,000
  shares authorized;  no shares outstanding                             --                 --
Common stock,  par value $.01 per share,  75,000
  shares authorized; 10,364 and 10,342 shares issued
  and outstanding, respectively                                        104                104
Additional paid-in capital                                          76,874             76,724
Retained earnings                                                      276                877
                                                                ----------         ----------
                                                                    77,254             77,705
                                                                ----------         ----------
      Total Liabilities and Stockholders' Equity                $   78,234         $   78,148
                                                                ==========         ==========

</TABLE>

                 See Notes to Consolidated Financial Statements.


                                      F - 27

<PAGE>

                    COMMERCIAL ASSETS, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                      (In thousands, except per share data)

<TABLE>
<CAPTION>

                                                                         Year Ended December 31,
                                                                --------------------------------------
                                                                  1998            1997          1996
                                                                ---------      ---------      --------
RENTAL PROPERTY OPERATIONS
<S>                                                             <C>            <C>            <C>
Income from participating mortgages and leases                  $     587      $     --       $     --
Depreciation                                                          (50)           --             --
                                                                ---------      --------       --------
Income from property operations                                       537            --             --
                                                                ---------      --------       --------

Interest and other income                                           3,874           945            319
CMBS bonds revenue                                                    161         9,172          9,838
General and administrative expenses                                  (420)         (519)          (805)
Management fees paid to manager                                       (87)       (1,678)        (1,425)
Interest expense                                                       --            --             (2)
Elimination of dividend equivalent rights                              --            --           (966)
Acquisition fees paid to manager                                     (124)           --             --
Costs related to potential marina investments                        (500)           --             --
Gain on sale of bonds                                                  --         5,786             --
                                                                ---------      --------       --------

NET INCOME                                                      $   3,441      $ 13,706      $   6,959
                                                                =========      ========      =========

BASIC AND DILUTED EARNINGS PER SHARE                            $     .33      $   1.32      $     .68
                                                                =========      ========      =========

DIVIDENDS DECLARED PER SHARE:
   Regular dividends                                            $     .39      $    .68      $     .68
   Special dividends                                                   --           .26            .04
   Capital gain dividends                                              --           .17             --
                                                                ---------      --------      ---------
                                                                $     .39      $   1.11      $     .72
                                                                =========      ========      =========

Weighted-Average Common Shares Outstanding                         10,357        10,332         10,247

Weighted-Average Common Shares and Common Share

  Equivalents Outstanding                                          10,372        10,371         10,254

</TABLE>

                 See Notes to Consolidated Financial Statements.


                                      F - 28

<PAGE>

                    COMMERCIAL ASSETS, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

              For the Years Ended December 31, 1998, 1997 and 1996

                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                       Retained
                                                                                       Earnings

                                                                                     (Dividends In    Accumulated

                                                    Common Stock      Additional       Excess of        Other          Total
                                                    ------------       Paid-In        Accumulated    Comprehensive  Stockholders'
                                               Shares      Amount      Capital         Earnings)        Income         Equity
                                               ------      ------      -------          ---------       ------          ------
<S>                                            <C>         <C>       <C>               <C>              <C>            <C>
BALANCES - DECEMBER 31, 1995                   10,142      $  102    $  75,523         $   (915)        $(4,245)       $  70,465

Comprehensive Income
    Net income                                     --          --           --            6,959              --            6,959
    Unrealized appreciation of CMBS bonds          --          --           --               --             856              856
                                              -------      ------    ---------         --------         -------        ---------
       Comprehensive Income                        --          --           --            6,959             856            7,815
                                              -------      ------    ---------         --------         -------        ---------
Issuance of common stock                          174           1        1,036               --              --            1,037
Dividends                                          --          --           --           (7,398)             --           (7,398)
                                              -------      ------    ---------         --------         -------        ---------
BALANCES - DECEMBER 31, 1996                   10,316         103       76,559           (1,354)         (3,389)          71,919

Comprehensive Income
    Net income                                     --          --           --           13,706              --           13,706
    Reversal of unrealized holding losses upon
      restructuring of bonds
       Comprehensive Income                        --          --           --           13,706           3,389           17,095
                                              -------      ------    ---------         --------         -------        ---------
Issuance of common stock                           26           1          165               --              --              166
Dividends                                          --          --           --          (11,475)             --          (11,475)
                                              -------      ------    ---------          -------         -------        ---------
BALANCES - DECEMBER 31, 1997                   10,342         104       76,724              877              --           77,705
Issuance of common stock                           22          --          150               --              --              150
Net income                                         --          --           --            3,441              --            3,441
Dividends                                          --          --           --           (4,042)             --           (4,042)
                                              -------      ------    ---------         --------         -------        ---------
BALANCES - DECEMBER 31, 1998                   10,364      $  104    $  76,874         $    276         $    --        $  77,254
                                              =======      ======    =========         ========         =======        =========

</TABLE>

                 See Notes to Consolidated Financial Statements.

                                      F - 29

<PAGE>

                    COMMERCIAL ASSETS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                  Year Ended December 31,
                                                                      ------------------------------------------
                                                                         1998             1997            1996
                                                                      -----------      -----------     ---------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                   <C>              <C>             <C>
Net income                                                            $  3,441         $ 13,706        $  6,959
Adjustments to reconcile net income to net cash flows from
   operating activities:
   Amortization of premium/discount on CMBS bonds and short-term
      investments                                                          274           (2,381)         (2,155)
   Accrued income on participating mortgages and leases                   (443)              --              --
   Depreciation                                                             50               --              --
   Gain on sale of bonds                                                    --           (5,786)             --
   Issuance of common stock for dividend equivalent rights                  --               --             941
   Increase in accounts payable and accrued liabilities                    537              216             157
   Decrease (increase) in other assets                                    (154)          (1,327)             18
                                                                      --------         --------        --------
     Net cash provided by operating activities                           3,705            4,428           5,920
                                                                      --------         --------        --------

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of short-term investments                                 (91,946)              --              --
Collections on short-term investments                                   30,313               --              --
Proceeds from sale of short-term investments                            16,085               --              --
Investments in participating mortgages, net                             (8,959)              --              --
Purchases of real estate                                               (12,671)              --              --
Capital replacements                                                        (7)              --              --
Investments in Westrec                                                  (2,301)              --              --
Investment in real estate joint venture                                 (1,280)              --              --
Proceeds from restructuring of bonds                                        --           77,693              --
Collections on CMBS bonds                                                  242               --           9,857
Acquisitions of CMBS bonds                                                  --           (4,801)             --
                                                                      --------         --------        --------
     Net cash provided by (used in) investing activities               (70,524)          72,892           9,857
                                                                      --------         --------        --------

CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid                                                          (4,042)         (11,475)         (7,398)
Proceeds from the issuance of Common Stock                                  --               31              --
Paydowns on short-term financing                                            --               --            (700)
                                                                      --------         --------        --------
     Net cash used in financing activities                              (4,042)         (11,444)         (8,098)
                                                                      --------         --------        --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                   (70,861)          65,876           7,679

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                          74,153            8,277             598
                                                                      --------         --------        --------

CASH AND CASH EQUIVALENTS AT END OF YEAR                              $  3,292         $ 74,153        $  8,277
                                                                      ========         ========        ========

</TABLE>

                See Notes to Consolidated Financial Statements.

                                      F - 30

<PAGE>

                    COMMERCIAL ASSETS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.       Organization

Commercial  Assets,  Inc.  ("CAX"  and,  together  with  its  subsidiaries,  the
"Company") is a Maryland  corporation  that has interests in  manufactured  home
communities  and has  elected  to be taxed  as a real  estate  investment  trust
("REIT").  The Company's  common stock,  par value $.01, (the "Common Stock") is
listed on the American Stock Exchange under the symbol "CAX."

Prior to 1998,  the Company owned  subordinate  classes of  Commercial  Mortgage
Backed  Securities  ("CMBS  bonds").  The CMBS bonds were  issued in  commercial
mortgage loan securitizations involving multi-class issuances of debt securities
which were 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. In 1997, the Company decided to resecuritize its asset base and cease to
invest in subordinate  CMBS bonds.  In November 1997, the Company  resecuritized
its  subordinate  CMBS bond  portfolio by selling or redeeming  its various CMBS
bonds. The sale resulted in the Company receiving $77,693,000 cash and retaining
a  residual  interest  in an  owner  trust  arising  from  the  resecuritization
transaction  (see Note H). The Company  temporarily  invested the proceeds  from
such sale in government securities and short-term  investments until the Company
decided what class of assets to reinvest such funds in.

In the third quarter of 1998, the Company decided to invest in manufactured home
communities and as of December 31, 1998 has invested $23 million in interests in
manufactured  home communities and adjoining land with 640 developed  homesites,
50 sites ready for homes and 1,180 sites available for future development.

The  Company's  daily  operations  are  performed  by a manager  pursuant  to an
agreement   currently  in  effect   through   December  1999  ("the   Management
Agreement").  Prior to October 1996, the Company was managed by  subsidiaries of
MDC  Holdings,  Inc.  ("MDC").  In  September  1996,  MDC sold  Financial  Asset
Management  LLC ("FAM"),  the manager at such time, to an investor  group led by
Terry  Considine,  Thomas L. Rhodes and Bruce D. Benson.  In November  1997, the
assets of FAM,  including  the  Management  Agreement,  were  acquired  by Asset
Investors  Corporation  ("AIC"  and  together  with  its  subsidiaries,   "Asset
Investors"),  the current  manager.  Mr.  Considine  is Chairman of the Board of
Directors and Chief Executive  Officer of both the Company and Asset  Investors.
Mr.  Rhodes is Vice  Chairman  and Mr.  Benson is a director of both  companies.
Asset  Investors owns 27% of the Company's  Common Stock.  No change was made to
the Management  Agreement during 1998 other than an extension.  During 1999, the
Incentive  Fee has been  amended to provide  that such fee is based on  Adjusted
Funds From Operations ("AFFO") instead of REIT income.  Generally,  AFFO is book
net income plus  depreciation,  amortization and acquisition fees less an annual
capital replacement reserve equal to $50 per developed homesite.

The  Management  Agreement  is subject  to the  approval  of a  majority  of the
Company's  independent  directors and can be terminated by either party, without
cause,  with 60 days'  notice.  Since  the  Company  has no  employees,  certain
officers of Asset Investors are also officers of the Company.

                                      F - 31

<PAGE>

B.       Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its  majority-owned  subsidiaries.  All  significant  intercompany  balances and
transactions have been eliminated in consolidation.

Real Estate and Depreciation

Rental  properties are recorded at cost less  accumulated  depreciation,  unless
considered  impaired.  If events or  circumstances  indicate  that the  carrying
amount of a property may be impaired, the Company will make an assessment of its
recoverability  by  estimating  the future  undiscounted  cash flows,  excluding
interest charges, of the property.  If the carrying amount exceeds the aggregate
future cash flows,  the Company would recognize an impairment loss to the extent
the carrying  amount exceeds the fair value of the property.  As of December 31,
1998,  management  believes  that no  impairment  losses exist based on periodic
reviews. No impairment losses were recognized in 1998.

Depreciation is computed using the straight line method over an estimated useful
life of 25 years for land  improvements and buildings.  Significant  renovations
and  improvements,  which  improve or extend the useful  life of the asset,  are
capitalized and  depreciated  over the remaining  estimated  life.  Maintenance,
repairs and minor improvements are expensed as incurred.

Investments in Participating Mortgages

The Company has loans  secured by real estate which provide for an interest rate
return plus up to 50% of net  profits,  cash flows and sales  proceeds  from the
underlying real estate. The Company accounts for these investments as loans when
(a) the Company  does not have an interest  in the  borrower  and either (b) the
borrower has a substantial  equity  investment in the real estate  collateral or
(c) the  Company  has  recourse  to other  substantial  tangible  assets  of the
borrower.  As  such,  the  Company  records  interest  income  based on the rate
provided  for in the loan and records its share of any net profits or gains from
the sale of the underlying real estate when realized.  If the above requirements
are not met,  then the loan is  accounted  for as an equity  investment  in real
estate under the equity method of accounting.

Investment in Real Estate Joint Venture

An  investment  in a real estate  joint  venture in which the  Company  does not
control the joint venture's  activities is accounted for under the equity method
of accounting.

Investment in and Note Receivable from Westrec

The Company  classifies  its investment in and note  receivable  from Westrec as
available-for-sale  and carries  this at estimated  fair value in the  financial
statements.  The Company  believes that the contractual  amounts provided for in
the note  receivable  and the  agreement  under  which the  Company can sell its
shares of Westrec common stock approximates fair value at December 31, 1998.

Revenue Recognition

Interest on participating  mortgages is recorded based upon outstanding balances
and interest  rates per the terms of the  mortgages.  In  addition,  the Company
evaluates  the  collectibility  of any unpaid interest  and provides reserves as

                                      F - 32

<PAGE>

necessary. As of December 31, 1998, there is no reserve for uncollected interest
on the participating mortgages.  Rent on ground leases is recognized when earned
and due from lessee.

CMBS Bonds

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

The Company classifies its CMBS bonds as  available-for-sale.  Accordingly,  the
CMBS bonds are  carried at fair value in the  financial  statements.  Unrealized
holding  gains and losses on  available-for-sale  securities  are excluded  from
earnings and reported as a net amount in stockholders' equity until realized. If
the fair value of a CMBS bond declines  below its  amortized  cost basis and the
decline is considered to be "other than temporary," the amount of the write-down
would  be  included  in the  Company's  income.  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  financial  instruments  generally  approximate
their carrying basis or amortized cost.

Income Taxes

CAX 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,  CAX's REIT income,  with
certain limited  exceptions,  will not be subject to federal or state income tax
at the corporate level. Accordingly, no provision for taxes has been made in the
financial statements.

In order to maintain its status as a REIT, CAX is required,  among other things,
to distribute  annually to its  stockholders at least 95% of its REIT income and
to meet certain asset,  income and stock  ownership  tests.  Regular and special
dividends declared in 1998, 1997 and 1996 represented ordinary taxable income to
the stockholders.  In addition, the Company declared a capital gains dividend of
$.17 per share in 1997.

Earnings Per Share

Basic  earnings  per  share  for  1998,   1997  and  1996  are  based  upon  the
weighted-average  number of shares of Common Stock outstanding  during each such
year.  Diluted  earnings per share  reflect the effect of dilutive,  unexercised
stock options of 15,000, 39,000 and 7,000 in 1998, 1997 and 1996, respectively.

Statements of Cash Flows

For purposes of reporting cash flows,  cash  maintained in bank accounts,  money
market funds and  highly-liquid  investments  are considered to be cash and cash
equivalents.  The Company paid interest  expense in cash of $8,000 in 1996.  The
Company paid no interest expense in 1998 or 1997.

                                      F - 33

<PAGE>

Non-cash  investing and  financing  activities  for 1998,  1997 and 1996 were as
follows (in thousands):

<TABLE>
<CAPTION>

                                                                     1998              1997             1996
                                                                   --------          --------         --------
Principal collections on CMBS bonds transferred to restricted
<S>                                                                 <C>               <C>              <C>
    cash                                                            $    --           $ 6,227          $ 1,214
Unrealized holding gains and losses on CMBS bonds                        --             3,389              856
Issuance of Common Stock for services                                   150               135               --
Distributions of Common Stock pursuant to dividend equivalent
    rights                                                               --                --               96
Issuance of Common Stock as consideration for the elimination
    of dividend equivalent rights                                        --                --              941

</TABLE>

Use of Estimates

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

Reclassifications

Certain  reclassifications  have  been  made in the 1997  and 1996  consolidated
financial  statements  to conform to the  classifications  currently  used.  The
effect of such reclassifications on amounts previously reported is immaterial.

C.       Short-term Investments

During  1998,  the  Company  acquired  short-term   investments   consisting  of
mortgage-backed  bonds guaranteed by Federal Home Loan Mortgage  Corporation and
Federal  National  Mortgage  Association.  These  investments  are classified as
available-for-sale,  and the fair market value at December 31, 1998 approximates
the carrying  value of  $45,066,000.  During 1998, the Company had no unrealized
gains  (losses) on these  investments.  The Company had  $16,085,000 in proceeds
from the sale of  short-term  investments  during  1998  and  realized  no gains
(losses)  from such  sales.  The  Company  determined  its  basis in these  sold
investments  using the  specific  identification  method.  At December 31, 1998,
these investments had the following maturities:

                                 Amount Maturity

                    ------------------    ---------------
                      $10,548,000              2000
                      $14,971,000              2003
                      $19,547,000              2022

D.       Investments in Manufactured Home Communities

During  1998,  the Company paid  $12,671,000  to acquire two  manufactured  home
communities with approximately 300 developed homesites, 50 sites ready for homes
and 940 sites available for future  development.  These investments are recorded
as real estate.

The Company also made  $8,959,000 of  participating  mortgages  involving  three
manufactured  home  communities  and adjacent land involving  approximately  340
developed  homesites  and 210 sites  available  for  future  development.  These
non-recourse  mortgages are secured by the three  manufactured home communities,
adjacent  land,  commercial  real  estate,  two  additional   manufactured  home
communities and one recreational vehicle park. These investments are recorded as
participating mortgages.

                                     F - 34

<PAGE>

Finally,  the  Company  invested  $1,280,000  in a  real  estate  joint  venture
involving a  manufactured  home  community  with 30 sites  available  for future
development. The Company accounts for this as an investment in real estate joint
venture  since the other party to the venture  controls  the  activities  of the
venture.

The following  unaudited  pro-forma  information has been prepared  assuming the
acquisition  of  the  interests  in  manufactured   home   communities  and  the
restructuring of the Company's CMBS bonds had been completed at the beginning of
the periods  presented.  The unaudited  pro-forma  information  is presented for
informational purposes only and is not necessarily indicative of what would have
occurred if the  restructurings  and the  acquisitions  had been completed as of
those dates.  In addition,  the  pro-forma  information  is not intended to be a
projection of future results. The unaudited, pro-forma results of operations for
1998 and 1997 are as follows (in thousands, except per share data):

<TABLE>
<CAPTION>

                                                                                     1998                    1997
                                                                                   ----------             ----------
Revenues (income from participating mortgages and leases, interest
<S>                                                                                <C>                    <C>
    income and CMBS bonds revenues)                                                $    5,375             $    6,693
                                                                                   ==========             ==========

Income before gain on restructuring of bonds                                       $    3,724             $    5,529
Gain on restructuring of CMBS bonds                                                        --                  6,069
                                                                                   ----------             ----------
Net income                                                                         $    3,724             $   11,598
                                                                                   ==========             ==========

Basic and diluted earnings per share                                               $      .36             $     1.12
                                                                                   ==========             ==========
</TABLE>

The Company is actively seeking to acquire additional  communities and currently
is engaged in negotiations  relating to the possible  acquisition of a number of
communities.   At  any  time,  these  negotiations  are  at  various  stages  of
completion,   which  may  include  outstanding   contracts  to  acquire  certain
manufactured  home  communities,  subject  to  satisfactory  completion  of  the
Company's due diligence review.

E.       Investments in Participating Mortgages

As of December 31, 1998, the Company has investments in participating  mortgages
secured  by  three   manufactured  home  communities  and  adjoining  land.  The
non-recourse  notes accrue  interest at 15% per annum and pay interest at 9% per
annum through August 1999,  with the pay rate increasing 1% each year thereafter
to a maximum of 12% per annum.  The loans mature in September  2007. The Company
also receives  additional interest of 50% of the net profits and cash flows from
the  properties.  In  addition,  as  of  December  31,  1998,  the  Company  has
investments  in  participating  mortgages  secured by individual  homes and home
sites within two manufactured home communities.  These mortgages accrue interest
at 10% and pay interest from the cash flows from the homesites. The Company also
receives  additional  interest of 50% of the net profits and cash flows from the
homesites. As of December 31, 1998, the Company had investments in participating
mortgages of $9,328,000 and income of $451,000 from these mortgages during 1998.

                                     F - 35

<PAGE>

The following  table provides  unaudited  summary  financial  information of the
borrower  with  respect to these  participating  mortgages  for the period  from
August  1998  (date  of  participating  mortgages)  to  December  31,  1998  (in
thousands):

                                                                     (unaudited)
Rental and other property revenues                                   $      458
Property operation expenses                                                (234)
Depreciation expense                                                        (31)
                                                                     ----------
Income from rental property operations                                      193
                                                                     ----------
Net loss                                                                   (108)

F.       Real Estate

Real estate at December 31, 1998, is as follows (in thousands):

Land                                                                 $    3,798
Land improvements and buildings                                           8,880
                                                                     ----------
                                                                          12,678

Less accumulated depreciation                                               (50)
                                                                     ----------

Investment in real estate, net                                       $   12,628
                                                                     ==========

Land  improvements and buildings  consist  primarily of  infrastructure,  roads,
landscaping,  clubhouses,  maintenance  buildings and common amenities.  The two
manufactured  home communities  involving the above real estate have been leased
to a third party.  The first lease involves a community  acquired by the Company
at a cost of $1.4  million and is for a term of 50 years.  The Company  receives
initial annual lease payments equal to 9% of its cost. The annual lease payments
increase by 4% per annum over the prior year's lease  payments  until the annual
lease  payment  equals 13% of the  Company's  cost.  In  addition,  the  Company
receives  additional  rent equal to 50% of the  lessee's  net cash flow from the
property.  In the event of a sale of the  property,  the  Company  receives  all
proceeds  until it has realized its total  purchase price of the property plus a
13% per  annum  rate of  return.  The  Company  then  receives  50% of any sales
proceeds in excess of such amount.

The other  community  acquired by the Company  involves  two phases and has been
leased  to the same  third  party  for 50  years.  Phase  One has 220  developed
homesites and 24 sites ready for homes.  Phase Two involves 940 sites  available
for future development.  Initial annual lease payments on Phase One is $890,000,
increasing by 4% per annum.  There are no lease  payments on Phase Two until the
sites are ready for homes, at which time, the annual lease payments on Phase Two
will be equal to 10%  times the costs  incurred  in  developing  Phase  Two.  In
addition,  the lessee  pays to the Company  additional  rent equal to 50% of the
lessee's net cash flow from the  property.  In the event of a sale,  the Company
receives 50% of any sales proceeds in excess of the Company's cost.

G.     Investment in Real Estate Joint Venture

In November 1997, the Company invested  $1,280,000 in a joint venture  involving
the  development  of 30 homesites near Newport  Beach,  California.  The Company
receives a priority  return from the venture  until the Company has  received an
amount equal to 9% times  $1,250,000 for 1999. The Company's  subsequent  annual
priority return increases by 5% over the prior year's amount. The other venturer
then  receives a similar  percentage  return on its $300,000  investment  in the
venture.  In the event the property is sold,  the Company  receives all proceeds
until it has received its investment plus 20% per annum. The other venturer then
receives all proceeds until it has received its investment plus 20% per annum.

                                     F - 36

<PAGE>

Any excess sales  proceeds are then shared  equally.  The Company did not record
any income from this real estate joint venture in 1998.

H.     CMBS Bonds

In November 1997, the Company  resecuritized its portfolio of retained interests
in prior  securitizations  that are in the form of CMBS  bonds.  Nine bonds were
sold, one bond was redeemed and the remaining two CMBS bonds were  resecuritized
by transferring the bonds and related restricted cash to an owner trust in which
the Company retained a residual interest. In a private placement, the trust then
sold debt securities  representing  senior interests in the trust's assets.  The
Company  recorded the  resecuritization  of its portfolio as a sale. The Company
received  $77,693,000  in cash proceeds and recorded a $5,786,000  gain from the
sale.  The Company  determined  its basis in the CMBS bonds  using the  specific
identification  method.  The  Company  paid  $426,000 in  incentive  fees to its
manager in connection  with the sale.  These  incentive fees were netted against
the gain.

The estimated  fair value of the residual  interest  retained by the Company was
$2,000,000.  During 1998,  the Company  received  $403,000 of which $242,000 was
recorded as a reduction in the net book value of the retained residual interest,
resulting  in a  net  book  value  of  $1,739,000  which  the  Company  believes
approximates  fair  market  value at  December  31,  1998.  The  Company  had no
unrealized  gains  (losses) on its CMBS bonds at December 31, 1998 and 1997. The
maturity  dates of the CMBS bonds range from 2001 to 2004 and the Company had no
sales of CMBS bonds during 1998 or 1996.

In 1997,  three  mortgages  underlying  one of the  Company's  CMBS  bonds  were
prepaid.  As a result of the  prepayment,  the  Company  recognized  $482,000 of
income  from a  prepayment  penalty  received  and  $2,305,000  of  income  from
accelerated discount amortization.

I.       Investment in and Note Receivable from Westrec

Prior  to  deciding  to  acquire  manufactured  home  communities,  the  Company
evaluated  acquiring interests in marinas and, in connection with this, acquired
a 12% interest in Westrec Marina  Management Inc.  ("Westrec") for approximately
$2,500,000 in March 1998. In the third quarter of 1998,  the Company  decided to
invest in manufactured  housing  communities  and not to invest in marinas.  The
Company has valued its  investment in Westrec common stock at the price at which
the Company can re-sell such stock to Westrec. The Company has expensed $500,000
for the portion of its  investment  in Westrec in excess of the sales price plus
additional due  diligence,  legal,  and other costs incurred in connection  with
investigating  investments  in marinas.  The Company also has a note  receivable
from an affiliate of Westrec.  The  outstanding  balance of the note  receivable
(including  interest  receivable)  is $1,883,000  and $1,710,000 at December 31,
1998 and 1997, respectively.  In May 1998, the Company issued to an affiliate of
Westrec  warrants to purchase 322,000 shares of Common Stock at $6.60 per share.
These warrants were cancelled in 1998.

                                     F - 37

<PAGE>

J.       Stock Option Plan

The Company has a Stock Incentive Plan for the issuance of  non-qualified  stock
options to its  directors and officers,  employees and  consultants  which as of
December  31,  1998,  permitted  the issuance of up to an aggregate of 3,000,000
shares of Common  Stock,  of which  454,000 and 717,000  related to  outstanding
stock options as of December 31, 1998 and 1997, 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 the grant.  The stock options have various
terms ranging up to 10 years.

Prior to May 30,  1996,  stock  options  granted  under  the Stock  Option  Plan
automatically  accrued  dividend  equivalent  rights  ("DERs") based on: (i) the
number  of  shares  underlying  the  unexercised  portion  of the  option;  (ii)
dividends  declared on the outstanding  shares of the Company between the option
grant  date and the option  exercise  date;  and (iii) the  market  price of the
shares on the dividend record date. DERs were paid in shares of Common Stock (or
in other  property that  constituted  the dividend) at the time of each dividend
distribution.  During 1996, the Company  incurred  $96,000 of expenses from DERs
covering  16,000 shares of Common Stock which were subject to issuance  pursuant
to options  granted under the plan. On May 30, 1996, the Company's  stockholders
approved the issuance of Common  Stock in exchange for the  elimination  of DERs
for such options and, as a result, the Company recorded a $966,000 charge during
1996.

Presented below is a summary of the changes in stock options for the three years
ended December 31, 1998. As of December 31, 1998, the  outstanding  options have
exercise   prices   ranging   from   $5.625  to  $6.875  and  have  a  remaining
weighted-average life of 2.3 years.

                                                    Weighted
                                                     Average
                                                  Exercise Price        Shares
                                                  --------------        ------
Outstanding - December 31, 1995                     $ 6.94             574,000
     Granted                                          5.86              83,000
     Forfeited                                        6.68              (9,000)
                                                    ------          ----------
Outstanding - December 31, 1996                       6.80             648,000
     Granted                                          6.30              87,000
     Forfeited                                        7.30             (13,000)
     Exercised                                        6.12              (5,000)
                                                    ------          ----------
Outstanding - December 31, 1997                       6.74             717,000
     Granted                                          6.62              38,000
     Forfeited                                        7.50            (290,000)
     Expired                                          7.25             (11,000)
                                                    ------          -----------
Outstanding - December 31, 1998                     $ 6.23             454,000
                                                    ======          ==========

Options  granted  to date vest  over  various  periods  up to two  years.  As of
December 31, 1998, 1997 and 1996, 445,000, 660,000 and 454,000, respectively, of
the  outstanding  options were  exercisable.  As of December 31, 1998,  1997 and
1996, the weighted  average  exercise  price of  exercisable  options was $6.22,
$6.78 and $6.78, respectively.

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

                                     F - 38

<PAGE>

Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been  determined  as if the Company had  accounted for its
employee stock options under the fair value method of that  Statement.  The fair
value  for  these   options  was  estimated  at  the  date  of  grant  using  an
option-pricing model with the following weighted average assumptions:

<TABLE>
<CAPTION>

                                                                 1998                 1997                 1996
                                                           ----------------     ----------------     ----------------
<S>                                                          <C>                   <C>                 <C>
Range of risk free interest rate                                 6.0%                 6.2%             6.1% to 7.2%
Expected dividend yield                                          8.0%                 8.0%                 9.8%
Volatility factor of the expected market price of the
   Company's common stock                                      0.280                0.156                 0.150
Weighted average expected life of options                    10.0 years            4.2 years            4.2 years

</TABLE>

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

During 1998,  1997 and 1996,  the estimated  weighted-average,  grant-date  fair
value of options  granted  was $.76,  $.42 and $.45,  respectively.  The Company
assumed  lives of five to ten years and  risk-free  interest  rates equal to the
Five- or  Ten-Year  U.S.  Treasury  rate on the date the  options  were  granted
depending on option term. In addition,  the expected stock price  volatility and
dividend growth rates were estimated based upon historical averages over the two
years ended  December 31, 1998,  adjusted for changes  based upon the  Company's
investment in manufactured home community assets.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options'  vesting  period.  The  Company's  pro
forma information follows (in thousands except for per share data):

<TABLE>
<CAPTION>

                                                                              1998            1997           1996
                                                                          ------------    ------------    -----------
<S>                                                                         <C>             <C>            <C>
Pro forma net income                                                        $3,402          $ 13,670       $  6,932
Pro forma basic and diluted earnings per share                              $ 0.33          $   1.32       $   0.68

</TABLE>

K.       Management Fees

The Company operates under a management agreement, pursuant to which the manager
advises the Company on its business and oversees its daily  operations,  subject
to the supervision of the Company's Board of Directors. Asset Investors has been
the manager since  November  1997.  Prior to November 1997, FAM was the manager.
The  Management  Agreement  provides that the manager  receives a "Base Fee," an
"Acquisition  Fee" and an "Incentive Fee." The Base Fee is payable  quarterly in
an amount equal to 1% per annum of the Company's  average net book value of real
estate-related  assets. The Acquisition Fee equals 0.5% of the cost of each real
estate asset  acquired.  The Incentive Fee equals 20% of the amount by which the
Company's REIT taxable income exceeds the amount  calculated by multiplying  the
Company's "average net worth" by the "Ten-Year United States Treasury rate" plus
1%. In 1997 and 1996,  the manager also received  "Administrative  Fees" on each
CMBS bond  outstanding.  Administrative  Fees were terminated in connection with
the November 1997 restructuring of the CMBS bond portfolio.

                                     F - 39

<PAGE>

Fees paid to the manager during 1998, 1997 and 1996 were (in thousands):

<TABLE>
<CAPTION>

                                      1998               1997               1996
                                  --------------    ---------------     --------------
<S>                                  <C>               <C>                <C>
Base Fees                            $   87            $    598           $    654
Acquisition Fees                        124                  23                 --
Incentive Fees                           --               1,024                713
Administrative Fees                      --                  56                 58
                                     ------            --------           --------
                                     $  211            $  1,701           $  1,425
                                     ======            ========           ========
</TABLE>

Acquisition  Fees  incurred  in 1997  were  capitalized  as part of the  cost of
acquiring CMBS bonds. In addition,  the Company  incurred  $426,000 of Incentive
Fees in 1997  relating  to the  gain on the  restructuring  of the  CMBS  bonds.
Acquisition  Fees incurred in 1998 were expensed  because such fees were paid to
Asset Investors, owner of 27% of the Company's Common Stock.

The Management  Agreement has been extended  through  December 31, 1999.  During
1999,  the  Incentive  Fee has been amended to provide that such fee is based on
CAX's Funds From Operations,  less an annual capital  replacement  reserve of at
least $50 per developed homesite, instead of REIT income. In general, Funds From
Operations  is equal to book net  income  plus  depreciation,  amortization  and
acquisition fees.

L.       Commitments

In connection with the acquisition of a manufactured home community, the Company
entered into an earn-out agreement with respect to 154 unoccupied homesites. The
Company will pay $17,000 to the former owner for each newly occupied homesite.

The Company has agreed to acquire  from time to time  ground  leases  related to
individual  homesites.  The  purchase  price for each lease will be equal to the
base  annual rent  provided  for in each such  ground  lease  divided by 9%. The
Company is not required to acquire such leases in groups of less than 10 leases.
The maximum number of leases the Company might purchase is approximately 500 for
total consideration of approximately $20 million.

M.       Operating Segments

The Company has recently begun  investing in manufactured  home  communities and
management assesses the performance of the Company as one operating segment.

N.       Other Matters

The  Company's  Charter  authorizes  the Board of Directors to issue  25,000,000
shares,  par value $.01 per share, of Preferred Stock. The Board of Directors is
authorized  to fix the  terms of the  Preferred  Stock,  including  preferences,
powers and rights (including voting rights) senior to the Common Stock. To date,
the Company has not issued any shares of Preferred Stock.

                                     F - 40

<PAGE>

O.       Selected Quarterly Financial Data (unaudited)

Presented  below  is  selected  quarterly  financial  data for the  years  ended
December 31, 1998 and 1997 (in thousands, except per share data).

<TABLE>
<CAPTION>

                                                                           Three Months Ended,
                                                    -----------------------------------------------------------------
                                                     December 31,     September 30,      June 30,         March 31,
                                                     ------------     -------------  --------------  ---------------
1998
---------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>              <C>              <C>
Income from rental property operations                $     390        $    147         $     --         $     --
CMBS bonds                                                   37              40               44               40
Interest and other income                                   767           1,012            1,042            1,053
Net income                                                  967             486              986            1,002
Per share amounts:
   Basic and diluted earnings                               .09             .05              .09              .10
   Regular dividends                                        .13             .13              .13               --
   Stock prices 1
     High                                                 6-1/4           6-7/8                7                7
     Low                                                  5-1/8          5-9/16            6-1/4           6-7/16
Weighted-average common shares outstanding               10,364          10,364           10,359           10,342
Weighted-average common shares and common shares
   and common share equivalents outstanding              10,366          10,373           10,387           10,378

1997
---------------------------------------------------------------------------------------------------------------------
CMBS bonds revenue                                    $   1,512        $  3,423        $   2,193         $  2,044
Interest and other income                                   734              51               49              111
Gain on restructuring of bonds                            5,786              --               --               --
Net income                                                7,677           2,484            1,810            1,735
Per share amounts:
   Basic and diluted earnings                               .74             .24              .17              .17
   Regular dividends                                        .17             .17              .17              .17
   Special dividends                                        .26              --               --               --
   Capital gains dividends                                  .17              --               --               --
   Stock prices (1)
     High                                               7-11/16          7-3/16          6-11/16                7
     Low                                                 6-9/16           6-5/8           6-3/16            6-3/8
Weighted-average common shares outstanding               10,342          10,342           10,326           10,316
Weighted-average common shares and common share
   equivalents outstanding                               10,408          10,381           10,348           10,351
---------------------------------------------------
<FN>

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

                                     F - 41

<PAGE>

                             Commercial Assets, Inc.

                                  SCHEDULE III

                    Real Estate and Accumulated Depreciation

                                December 31, 1998

                         (In Thousands Except Site Data)

<TABLE>
<CAPTION>

                                                                                                     December 31, 1998
                                                                                    ------------------------------------------------
                                                                           Cost                                     Total
                                                                         Capital-                                    Cost
                                                           Initial Cost    ized        Total Cost                   Net of
                                                        ---------------- Subsequ- ----------------------  Accumu-  Accumu-
                                                 Number       Buildings    uent         Buildings          lated    lated
                 Date                     Year     of           and         to             and            Depreci- Depreci- Encum-
 Property Name Acquired  Location      Developed Sites Land Improvements Acquis. Land Improvements Total   ation    ation  brances
 ---------------------------------------------------------------------------------------------------------------------------------
<S>             <C>                     <C>    <C>   <C>      <C>         <C>   <C>     <C>      <C>       <C>   <C>       <C>
Cypress Greens  1998   Lakeland, FL     1986    107  $  240   $1,129      $7    $  240  $1,136   $1,376    $16   $  1,360  $ --

Riverside       1998   Ruskin, FL       1984  1,186   3,558    7,744      --     3,558   7,744   11,302     34     11,268    --
                                             ------  ------  --------   ------- ------- ------  -------   ----   -------- -------
           Total                              1,293  $3,798   $8,873      $7    $3,798  $8,880  $12,678    $50    $12,628  $ --
                                             ======  ======  ========   ======= ======= ======  ========  ====   ======== =======

</TABLE>

                                     F - 42

<PAGE>

                             COMMERCIAL ASSETS, INC.

                    REAL ESTATE AND ACCUMULATED DEPRECIATION

                For the Years Ended December 31, 1998, 1997, 1996

                                 (in thousands)
<TABLE>
<CAPTION>

                                                                                     Year Ended December 31,
                                                                           ---------------------------------
                                                                             1998              1997             1996
                                                                           --------          -------          ------
Real Estate

<S>                                                                       <C>               <C>               <C>
    Balance at beginning of year                                          $       --        $      --         $    --
    Additions during the year:
       Real estate acquisitions                                               12,671               --              --
       Additions                                                                   7               --              --
    Dispositions                                                                  --               --              --
                                                                          ----------        ---------         -------
    Balance at end of year                                                $   12,678        $      --         $    --
                                                                          ==========        =========         =======


Accumulated Depreciation

    Balance at beginning of year                                          $       --        $      --         $    --
    Additions during the year:
       Depreciation                                                              (50)              --              --
    Dispositions                                                                  --               --              --
                                                                          ----------        ---------         -------
    Balance at end of year                                                $      (50)       $      --         $    --
                                                                          ==========        =========         =======


</TABLE>

See  Report of  Independent  Auditors  and  accompanying  notes to  consolidated
financial statements.

                                     F - 43

<PAGE>

                             COMMERCIAL ASSETS, INC.

                                   SCHEDULE IV

                          MORTGAGE LOANS ON REAL ESTATE

                                December 31, 1998

                                 (in thousands)

<TABLE>
<CAPTION>

                                                                                                            Principal
                                                                                                            Amount of

                                                                                                              Loans
                                                                                                            Subject to

                                        Final      Periodic                  Face           Carrying        Delinquent
                        Interest       Maturity    Payment     Prior       Amount of        Amount of      Principal or
    Description           Rate          Date        Terms      Liens       Mortgages        Mortgages        Interest
---------------------  ------------  ----------  ----------  ---------  --------------  ---------------  ---------------
<S>                        <C>          <C>           <C>     <C>         <C>             <C>                <C>
Fiesta Village             (1)          9/2007        (1)     $   --      $   8,033       $    8,462         $      --
Savanna Club               10%          9/2018        (2)         --            822              828                --
Sun Lake                   10%          9/2018        (2)         --             38               38                --
                                                             ---------  --------------  ---------------  ---------------
                                                              $   --      $   8,893       $    9,328         $      --
                                                             =========  ==============  ===============  ===============
<FN>

(1)    The Fiesta  Village loan is comprised of five  mortgage  loans secured by
       three  manufactured home communities and adjoining land. The notes accrue
       interest at 15% per annum and pay interest at 9% per annum through August
       1999,  with the pay rate  increasing 1% each year thereafter to a maximum
       of 12% per annum.

(2)      Interest is paid from any cash flows from the property.

</FN>
</TABLE>

                                     F - 44

<PAGE>

                             COMMERCIAL ASSETS, INC.

                                   SCHEDULE IV

                          MORTGAGE LOANS ON REAL ESTATE

                                December 31, 1998

                                 (in thousands)

<TABLE>
<CAPTION>

                                                                                     Year Ended December 31,
                                                                           -------------------------------------------
                                                                             1998              1997             1996
                                                                           --------          -------          --------
<S>                                                                       <C>               <C>               <C>
    Balance at beginning of period                                        $       --        $      --         $    --

    Additions during period:
       Investments in participating mortgages                                  8,913               --              --
       Accrued interest                                                          371               --              --
       Loan costs                                                                 70               --              --
    Deductions during period:
       Collections of principal                                                  (20)              --              --
       Collections of interest                                                    (2)              --              --
       Amortization of loan costs                                                 (4)              --              --
                                                                          ----------        ---------        --------

    Balance at close of period                                            $    9,328        $      --         $    --
                                                                          ==========        =========         =======


</TABLE>

                                     F - 45

<PAGE>

                                                        - 33 -
                                                    EXHIBIT INDEX

                   Exhibit No.       Description

                  2.1       Form of Mobile Home Park Purchase and Sale Agreement
                            dated as of May 13, 1997, entered into in connection
                            with the  acquisition  of six  manufactured  housing
                            communities  (incorporated  herein by  reference  to
                            Exhibit 2.1 to the Current  Report on Form 8-K dated
                            May 14, 1997,  Commission File No. 1-9360,  filed on
                            May 28, 1997).

                  2.1(a)    Royal Palm Joint Venture  Agreement  dated as of May
                            13, 1997, by and between Royal Palm Village, LLC and
                            Asset   Investors    Operating    Partnership,    LP
                            (incorporated  herein by reference to Exhibit 2.1(a)
                            to the  Current  Report  on Form 8-K  dated  May 14,
                            1997,  Commission File No. 1-9360,  filed on May 28,
                            1997).

                  2.1(b)    Form of Assignment and Assumption Agreement dated as
                            of May 13, 1997, entered into in connection with the
                            acquisition of Prime-Forest  Partners  (incorporated
                            herein by reference to Exhibit 2.1(b) to the Current
                            Report on Form 8-K dated  May 14,  1997,  Commission
                            File No. 1-9360, filed on May 28, 1997).

                  2.2       Promissory  Note dated as of July 30,  1997,  by and
                            between the Registrant and Lost Dutchman Parks,  LLC
                            (incorporated  herein by reference to Exhibit 2.2 to
                            the Current  Report on Form 8-K dated July 30, 1997,
                            Commission  File No.  1-9360,  filed on  August  12,
                            1997).

                  2.2(a)    Combination  Deed of  Trust,  Assignment  of  Rents,
                            Security  Agreement and Fixture Financing  Statement
                            dated  as of  July  30,  1997,  by and  between  the
                            Registrant    and   Lost   Dutchman    Parks,    LLC
                            (incorporated  herein by reference to Exhibit 2.2(a)
                            to the  Current  Report on Form 8-K  dated  July 30,
                            1997,  Commission  File No. 1-9360,  filed on August
                            12, 1997).

                  2.2(b)    Assumption  Agreement and Note Modification dated as
                            of July 30, 1997, by and between the  Registrant and
                            Lost Dutchman  Parks,  LLC  (incorporated  herein by
                            reference to Exhibit 2.2(b) to the Current Report on
                            Form 8-K dated July 30,  1997,  Commission  File No.
                            1-9360, filed on August 12, 1997).

                  2.2(c)    Commitment  Letter dated as of July 10, 1997, by and
                            between the Registrant and Lost Dutchman Parks,  LLC
                            (incorporated  herein by reference to Exhibit 2.2(c)
                            to the  Current  Report on Form 8-K  dated  July 30,
                            1997,  Commission  File No. 1-9360,  filed on August
                            12, 1997).

                                     - 26 -
<PAGE>

                  2.3       Form  of  Joint  Venture   Agreement   dated  as  of
                            September   30,  1997,   between   Asset   Investors
                            Operating    Partnership,    L.P.   and    Community
                            Acquisition     and     Development      Corporation
                            (incorporated  herein by reference to Exhibit 2.3 to
                            the  Current  Report on Form 8-K dated  October  30,
                            1997,  Commission File No. 1-9360, filed on November
                            13, 1997).

                  2.3(a)    Earn-Out  Agreement dated October 30, 1997,  between
                            Community  Casa  del  Mar  Joint   Venture,   Wilder
                            Corporation of Delaware and AIC Community Management
                            Partnership  (incorporated  herein by  reference  to
                            Exhibit  2.3(a)  to the  Current  Report on Form 8-K
                            dated October 30, 1997,  Commission File No. 1-9360,
                            filed on November 13, 1997).

                  2.3(b)    Form of  Agreement  of Sale  dated as of August  22,
                            1997, between Community  Acquisition and Development
                            Partnership  and  Wilder   Corporation  of  Delaware
                            (incorporated  herein by reference to Exhibit 2.3(b)
                            to the Current  Report on Form 8-K dated October 30,
                            1997,  Commission File No. 1-9360, filed on November
                            13, 1997).

                  2.4       Contribution  Agreement  dated  as of  February  27,
                            1998, between Asset Investors Operating Partnership,
                            L.P. and Roth Associates of New Jersey (incorporated
                            herein by  reference  to Exhibit  2.4 to the Current
                            Report  on  Form  8-K  dated   February   27,  1998,
                            Commission  File No.  1-9360,  filed  on  March  13,
                            1998).

                  2.4(a)    Contribution  Agreement  dated  as of  February  27,
                            1998, between Asset Investors Operating Partnership,
                            L.P.   and  Salem  Farm  Mobile   Home  Park,   Inc.
                            (incorporated  herein by reference to Exhibit 2.4(a)
                            to the Current Report on Form 8-K dated February 27,
                            1998, Commission File No. 1-9360, filed on March 13,
                            1998).

                  2.5       Agreement  of  Sale  dated  as of  April  13,  1998,
                            between  Community  Acquisition  Joint  Venture  and
                            Serendipity Properties,  Inc.,  (incorporated herein
                            by  reference  to  Exhibit  2.5 to the  Registrant's
                            Current  Report  on Form  8-K  dated  May 29,  1998,
                            Commission File No. 1-9360, filed on June 12, 1998).

                  2.5(a)    Assignment  of Agreement of Sale dated as of May 20,
                            1998,  between  Community  Acquisition Joint Venture
                            and  Asset  Investors  Operating  Partnership,  L.P.
                            (incorporated  herein by reference to Exhibit 2.5(a)
                            to the Registrant's Current Report on Form 8-K dated
                            May 29, 1998,  Commission File No. 1-9360,  filed on
                            June 12, 1998).




                                     - 27 -
<PAGE>


                  2.6       Purchase  Agreement  with  Escrow  Instructions,  as
                            amended,   dated  as  of  April  14,  1998   between
                            Brentwood West Partners,  LLP and Parkbridge Capital
                            Group,  Inc.  (incorporated  herein by  reference to
                            Exhibit 2.6 to the  Registrant's  Current  Report on
                            Form 8-K dated  May 29,  1998,  Commission  File No.
                            1-9360, filed on June 12, 1998).

                  2.6(a)    Conditional Assignment of Contract dated as of April
                            17, 1998, between Parkbridge Capital Group, Inc. and
                            Community   Acquisition   Development   Corporation.
                            (incorporated  herein by reference to Exhibit 2.6(a)
                            to the Registrant's Current Report on Form 8-K dated
                            May 29, 1998,  Commission File No. 1-9360,  filed on
                            June 12, 1998).

                  2.6(b)    Assignment  of Agreement of Sale dated as of June 1,
                            1998,  between  Community  Acquisition Joint Venture
                            and  Asset  Investors  Operating  Partnership,  L.P.
                            (incorporated  herein by reference to Exhibit 2.6(b)
                            to the Registrant's Current Report on Form 8-K dated
                            May 29, 1998,  Commission File No. 1-9360,  filed on
                            June 12, 1998).

                  2.7       Agreement of Sale dated as of May 13, 1998,  between
                            HFIC,   INC.  and   Gulfstream   Harbor,   Inc.  and
                            Gulfstream  Harbor II Inc.  (incorporated  herein by
                            reference to Exhibit 2.7 to the Registrant's Current
                            Report on Form 8-K dated July 16,  1998,  Commission
                            File No. 1-9360, filed on July 30, 1998).

                  2.7(a)    Assignment of Agreement of Sale dated as of July 15,
                            1998, between HFIC, INC. and AIOP Gulfstream Harbor,
                            LLC.,  AIOP  Gulfstream   Outlot  I,  L.L.C.,   AIOP
                            Gulfstream  Outlot II,  L.L.C.  and AIOP  Gulfstream
                            Outlot III, L.L.C. (incorporated herein by reference
                            to Exhibit 2.7(a) to the Registrant's Current Report
                            on Form 8-K dated July 16, 1998, Commission File No.
                            1-9360, filed on July 30, 1998).

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

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

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

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

                  3.2(c)    January 14,  1997,  Amendment  to the By-laws of the
                            Registrant  (incorporated  herein  by  reference  to
                            Exhibit  3.2(c) to the Annual Report on Form 10-K of
                            the  Registrant  for the fiscal year ended  December
                            31, 1996, Commission File No. 1-9360, filed on March
                            24, 1997).

                                     - 28 -
<PAGE>

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

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

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

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

                  10.1*     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).

                  10.2*     1998  Stock   Incentive   Plan  of  the   Registrant
                            (incorporated herein by reference to Exhibit 10.3 to
                            the Quarterly  Report on Form 10-Q of the Registrant
                            for the quarter ended June 30, 1998, Commission File
                            No. 1-9360, filed on August 14, 1998).

                  10.3      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).

                  10.4(a)   Trust  Agreement  dated as of March 26, 1997,  among
                            the  Registrant,   as  depositor,   Asset  Investors
                            Secured  Financing  Corporation and Wilmington Trust
                            Company,  as Owner Trustee  (incorporated  herein by
                            reference to Exhibit 10.5(a) to the Quarterly Report
                            on Form 10-Q of the Registrant for the quarter ended
                            March 31, 1997, Commission File No. 1-9360, filed on
                            May 14, 1997).

                  10.4(b)   Pooled  Certificate  Transfer  Agreement between the
                            Registrant  and Asset  Investors  Secured  Financing


                                     - 29 -
<PAGE>

                            Corporation dated as of March 26, 1997 (incorporated
                            herein  by  reference  to  Exhibit  10.5(b)  to  the
                            Quarterly  Report on Form 10-Q of the Registrant for
                            the quarter  ended March 31, 1997,  Commission  File
                            No. 1-9360, filed on May 14, 1997).

                  10.4(c)   Indenture,  dated  as of  March  27,  1997,  between
                            Structured  Mortgage  Trust  1997-1 and State Street
                            Bank  and  Trust  Company  (incorporated  herein  by
                            reference to Exhibit 10.5(c) to the Quarterly Report
                            on Form 10-Q of the Registrant for the quarter ended
                            March 31, 1997, Commission File No. 1-9360, filed on
                            May 14, 1997).

                  10.4(d)   Note Purchase Agreement, dated as of March 26, 1997,
                            among  Structured   Mortgage  Trust  1997-1,   Asset
                            Investors  Secured  Financing  Corporation and Bear,
                            Stearns & Co. Inc. (incorporated herein by reference
                            to Exhibit  10.5(d) to the Quarterly  Report on Form
                            10-Q of the  Registrant  for the quarter ended March
                            31, 1997,  Commission File No. 1-9360,  filed on May
                            14, 1997).

                  10.4(e)   Trust Certificate  issued to Asset Investors Secured
                            Financing  Corporation  evidencing  its ownership of
                            the Structured  Mortgage Trust 1997-1  (incorporated
                            herein  by  reference  to  Exhibit  10.5(e)  to  the
                            Quarterly  Report on Form 10-Q of the Registrant for
                            the quarter  ended March 31, 1997,  Commission  File
                            No. 1-9360, filed on May 14, 1997).

                  10.5      Asset  Contribution  Agreement dated as of September
                            8, 1997  between  the  Registrant,  Asset  Investors
                            Operating  Partnership,  L.P.,  and Financial  Asset
                            Management, LLC (incorporated herein by reference to
                            Exhibit 10.6 to the Quarterly Report on Form 10-Q of
                            the Registrant  for the quarter ended  September 30,
                            1997,  Commission File No. 1-9360, filed on November
                            12, 1997).

                  10.6      Loan  Agreement  dated as of July 16,  1998,  by and
                            among  AIOP  Brentwood  West,   L.L.C.;   AIOP  Lost
                            Dutchman Notes,  L.L.C.; AIOP Mullica,  L.L.C.; AIOP
                            Gulfstream Harbor, L.L.C.; AIOP Gulfstream Outlot I,
                            L.L.C.;  AIOP  Gulfstream  Outlot II,  L.L.C.;  AIOP
                            Gulfstream Outlot III, L.L.C.; and AIOP Serendipity,
                            L.L.C.,   and  Salomon  Brothers  Realty  Corp.  and
                            LaSalle  National  Bank   (incorporated   herein  by
                            reference  to  Exhibit  10.7  to  the   Registrant's
                            Current  Report  on Form 8-K  dated  July 16,  1998,
                            Commission File No. 1-9360, filed on July 30, 1998).

                  10.6(a)   Promissory  Note dated as of July 16, 1998,  between
                            AIOP Lost Dutchman  Notes,  L.L.C.;  AIOP  Brentwood
                            West, L.L.C.; AIOP Mullica,  L.L.C.; AIOP Gulfstream
                            Harbor,  L.L.C.;  AIOP Gulfstream  Outlot I, L.L.C.;
                            AIOP Gulfstream  Outlot II, L.L.C.;  AIOP Gulfstream
                            Outlot III, L.L.C.;  and AIOP  Serendipity,  L.L.C.,
                            and  Salomon  Brothers  Realty  Corp.  (incorporated
                            herein  by  reference  to  Exhibit  10.7(a)  to  the
                            Registrant's  Current  Report on Form 8-K dated July
                            16, 1998,  Commission File No. 1-9360, filed on July
                            30, 1998).

                                     - 30 -
<PAGE>

                  10.6(b)   Pledge Agreement and Limited Recourse Guaranty dated
                            as of July 16,  1998 by and  among  the  Registrant,
                            Asset  Investors  Operating  Partnership,  L.P.  and
                            Salomon Brothers Realty Corp.  (incorporated  herein
                            by reference to Exhibit 10.7(b) to the  Registrant's
                            Current  Report  on Form 8-K  dated  July 16,  1998,
                            Commission File No. 1-9360, filed on July 30, 1998).

                  10.7      Credit  Agreement  dated as of  September  1,  1998,
                            between U.S.  Bank  National  Association  and Asset
                            Investors  Operating   Partnership,   L.P.  and  the
                            Registrant  (incorporated  herein  by  reference  to
                            Exhibit  10.7 to the  Annual  Report on Form 10-K of
                            the  Registrant  for the fiscal year ended  December
                            31, 1998, Commission File No. 1-9360, filed on March
                            24, 1999).

                  10.7(a)   Promissory  Note  dated  as of  September  1,  1998,
                            between U.S.  Bank  National  Association  and Asset
                            Investors  Operating   Partnership,   L.P.  and  the
                            Registrant  (incorporated  herein  by  reference  to
                            Exhibit  10.7 to the  Annual  Report on Form 10-K of
                            the  Registrant  for the fiscal year ended  December
                            31, 1998, Commission File No. 1-9360, filed on March
                            24, 1999).

                  10.8      Loan Agreement dated December 1, 1998,  between AIOP
                            Lost  Dutchman   Notes,   L.L.C.,   Asset  Investors
                            Operating Partnership, L.P., the Registrant and U.S.
                            Bank National  Association  (incorporated  herein by
                            reference  to Exhibit  10.8 to the Annual  Report on
                            Form  10-K of the  Registrant  for the  fiscal  year
                            ended December 31, 1998, Commission File No. 1-9360,
                            filed on March 24, 1999).

                  10.8(a)   Promissory  Note dated  December 30,  1998,  between
                            AIOP Lost Dutchman  Notes,  L.L.C.,  Asset Investors
                            Operating Partnership, L.P., the Registrant and U.S.
                            Bank National  Association  (incorporated  herein by
                            reference to Exhibit 10.8(a) to the Annual Report on
                            Form  10-K of the  Registrant  for the  fiscal  year
                            ended December 31, 1998, Commission File No. 1-9360,
                            filed on March 24, 1999).

                  10.9      Form of Promissory Note to General  Electric Capital
                            Assurance  Company  entered into in connection  with
                            the financing of five  manufactured home communities
                            (incorporated herein by reference to Exhibit 10.9 to
                            the Annual Report on Form 10-K of the Registrant for
                            the fiscal year ended December 31, 1998,  Commission
                            File No. 1-9360, filed on March 24, 1999).

                  10.10     Amended  and  Restated  Loan  Agreement  dated as of
                            January   1,   1998,   by  and   between   Community
                            Acquisition and Development  Corporation,  Community
                            Casa del Mar Joint Venture,  Community Sunlake Joint
                            Venture,    Community   Brentwood   Joint   Venture,
                            Community Savanna Club Joint Venture, Community Blue
                            Heron   Pines    Corporation,    Community   Sunlake
                            Corporation,    Community   Brentwood   Corporation,


                                     - 31 -
<PAGE>

                            Community  Savanna  Club  Corporation,   Royal  Palm
                            Village,   LLC   and   Asset   Investors   Operating
                            Partnership,  L.P. (incorporated herein by reference
                            to Exhibit  10.10 to the Annual  Report on Form 10-K
                            of the Registrant for the fiscal year ended December
                            31, 1998, Commission File No. 1-9360, filed on March
                            24, 1999).

                  10.10(a)  Revolving Credit Promissory Note dated as of January
                            1,   1998   between   Community    Acquisition   and
                            Development  Corporation,  Community  Casa  del  Mar
                            Joint  Venture,  Community  Sunlake  Joint  Venture,
                            Community Brentwood Joint Venture, Community Savanna
                            Club  Joint  Venture,  Community  Blue  Heron  Pines
                            Corporation,    Community    Sunlake    Corporation,
                            Community Brentwood  Corporation,  Community Savanna
                            Club Corporation,  Royal Palm Village, LLC and Asset
                            Investors Operating Partnership,  L.P. (incorporated
                            herein  by  reference  to  Exhibit  10.10(a)  to the
                            Annual Report on Form 10-K of the Registrant for the
                            fiscal year ended December 31, 1998, Commission File
                            No. 1-9360, filed on March 24, 1999).

                  21.1      List  of   Subsidiaries   (incorporated   herein  by
                            reference  to Exhibit  21.1 to the Annual  Report on
                            Form  10-K of the  Registrant  for the  fiscal  year
                            ended December 31, 1998, Commission File No. 1-9360,
                            filed on March 24, 1999).

                  23.1      Independent Auditors' Consent - Ernst & Young LLP.

                  27.1      Financial Data Schedule.



* Management contract or compensatory plan or arrangement.




                                     - 32 -
<PAGE>





                                    SIGNATURE

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 8, 2000                              By  /s/David M. Becker
                                                     ------------------
                                                     David M. Becker
                                                     Chief Financial Officer

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