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

                                    FORM 10-K
                        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, 1997

                                       OR

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

                          Commission file 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.
[X]

         As of  February  27,  1998,  5,109,503  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 $81,000,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions  of the  proxy  statement  for the  Registrant's  1998  Annual
Meeting of  Stockholders  are  incorporated  by reference  into Part III of this
Annual Report.

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                           ASSET INVESTORS CORPORATION

                                Table of Contents
                           Annual Report on Form 10-K
                   For the Fiscal Year Ended December 31, 1997


Item                                                                        Page
                                     PART I
1.       Business
              REIT Status...................................................   2
              Recent Developments............................................  2
              Financial Information about Industry Segments.................   4
              Growth and Operating Strategies...............................   4
              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..............................................  11

6.       Selected Financial Data............................................  12

7.       Management's Discussion and Analysis of Financial Condition
           and Results of Operations........................................  13

8.       Financial Statements and Supplementary Data........................  20

9.       Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure.........................................  20

                                    PART III

10.      Directors and Executive Officers of the Registrant.................  20

11.      Executive Compensation.............................................  21

12.      Security Ownership of Certain Beneficial Owners and Management.....  21

13.      Certain Relationships and Related Transactions.....................  22

                                     PART IV

14.      Exhibits, Financial Statement Schedules, and Reports on Form 8-K...  22

         Signatures.........................................................  28

                                      (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,  the Company's  Annual Report to Stockholders and other
Company filings  (collectively  "SEC Filings") 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) contains or may contain information that is forward looking, including,
without  limitation,  statements  regarding  the  effect  of  acquisitions,  the
Company's future financial performance and the effect of government regulations.
Actual results may differ materially from those described in the forward looking
statements  and will be affected  by a variety of risks and  factors  including,
without limitation, national and local economic conditions, the general level of
interest rates,  terms of governmental  regulations  that affect the Company and
interpretations of those regulations,  the competitive  environment in which the
Company  operates,  financing risks,  including the risk that the Company's cash
flow from operations may be insufficient to meet required  payments of principal
and interest,  real estate risks, including variations of real estate values and
the general  economic  climate in local markets and  competition  for tenants in
such markets,  acquisition  and  development  risks,  including  failure of such
acquisitions   to  perform  in  accordance   with   projections,   and  possible
environmental  liabilities,  including  costs  which  may  be  incurred  due  to
necessary  remediation of  contamination  of properties  presently  owned by the
Company.  In addition,  the Company's  continued  qualification as a real estate
investment  trust  involves  the  application  of highly  technical  and complex
provisions of the Internal  Revenue Code.  Readers should  carefully  review the
Company's  financial  statements  and the  notes  thereto,  as well as the  risk
factors described in the SEC Filings.

Item 1.  Business.

Asset Investors  Corporation,  a Maryland  corporation formed in 1986, (together
with   its   consolidated   subsidiaries,   "AIC"   or  the   "Company")   is  a
self-administered and self-managed real estate investment trust ("REIT") engaged
in the ownership,  acquisition,  development and management of manufactured home
communities.  As of February 28, 1998, AIC had interests in 20 manufactured home
communities  and a  recreational  vehicle  park with a total of 2,964  developed
homesites,  764  sites  ready  for  homes,  1,842  sites  available  for  future
development and 377 recreational vehicle sites. In addition,  the Company had an
interest in a golf course adjacent to one of the manufactured  home communities,
and it managed five  communities  for third party owners.  The Company also owns
approximately 27% of the common stock of Commercial Assets, Inc. ("CAX"). CAX is
a  publicly-traded  REIT (American  Stock  Exchange,  Inc.:  CAX). The Company's
shares  of Common  Stock  ("Common  Stock")  are  listed  on the New York  Stock
Exchange  ("NYSE") under the symbol "AIC." In May 1997, the Company  contributed
all of 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  all of  the  Operating  Partnership's  initial
capital.  As of February  28,  1998,  the Company  had a 78%  investment  in the
Operating Partnership.

The Company's  principal executive offices are located at 3410 S. Galena Street,
Suite 210, Denver, Colorado 80231 and its telephone number is (303) 614-9400.

                                     - 1 -
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REIT Status

In November 1997, the Company incorrectly documented a transaction by having the
Operating  Partnership acquire all of the voting common stock of Asset Investors
Equity,  Inc.  ("AIE"),  a  consolidated  subsidiary of the Company,  instead of
having another  subsidiary acquire AIE's voting common stock. As a result of the
transaction,  the Company was not in compliance with the technical  requirements
necessary to maintain its status as a REIT.  The Company has submitted a request
to the Internal  Revenue  Service to confirm or restore  AIC's status as a REIT.
The  Company  expects to receive a response  to such  request  during the second
quarter of 1998.  After  consulting  with the Company's tax and legal  advisors,
management  believes  that the  outcome of this  matter will not have a material
effect on its results of operations  or financial  position for 1997 or 1998 due
to its $95 million net operating loss ("NOL") carryover.

Recent Developments

Manufactured Home Community Acquisitions

During 1997,  the Company  initiated  its  strategy to  transform  itself from a
holder of "first loss"  positions of  non-conforming  residential  mortgage loan
securitizations   ("non-agency   MBS  bonds")  to  the  owner  and  operator  of
manufactured home communities. From May 1997 through February 1998, AIC acquired
interests in 20 adult  manufactured home communities,  one recreational  vehicle
park and one golf course  adjacent to one of the  Company's  communities.  As of
February 29, 1998, the communities  consisted of 2,964 developed homesites,  764
sites ready for homes,  1,842 sites  available  for future  development  and 377
recreational vehicle sites. The total consideration paid by the Company of $74.4
million  consisted of $49.2 million in cash, shares of Common Stock with a total
recorded value of $1.3 million,  units of limited  partnership  interests in the
Operating  Partnership ("OP Units") with a total recorded value of $13.0 million
and  the  assumption  of  $10.9  million  of  secured,  non-recourse,  long-term
indebtedness.   Of  the  properties  where  the  Company  has  an  interest,  14
communities  are  located in  Florida,  four are in  Arizona  and one each is in
Pennsylvania and New Jersey. The recreational vehicle park is in California.

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 or arranged for by the owner of the  community.  Community  lifestyles,
primarily  promoted  by  resident  managers,  include  a wide  array  of  social
activities  that  serve to  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.

The owner of each home in the Company's communities leases the site on which the
home is located.  The typical  lease  entered into between the tenant and one of
the  Company's  manufactured  home  communities  for  the  rental  of a site  is
month-to-month  or year-to-year,  renewable upon the consent of both parties or,


                                     - 2 -
<PAGE>

in some instances,  as provided by statute. In some  circumstances,  the Company
also  offers a 99-year  lease to a tenant in order to enable  the tenant to have
some benefits of an owner of real property (e.g. the Homestead exemption). These
leases  are  cancelable,  depending  on  state  law,  for  non-payment  of rent,
violation  of  community  rules and  regulations  or other  specified  defaults.
Generally, market rate adjustments are made on an annual basis. The Company owns
the underlying land, utility connections,  streets, lighting,  driveways, common
area amenities and other capital improvements and is responsible for enforcement
of community guidelines and maintenance.  Each homeowner within the manufactured
home  community is responsible  for the  maintenance of his home and leased site
including lawn care in some communities.

The Company believes that manufactured  home  communities,  once fully occupied,
tend to achieve a stable  rate of  occupancy.  The cost and effort  involved  in
relocating a home to another  community  generally  encourages  the owner of the
home to resell it within the community.

Restructuring of Non-Agency MBS Bonds

Through March 1997, the Company owned a portfolio of unrated credit support debt
interests in non-conforming  residential mortgage loan securitizations  known as
"non-agency  MBS bonds." In  February  1997,  the Company  adopted a strategy to
restructure its asset base in order to reduce risk associated with the Company's
non-agency MBS bond portfolio and attempt to maximize  long-term,  risk-adjusted
returns to stockholders. In March 1997, the Company contributed its portfolio of
non-agency  MBS bonds into an owner trust in a structured  transaction  in which
the Company  received $67.7 million in cash and retained a small equity interest
in the trust.  During the  remainder of 1997,  the Company began to redeploy the
cash proceeds by acquiring interests in manufactured home communities.

The Company's  non-agency MBS bonds were  collateralized  by mortgage loans that
did not meet  government  agency  guarantee  standards,  typically  because  the
mortgage loans either  exceeded  agency size limits or the borrower did not meet
other agency credit  underwriting  criteria (a "non-conforming  mortgage loan").
Because of credit  risk,  a  securitization  of  non-conforming  mortgage  loans
requires  some  form of  credit  enhancement.  One  type of  credit  enhancement
provided  is through a  "senior-subordinate"  structure,  where the  subordinate
classes of the non-conforming  residential mortgage loan securitization  provide
credit  protection to the senior classes by absorbing the first losses from loan
defaults or  foreclosures.  The Company  acquired the  subordinate  bond classes
which,  while  offering  the  potential  of a higher  yield than the more senior
classes,  had the greatest  credit risk. Such bond classes were considered to be
speculative and were subject to special risks, including a substantially greater
risk of loss of  principal  and  non-payment  of interest  than the more senior,
rated classes.

President and Chief Operating Officer

In February  1998,  Mr. Bruce Moore became AIC's  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
for a period of three years and,  in lieu of cash  salary,  was granted  10-year
options to purchase  250,000  shares of Common Stock,  subject to  stockholders'
approval of an increase in the number of shares of Common  Stock  covered by the
Company's Stock Option Plan. The options vest in three equal annual installments
commencing in February 1999.

                                     - 3 -
<PAGE>

Acquisition of Manager

Prior to November  1997,  the  Company's  daily  activities  were  performed  by
Financial  Asset  Management LLC, (the "Manager" or "FAM") pursuant to an annual
management agreement (the "AIC Management Agreement").  In addition, the Manager
provided  similar  services to CAX  pursuant to a separate  agreement  (the "CAX
Management Agreement") (collectively, the "Management Agreements"). In September
1996,  the Manager was purchased by a group led by Messrs.  Terry  Considine and
Thomas L. Rhodes  (Co-Chairmen and Co-Chief  Executive  Officers of both AIC and
CAX) and Mr.  Bruce D.  Benson (a  director  of both AIC and CAX) for a purchase
price of $11,692,000.  In November 1997, the Company's stockholders approved the
acquisition of the Manager's  assets and operations also for a purchase price of
$11,692,000,  which was paid by issuing 676,696 OP Units. In addition,  FAM will
be entitled to an additional  240,000 OP Units if the Company  achieves  certain
performance goals, including investment and share price targets, by June 1999.

As a result of the purchase of the CAX Management Agreement, the Company manages
CAX's daily activities.  The CAX Management  Agreement has been extended through
March 31, 1998 and CAX is required to pay the Company the  following  fees:  (i)
Acquisition  Fees equal to 1/2 of 1% of the cost of each asset  acquired by CAX;
(ii) Base Fees equal to 1% per annum of CAX's  "average  invested  assets,"  and
(iii)  Incentive  Fees  equal to 20% of the amount by which  CAX's  REIT  income
exceeds the amount  calculated by  multiplying  CAX's "average net worth" by the
"Ten Year United States  Treasury  rate" plus 1%. During  December 1997, no fees
were earned since  substantially all of CAX's assets were invested in short-term
government securities and other cash equivalents. The Company does not expect to
receive any fees from the CAX  Management  Agreement  until CAX begins to invest
its resources in real estate assets.  Although there can be no assurance of when
CAX will make such investments or the amount thereof,  the Company believes that
CAX will begin making such investments in 1998.

Reverse Stock Split

In November 1997,  the Company's  stockholders  approved a one-for-five  reverse
stock split.  Unless otherwise stated,  all share and per share amounts included
herein  have been  retroactively  adjusted  for the  effect of the  one-for-five
reverse stock split.

Financial Information about Industry Segments

The Company  operates in one industry  segment,  the ownership and management of
real  estate.  See the  consolidated  financial  statements  and  notes  thereto
included  in Item 8 of  this  Report  on Form  10-K  for  financial  information
relating to the Company.

Growth and Operating Strategies

The Company measures its economic  profitability  based on Funds From Operations
("FFO").  The Company's  management believes that FFO provides investors with an
understanding  of the  Company's  ability  to incur  and  service  debt and make
capital expenditures. The Board of Governors of the National Association of Real
Estate Investment Trusts ("NAREIT")  defines FFO as net income (loss),  computed
in accordance with generally accepted accounting principles ("GAAP"),  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.  The Company  calculates  FFO in a manner  consistent  with the NAREIT
definition,  which includes  adjustments for minority  interest in the Operating
Partnership,  and amortization of management company goodwill. FFO should not be


                                     - 4 -
<PAGE>

considered  an  alternative  to net  income  or net cash  flows  from  operating
activities,  as  calculated  in  accordance  with GAAP,  as an indication of the
Company's  performance  or as a measure  of  liquidity.  FFO is not  necessarily
indicative of cash available to fund future cash needs.

The Company's primary  objective is to maximize  stockholder value by increasing
the amount and  predictability of FFO on a per share basis. The Company seeks to
achieve this  objective  primarily by improving  net  operating  income from its
existing portfolio of manufactured home communities and by acquiring  additional
communities  at values  that are  accretive  on a per share  basis.  The Company
intends to follow operating and financial strategies, including: (i) obtaining a
geographically  diverse  portfolio of communities;  (ii) providing a minimum $50
per homesite  per year for capital  replacements  to maintain  its  communities;
(iii)  utilizing  long-term,   fixed-rate,   fully-amortizing   debt;  and  (iv)
maintaining a ratio of (a) Adjusted Funds From Operations ("AFFO") plus interest
expense to (b) interest expense of at least 2 to 1. AFFO is equal to FFO less an
estimated  annual  reserve  for capital  replacements  of $50 per  homesite.  In
addition,  the  Company  seeks to: (i)  selectively  acquire  manufactured  home
communities that have potential long-term  appreciation of value through,  among
other  things,  rent  increases,   expense  efficiencies  and  in-park  homesite
absorption and  development;  (ii) improve the  profitability of its communities
through   aggressive   management  of  occupancy,   community   development  and
maintenance   and  expense   control;   (iii)  develop  and  maintain   resident
satisfaction and a reputation for quality communities through maintenance of the
physical condition of the communities and providing  activities that improve the
community  lifestyle;  and (iv) recruit and retain quality community  management
personnel.

Future Acquisitions

From  time to time,  the  Company  evaluates  acquisition  opportunities  in the
manufactured  home  community   industry  and  expects  to  acquire   additional
properties as opportunities can be identified on terms considered  beneficial by
management.  The acquisition of interests in additional  communities  could also
result in the  Company  becoming  increasingly  leveraged  as it incurs  debt in
connection with these transactions.

The Company  believes  that  acquisition  opportunities  for  manufactured  home
communities are attractive at this time because of increasing  acceptability  of
and demand for manufactured  homes,  the increasing need for affordable  housing
alternatives,  and the continued  constraints on development of new manufactured
home  communities.  The  Company  is  actively  seeking  to  acquire  additional
communities and currently is engaged in various stages of negotiations  relating
to the possible acquisition of a number of communities.

When evaluating potential  acquisitions,  the Company considers such factors as:
(i) the geographic  area and type of property;  (ii) the location,  construction
quality,  condition and design of the property;  (iii) the current and projected
cash flow of the  property  and the  ability to  increase  cash  flow;  (iv) the
potential  for capital  appreciation  of the  property;  (v) the terms of tenant
leases,  including  the  potential  for rent  increases;  (vi) the potential for
economic growth and the tax and regulatory environment of the community in which
the  property is located;  (vii) the  potential  for  expansion  of the physical
layout of the  property  and/or the number of sites;  (viii) the  occupancy  and
demand by  residents  for  properties  of a similar type in the vicinity and the
residents' profile;  (ix) the prospects for liquidity through sale, financing or
refinancing of the property;  (x) competition  from existing  manufactured  home
communities  and the potential for the  construction  of new  communities in the
area; and (xi) the replacement cost of the property.

                                     - 5 -
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Properties Subject to Letter of Intent or Contract

In the  ordinary  course of the  Company's  business,  the Company is engaged in
discussions and negotiations  with  manufactured home community owners regarding
the purchase of communities or interests in communities. The Company enters into
letters of intent  from time to time,  which may be binding or  nonbinding,  and
contracts  with  respect to the purchase of real  property  which are subject to
certain conditions and which permit the Company to terminate the contract in its
sole and absolute  discretion if it is not satisfied with the results of its due
diligence  investigation of the properties under contract.  Management  believes
that  such  contracts  essentially  result in the  creation  of an option on the
community  subject to the contract and give the Company  greater  flexibility in
seeking to acquire properties.

Expansion of Existing Communities

The Company  will also seek to increase  the number of  homesites  and  earnings
generated from its existing  portfolio of manufactured home communities and from
future  acquisitions  by expanding 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 February 28, 1998, the Company had an interest in
eight  communities  with 764 sites ready for homes and 1,842 sites available for
future development.

Competition

There  are  numerous  housing  alternatives  that  compete  with  the  Company's
manufactured home communities in attracting residents.  The Company's properties
compete for residents  with other  manufactured  home  communities,  multifamily
rental  apartments  and  single  family  homes and  condominiums.  The number of
competitors in a particular  area could have a material  effect on the Company's
ability to lease homesites and on the rents charged.  In acquiring  assets,  the
Company competes with other REITs, pension funds, insurance companies, and other
investors, many of which have greater financial resources than the Company.

Taxation of the Company

The Company has elected to be taxed as a REIT under the Internal Revenue Code of
1986,  as amended  (the  "Code"),  and the Company  intends to operate in such a
manner. The Company's current  qualification as a REIT depends on its ability to
meet the various  requirements  imposed by the Code,  through  actual  operating
results,  distribution  levels and  diversity of stock  ownership.  As indicated
above (see "REIT  Status"),  the Company was not in  compliance  with one of the
technical  requirements  for  maintaining  its status as a REIT as a result of a
transaction  that was  incorrectly  documented in November 1997, and the Company
has applied to the Internal Revenue Service for relief.

If the Company  qualifies  for  taxation  as a REIT,  it will  generally  not be
subject to Federal  corporate  income  tax on its 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 the Company fails to qualify as a REIT in any
taxable  year,  its  taxable  income  will be subject  to Federal  income tax at
regular  corporate  rates  on  its  taxable  income  (including  any  applicable
alternative  minimum tax). The Company has a NOL carryover of approximately  $95
million  that could be used in the event that the Company  fails to qualify as a
REIT.  Even if the  Company  qualifies  as a REIT,  it may be subject to certain


                                     - 6 -
<PAGE>

state and local income and other taxes and to Federal income and excise taxes on
its undistributed income.

If in any taxable  year the Company  fails to qualify as a REIT and incurs a tax
liability,  the  Company  might  need  to  borrow  funds  or  liquidate  certain
investments  in order to pay the  applicable  tax and the  Company  would not be
compelled to make distributions  under the Code. Unless entitled to relief under
certain  statutory  provisions,  the  Company  would also be  disqualified  from
treatment as a REIT for the four taxable  years  following the year during which
qualification is lost.  Although the Company  currently  intends to operate in a
manner  designed  to qualify as a REIT,  it is possible  that  future  economic,
market,  legal,  tax or other  considerations  may cause the  Company to fail to
qualify  as a REIT or may  cause  the  Board of  Directors  to  revoke  the REIT
election.

The Company and its  stockholders  may be subject to state or local  taxation in
various  state  or  local  jurisdictions,  including  those  in which it or they
transact  business or reside.  The state and local tax  treatment of the Company
and its stockholders may not conform to the Federal income tax treatment.

Regulations

General

Manufactured  home  communities  are  subject to various  laws,  ordinances  and
regulations,  including regulations relating to recreational  facilities such as
swimming  pools,  clubhouses and other common areas.  The Company  believes that
each property has the necessary permits and approvals to operate.

Americans with Disabilities Act ("ADA")

The properties and any newly acquired  manufactured home communities must comply
with  the  ADA.  The  ADA  has  separate  compliance  requirements  for  "public
accommodations" and "commercial  facilities," but generally requires that public
facilities such as clubhouses,  pools and recreation areas be made accessible to
people with  disabilities.  Compliance  with the ADA  requirements  has required
removal of access  barriers and other capital  improvements  at the  properties.
Noncompliance  could  result in  imposition  of fines or an award of  damages to
private  litigants.  The  Company  has taken into  account an  estimate of funds
required to make any changes  required by the ADA in determining the appropriate
level of reserves and the expected level of distributions and believes that such
costs  can be  covered  by  funds  from  the  operations  of the  properties  or
established  reserves  without  any  material  adverse  effect on the  Company's
financial  condition  or results of  operations.  If ongoing  changes  involve a
greater  expenditure than the Company currently  anticipates,  or if the changes
must be made on a more  accelerated  basis than it  anticipates,  the  Company's
ability to make expected distributions could be adversely affected.

Rent Control Legislation

State and local rent control laws,  principally in Florida,  limit the Company's
ability to increase rents and to recover increases in operating expenses and the
costs of capital  improvements.  Enactment of such laws has been considered from
time to time in other  jurisdictions.  The Company presently expects to continue
to  maintain   manufactured  home  communities,   and  may  purchase  additional
properties,  in  markets  that are either  subject  to rent  control or in which
rent-limiting  legislation  exists or may be enacted.  For example,  Florida has
enacted  a  law,  which  generally   provides  that  rental  increases  must  be
reasonable.

                                     - 7 -
<PAGE>

Insurance

Management  believes that its properties are covered by adequate fire, flood and
property  insurance  provided  by  reputable  companies  and  with  commercially
reasonable deductibles and limits. The Company believes it has obtained adequate
title  insurance  insuring  fee title  when it has  acquired  manufactured  home
communities.

Capital Resources

The Company has used its cash balances, AFFO and short-term credit facilities to
provide working capital to support its operations,  for the payment of dividends
and for the acquisition of assets.  Future  acquisitions will be financed by the
most  appropriate  sources of  capital,  which may include  the  Company's  cash
balances;  undistributed AFFO; long-term, secured, fixed-rate,  fully-amortizing
debt;   short-term,   secured  debt;  and  the  issuance  of  additional  equity
securities,  including  OP  Units  of the  Operating  Partnership.  The  Company
believes  that the  issuance of OP Units in  exchange  for new  communities  may
permit the  Company to  acquire  additional  manufactured  home  communities  in
transactions that may defer all or a portion of the sellers' tax consequences.

Without further stockholder  approval,  the Company is authorized to issue up to
50,000,000  shares of Common Stock,  of which  5,109,503  shares were issued and
outstanding  as of February 27, 1998.  The Board of Directors is  authorized  to
issue additional classes of 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 affect  adversely  existing
stockholders.  The effects on  stockholders  could include,  among other things,
dilution of  ownership  interests  of  existing  stockholders,  restrictions  on
dividends on Common Stock and  preferences to holders of a new class of stock in
the  distribution  of assets upon  liquidation.  As of February  27,  1998,  the
Company has not authorized or issued additional classes of stock.

Dividend Reinvestment Plan

The Company has an Automatic Dividend  Reinvestment Plan administered by Norwest
Stockholder Services.  The plan provides the Company's  stockholders a method of
investing  cash  dividends  paid by the Company in  additional  shares of Common
Stock  purchased  in the open  market.  The plan also  permits  participants  to
purchase Common Stock in the open market with voluntary cash payments.

Restrictions on and Redemptions of Common Stock

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

                                     - 8 -
<PAGE>

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

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

Employees

The Company's employees perform various acquisition,  development and management
functions.    Brandywine   Financial   Services   Corporation   and   affiliates
("Brandywine")  provide  employees  that perform  property  management and sales
services  for the  Company's  communities.  Mr.  Bruce Moore was the founder and
Chief Executive  Officer of Brandywine prior to becoming the President and Chief
Operating  Officer of the Company in February 1998. In addition to the Company's
eight employees,  approximately 80 Brandywine employees are devoted full time to
the Company's communities. None of the employees are represented by a union, and
the Company  has never  experienced  a work  stoppage.  The Company  believes it
maintains satisfactory relations with its employees.

Item 2.  Properties.

The  manufactured  home  communities  in which the Company has  interests in are
primarily located in Florida and Arizona. The following table sets forth certain
information  as of February 28, 1998,  with respect to the  Company's  principal
markets:

<TABLE>
<CAPTION>

                                                                             Number of Sites
                                                      ---------------------------------------------------------------
                                                                                    Available for
                                        Number of                      Ready for         Future        Recreational
                                       Communities      Developed        Homes        Development       Vehicles
                                       -----------      ---------        -----        -----------       --------
<S>                                          <C>           <C>            <C>             <C>               <C>
Florida                                      14            2,398          764             1,789              --
Arizona                                       4              448           --                53             312
New Jersey                                    1               90           --                --              --
Pennsylvania                                  1               28           --                --              --
California                                    1               --           --                --              65
                                            ---           ------         ----            ------            ----
   Total                                     21            2,964          764             1,842             377
                                            ===            =====         ====            ======            ====

</TABLE>

The Company's  developed  homesites were 99% occupied with average monthly rents
of $263.




                                     - 9 -
<PAGE>





<TABLE>
<CAPTION>


                                                                          Average
                                                                          Monthly                                  Sites Available
                                                 Developed                  Rent    Recreational    Sites Ready          for
   Community            Location                 Homesites   Occupancy(2) per Site  Vehicle Sites    for Homes       Development
----------------------------------------------------------------------------------------------------------------------------------
  Owned Communities
<S>                                                   <C>        <C>         <C>          <C>           <C>               <C>
  Cardinal Court    Largo, FL                         138        99%         $252         --             --               --
  Forest View       Homosassa, FL                     180       100           207         --            131               --
  Marina Dunes      Marina, CA                         --        --            --         65             --               --
  Park Royale       Pinellas Park, FL                 258        96           331         --             51               --
  Pinewood          St. Petersburg, FL                220        98           277         --             --               --
  Pleasant Living   Riverview, FL                     243       100           247         --             --               --
  Stonebrook        Homosassa, FL                     118        99           227         --            100               --
  Sun Valley        Tarpon Springs, FL                261       100           327         --             --               --
  Westwind I        Dunedin, FL                       195        99           345         --             --               --
  Westwind II       Dunedin, FL                       189        99           369         --             --               --
  Mullica Woods     Egg Harbor City, NJ                90       100           421         --             --               --
  Salem Farm        Bensalem, PA                       28       100           392         --             --               --
                                                ----------------------------------------------------------------------------------
      Subtotal                                      1,920        99           290         65            282               --
                                                ----------------------------------------------------------------------------------
  Joint Venture Communities
  Apache Acres      Apache Junction, AZ (1)            34        88           180         97             --               --
  Blue Star         Apache Junction, AZ (1)            28        93           198        108             --               --
  Lost Dutchman     Apache Junction, AZ (1)           122       100           234        107             --               53
  Sun Valley        Apache Junction, AZ (1)           264       100           216         --             --               --
  Brentwood         Hudson, FL                         67        84           191         --             79               74
  Casa del Mar      Punta Gorda, FL                   103       100           217         --            140              212
  Royal Palm        Haines City, FL                   218        99           200         --             68              175
  Savanna Club      Port St. Lucie, FL                 --        --            --         --             --            1,328
  Sun Lake          Grand Island, FL                  208       100           280         --            195               --
                                                ----------------------------------------------------------------------------------
      Subtotal                                      1,044        98           223        312            482            1,842
                                                ----------------------------------------------------------------------------------
  Total Owned and Joint Venture Communities         2,964        99%         $263        377            764            1,842
                                                ==================================================================================


  Managed Communities
  Countryside       Brooksville, FL                    73       100%         $134         --             38               --
  Edgewater         Seminole, FL                      130       100           163         --             --               --
  Golden Crest      Dunedin, FL                       176        99           329         --             --               --
  Lakewood          Vero Beach, FL                    329        99           284         --             47               --
  Windward          Spring Hill, FL                   192       100           231         --             62               --
                                                ----------------------------------------------------------------------------------
  Total Managed Communities                           900       100%         $252         --            147               --
                                                ==================================================================================
<FN>

(1)The Company  holds two  mortgage  loans  secured by the four  communities  in
   Apache Junction,  Arizona.  As a provision of the mortgages,  the Company has
   the right to purchase the properties at fair value and has an interest in the
   operating   revenues  from  the  properties  and  proceeds  from  a  sale  or
   refinancing  of the  properties.  Due to  these  rights,  the  mortgages  are
   accounted  for as an equity  investment in real estate and reflected as joint
   venture communities above.

(2)Excludes recreational vehicle sites, which are leased on a seasonal basis.
</FN>
</TABLE>


                                     - 10 -
<PAGE>


Item 3.  Legal Proceedings.

At February  28,  1998,  there were no material  legal  proceedings,  pending or
threatened,  to which the Company or any of its  subsidiaries  was a party or to
which any of their respective properties were subject.

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

The Company's 1997 Annual Meeting of Stockholders was held on November 21, 1997.
At  the  meeting,  stockholders  approved  the  acquisition  of the  assets  and
operations  of the  Manager.  Of the votes cast,  2,625,468  were cast "for" the
acquisition  and 206,915 were cast "against" the  acquisition  with 57,571 votes
cast  "abstain."  In  addition,  Messrs.  Terry  Considine,  Bruce D. Benson and
William J. White were elected as Class II  Directors  to terms  expiring in 2000
and Thomas L. Rhodes was elected as a Class III  Director to a term  expiring in
1998. There were 4,410,383,  4,407,166, 4,403,579 and 4,409,973 votes cast "for"
Messrs. Considine,  Benson, White and Rhodes, respectively and 144,315, 147,532,
151,119  and 144,725  votes,  respectively,  were  "withheld."  At the  meeting,
stockholders  also  approved an amendment to the  Articles of  Incorporation  to
effect  a  one-for-five   reverse  stock  split  of  the  Company's  issued  and
outstanding shares of Common Stock. Of the votes cast, 3,927,492 were cast "for"
the amendment,  483,141 were cast "against" the amendment, and 71,500 votes were
cast "abstain."
                                     PART II

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

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

                              High            Low             Dividends
                              ----            ---             ---------
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

1996
   First Quarter           $  16-7/8        $  13-3/4           $   .450
   Second Quarter             18-3/4           15-5/8               .450
   Third Quarter              18-3/4           16-7/8               .475
   Fourth Quarter                 20           17-1/2               .475


As of  February  27,  1998,  5,109,503  shares of Common  Stock were  issued and
outstanding and were held by 3,107 stockholders of record. The Company estimates
there were an additional 11,000 beneficial owners on that date whose shares were
held by banks, brokers or other nominees.

The Company,  as a REIT, is required to distribute annually to holders of Common
Stock at least 95% of its "real estate  investment trust taxable income," which,
as defined by the Code and Treasury regulations,  is generally equivalent to net
taxable ordinary income.  The Company  measures its economic  profitability  and
intends  to pay  regular  income to its  stockholders  based on AFFO  during the
relevant period. However, the future payment of dividends by the Company will be
at the discretion of the Board of Directors and will depend on numerous  factors
including the  Company's  financial  condition,  its 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.

                                     - 11 -
<PAGE>

Item 6.  Selected Financial Data.

The selected  financial data of the Company,  set forth below,  has been derived
from and should be read in conjunction with the Company's  audited  consolidated
financial  statements and the notes  thereto.  Financial data as of December 31,
1997 and 1996,  and for each of the three years in the period ended December 31,
1997, is included  elsewhere in this Report on Form 10-K (in  thousands,  except
per share data).

<TABLE>
<CAPTION>

                                                                    Year Ended December 31,
                                             -----------------------------------------------------------------------
                                                 1997           1996          1995          1994           1993
                                                 ----           ----          ----          ----           ----
   RENTAL PROPERTY OPERATIONS
<S>                                           <C>            <C>           <C>           <C>             <C>
   Rental and other property revenues         $    3,104     $       --    $       --    $       --      $      --
   Equity in earnings of real estate joint
     ventures                                        466             --            --            --             --
   Property operating expenses                    (1,311)            --            --            --             --
   Owned property management expenses                (87)            --            --            --             --
                                              ----------     ----------    ----------    ----------      ---------
                                                   2,172             --            --            --             --
   Depreciation                                     (693)            --            --            --             --
                                              ----------     ----------    ----------    ----------      ---------
                                                   1,479             --            --            --             --
                                              ----------     ----------    ----------    ----------      ---------

   SERVICE OPERATIONS
   Property management fees and other
     income                                          128             --            --            --             --
   Property management and other expenses
                                                     (59)            --            --            --             --
   Amortization of management contracts             (744)            --            --            --             --
                                              ----------     ----------    ----------    ----------      ---------
                                                    (675)            --            --            --             --
                                              ----------     ----------    ----------    ----------      ---------

   OTHER ACTIVITIES
   Non-agency MBS bonds revenues                   2,966         11,513         8,499         1,531             --
   Equity in earnings of CAX                       3,663          1,875         1,742         1,354            187
   Management fees to former manager                (570)        (1,793)         (980)         (253)            --
   Earnings from liquidating operations               --             --         6,507        11,897        (47,913)
                                              ----------     ----------    ----------    ----------      ---------
                                                   6,059         11,595        15,768        14,529        (47,726)
                                              ----------     ----------    ----------    ----------      ---------

   General and administrative expenses            (1,042)        (1,145)       (1,895)       (1,586)        (4,231)
   Interest and other income                       1,808            136           630           563            939
   Interest expense                                 (368)           (88)          (63)         (148)            --
   Costs incurred to acquire management
     contract                                     (6,553)            --            --            --             --
   Elimination of DERs                                --           (825)           --            --             --
                                              ----------     ----------    ----------    ----------      ---------
   INCOME BEFORE GAIN ON RESTRUCTURING OF
     BONDS AND MINORITY INTEREST                     708          9,673        14,440        13,358        (51,018)
   Gain on restructuring of bonds                  6,484             --            --            --             --
                                              ----------     ----------    ----------    ----------      ---------


</TABLE>


                                     - 12 -
<PAGE>


<TABLE>
<CAPTION>

                                                                    Year Ended December 31,
                                             -----------------------------------------------------------------------
                                                 1997           1996          1995          1994           1993
                                                 ----           ----          ----          ----           ----
<S>                                           <C>            <C>           <C>           <C>             <C>
   INCOME BEFORE MINORITY INTEREST                 7,192          9,673        14,440        13,358        (51,018)
   Minority interest in Operating Partnership         62             --            --            --             --
                                              ----------     ----------    ----------    ----------      ---------

   NET INCOME                                 $    7,254     $    9,673    $   14,440    $   13,358      $ (51,018)
                                              ==========     ==========    ==========    ==========      =========

   BASIC EARNINGS PER SHARE                   $     1.44     $     1.97    $     2.97    $     4.59      $  (18.19)
                                              ==========     ==========    ==========    ==========      =========
   DILUTED EARNINGS PER SHARE                 $     1.43     $     1.95    $     2.96    $     4.58      $  (18.19)
                                              ==========     ==========    ==========    ==========      =========

   DIVIDENDS DECLARED PER SHARE               $     1.45     $     1.85    $     1.70    $     1.65      $   19.95
                                              ==========     ==========    ==========    ==========      =========

   Weighted-Average Common Shares
     Outstanding                                   5,022          4,919         4,856         2,910          2,805
   Weighted-Average Common Shares And
     Common Share Equivalents Outstanding          5,061          4,966         4,883         2,914          2,805

   Balance Sheet Data:
                                                                          December 31,
                                             ------------------------------------------------------------------------
                                                 1997           1996          1995          1994           1993
                                                 ----           ----          ----          ----           ----

   Real estate, before accumulated
     depreciation                             $   41,419     $       --    $       --    $       --      $      --
   Investments in and notes receivable
     from real estate joint ventures              25,415             --            --            --             --
   Total assets                                  119,161         90,344        79,653       109,539         94,250
   Secured notes payable                          10,677             --            --        30,592         42,000
   Minority interest in Operating
     Partnership                                  22,362             --            --            --             --
   Stockholders' equity                           83,515         86,365        78,759        72,965         47,187

</TABLE>

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


                          RESULTS OF OPERATIONS FOR THE
                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


The following  discussion and analysis of consolidated results of operations and
financial  condition  should  be  read  in  conjunction  with  the  consolidated
financial statements of the Company included elsewhere herein. Due to the change
in the Company's  business from  investing in non-agency MBS bonds to owning and
managing  manufactured home communities,  the results of operations for the year
ended December 31, 1997 are not comparable to prior periods.

                                     - 13 -
<PAGE>

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

Rental Property and Service Operations

From  May 1997 to  December  31,  1997,  the  Company  invested  $69,389,000  in
manufactured  home  communities and related assets  consisting of $46,344,000 of
cash, the assumption of $10,873,000 of existing debt, the issuance of $1,250,000
of Common Stock, and the issuance of $10,922,000 of OP Units. As of December 31,
1997,  the Company had interests in 18  manufactured  home  communities  and one
recreational vehicle park. In addition,  the Company managed six communities for
third parties.

From May 1997 to December 31, 1997, the Company earned  $3,104,000 of rental and
other property  revenues and $466,000 of equity in earnings of real estate joint
ventures and incurred  $1,311,000  of property  operating  expenses,  $87,000 of
owned property  management  expense and $693,000 of depreciation  related to the
acquired  communities.  In addition,  during the same period, the Company earned
$128,000 of property  management  fees and other income less $59,000 of expenses
and $744,000 of amortization related to the management contracts acquired.

CAX

Income from the Company's  27%  ownership  interest in CAX for 1997 and 1996 was
$3,663,000 and  $1,875,000,  respectively.  CAX reported to the Company that the
increase in income is primarily  because of gains from the  restructuring of its
portfolio  of CMBS  bonds,  prepayments  on one of its CMBS  bonds in the  third
quarter  of 1997 and the  non-recurring  charge in 1996 for the  elimination  of
dividend  equivalent  rights  under CAX's stock  option  plan.  The increase was
partially offset by higher  management fees in 1997 and revenues from redemption
of two CMBS bonds and other prepayments in 1996.

During the fourth  quarter of 1997,  CAX sold,  redeemed  or  resecuritized  its
entire portfolio of CMBS bonds generating $77,693,000 of cash and resulting in a
net gain of  $5,786,000.  CAX has not yet  identified  what it will reinvest the
proceeds  in.  CAX has also  reported  that  future  profitability  and  related
dividends will likely decline as a result of the  restructuring of its portfolio
until such proceeds are reinvested.

Non-agency MBS Bonds

Income from the Company's  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.
Credit  losses on the  underlying  collateral  will  likely  continue  to reduce
earnings from the retained equity interest in the future.

Management Fees

At the  Company's  annual  meeting in  November  1997,  stockholders  approved a
proposal  to  acquire  the  Manager  in  order  to  become  a  self-managed  and
self-administered  REIT.  In  connection  with  such  acquisition,  the  Company
acquired the CAX Management  Agreement and now provides  management  services to
CAX. The CAX  Management  Agreement  has been  extended to March 31,  1998.  The
Manager was acquired from an investment  group that includes Terry Considine and
Thomas L. Rhodes,  Co-Chairmen of the Board of Directors and Co-Chief  Executive


                                     - 14 -
<PAGE>

Officers  of both the Company and CAX,  and Bruce D.  Benson,  a director of the
Company and CAX. This investment group acquired the Manager in September 1996 at
a cost of $11,692,000.

Prior to the acquisition, the Manager received various fees for the advisory and
other services  performed in connection with the AIC Management  Agreement.  The
Manager  provided all  personnel and related  overhead  necessary to conduct the
regular  business of the Company.  When the Manager was acquired by the Company,
the AIC Management  Agreement was cancelled and the fees formerly payable by the
Company to the Manager  pursuant to the AIC Management  Agreement  ceased.  Fees
payable by CAX in the future, pursuant to the CAX Management Agreement,  will be
paid to the  Company.  The  employees  of the  Manager  employed  to perform the
services under the AIC Management Agreement and the CAX Management Agreement are
now employed by the Company.  Certain officers and directors of the Company also
serve as officers, directors or both of CAX.

The  Company  incurred  management  fees  payable  to the  Manager  prior to the
acquisition  of the Manager in November  1997. In 1996,  the Manager  received a
"Base Fee," an "Incentive  Fee" and an  "Administrative  Fee," all of which were
payable  quarterly per the terms of the AIC Management  Agreement.  The Base Fee
was an annual  fee equal to 3/8 of 1% of the  "average  invested  assets" of the
Company and its  subsidiaries  for such year. The Incentive Fee was equal to 20%
of the amount the Company's net book income, calculated in accordance with GAAP,
which is in excess of a return on the Company's "average net worth" equal to the
"Ten-Year  U.S.  Treasury  Rate" plus one percent.  The Manager  also  performed
certain bond  administration and other related services for the Company pursuant
to the AIC  Management  Agreement  and received an  Administrative  Fee of up to
$3,500 per annum per non-agency MBS bond for such services.

In connection with the change in the Company's assets, the independent directors
approved an amendment to the AIC Management Agreement,  effective April 1, 1997,
that:  (i)  increased  the Base Fee from 3/8 of 1% to 1% per  annum of  "average
invested assets;" (ii) provided for an acquisition fee (the  "Acquisition  Fee")
of 1/2 of 1% of the cost of real  estate  investments;  and  (iii)  changed  the
Incentive  Fee to be  calculated  from AFFO  rather  than net book  income.  The
Administrative   Fee  was   substantially   eliminated   as  a  result   of  the
resecuritization of the non-agency MBS bonds.

Included in  Management  Fee expense is Incentive  Fees  incurred by the Company
along with Base Fees and  Administrative  Fees  applicable to the non-agency MBS
bonds  prior to the  resecuritization.  Management  Fees  decreased  to $570,000
during the year ended  December 31, 1997 compared with  $1,793,000  for the year
ended December 31, 1996 primarily due to the  resecuritization of the non-agency
MBS bonds in March 1997 which  eliminated  Administrative  Fees and  resulted in
lower Base Fees and lower income for purposes of calculating  Incentive Fees. In
addition,  all fees were  discontinued  upon the  acquisition  of the Manager in
November 1997.

The Company 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 during 1997 compared with 1996 due
primarily to the elimination of dividend equivalent right ("DER") expense in the
second quarter of 1996,  reductions in accounting and consulting fees, and lower
costs associated with stockholder relations.

                                     - 15 -
<PAGE>

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  the  Company's  cash
investments  during 1997 was 5.37% per annum. As the remaining proceeds from the
resecuritization  are invested  into  manufactured  home  communities,  interest
income is expected to decline.

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 $3,000,000 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,  the  Company  recognized  a  $6,553,000
nonrecurring  expense  related  to the  Company's  purchase  of  its  management
contract. The total nonrecurring expense included $6,105,000 of non-cash expense
from the  issuance  of OP Units to the owners of the former  manager.  The costs
related to the CAX Management  Agreement have been  capitalized and are included
in amortization of management contracts discussed above.

Gain on Restructuring of Bonds

In connection with the resecuritization of the non-agency MBS bonds, the Company
realized net proceeds of $69,743,000  before related  management fees. A gain of
$7,359,000  was  recognized  during  the  first  quarter  of  1997,  along  with
$1,472,000  of  Incentive  Fees  related  to the gain and 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.  This  arrangement  allowed the Company to
realize  more  proceeds  and  a  higher  gain  from  the  resecuritization.  The
additional fee paid to the Manager was approved by the independent directors and
represents a portion of the increased proceeds and higher gain. The portfolio of
non-agency  MBS  bonds  was  classified  as   available-for-sale   and  included
$6,000,000 of unrealized holding gains at December 31, 1996.

During the fourth  quarter of 1997, the Company  entered into a transaction  for
the sale of interests in other bonds that had no carrying value on the Company's
books. As a result of this transaction,  a net gain of $1,197,000 was recognized
in the fourth quarter of 1997.

Comparison of year ended December 31, 1996 to year ended December 31, 1995

CAX

Income  from the  Company's  27%  ownership  interest in CAX for the years ended
December 31, 1996 and 1995 was  $1,875,000  and  $1,742,000,  respectively.  CAX
reported  to the  Company  that the  increase  in  income  for 1996 over 1995 is
primarily  due to the  early  redemption  of two  bonds in May 1996  offset by a
one-time,  non-cash charge  resulting from the issuance of 157,413 shares of CAX
common stock for the elimination of dividend  equivalent  rights under its stock
option plan.

                                     - 16 -
<PAGE>

At December 31, 1996, CAX's CMBS bonds had an outstanding  principal  balance of
$89,297,000 with a weighted-average  coupon of 8.15%. Also at December 31, 1996,
unamortized  purchase  discounts,  acquisition  costs and  allowance  for credit
losses totaled $24,448,000 and CAX had recorded $3,389,000 of unrealized holding
losses  on its CMBS  bonds.  The  Company's  share of these  unrealized  holding
losses,  $907,000 as of December  31,  1996,  was recorded as a reduction in the
carrying  value of its  investment  in CAX and as a component  of  stockholders'
equity.

Non-agency MBS Bonds

Income from the Company's  non-agency MBS bonds increased  significantly  during
1996 compared with 1995 primarily due to the acquisition of non-agency MBS bonds
during 1996 and 1995 with  outstanding  principal  balances of  $60,478,000  and
$99,398,000,  respectively,  and  weighted-average  coupons  of 7.4%  and  6.9%,
respectively.

For the years ended December 31, 1996 and 1995,  the principal  amount of credit
losses on the Company's  non-agency MBS bonds was  $13,295,000  and  $3,056,000,
respectively. The significant increase in credit losses allocated to the Company
is due to: (i) the acquisition of bonds during the years ended December 31, 1996
and 1995; and (ii) as mortgages  mature,  in particular  during their first five
years, the defaults and the resulting credit losses are expected to increase.

Management Fees

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

Liquidating Operations

In 1995, the Company  completed its liquidation of its CMO Ownership  Interests.
Accordingly,  the Company classified as liquidating operations its revenues from
CMO  Ownership  Interests  along with  expenses  directly  allocable  to the CMO
Ownership Interests.  Earnings from liquidating operations during the year ended
December 31, 1995, were comprised of the following (in thousands):

Revenues
    CMO Ownership Interests                                              $ 1,734
    Interest income                                                          225
    Net gain on sale of CMO Ownership Interests                            5,369
                                                                         -------
       Total revenues                                                      7,328
                                                                         -------
Expenses
    Management fees                                                          234
    General and administrative                                                23
    Interest                                                                 564
                                                                         -------
       Total expenses                                                        821
                                                                         -------
Earnings from liquidating operations                                     $ 6,507
                                                                         =======

                                     - 17 -
<PAGE>

General and Administrative Expenses

General and administrative expenses decreased during 1996 compared with 1995 due
primarily  to the  elimination  of DER  expense in the  second  quarter of 1996,
reductions in legal and  consulting  fees, and lower costs  associated  with the
Company's annual report.

Interest and Other Income

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

Interest Expense

Interest  expense on the Company's  borrowing  facilities  increased during 1996
compared  to 1995  reflecting  higher  interest  rates and the  increase  in the
average daily balance to $1,058,000 from $813,000.  The effective  interest rate
under the Company's  short-term  borrowing  facilities  during 1996 and 1995 was
8.18% and 7.21% per annum, respectively.

Elimination of DERs

Prior to May 1996,  options holders received shares of Common Stock equal to the
value of  dividends  received as if the options were fully  exercised.  At their
annual meeting in May 1996, the Company's  stockholders approved an amendment to
the Company's 1986 Stock Option Plan which permitted the Company to issue shares
of Common  Stock to the holders of options who  voluntarily  relinquished  their
right to receive  DERs in the future.  The  issuance of Common Stock in exchange
for the right to receive  DERs in the future  resulted in a  one-time,  non-cash
charge to second  quarter 1996  earnings of $825,000 and the issuance of 244,391
shares of Common Stock.

NOL and Capital Loss Carryovers

At December 31, 1997, the Company's NOL carryover was approximately  $95,000,000
and its capital loss carryover was approximately $35,000,000.  The NOL carryover
may be used to offset all or a portion of the  Company's  REIT income,  and as a
result,  to reduce the amount of income  that the  Company  must  distribute  to
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 between 1998 and 2000.

Dividend Distributions

During 1997, the Company distributed  $7,749,000 ($1.45 per share) to holders of
Common Stock and OP Units  compared to 1996  dividends of $9,128,000  ($1.85 per
share) and 1995 dividends of $8,255,000 ($1.70 per share).  Seventy-five percent
of 1997 dividends and twenty percent of the 1995 dividends constituted return of
capital  distributions,  generally not taxable to the stockholders to the extent
of their basis in their stock. Return of capital  distributions were not made in
1996.

                                     - 18 -
<PAGE>

                         LIQUIDITY AND CAPITAL RESOURCES

As of  December  31,  1997,  the  Company  has  cash  and  cash  equivalents  of
$21,802,000.  The  Company's  principal  demands for  liquidity  include  normal
operating  activities,  payments of principal and interest on outstanding  debt,
acquisitions  of or additional  investments  in  properties,  dividends  paid to
stockholders  and  distributions  made  to  minority  limited  partners  in  the
Operating Partnership.

Net cash provided by operating  activities was $3,931,000  during the year ended
December 31, 1997,  compared to  $11,670,000  during the year ended December 31,
1996. The decrease was primarily a result of lower net income excluding the gain
on the restructuring of bonds.

Net cash provided by investing  activities was $27,479,000  during 1997 compared
to net cash used by  investing  activities  of  $10,754,000  in 1996.  Investing
activities  in  1997  included   $69,807,000  of  net  cash  provided  from  the
restructuring of the bonds net of $46,344,000 used to acquire  interests in real
estate and real estate joint ventures.

Net cash used in financing  activities increased to $10,025,000 in 1997 compared
to $5,827,000 in 1996, primarily due to unsecured short-term  borrowings in 1996
that were repaid in 1997.

Secured  notes  payable at December 31, 1997,  consist of  $4,805,000  of notes,
which bear interest at 8.25% and mature in October 2000 and  $5,872,000 of notes
which  bear  interest  at 7.5% and also  mature in October  2000.  The notes are
secured by four manufactured  home communities,  and were assumed by the Company
at the time the related  communities  were  acquired.  The secured notes payable
require escrow payments for the payment of property taxes.
At December 31, 1997, $34,000 was held in such escrow accounts.

In 1996, the Company had a $10,000,000  revolving credit and term loan agreement
with a bank. The loan was collateralized by certain of the Company's  non-agency
MBS bonds with a net carrying  value of  $19,461,000  at December  31, 1996.  At
December 31, 1996,  $3,000,000  was  borrowed  under this credit  facility at an
average  effective  interest  rate of 8.25%.  The loan was repaid and  agreement
canceled in March 1997, as a result of the  resecuritization  of the  non-agency
MBS bonds.

The Company also has a $1,000,000  unsecured  line of credit with a bank through
July 31,  1998.  Advances  under this line bear  interest at the prime rate.  At
December 31, 1997 and 1996, no advances were outstanding on this line of credit.

The  Company  expects  to meet  its  long-term  liquidity  requirements  through
long-term,  secured  borrowings,  the issuance of OP Units and equity securities
and cash generated by operations.

                              YEAR 2000 COMPLIANCE

The Company utilizes  numerous  accounting and reporting  software  packages and
computer hardware to conduct its business,  the majority of which already comply
with year 2000 requirements.  Management  believes that the cost of modification
or replacement of non-compliant  accounting and reporting  software and hardware
will  not  be  material  to the  Company's  financial  position  or  results  of
operations.


                                     - 19 -
<PAGE>

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.

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

None.

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.

The information set forth under the caption "Board of Directors and Officers" in
the Proxy  Statement in  connection  with the Company's  1998 Annual  Meeting of
Stockholders  which is to be filed by the Company  after the date this Report on
Form 10-K is filed (the  "Proxy  Statement")  is hereby  incorporated  herein by
reference.

Executive Officers of the Registrant

The Executive Officers of the Company as of February 28, 1998 are:

         Name     Age                  Position with the Company
--------------------------------------------------------------------------------
Terry Considine    50   Co-Chairman of the Board of Directors and Co-Chief
                           Executive Officer
Thomas L. Rhodes   58   Co-Chairman of the Board of Directors and Co-Chief
                           Executive Officer
Bruce E. Moore     55   President and Chief Operating Officer
David M. Becker    38   Chief Financial Officer

Terry  Considine  has been  Co-Chairman  of the Board of Directors  and Co-Chief
Executive  Officer of the Company and CAX since  September  1996. He is the sole
owner of Considine Investment Co. and has also been the Chairman of the Board of
Directors and Chief  Executive  Officer of Apartment  Investment  and Management
Company ("AIMCO"), one of the largest apartment REITs in the United States since
July 1994.  Mr.  Considine  has been and remains  involved  as a principal  in a
variety  of real  estate  activities,  including  the  acquisition,  renovation,
development  and  disposition of properties.  Mr.  Considine has also controlled
entities engaged in other businesses such as television  broadcasting,  gasoline
distribution and environmental laboratories.  Mr. Considine received a B.A. from
Harvard  College and a J.D.  from Harvard Law School and is admitted as a member
of the Massachusetts Bar.

Mr. Considine has had substantial real estate experience. From 1975 through July
1994,  partnerships  or other  entities in which Mr.  Considine had  controlling
interests  invested in  approximately  35 multifamily  apartment  properties and
commercial  real estate  properties.  Six of these real estate  assets  (four of
which  were  multifamily  apartment  properties  and two of  which  were  office
properties)  did not  generate  sufficient  cash flow to service  their  related
indebtedness  and were foreclosed upon by their lenders,  causing pre-tax losses
of  approximately  $11.9 million to investors and losses of  approximately  $2.7
million to Mr. Considine.


                                     - 20 -
<PAGE>

Thomas L. Rhodes has been  Co-Chairman  of the Board of  Directors  and Co-Chief
Executive  Officer of the Company and CAX since  September  1996. 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 Chairman of the Empire
Foundation  for Policy  Research,  a Trustee of The  Heritage  Foundation  and a
Trustee of The Manhattan Institute.

Bruce E.  Moore was  appointed  as  President  and Chief  Operations  Officer in
February 1998. Mr. Moore is the founder and was the Chief  Executive  Officer of
Brandywine   Financial  Services   Corporation,   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,  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 Pennsylvania. In addition, 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 the Company's  Chief  Financial  Officer since
December  1997  and was  appointed  to such  position  in  February  1998.  From
September  1995  until  joining  the  Company,  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 the Company 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.  None of the directors
persons nominated to become directors or executive  officers of the Company 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.

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.

                                     - 21 -
<PAGE>

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.

(a)(2)   The  financial  statement  schedule  listed in the  Index to  Financial
         Statements  on Page F-1 of this report is 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, 1997:

            Current Report on Form 8-K, dated October 22, 1997

            Current Report on Form 8-K, dated October 30, 1997







                                     - 22 -
<PAGE>







                          INDEX TO FINANCIAL STATEMENTS


ASSET INVESTORS CORPORATION                                                 Page

Financial Statements:

         Report of Independent Auditors...................................   F-2
         Consolidated Balance Sheets as of December 31, 1997 and 1996.....   F-3
         Consolidated  Statements of Income for the years ended
             December 31, 1997,  1996 and
             1995.........................................................   F-4
         Consolidated  Statements of  Stockholders'  Equity for the
             years ended  December 31,
             1997, 1996 and 1995..........................................   F-5
         Consolidated  Statements of Cash Flows for the years ended
             December 31, 1997,  1996
             and 1995.....................................................   F-6
         Notes to Consolidated Financial Statements.......................   F-7

Financial Statement Schedule:

         Schedule III -- Real Estate and Accumulated Depreciation.........  F-20



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

Financial Statements:

         Report of Independent Auditors...................................  F-21
         Consolidated Balance Sheets as of December 31, 1997 and 1996.....  F-22
         Consolidated Statements of Income for the years ended
             December 31, 1997, 1996 and 1995.............................  F-23
         Consolidated Statements of Stockholders' Equity for the
             years ended December 31, 1997, 1996 and 1995.................  F-24
         Consolidated Statements of Cash Flows for the
             years ended December 31, 1997, 1996 and 1995.................  F-25
         Notes to Consolidated Financial Statements.......................  F-26

Financial Statement Schedule:

         All 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 the notes thereto.


                                     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, 1997 and 1996, and the
related consolidated  statements of income,  stockholders' equity and cash flows
for each of the three years in the period ended  December  31, 1997.  Our audits
also  included  the  consolidated  financial  statement  schedule  listed in the
accompanying   index.   These   financial   statements   and  schedule  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements and schedule 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, 1997 and 1996,
and the  consolidated  results of their operations and their cash flows for each
of the three years in the period  ended  December  31, 1997 in  conformity  with
generally  accepted  accounting  principles.  Also, in our opinion,  the related
financial  statement  schedule,   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.







                                                               ERNST & YOUNG LLP

Denver, Colorado
February 6, 1998






                                     F - 2
<PAGE>


<TABLE>
<CAPTION>




                  ASSET INVESTORS CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      (In thousands, except per share data)

                                                                                             December 31,
                                                                                     1997                  1996
                                                                                     ----                  ----

ASSETS
<S>                                                                                <C>                   <C>
Real estate, net of accumulated depreciation of $693                               $   40,726            $       --
Investments in and notes receivable from real estate joint ventures                    25,415                    --
Cash and cash equivalents                                                              21,802                   417
Investment in CAX                                                                      20,866                19,361
Non-agency MBS bonds                                                                       --                68,079
Other assets, net                                                                      10,352                 2,487
                                                                                   ----------            ----------
       Total Assets                                                                $  119,161            $   90,344
                                                                                   ==========            ==========

LIABILITIES
Secured notes payable                                                              $   10,677            $       --
Unsecured short-term financing                                                             --                 3,000
Accounts payable and accrued liabilities                                                2,607                   979
                                                                                   ----------            ----------
                                                                                       13,284                 3,979
                                                                                   ----------            ----------

MINORITY INTEREST IN OPERATING PARTNERSHIP                                             22,362                    --

STOCKHOLDERS' EQUITY
Common Stock,  par value  $.01 per share,  50,000  shares  authorized  5,108 and
   24,840 shares issued and outstanding, respectively                                      51                   248
Additional paid-in capital                                                            231,221               228,753
Dividends in excess of accumulated earnings                                          (147,757)             (147,729)
Unrealized holding gains on investments                                                    --                 5,093
                                                                                   ----------            ----------
                                                                                       83,515                86,365
                                                                                   ----------            ----------
       Total Liabilities and Stockholders' Equity                                  $  119,161            $   90,344
                                                                                   ==========            ==========


</TABLE>



                 See Notes to Consolidated Financial Statements.


                                     F - 3
<PAGE>
<TABLE>
<CAPTION>
                  ASSET INVESTORS CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                      (In thousands, except per share data)

                                                                                 Year Ended December 31,
                                                                                 -----------------------
                                                                        1997             1996             1995
                                                                        ----             ----             ----
   RENTAL PROPERTY OPERATIONS
<S>                                                                  <C>              <C>              <C>
   Rental and other property revenues                                $   3,104        $      --        $      --
   Equity in earnings of real estate joint ventures                        466               --               --
   Property operating expenses                                          (1,311)              --               --
   Owned property management expenses                                      (87)              --               --
                                                                     ---------        ---------        ---------
   Income from property operations before depreciation                   2,172               --               --
   Depreciation                                                           (693)              --               --
                                                                     ---------        ---------        ---------
   Income from rental property operations                                1,479               --               --
                                                                     ---------        ---------        ---------

   SERVICE OPERATIONS
   Property management fees and other income                               128               --               --
   Property management costs and other expenses                            (59)              --               --
   Amortization of management contracts                                   (744)              --               --
                                                                     ---------        ---------        ---------
   Loss from service operations                                           (675)              --               --
                                                                     ---------        ---------        ---------

   OTHER ACTIVITIES
   Non-agency MBS bonds revenues                                         2,966           11,513            8,499
   Equity in earnings of CAX                                             3,663            1,875            1,742
   Management fees to former manager                                      (570)          (1,793)            (980)
   Earnings from liquidating operations                                     --               --            6,507
                                                                     ---------        ---------        ---------
   Income from other activities                                          6,059           11,595           15,768
                                                                     ---------        ---------        ---------

   General and administrative expenses                                  (1,042)          (1,145)          (1,895)
   Interest and other income                                             1,808              136              630
   Interest expense                                                       (368)             (88)             (63)
   Costs incurred to acquire management contract                        (6,553)              --               --
   Elimination of DERs                                                      --             (825)              --
                                                                     ---------        ----------       ---------

   INCOME BEFORE GAIN ON RESTRUCTURING OF BONDS AND MINORITY
     INTEREST                                                              708            9,673           14,440
   Gain on restructuring of bonds                                        6,484               --               --
                                                                     ---------        ---------        ---------

   INCOME BEFORE MINORITY INTEREST                                       7,192            9,673           14,440
   Minority interest in Operating Partnership                               62               --               --
                                                                     ---------        ---------        ---------

   NET INCOME                                                        $   7,254        $   9,673        $  14,440
                                                                     =========        =========        =========

   BASIC EARNINGS PER SHARE                                          $    1.44         $   1.97         $   2.97
                                                                     =========         ========         ========
   DILUTED EARNINGS PER SHARE                                        $    1.43         $   1.95         $   2.96
                                                                     =========         ========         ========

   DIVIDENDS DECLARED PER SHARE                                      $    1.45         $   1.85         $   1.70
                                                                     =========         ========         ========

   Weighted-Average Common Shares Outstanding                            5,022            4,919            4,856
   Weighted-Average Common Shares And Common Share Equivalents
     Outstanding                                                         5,061            4,966            4,883

</TABLE>

                 See Notes to Consolidated Financial Statements.

                                      F - 4


<TABLE>
<CAPTION>


                  ASSET INVESTORS CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                                 (In thousands)

                                                                                         Dividends In    Unrealized
                                                                           Additional     Excess of     Holding Gains      Total
                                                      Common Stock          Paid-In      Accumulated     (Losses) on   Stockholders'
                                                   Shares      Amount       Capital        Earnings      Investments       Equity
                                                   ------      ------       -------        --------      -----------       ------

<S>                                                 <C>        <C>        <C>            <C>              <C>             <C>
BALANCES - DECEMBER 31, 1994                        24,212     $ 242      $  227,182     $  (154,459)     $    --         $ 72,965
   Issuance of Common Stock                            144         2             364              --           --              366
   Net income                                           --        --              --          14,440           --           14,440
   Dividends                                            --        --              --          (8,255)          --           (8,255)
   Unrealized depreciation of CMBS bonds net of
     appreciation of non-agency MBS bonds               --        --              --              --         (757)            (757)
                                                    ------     -----      ----------     -----------      -------         --------
BALANCES - DECEMBER 31, 1995                        24,356       244         227,546        (148,274)        (757)          78,759
   Issuance of Common Stock                            484         4           1,207              --           --            1,211
   Net income                                           --        --              --           9,673           --            9,673
   Dividends                                            --        --              --          (9,128)          --           (9,128)
   Unrealized appreciation of CMBS bonds and
     non-agency MBS bonds                               --        --              --              --        5,850            5,850
                                                    ------     -----      ----------     -----------      -------         --------
BALANCES - DECEMBER 31, 1996                        24,840       248         228,753        (147,729)       5,093           86,365
   Issuance of Common Stock                            459         5           2,266              --           --            2,271
   Net income                                           --        --              --           7,254           --            7,254
   Dividends                                            --        --              --          (7,282)          --           (7,282)
   One-for-five reverse stock split                (20,191)     (202)            202              --           --               --
   Reversal of unrealized holding gains upon
     restructuring of bonds                             --        --              --              --       (5,093)          (5,093)
                                                    ------     -----      ----------     -----------      -------         --------
BALANCES - DECEMBER 31, 1997                         5,108     $  51      $  231,221     $  (147,757)     $    --         $ 83,515
                                                    ======     =====      ==========     ===========      =======         ========



</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,
                                                                               -----------------------
                                                                        1997             1996             1995
                                                                        ----             ----             ----

CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                   <C>              <C>             <C>
   Net income                                                         $   7,254        $   9,673       $  14,440
   Adjustments to reconcile net income to net cash flows from
     operating activities:
     Depreciation and amortization                                        1,437               --              --
     Minority interest in Operating Partnership                             (62)              --              --
     Amortization of non-agency MBS bonds and CMO Ownership
       Interests                                                            469            2,998           2,254
     Equity in earnings of CAX                                           (3,663)          (1,875)         (1,742)
     Equity in earnings of real estate joint ventures                      (466)              --              --
     Elimination of DERs                                                     --              825              --
     Costs incurred to acquire management contract                        6,105               --              --
     (Increase) decrease in other assets                                   (647)            (148)           (138)
     Increase (decrease) in accounts payable and accrued
        liabilities                                                         (12)             197          (1,022)
     Gain on restructuring of assets                                     (6,484)              --          (5,369)
                                                                        -------          -------       ---------
       Net cash provided by operating activities                          3,931           11,670           8,423
                                                                        -------          -------       ---------
CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of real estate                                              (31,502)              --              --
   Investments in and advances to real estate joint ventures            (14,842)              --              --
   Improvements of real estate                                              (55)              --              --
   Acquisition of non-agency MBS bonds                                       --          (15,893)        (23,965)
   Principal collections and indemnifications on non-agency MBS
     bonds and CMO Ownership Interests                                      547            3,151           4,910
   Dividends from CAX                                                     3,065            1,988           2,430
   Distributions from real estate joint ventures                            459               --              --
   Proceeds from the restructuring of assets                             69,807               --          25,038
   Release of restricted cash                                                --               --          15,862
                                                                      ---------        ---------       ---------
     Net cash provided by (used in) investing activities                 27,479          (10,754)         24,275
                                                                      ---------        ---------       ---------
CASH FLOWS FROM FINANCING ACTIVITIES
   Payment of Common Stock dividends                                     (7,282)          (9,128)        (8,981)
   Payment of distributions to minority interest in Operating
     Partnership                                                           (467)              --             --
   Increase (decrease) in unsecured short-term financings                (3,000)           3,000         (2,758)
   Principal repayments on secured notes payable                           (196)              --        (30,592)
   Proceeds from the issuance of Common Stock                               920              301             --
                                                                     ----------       ----------      ---------
     Net cash used in financing activities                              (10,025)          (5,827)       (42,331)
                                                                     ----------       ----------      ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                     21,385           (4,911)        (9,633)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                              417            5,328         14,961
                                                                     ----------       ----------      ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR                             $   21,802       $      417      $   5,328
                                                                     ==========       ==========      =========


</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 (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"). The Company's Common Stock, par value $.01 per
share,  is listed on the New York Stock  Exchange under the symbol "AIC." In May
1997,  the  Company  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.  The Operating  Partnership also
owns the  non-voting  stock of AIC  Manufactured  Housing Corp.  ("AICMHC")  and
approximately 27% of the Common Stock of Commercial Assets, Inc. ("CAX"). AICMHC
owns interests in manufactured  home community  management  contracts.  CAX is a
publicly-traded REIT (American Stock Exchange,  Inc.: CAX) formed by the Company
in August 1993.

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  adopted a multi-step  plan to restructure 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
contributed  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 equity interest.

During the remainder of 1997, the Company used  $46,344,000 of the proceeds from
the  structured  transaction  to  acquire  interests  in  18  manufactured  home
communities and a recreational  vehicle park with approximately  2,800 developed
homesites,  400 recreational  vehicle sites, 800 sites ready for homes and 1,800
sites  available  for  future  development.  The  Company  plans to  invest  its
remaining cash in additional  manufactured  home communities and related assets.
This is intended  to reduce the  Company's  return on assets  from 1996  levels,
shift its strategic emphasis to the ownership and management of income producing
real estate with the  potential  of  achieving  capital  appreciation,  and also
reduce the risk borne by the Company in its portfolio.

In November 1997,  the Company's  stockholders  approved the  acquisition of the
assets and operations of Financial Asset Management LLC (the  "Manager"),  which
allowed   the   Company  to  become  a  fully   integrated,   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.  The Company's  stockholders also approved a one-for-five
reverse  stock  split  of  its  Common  Stock.  All  per  share  amounts  in the
accompanying consolidated financial statements have been adjusted for the effect
of such reverse stock split.

                                     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 controlled subsidiaries.  The minority interest in
the Operating Partnership represents the OP Units which are convertible,  at the
option of the  holder.  When a holder  elects to convert OP Units,  the  Company
determines whether such OP Units will be converted into 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  at  the  time  of  dividend
distributions. As of December 31, 1997, 1,300,600 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.
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  and/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.

When conditions  exist which indicate that the carrying amount of a property may
be impaired,  the Company will evaluate the recoverability of its net investment
in the property by assessing current and future levels of income and cash flows.
As of  December  31,  1997,  there  has  been  no  impairment  of the  Company's
investment in rental properties.

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.

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  income for  services
provided  to  communities  not owned by the  Company  are also  recognized  when
earned.

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
are excluded from earnings and reported as a net amount in stockholders'  equity
until realized.

                                     F - 8
<PAGE>

Income Taxes

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

As a REIT, the Company  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 the  Company  fails to  qualify  as a REIT in any
taxable  year,  its  taxable  income  will be subject  to Federal  income tax at
regular  corporate  rates  on  its  taxable  income  (including  any  applicable
alternative  minimum  tax).  Even if the Company  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.

For income tax purposes,  distributions paid to stockholders consist of ordinary
income, capital gains, return of capital or a combination thereof.  Earnings and
profits which determine the taxability of dividends to stockholders  differ from
net income reported for financial  reporting  purposes due to: (i) the method of
accounting for the retained  equity  interest from the  resecuritization  of the
non-agency MBS bonds;  (ii)  differences in methods and estimated  lives for the
calculation of depreciation on rental properties and amortization of goodwill on
management  contracts;  (iii)  gains on the  sales of assets  recorded  for book
income purposes that were treated as financings for REIT taxable income purposes
or that resulted in either  capital  losses or capital gains that are reduced to
zero by the Company's  capital loss  carryover;  and (iv)  recognition of income
from CAX, which for REIT income  purposes is based upon  dividends  received and
which for financial  reporting purposes is based on the Company's pro rata share
of CAX's book income.

At December 31, 1997,  the Company's net  operating  loss ("NOL")  carryover was
approximately  $95,000,000  and its capital  loss  carryover  was  approximately
$35,000,000.  The NOL  carryover  may be used to offset  all or a portion of the
Company's REIT income,  and as a result, to reduce the amount of income that the
Company must  distribute to  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 between 1998 and 2000.

In November 1997, the Company incorrectly  documented a transaction.  The effect
of  which is that  the  Company  was not in  compliance  with  the  requirements
necessary to maintain its status as a REIT.  The Company has submitted a request
to the Internal  Revenue Service to confirm or restore its status as a REIT. Due
to the Company's NOL carryover,  its failure to maintain its status as a REIT is
immaterial to its financial  position as of December 31, 1997, and its statement
of operations for the year then ended.

Statements of Operations

In 1995, the Company  completed  liquidation of a class of assets referred to as
CMO Ownership  Interests.  Accordingly,  the Company  classified as  liquidating
operations  its  revenues  from CMO  Ownership  Interests  along  with  expenses
directly allocable to the CMO Ownership Interests, including interest expense on
borrowings collateralized by CMO Ownership Interests.

                                     F - 9
<PAGE>

Earnings Per Share

In 1997,  the  Company  adopted  Statement  of  Financial  Accounting  Standards
("SFAS") No. 128,  "Earnings per Share." Basic earnings per share for 1997, 1996
and 1995 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 any dilutive,  unexercised stock options in each such year. In November 1997,
the  Company's  stockholders  approved  a  one-for-five  reverse  split  of  the
Company's 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 $349,000, $72,000 and $903,000 for the years ended December
31, 1997, 1996 and 1995, respectively.

Non-cash  investing and  financing  activities  for 1997,  1996 and 1995 were as
follows (in thousands):

<TABLE>
<CAPTION>

                                                                         1997              1996             1995
                                                                       --------          -------          ------

<S>                                                                    <C>              <C>              <C>
Unrealized holding gains and losses on debt securities                 $  5,093         $  5,850         $   (757)
Distributions of Common Stock                                               101               87              366
Distributions of Common Stock as consideration for the
  elimination of DERs                                                        --              825               --
Consideration for the acquisition of real estate and joint
  ventures:
     Issuance of Common Stock                                             1,250               --               --
     Issuance of OP Units                                                10,922               --               --
     Assumption of secured notes payable                                 10,873               --               --
Issuance of OP Units as consideration for the acquisition of the
  Manager                                                                11,692               --               --
</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 1996  and 1995  consolidated
financial statements to conform to the classifications used in the current year.
Such reclassifications have no effect on the operations as originally presented.

Accounting Standards Not Yet Adopted by the Company

The  Financial  Accounting  Standards  Board  ("FASB")  has issued  several  new
pronouncements that are not yet adopted by the Company.


                                     F - 10
<PAGE>

In June 1997 the FASB issued SFAS No. 130, "Reporting  Comprehensive Income," to
establish  standards  for  reporting  and display of  comprehensive  income (all
changes in equity during a period except those resulting from investments by and
distributions  to owners) and its components in financial  statements.  This new
standard,  which will be effective for the Company for the year ending  December
31, 1998,  is not  currently  anticipated  to have a  significant  impact on the
Company's  consolidated  financial  statements  based on the  current  financial
structure and operations of the Company.

In June 1997 the FASB  issued SFAS No. 131,  "Disclosures  about  Segments of an
Enterprise  and Related  Information,"  to  establish  standards  for  reporting
information about operating  segments in annual financial  statements,  selected
information   about  operating   segments  in  interim   financial  reports  and
disclosures  about products and services,  geographic areas and major customers.
This new  standard,  which will be effective for the Company for the year ending
December 31, 1998, will require the Company to report  financial  information on
the  basis  that is used  internally  for  evaluating  segment  performance  and
deciding how to allocate  resources to segments and is currently not anticipated
to  result  in  significantly  more  detailed  information  in the  notes to the
Company's  consolidated  financial  statements  than is  currently  required and
provided.

C.       Acquisitions of Manufactured Home Communities

During 1997, the Company acquired  interests in 18 manufactured home communities
and one recreational  vehicle park with approximately 2,800 developed sites, 400
recreational vehicle sites, 800 sites ready for homes, and 1,800 sites available
for future development. Total consideration paid for the communities and related
manufactured  home community  management  contracts  including  advances to real
estate joint  ventures  was  $69,389,000,  consisting  of  $46,344,000  of cash,
$10,922,000  of OP Units,  $10,873,000 of assumed debt, and $1,250,000 of Common
Stock.  Fourteen of the acquired  manufactured  home  communities are located in
Florida; the remaining four communities are located in Arizona. The recreational
vehicle park is located in California.

The  acquisitions of interests in manufactured  home  communities and management
contracts have been accounted for as purchases, and the results of operations of
such manufactured  home communities and management  contracts have been included
in the  Company's  results  of  operations  since the date of  acquisition.  The
following  unaudited  pro-forma  information  has  been  prepared  assuming  the
resecuritization   of  the  non-agency  MBS  bonds,   the   acquisition  of  the
manufactured home communities and management  contracts,  the acquisition of the
Manager  and CAX's  restructuring  of its 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 the years ended December 31, 1997 and 1996 are as follows (in
thousands, except per share data):

<TABLE>
<CAPTION>

                                                                                     1997                  1996
                                                                                  ----------            ----------
<S>                                                                               <C>                   <C>
Revenues                                                                          $   13,651            $   13,243
                                                                                  ==========            ==========

Loss before gain on restructuring of bonds and minority interest                  $   (3,449)           $   (4,786)
Gain on restructuring of bonds                                                         8,855                 7,359
Minority interest in Operating Partnership                                              (985)                 (338)
                                                                                  ----------            ----------
Net income                                                                        $    4,421            $    2,235
                                                                                  ==========            ==========

Net income per share                                                              $      .88            $      .45
                                                                                  ==========            ==========
</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, 1997, is as follows (in thousands):

Land                                                                 $    5,286
Land improvements and buildings                                          35,689
Furniture and other equipment                                               444
                                                                     ----------
                                                                         41,419
Less accumulated depreciation                                              (693)
                                                                     ----------
Investment in real estate, net                                       $   40,726
                                                                     ==========

Land  improvements and buildings  consist  primarily of  infrastructure,  roads,
landscaping,   clubhouses,   maintenance  buildings  and  common  amenities.  In
connection  with the  acquisition  of two  manufactured  home  communities,  the
Company assumed the obligations  under existing ground leases.  Accordingly,  no
portion of the purchase price of these communities was allocated to land.

E.       Investments in and Notes Receivable from Real Estate Joint Ventures

As of December 31, 1997,  the Company had a net investment of $9,543,000 in four
contiguous  manufactured  home communities  with 760 developed  homesites and 53
homesites available for future development in the Phoenix,  Arizona metropolitan
area. The investment  consists of a first mortgage loan bearing  interest at 10%
per annum,  due in April 2001 and a second mortgage loan  convertible into a 50%
ownership  interest in the  properties.  At December 31,  1997,  the Company has
withheld $425,000 of the second mortgage loan for future property  improvements.
The second mortgage loan accrues  interest at 15% per annum and pays interest at
9% per annum, increasing 1% each year to a maximum of 12% per annum. The Company
receives additional interest of 3% of gross revenues, increasing to 11% of gross
revenues  in the  event  of a  refinancing  of the  properties,  and  50% of net
proceeds from a sale or refinancing of the properties.  The Company also has the
right to purchase the properties at fair value in ten years,  or earlier,  based
on  certain  events.  Due to the  conversion  features,  participation  in gross
revenues,  and the right to  acquire  the  properties,  the  mortgage  loans are
accounted for as an equity  investment in real estate.  During 1997, the Company
had equity in earnings of these four manufactured home communities of $297,000.

As of December 31, 1997, the Company had investments in and notes  receivable of
$15,872,000  from joint  ventures in which the Company owned a 50% joint venture
interest. These notes accrue interest at 10% payable based upon the cash flow of
the  ventures.  During 1997, a portion of these notes were  accounted  for as an
equity  investment  in real  estate  and during  1997,  the  Company  recognized
earnings from these notes of $169,000.  Effective  January 1, 1998,  the Company
consolidated  the various notes and sold its interest in the various ventures to
the other partner in such ventures.

                                     F - 12
<PAGE>

F.       Non-agency MBS Bonds

In March 1997, the Company  resecuritized  its portfolio of non-agency MBS bonds
by contributing  them to a trust in which it retained the equity interest.  In a
private  placement,  the  trust  sold  $199,894,000  principal  amount  of  debt
securities  representing  senior  interests  in the  trust's  assets.  The  debt
securities  are  without  recourse to the  Company.  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 equity interest in the trust represents the first-loss class
of the portfolio,  providing credit support for the senior debt securities.  The
future cash flow from the  retained  equity  interest is not  determinable  and,
accordingly,  no carrying  value has been  assigned to it. In 1997,  the Company
recognized $2,000,000 of interest income, net of discount amortization, prior to
the  resecuritization.  The Company also recorded  revenues of $966,000 from the
retained equity interest during 1997.

The outstanding  principal  balance of the 214 non-agency MBS bonds owned by the
Company at December 31, 1996 was $224,579,000,  less total unamortized discounts
and allowance for credit  losses of  $162,500,000,  resulting in a net amortized
cost of  $62,079,000.  The portfolio was  classified as  available-for-sale  and
included $6,000,000 of unrealized holding gains at December 31, 1996.

G.       Investment in CAX

On December 31, 1997 and 1996, the Company owned 2,761,126 shares (approximately
27%) of the  Common  Stock of CAX,  a REIT which  held  ownership  interests  in
commercial  mortgage loan  securitizations  of  multi-family  real estate ("CMBS
bonds").  In November 1997, CAX sold or  resecuritized  its entire  portfolio of
CMBS bonds for  $77,693,000  of cash and an equity  interest  in an owner  trust
arising from a  resecuritization  transaction,  which  resulted in a net gain of
$5,786,000.  Presented below is the summarized  financial  information of CAX as
reported by CAX (in thousands):




<TABLE>
<CAPTION>




Balance Sheets                                                                                December 31,
                                                                                         ----------------------
                                                                                      1997                    1996
                                                                                    ---------               ------
<S>                                                                                 <C>                     <C>
Cash and cash equivalents                                                           $  74,153               $   8,277
CMBS bonds                                                                              1,981                  61,460
Other assets                                                                            2,014                   2,669
                                                                                    ---------               ---------
Total assets                                                                           78,148                  72,406
Total liabilities                                                                         443                     487
                                                                                    ---------               ---------
Stockholders' equity                                                                $  77,705               $  71,919
                                                                                    =========               =========


</TABLE>


                                     F - 13
<PAGE>


<TABLE>
<CAPTION>





Statements of Income                                                                Year Ended December 31,
                                                                          -----------------------------------------
                                                                            1997             1996              1995
                                                                          -------          -------           ------
<S>                                                                      <C>               <C>               <C>
CMBS bonds                                                               $   9,172         $ 9,838           $ 8,980
Interest                                                                       945             319               189
                                                                         ---------         -------           -------
   Total revenues                                                           10,117          10,157             9,169
                                                                         ---------         -------           -------

Management fees                                                              1,678           1,425             1,151
General and administrative                                                     519             805             1,393
Elimination of dividend equivalent rights                                       --             966                --
Interest                                                                        --               2               249
                                                                         ---------         -------           -------
   Total expenses                                                            2,197           3,198             2,793
                                                                         ---------         -------           -------
Gain on restructuring of bonds                                               5,786              --                --
                                                                         ---------         -------           -------
Net income                                                               $  13,706         $ 6,959           $ 6,376
                                                                         =========         =======           =======
</TABLE>

CAX reported  $3,389,000  of unrealized  holding  losses on its CMBS bonds as of
December 31, 1996.  The Company's  $907,000  share of these  unrealized  holding
losses was recorded as a reduction in the carrying  value of its  investment  in
CAX and as a component of stockholders' equity as of December 31, 1996.

H.       Liquidating Operations

The  Company,  as  of  December  31,  1995,  had  substantially  liquidated  its
investment in CMO Ownership Interests.  The earnings from liquidating operations
for 1995 are as follows:


Revenues
    CMO Ownership Interests                                            $  1,734
    Interest income                                                         225
    Net gain on sale of CMO Ownership Interests                           5,369
                                                                       --------
       Total revenues                                                     7,328
Expenses                                                               --------
    Management fees                                                         234
    General and administrative                                               23
    Interest                                                                564
                                                                       --------
       Total expenses                                                       821
                                                                       --------
Earnings from liquidating operations                                   $  6,507
                                                                       ========

I.       Secured Notes Payable and Unsecured Short-Term Financing

Secured  notes  payable at December  31,  1997  consist of  $4,805,000  of notes
payable,  which bear interest at 8.25%,  and $5,872,000 of notes payable,  which
bear interest at 7.5%.  All of the notes mature in October  2000.  The notes are
secured by four manufactured  home communities,  which have a net carrying value
of $23,517,000 at December 31, 1997. The scheduled  payments of principal on the
secured  notes payable  subsequent  to December 31, 1997 are as follows:  1998 -
$437,000,  1999 - $487,000,  and 2000 -  $9,753,000.  The secured  notes payable
require escrow payments for the payment of property taxes. At December 31, 1997,
$34,000 was held in escrow.

The Company has a $1,000,000  unsecured  line of credit with a bank through July
31, 1998.  Advances under this line bear interest at prime. At December 31, 1997
and 1996, no advances were outstanding.

                                     F - 14
<PAGE>

In 1996, the Company had a $10,000,000  revolving credit and term loan agreement
with a bank. The loan was collateralized by certain of the Company's  non-agency
MBS bonds with a net carrying  value of  $19,461,000  at December  31, 1996.  At
December 31, 1996,  $3,000,000  was  borrowed  under this credit  facility at an
average  effective  interest rate of 8.25%.  The loan was repaid and canceled in
March 1997 as a result of the  resecuritization of the non-agency MBS bonds. One
of the  Company's  directors is a member of the Board of Directors of the parent
holding company of the bank.

J.        Commitments and Contingencies

In connection with the acquisition of a manufactured home community, the Company
entered into an earn-out  agreement  with respect to unoccupied  homesites.  The
Company pays a $17,000 fee for each newly occupied  homesite,  and the recipient
may elect to receive such fee in the form of cash or 946 OP Units. Any fees paid
will be capitalized as part of the cost of the acquired community.

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.  Considerable  judgment  was  required  to  interpret  the market
information and develop the estimates of fair value.

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

       Non-agency  MBS bonds - there is no exchange or other active  market from
       which to obtain a quoted market price for these financial instruments. At
       December 31, 1996,  the estimated  fair value of the non-agency MBS bonds
       was based upon the anticipated  proceeds,  net of transaction costs, from
       the resecuritization of the portfolio that occurred in March 1997.

       Investment in CAX - 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.

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

The  amortized  cost and fair values of the Company's  non-agency  MBS bonds and
investment in CAX at December 31, 1997 and 1996, are as follows (in thousands):

<TABLE>
<CAPTION>

                                                        December 31, 1997                  December 31, 1996
                                              --------------------------------    ------------------------------
                                                  Amortized                          Amortized
                                                    Cost           Fair Value          Cost           Fair Value
                                                    ----           ----------          ----           ----------

<S>                                               <C>               <C>               <C>              <C>
Non-agency MBS bonds                              $     --          $     --          $ 62,079         $ 68,079
                                                  ========          ========          ========         ========

Investment in CAX                                 $ 20,866          $ 18,465          $ 19,361         $ 18,638
                                                  ========          ========          ========         ========
</TABLE>

                                     F - 15
<PAGE>

L.       Common Stock and Dividends

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 1997, 1996 and 1995, the Company declared dividends totaling  $7,282,000,
$9,128,000  and  $8,255,000,  respectively.  In  addition,  holders  of OP Units
received  distributions  totaling $467,000 from the Operating Partnership during
1997.

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,  1997,  the Company has not issued any classes of stock other than
Common Stock.

During 1997 and 1995, 75% and 20%,  respectively,  of the dividends  distributed
constituted  return of  capital  distributions.  There were no return of capital
distributions in 1996.

M.       Stock Option Plan

The Company has a Stock Option and Incentive  Compensation Plan, as amended (the
"Stock Option Plan") for the issuance of non-qualified  stock options and shares
of Common Stock to its directors  and officers.  As of January 1, 1998 and 1997,
the Stock  Option Plan  permitted  the issuance of up to an aggregate of 218,000
and 247,000 shares of Common Stock, respectively,  of which 152,000 and 207,000,
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.  Each of the stock  options  granted  through
December 31, 1997, expire five years from the date of grant.

Prior  to  May  1996,   stock  options  granted  under  the  Stock  Option  Plan
automatically  accrued  Dividend  Equivalent  Rights  ("DERs") based on: (i) the
number  of  shares  underlying  the  unexercised  portion  of the  option;  (ii)
dividends  declared on the outstanding  shares of the Company between the option
grant  date and the option  exercise  date;  and (iii) the  market  price of the
shares on the dividend record date. DERs were paid in shares of Common Stock (or
in other  property that  constituted  the dividend) at the time of each dividend
distribution.  During 1996 and 1995, the Company  incurred $87,000 and $337,000,
respectively,  of general and  administrative  expenses from DERs covering 5,000
and  26,000,  respectively,  of shares of Common  Stock  which  were  subject to
issuance pursuant to options granted under the Stock Option Plan.

In May 1996,  the  Company's  stockholders  approved an  amendment  to the Stock
Option Plan,  which permitted the Company to issue shares of Common Stock to the
option holders who voluntarily  relinquished  their right to receive DERs in the
future.  The  issuance of Common Stock in exchange for the right to receive DERs
in the future  resulted  in a  one-time,  non-cash  charge to 1996  earnings  of
$825,000 and the issuance of 49,000 shares of Common Stock.

Presented below is a summary of the changes in stock options for the three years
ended December 31, 1997. As of December 31, 1997, the  outstanding  options have
exercise   prices   ranging   from  $5.85  to  $18.44   and  have  a   remaining
weighted-average life of 2.8 years.


                                     F - 16
<PAGE>


<TABLE>
<CAPTION>



                                                     Weighted
                                                      Average
                                                     Exercise
                                                       Price                    Shares
                                                       -----                    ------
<S>                                                 <C>                         <C>
Outstanding-December 31, 1994                       $  22.11                    188,000

     Granted                                           11.87                     33,000
     Expired                                           20.48                    (26,000)
     Forfeited                                          8.41                     (1,000)
                                                    --------                  ---------
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)
     Forfeited                                         16.67                    (14,000)
                                                    --------                  ---------
Outstanding-December 31, 1997                       $  14.44                    152,000
                                                    ========                  =========
</TABLE>

Certain options granted to date vest over a two-year period.  As of December 31,
1997, 1996 and 1995, 138,000, 145,000 and 161,000, respectively, of the
outstanding options were exercisable.

The Company has elected to follow  Accounting  Principles  Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related  Interpretations
in accounting for its employee stock options  rather than the  alternative  fair
value  accounting  provided for under 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
employee stock options under the fair value method of that  Statement.  The fair
value  for  these   options  was  estimated  at  the  date  of  grant  using  an
option-pricing model.

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

During 1997, 1996 and 1995, the estimated weighted-average grant-date fair value
of options  granted was $1.72 per  option,  $.65 per option and $.85 per option,
respectively, and the estimated total fair value of options granted was $35,000,
$84,000  and  $22,000,  respectively.  The pro forma net  income of the  Company
reflecting the fair value of options  granted was $7,219,000  ($1.44 per share),
$9,589,000  ($1.95 per share) and  $14,418,000  ($2.97 per share) for 1997, 1996
and 1995,  respectively.  The Company assumed a life of five years and risk-free
interest rate equal to the Five-Year U.S.  Treasury rate on the date the options


                                     F - 17
<PAGE>

were granted.  In addition,  the expected  stock price  volatility and dividends
rates were estimated based upon historical experience over the three years ended
December 31, 1997.

N.        Savings Plan

In connection with the acquisition of the 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  1997,  the  Company  did not match any  portion of  employee
contributions.

O.       Other Matters

In November 1997, the  stockholders  approved a proposal to acquire the Manager,
which allowed the Company to become a self-managed and  self-administered  REIT.
As a result  of such  acquisition,  the  Company  also now  provides  management
services to CAX through a management agreement (the "CAX Management  Agreement")
in effect  through  March 31, 1998.  The Manager was acquired from an investment
group that includes Terry  Considine and Thomas L. Rhodes,  the  Co-Chairmen and
Co-Chief  Executive Officers of both the Company and CAX, and Bruce D. Benson, a
director of the Company and CAX. This  investment  group acquired the Manager in
September 1996 at a cost of $11,692,000.

Prior to the Manager's  acquisition by the Company, the Manager received various
fees for the  advisory  and other  services  performed  in  connection  with the
management  agreement  between the Company and the Manager (the "AIC  Management
Agreement").  The Manager provided all personnel and related overhead  necessary
to conduct the Company's regular business. As a result of the acquisition of the
Manager,  the AIC  Management  Agreement  was cancelled and the employees of the
Manager are now  employed by the  Company.  In 1997,  the Company  expensed  the
$6,553,000  portion of the  acquisition  price  allocated to the AIC  Management
Agreement. Any fees payable by CAX in the future, pursuant to the CAX Management
Agreement,  will be paid to the Company.  Certain  officers and directors of the
Company also serve as officers, directors or both of CAX.

Through March 31, 1997,  the Manager  received a "Base Fee," an "Incentive  Fee"
and an  "Administrative  Fee," all of which were payable quarterly per the terms
of the AIC Management Agreement.  The Base Fee was an annual fee equal to 3/8 of
1% of the "average invested assets" of the Company and its subsidiaries for such
year. The Incentive Fee was equal to 20% of the amount of the Company's book 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 also performed
certain bond  administration and other related services for the Company pursuant
to the AIC  Management  Agreement  and received an  Administrative  Fee of up to
$3,500 per annum per non-agency MBS bond for such services.

In connection  with the change in the Company's  asset base,  the AIC Management
Agreement  was amended  effective  April 1, 1997,  to: (i) increase the Base Fee
from 3/8 of 1% to 1% per annum of "average invested assets;" (ii) provide for an
acquisition fee (the "Acquisition  Fee") of 1/2 of 1% of the cost of real estate
investments  acquired;  and (iii) change the Incentive Fee to be calculated from
Adjusted Funds From  Operations  ("AFFO")  rather than book net income.  AFFO is
generally  equal  to  the  Company's  GAAP  net  income  plus  depreciation  and
amortization  of  rental  properties  and  management   contracts  less  capital
replacement reserves.  The Administrative Fee was substantially  eliminated as a
result of the resecuritization of the non-agency MBS bonds.

                                     F - 18
<PAGE>

During 1997,  1996 and 1995, the Company  incurred fees under the AIC Management
Agreement of $892,000, $1,793,000 and $1,645,000,  respectively,  including: (i)
Base Fees of $272,000, $230,000 and $214,000,  respectively; (ii) Incentive Fees
of $37,000,  $831,000 and $517,000,  respectively;  (iii) Administrative Fees of
$261,000,  $732,000 and $914,000,  respectively;  and (iv)  Acquisition  Fees of
$322,000,  $0 and $0, respectively.  Acquisition Fees are capitalized as part of
the cost of the acquired real estate.  The Company also  incurred  $1,771,000 of
Incentive Fees during 1997 from its gains on the  restructuring of its bonds and
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.

P.       Selected Quarterly Financial Data (Unaudited)

         Presented  below is  selected  quarterly  financial  data for the years
ended  December 31, 1997 and 1996.  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
                                      ----------------------------------------------------------------------------
1997                                    December 31,       September 30,            June 30,          March 31,
------------------------------------- ------------------ ------------------- ------------------ ------------------
<S>                                        <C>                 <C>                 <C>                <C>
Revenues                                   $    4,431          $   2,868           $   2,320          $   2,516
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

                                                                  Three Months Ended
                                      ----------------------------------------------------------------------------
1996                                    December 31,       September 30,            June 30,          March 31,
------------------------------------- ------------------ ------------------- ------------------ ------------------
Revenues                                   $    3,427          $   3,327           $   3,417          $   3,353
Net income                                      2,609              2,576               2,085              2,403
Basic earnings per share                          .53                .52                 .43                .49
Diluted earnings per share                        .52                .52                 .42                .49
Dividends per share                              .475               .475                .450               .450
Closing stock prices (1)
   High                                            20             18-3/4              18-3/4             16-7/8
   Low                                         17-1/2             16-7/8              15-5/8             13-3/4
Weighted-average common shares
   outstanding                                  4,954              4,948               4,900              4,873
Weighted-average common shares and
   common shares equivalents
   outstanding                                  5,007              4,997               4,952              4,916
------------------------

<FN>
(1) As reported on the NYSE Composite Tape.

</FN>
</TABLE>


                                     F - 19
<PAGE>

<TABLE>
<CAPTION>


                           ASSET INVESTORS CORPORATION
                                  SCHEDULE III
                    Real Estate and Accumulated Depreciation
                                December 31, 1997
                         (In Thousands Except Site Data)

                                                                                                     December 31, 1997
                                                                                    -----------------------------------------------
                                                                             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>
Cardinal Court   1997   Largo, FL         1959/1965  138   $ 414  $  1,829  $  --    $414  $ 1,829    $2,243  $ 51  $ 2,192  $    --
Forest View      1997   Homosassa, FL     1987/1997  311     927     1,950     25     927    1,975     2,902    55    2,847       --
Marina Dunes     1997   Marina, CA           1979     65     195     3,572     --     195    3,572     3,767    12    3,755       --
Park Royale      1997   Pinellas Park, FL    1971    309     927     5,221     --     927    5,221     6,148   137    6,011    2,350
Pinewood         1997   St. Petersburg, FL   1976    220     660     4,534     --     660    4,534     5,194    31    5,163    2,772
Pleasant Living  1997   Riverview, FL        1979    243     726     5,079     --     726    5,079     5,805    35    5,770    3,100
Stonebrook       1997   Homosassa, FL     1987/1997  218     654     1,483     15     654    1,498     2,152    43    2,109       --
Sun Valley       1997   Tarpon Springs, FL   1972    261     783     5,974     --     783    5,974     6,757   155    6,602    2,455
Westwind I       1997   Dunedin, FL          1970    195      --     3,226      6      --    3,232     3,232    87    3,145       --
Westwind II      1997   Dunedin, FL          1972    189      --     3,210      9      --    3,219     3,219    87    3,132       --
                                                   ---------------------------------------------------------------------------------
       Total                                       2,149   $5,286  $36,078    $55  $5,286  $36,133   $41,419  $693  $40,726  $10,677
                                                   =================================================================================

</TABLE>



                                     F - 20
<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. as of December  31,  1997 and 1996,  and the related  consolidated
statements of income,  stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Commercial  Assets,  Inc. as of December 31, 1997 and 1996, and the consolidated
results of their  operations and their cash flows for each of the three years in
the period  ended  December  31,  1997 in  conformity  with  generally  accepted
accounting principles.



                                                               ERNST & YOUNG LLP
Denver, Colorado
February 6, 1998





                                     F - 21
<PAGE>





<TABLE>

<CAPTION>

                    COMMERCIAL ASSETS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                      (In thousands, except per share data)


                                                                                                December 31,
                                                                                           1997             1996
                                                                                           ----             ----
                                                       ASSETS

<S>                                                                                     <C>              <C>
   CASH AND CASH EQUIVALENTS                                                            $   74,153       $    8,277
   RESTRICTED CASH                                                                              --            1,982
   CMBS BONDS                                                                                1,981           61,460
   OTHER ASSETS, NET                                                                         2,014              687
                                                                                        ----------       ----------
                                                                                        $   78,148       $   72,406
                                                                                        ==========       ==========

                                        LIABILITIES AND STOCKHOLDERS' EQUITY

   ACCOUNTS PAYABLE AND ACCRUED LIABILITIES                                             $      368       $      189
   MANAGEMENT FEES PAYABLE                                                                      75              298
   NOTES PAYABLE TO BANKS                                                                       --               --
                                                                                        ----------       ----------
                                                                                               443              487
                                                                                        ----------       ----------

   STOCKHOLDERS' EQUITY:
   Preferred stock, par value $.01 per share, 25,000 shares authorized; no shares
     issued or outstanding                                                                      --               --
   Common stock, par value $.01 per share, 75,000 shares authorized; 10,342 and
     10,316 shares issued and outstanding, respectively                                        104              103
   Additional paid-in capital                                                               76,724           76,559
   Retained earnings (dividends in excess of accumulated earnings)                             877           (1,354)
   Net unrealized holding losses on CMBS bonds                                                  --           (3,389)
                                                                                        ----------       ----------
                                                                                            77,705           71,919
                                                                                        ----------       ----------
                                                                                        $   78,148       $   72,406
                                                                                        ==========       ==========
</TABLE>


                 See Notes to Consolidated Financial Statements.

                                      F - 22

<PAGE>

<TABLE>
<CAPTION>

                    COMMERCIAL ASSETS, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                      (In thousands, except per share data)


                                                                             Year Ended December 31,

                                                                  1997                1996               1995
                                                                  ----                ----               ----
REVENUES
<S>                                                             <C>                 <C>                <C>
   CMBS bonds                                                   $   9,172           $   9,838          $   8,980
   Interest                                                           945                 319                189
                                                                ---------           ---------          ---------
                                                                   10,117              10,157              9,169
                                                                ---------           ---------          ---------

EXPENSES
   Management fees                                                  1,678               1,425              1,151
   General and administrative                                         519                 805              1,393
   Elimination of DERs                                                 --                 966                 --
   Interest                                                            --                   2                249
                                                                ---------           ---------          ---------
                                                                    2,197               3,198              2,793
                                                                ---------           ---------          ---------

INCOME BEFORE GAIN ON RESTRUCTURING OF BONDS                        7,920               6,959              6,376

Gain on restructuring of bonds                                      5,786                  --                 --
                                                                ---------           ---------          ---------

NET INCOME                                                      $  13,706           $   6,959          $   6,376
                                                                =========           =========          =========

BASIC EARNINGS PER SHARE                                        $    1.32           $     .68          $     .63
DILUTED EARNINGS PER SHARE                                      $    1.32           $     .68          $     .63

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

Weighted-Average Common Shares Outstanding                         10,332              10,247             10,104

Weighted-Average Common Shares and Common Share
   Equivalents Outstanding                                         10,371              10,254             10,108


</TABLE>


                 See Notes to Consolidated Financial Statements.

                                      F - 23


<PAGE>

<TABLE>
<CAPTION>

                    COMMERCIAL ASSETS, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

              For the Years Ended December 31, 1997, 1996 and 1995

                                 (In thousands)
                                                                            Retained            Net
                                                                            Earnings         Unrealized
                                                                          (Dividends In       Holding
                                                               Additional   Excess of          Losses             Total
                                             Common Stock        Paid-In  Accumulated            on           Stockholders'
                                          Shares      Amount     Capital    Earnings)        CMBS Bonds          Equity
                                          ------      ------     -------    ---------        ----------          ------
<S>                                       <C>        <C>       <C>         <C>                <C>               <C>
BALANCES - DECEMBER 31, 1994               10,053     $  101    $  74,994   $   (423)          $    --           $  74,672
Issuance of common stock                       89          1          529         --                --                 530
Net income                                     --         --           --      6,376                --               6,376
Dividends                                      --         --           --     (6,868)               --              (6,868)
Unrealized depreciation of CMBS bonds          --         --           --         --            (4,245)             (4,245)
                                          -------     ------    ---------   --------           -------           ---------
BALANCES - DECEMBER 31, 1995               10,142        102       75,523       (915)           (4,245)             70,465
Issuance of common stock                      174          1        1,036         --                --               1,037
Net income                                     --         --           --      6,959                --               6,959
Dividends                                      --         --           --     (7,398)               --              (7,398)
Unrealized appreciation of CMBS bonds          --         --           --         --               856                 856
                                          -------     ------    ---------   --------           -------           ---------
BALANCES - DECEMBER 31, 1996               10,316        103       76,559     (1,354)           (3,389)             71,919
Issuance of common stock                       26          1          165         --                --                 166
Net income                                     --         --           --     13,706                --              13,706
Dividends                                      --         --           --    (11,475)               --             (11,475)
Reversal of unrealized holding losses
    upon restructuring of bonds                --         --           --         --             3,389               3,389
                                          -------     ------    ---------   --------           -------           ---------
BALANCES - DECEMBER 31, 1997               10,342     $  104    $  76,724   $    877           $    --           $  77,705
                                          =======     ======    =========   ========           =======           =========
</TABLE>


                 See Notes to Consolidated Financial Statements.

                                      F - 24


<PAGE>

<TABLE>
<CAPTION>

                    COMMERCIAL ASSETS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)


                                                                         Year Ended December 31,
                                                                 1997           1996            1995
                                                                 ----           ----            ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                            <C>            <C>             <C>
   Net income                                                  $ 13,706       $  6,959        $  6,376
   Adjustments to reconcile net income to net cash flows
     from operating activities:
     Amortization of discount on CMBS bonds and other
       assets                                                    (2,381)        (2,155)           (638)
     Issuance of common stock for elimination of DERs                --            941              --
     Increase in accounts payable and accrued liabilities           216            157             329
     (Increase) decrease in other assets                         (1,327)            18              84
     Gain on restructuring of bonds                              (5,786)            --              --
                                                               --------       --------        --------
       Net cash provided by operating activities                  4,428          5,920           6,151
                                                               --------       --------        --------

CASH FLOWS FROM INVESTING ACTIVITIES
   Principal collections from CMBS bonds                             --          9,857             554
   Acquisitions of CMBS bonds                                    (4,801)            --              --
   Proceeds from restructuring of bonds                          77,693             --              --
                                                               --------       --------        --------
       Net cash provided by investing activities                 72,892          9,857             554
                                                               --------       --------        --------

CASH FLOWS FROM FINANCING ACTIVITIES
   Dividends paid                                               (11,475)        (7,398)         (8,879)
   Repayments of short-term notes payable                            --           (700)         (9,595)
   Proceeds from the issuance of common stock                        31             --              --
                                                               --------       --------        --------
       Net cash used in financing activities                    (11,444)        (8,098)        (18,474)
                                                               --------       --------        --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS             65,876          7,679         (11,769)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                    8,277            598          12,367
                                                               --------       --------        --------

CASH AND CASH EQUIVALENTS AT END OF YEAR                       $ 74,153       $  8,277        $    598
                                                               ========       ========        ========
</TABLE>


                 See Notes to Consolidated Financial Statements.

                                      F - 25



<PAGE>




                             COMMERCIAL ASSETS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



A.       Organization

Commercial  Assets,  Inc.  (the  "Company")  is  a  Maryland  corporation  which
commenced   operations  in  1993  when  Asset  Investors   Corporation   ("Asset
Investors") contributed $75,000,000 to the Company and distributed approximately
70% of the Company's Common Stock to Asset Investors'  stockholders.  The Common
Stock is listed on the American Stock Exchange under the symbol "CAX."

The Company's  day-to-day  operations are performed by a manager (the "Manager")
pursuant to a  year-to-year  management  agreement  currently in effect  through
March 1998 ("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,  who is now the current Manager.  Mr. Considine and
Mr.  Rhodes are  Co-Chairmen  of the Board of Directors  and Co-Chief  Executive
Officers of both the Company and Asset  Investors.  Mr.  Benson is a director of
both companies.  No change has been made to the Management  Agreement other than
an extension.

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
employees of the Manager have been designated as officers of the Company.

Historically,  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 restructure its asset base and cease to
invest in subordinate CMBS bonds. In November 1997, the Company restructured its
subordinate  CMBS bond  portfolio by selling,  redeeming or  resecuritizing  its
various  CMBS  bonds.  The  restructuring  resulted  in  the  Company  receiving
$77,693,000 cash and retaining an equity interest in an owner trust arising from
a  resecuritization  transaction  (see  Note C).  The  Company  has  temporarily
invested the proceeds from such restructuring in government securities and other
cash equivalents until the Company decides what class of assets it will reinvest
such funds in.

B.       Summary of Significant Accounting Policies

Principles of Consolidation

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

                                     F - 26
<PAGE>

CMBS Bonds

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

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

Fair Value of Financial Instruments

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

Income Taxes

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

In order to maintain its status as a REIT, the Company is required,  among other
things,  to  distribute  annually to its  stockholders  at least 95% of its REIT
income and to meet certain asset, income and stock ownership tests.  Regular and
special dividends  declared in 1997, 1996 and 1995 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  1997,   1996  and  1995  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 any dilutive, unexercised
stock options in 1997, 1996 and 1995.

Statements of Cash Flows

For purposes of reporting cash flows,  cash  maintained in bank accounts,  money
market funds and overnight cash  investments  are considered to be cash and cash
equivalents.  The  Company  paid  interest  expense  in cash of $0,  $8,000  and
$290,000 for 1997, 1996 and 1995, respectively.

Non-cash  investing and  financing  activities  for 1997,  1996 and 1995 were as
follows (in thousands):




                                     F - 27
<PAGE>



<TABLE>
<CAPTION>


                                                                    1997             1996              1995
                                                                  --------         --------          ------
Principal   collections   on  CMBS   bonds   transferred   to
<S>                                                                <C>              <C>              <C>
    restricted cash                                                $ 6,227          $ 1,214          $    397
Unrealized holding gains and losses on CMBS bonds                    3,389              856            (4,245)
Distributions of Common Stock pursuant to DERs                          --               96               376
Distributions  of  Common  Stock  as  consideration  for  the
    elimination of DERs                                                 --              941                --
Distributions of Common Stock                                          135               --                --
</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.

Accounting Standards Not Yet Adopted by the Company

The  Financial  Accounting  Standards  Board  ("FASB")  has issued  several  new
pronouncements that are not yet adopted by the Company.

In June  1997  the FASB  issued  Statement  of  Financial  Accounting  Standards
("SFAS") No. 130, "Reporting  Comprehensive  Income," to establish standards for
reporting  and display of  comprehensive  income (all changes in equity during a
period except those resulting from  investments by and  distributions to owners)
and its  components in financial  statements.  This new standard,  which will be
effective  for the  Company  for the  year  ending  December  31,  1998,  is not
currently anticipated to have a significant impact on the Company's consolidated
financial  statements based on the current financial structure and operations of
the Company.

In June 1997 the FASB  issued SFAS No. 131,  "Disclosures  about  Segments of an
Enterprise  and Related  Information,"  to  establish  standards  for  reporting
information about operating  segments in annual financial  statements,  selected
information   about  operating   segments  in  interim   financial  reports  and
disclosures  about products and services,  geographic areas and major customers.
This new  standard,  which will be effective for the Company for the year ending
December 31, 1998, will require the Company to report  financial  information on
the  basis  that is used  internally  for  evaluating  segment  performance  and
deciding how to allocate  resources to segments and is currently not anticipated
to  result  in  significantly  more  detailed  information  in the  notes to the
Company's  consolidated  financial  statements  than is  currently  required and
provided.

C.       CMBS Bonds

As of December 31, 1996, the outstanding balance of the Company's CMBS bonds was
$89,297,000  while  unamortized   purchase  discounts,   acquisition  costs  and
allowance  for credit  losses  totaled  $24,448,000.  Additionally,  the Company
recorded  unrealized  holding  losses  of  $3,389,000  on the  CMBS  bonds as of
December 31, 1996.

The estimated  fair value of the Company's CMBS bonds of $61,460,000 at December
31, 1996, was determined by discounting  the future cash flows before  estimates
of credit losses of the CMBS bonds at interest rates equal to a spread over U.S.
Treasury rates with comparable terms to maturity.  The discount rates range from
10% to 27%. The interest rate spread over the U.S.  Treasury rate was based upon
then current market information of CMBS bonds with similar characteristics.  The
fair  value of CMBS  bonds  fluctuated  over time due to,  among  other  things,


                                     F - 28
<PAGE>

changes in  prevailing  interest  rates,  liquidity  in the CMBS  bonds  market,
paydowns on the  mortgage  loans  collateralizing  the CMBS bonds and changes in
real estate values of the related commercial properties.

The Company  provided an allowance for credit losses of  $12,720,000 at December
31, 1996 on certain of its CMBS bonds. During 1997, 1996 and 1995, there were no
credit losses charged to operations or write-downs charged against the allowance
for credit losses.

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

In May 1996, two CMBS bonds with an outstanding  principal balance of $9,664,000
and net carrying value of $8,723,000 were redeemed earlier than anticipated. The
bonds  were  acquired  in  March  1994,  for  $9,088,000,  or  84.25%  of  their
outstanding principal balance.  Since the bonds were redeemed at par, $1,426,000
of discount amortization was included in earnings during 1996.

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

In August 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.  The $5,853,000 of principal collections from
the repaid mortgages was transferred to restricted cash pursuant to the terms of
the indenture.

In November 1997,  the Company  restructured  its portfolio of CMBS bonds.  Nine
bonds  were sold for  $28,472,000  in cash.  One bond  which had an  outstanding
principal  balance of  $10,000,000  and net carrying  value prior to  unrealized
holding  gains of  $9,244,000  was  redeemed  by the  bond  issuer  at par.  The
remaining  two CMBS  bonds  were  resecuritized  by  contributing  the bonds and
related  restricted  cash to an owner  trust in which the  Company  retained  an
equity interest. In a private placement,  the trust then sold for $39,952,000 in
cash, debt securities  representing  senior interests in the trust's assets. The
principal  balance of the equity interest retained by the Company is $5,000,000.
However,  since the  equity  interest  represents  the  first-loss  class of the
portfolio  and  provides  credit  support  for the senior debt  securities,  the
Company  established an allowance for credit losses of $3,000,000 and valued the
equity  interest at its estimated fair value of  $2,000,000.  As a result of the
sale and  resecuritization  transactions,  the Company  recognized  a $5,786,000
gain, net of related costs and  management  fees, in the fourth quarter of 1997.
In  addition,  since the one bond was  redeemed  at par,  $756,000  of  discount
amortization was included in earnings during the fourth quarter of 1997.

The following  unaudited  pro-forma  information has been prepared  assuming the
restructuring  of the CMBS  bonds had been  completed  at the  beginning  of the
periods  presented.  The  pro-forma  information  is presented  for  information
purposes only and is not  necessarily  indicative of what would have occurred if


                                     F - 29
<PAGE>

the  restructuring  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, 1997
and 1996 are as follows (in thousands, except per share data):

                                                          1997           1996
                                                       ----------     ----------

Revenues                                               $    5,615     $    6,788
                                                       ==========     ==========

Net income before gain on restructuring of bonds       $    5,133     $    4,940
Gain on restructuring of bonds                              6,069          5,786
                                                       ----------     ----------
Net income                                             $   11,202     $   10,726
                                                       ==========     ==========

Net income per share                                   $     1.08     $     1.05
                                                       ==========     ==========

Prior to the restructuring,  certain of the Company's CMBS bonds were pledged as
collateral for the Company's short-term notes payable (see Note D).

D.       Short-Term Notes Payable

The  Company  had a Loan and  Security  Agreement,  collateralized  by four CMBS
bonds, that was cancelled in November 1997 upon the sale and resecuritization of
the bonds. No borrowings were outstanding on this line at December 31, 1996.

The Company has an  unsecured  line of credit  with a bank for  $1,000,000  that
expires on July 31, 1998.  Advances under this line bear interest at prime.  Two
of the Company's  independent directors are members of the Advisory Board of the
bank. No advances were  outstanding  on this line of credit at December 31, 1997
or 1996.

E.       Stock Option Plan

The Company  has a Stock  Option Plan for the  issuance of  non-qualified  stock
options  to its  directors  and  officers  which as of January 1, 1998 and 1997,
permitted the issuance of up to an aggregate of 1,025,000 and 948,000  shares of
Common Stock, respectively,  of which 717,000 and 648,000 related to outstanding
stock  options,  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.  Each of the stock  options  granted to date has a  five-year
term.

Prior to May 30,  1996,  stock  options  granted  under  the Stock  Option  Plan
automatically  accrued  dividend  equivalent  rights  ("DERs") based on: (i) the
number  of  shares  underlying  the  unexercised  portion  of the  option;  (ii)
dividends  declared on the outstanding  shares of the Company between the option
grant  date and the option  exercise  date;  and (iii) the  market  price of the
shares on the dividend record date. DERs were paid in shares of Common Stock (or
in other  property that  constituted  the dividend) at the time of each dividend
distribution.  During 1996 and 1995, the Company  incurred $96,000 and $376,000,
respectively,  of general and administrative  expenses from DERs covering 16,000
and 64,000, respectively,  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 an amendment to the Stock
Option Plan which  provided for the issuance of Common Stock in exchange for the
elimination  of the accrual of DERs for options  granted  under the Stock Option
Plan.  As a result of the  amendment,  the  Company  incurred a $966,000  charge
during 1996.

                                     F - 30
<PAGE>

Presented below is a summary of the changes in stock options for the three years
ended December 31, 1997. As of December 31, 1997, the  outstanding  options have
exercise   prices   ranging   from   $5.62  to  $7.50   and  have  a   remaining
weighted-average life of 1.8 years.
                                             Weighted
                                              Average
                                           Exercise Price          Shares
                                           --------------          ------
Outstanding - December 31, 1994                $ 7.09              481,000
     Granted                                     6.15               93,000
                                               ------             --------
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
                                               ======             ========

As of December 31, 1997, no options have expired.  Options  granted to date vest
over a two-year period. As of December 31, 1997, 1996 and 1995, 660,000, 454,000
and 485,000, respectively, of the outstanding options were exercisable.

The Company has elected to follow  Accounting  Principles  Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related  Interpretations
in accounting for its employee stock options  rather than the  alternative  fair
value  accounting  provided for under 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 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.

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 1997,  1996 and 1995,  the estimated  weighted-average,  grant-date  fair
value of  options  granted  was  $.42,  $.45  and  $.23,  respectively,  and the
estimated total fair value of options granted was $36,000,  $27,000 and $30,000,
respectively.  The pro forma net income of the Company reflecting the fair value
of options  granted  was  $13,670,000  ($1.32 per share),  $6,932,000  ($.68 per
share) and $6,346,000  ($.63 per share) for 1997,  1996 and 1995,  respectively.
The Company  assumed a life of five years and  risk-free  interest rate equal to
the  Five-Year  U.S.  Treasury  rate on the date the options  were  granted.  In
addition,  the expected stock price  volatility and dividends  growth rates were
estimated based upon historical averages over the three years ended December 31,
1997.

                                     F - 31
<PAGE>

F.       Other Matters

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

During 1997,  1996 and 1995,  the  Company's  management  fees were  $1,701,000,
$1,425,000  and  $1,151,000,  respectively,  consisting  of:  (i)  Base  Fees of
$598,000,  $654,000 and  $751,000,  respectively;  (ii)  Administrative  Fees of
$56,000, $58,000 and $65,000, respectively;  (iii) Incentive Fees of $1,024,000,
$713,000 and $335,000,  respectively;  and (iv) Acquisition Fees of $23,000,  $0
and $0,  respectively.  Acquisition Fees were capitalized as part of the cost of
acquiring CMBS bonds. In addition,  the Company  incurred  $426,000 of Incentive
Fees during 1997 relating to the gain on the restructuring of the CMBS bonds.

The  Company's  Charter  authorizes  the Board of Directors to issue  25,000,000
shares,  par value $.01 per share, of Preferred Stock. 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.

G.       Selected Quarterly Financial Data (unaudited)

Presented  below  is  selected  quarterly  financial  data for the  years  ended
December 31, 1997 and 1996 (in thousands, except per share data).




                                     F - 32
<PAGE>


<TABLE>
<CAPTION>



                                                                        Three Months Ended,
                                                                        -------------------
                                                 December 31,      September 30,      June 30,         March 31,
1997
-------------------------------------------- ----------------- ------------------ --------------- ------------------
<S>                                                <C>               <C>                <C>               <C>
Revenues                                           $  2,246           $ 3,474            $ 2,242          $ 2,155
Gain on restructuring of bonds                        5,786                --                 --               --
Net income                                            7,677             2,484              1,810            1,735
Basic earnings per share                                .74               .24                .17              .17
Diluted earnings per share                              .74               .24                .17              .17
Regular dividends declared per share                    .17               .17                .17              .17
Special dividends declared per share                    .26                --                 --               --
Capital gains dividends declared per share              .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

1996
-------------------------------------------- ----------------- ------------------ --------------- ------------------
Revenues                                             $2,146            $2,167             $3,526           $2,318
Net income                                            1,595             1,765              1,992            1,607
Basic earnings per share                                .16               .17                .19              .16
Diluted earnings per share                              .15               .17                .19              .16
Regular dividends declared per share                    .17               .17                .17              .17
Special dividends declared per share                     --               .04                 --               --

Stock prices (1)
     High                                             6-3/4             6-1/2              6-1/4            6-1/8
     Low                                             6-3/16             5-7/8              5-3/4            5-3/4
Weighted-average common shares outstanding           10,316            10,316             10,214           10,142
Weighted-average common shares and common
     share equivalents outstanding                   10,331            10,325             10,219           10,146

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


                                     F - 33

<PAGE>

                                  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).


                                     - 23 -
<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).

                          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).

                                     - 24 -
<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*        Management  Agreement  dated as of January
                                      1,  1995,   between  the   Registrant  and
                                      Financial  Asset  Management   Corporation
                                      (incorporated   herein  by   reference  to
                                      Exhibit 10.1(b) to the Quarterly Report on
                                      Form  10-Q  of  the   Registrant  for  the
                                      quarter  ended March 31, 1995,  Commission
                                      File No. 1-9360, filed on May 15, 1995).

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

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

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

                                     - 25 -
<PAGE>

                       10.1(d)*       Amendment  to  the  Management   Agreement
                                      dated  as of  April 1,  1997  between  the
                                      Registrant and Financial Asset Management,
                                      LLC  (incorporated  herein by reference to
                                      Exhibit 10.1(d) to the Quarterly Report on
                                      Form  10-Q  of  the   Registrant  for  the
                                      quarter  ended June 30,  1997,  Commission
                                      file  No.  1-9360,  filed  on  August  13,
                                      1997).

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

                         10.3*        Stock  Option and  Incentive  Compensation
                                      Plan  of the  Registrant  as  amended  and
                                      restated May 20, 1997 (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,
                                      1997, Commission File No. 1-9360, filed on
                                      August 13, 1997).

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

                        10.5(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).

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

                        10.5(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).

                        10.5(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).

                                     - 26 -
<PAGE>

                        10.5(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).

                         10.6         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).

                          23          Independent  Auditors'  Consent  - Ernst &
                                      Young LLP.

                          27          Financial Data Schedule.

*    Management contract or compensatory plan or arrangement.




                                     - 27 -
<PAGE>




                                   SIGNATURES

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

                                       ASSET INVESTORS CORPORATION
                                       (Registrant)

Date:  March 30, 1998                  By  /s/Terry Considine
                                           ------------------
                                           Terry Considine
                                           Co-Chief Executive Officer

Date:  March 30, 1998                  By  /s/Thomas L. Rhodes
                                           -------------------
                                           Thomas L. Rhodes
                                           Co-Chief Executive Officer

Date:  March 30, 1998                  By  /s/Bruce E. Moore
                                           -----------------
                                           Bruce E. Moore
                                           President and Chief Operating Officer

Date:  March 30, 1998                  By  /s/David M. Becker
                                           ------------------
                                           David M. Becker
                                           Chief Financial Officer

Date:  March 30, 1998                  By  /s/Diane Schott Armstrong
                                           -------------------------
                                           Diane Schott Armstrong
                                           Controller

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

              Name                       Capacity                     Date
              ----                       --------                     ----

 /s/Terry Considine                      Director                 March 30, 1998
-------------------------
    Terry Considine

 /s/Thomas L. Rhodes                     Director                 March 30, 1998
-------------------------
    Thomas L. Rhodes

 /s/Bruce D. Benson                      Director                 March 30, 1998
-------------------------
    Bruce D. Benson

 /s/Bruce E. Moore                       Director                 March 30, 1998
-------------------------
    Bruce E. Moore

 /s/Elliot H. Kline                      Director                 March 30, 1998
-------------------------
    Elliot H. Kline

                                         Director                 March 30, 1998
-------------------------
    Richard L. Robinson

 /s/Tim Schultz                          Director                 March 30, 1998
-------------------------
    Tim Schultz

                                         Director                 March 30, 1998
-------------------------
    William J. White


                                     - 28 -