<PAGE>   1
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995

                                       or

/  /    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                For the transition period from_______________to____________


                        Commission file number 000-26572

                                NHP INCORPORATED

             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                               <C>
Delaware                                                          52-1445137
--------                                                          ----------
State or Other Jurisdiction of                                    I.R.S. Employer
Incorporation or Organization                                     Identification No.

1225 Eye Street, N.W., Washington, D.C.                           20005-3945
---------------------------------------                           ----------
Address of principal executive offices                            Zip Code
</TABLE>
       Registrant's telephone number, including area code (202) 347-6247

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

<TABLE>
<S>                                                               <C>
                                                                  Name of Each Exchange
Title of Each Class                                               on Which Registered  
-------------------                                               ------------------- 
Common Stock, $0.01 Par Value                                     Nasdaq              
                                                                                      
</TABLE>

          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 of this Form 10-K. 
                             ------

        The aggregate market value of the voting stock held by nonaffiliates of
the registrant was $93,352,051 at March 15, 1996, calculated in accordance with
the Securities and Exchange Commission rules as to beneficial ownership.

        12,264,675 shares of the registrant's common stock were outstanding at
March 15, 1996.

                   DOCUMENTS INCORPORATED BY REFERENCE:  None

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<PAGE>   2

                               NHP INCORPORATED
                                  FORM 10-K

                              TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                                             Page
                                                                                                             ----
<S>                                                                                                          <C>
PART I
   Item 1.  Business ....................................................................................     2
   Item 2.  Facilities ..................................................................................    17
   Item 3.  Legal Proceedings ...........................................................................    17
   Item 4.  Submission of Matters to a Vote of Security Holders .........................................    17

PART II
   Item 5.  Market for the Company's Common Equity and Related Shareholder Matters ......................    18
   Item 6.  Selected Financial Data .....................................................................    18
   Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations .......    20
   Item 8.  Financial Statements and Supplementary Data
            Index to Financial Statements ...............................................................    31
   Item 9.  Change in and Disagreements with Accountants on Accounting and Financial Disclosure .........    54

PART III
   Item 10. Directors and Executive Officers of the Registrant ..........................................    55
   Item 11. Executive Compensation ......................................................................    58
   Item 12. Security Ownership of Certain Beneficial Owners and Management ..............................    60
   Item 13. Certain Relationships and Related Party Transactions ........................................    62

PART IV
   Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K ...........................    66

SIGNATURES ..............................................................................................    67
</TABLE>

<PAGE>   3

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 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, related to subject matter such as national
and local economic conditions, the effect of governmental regulation on the
Company, the competitive environment in which the Company operates, the
availability of working capital, dispositions of properties managed by the
Company and the availability of acquisition opportunities. Such forward-looking
information involves risks and uncertainties that could significantly affect
expected results. These risks and uncertainties are addressed in this and other
SEC Filings.


                                     PART I

ITEM 1.      BUSINESS

OVERVIEW

        NHP Incorporated (the "Company") provides a full range of property
management and related services to owners of conventional and affordable
multifamily properties located throughout the United States. According to 1995
year-end data published by the National Multi Housing Council and April 1994
data published by the United States Department of Housing and Urban Development
(HUD), the Company is the nation's second largest property manager of
multifamily properties and the largest manager of affordable properties based
on the number of units managed. As of December 31, 1995, the Company had a
total portfolio of 711 properties (comprising 133,667 units) in 38 states, the
District of Columbia and Puerto Rico. Although the Company does not own
interests in the properties it manages, it has a stable source of property
management revenue from properties for which selection of the management agent
is controlled by affiliates of the Company ("Affiliated Properties"). The
Company has increased the portfolio of properties to which it provides property
management services by 68,589 units on a net basis, or 105.4% in the last three
years and by 22,161 units or 19.9% in 1995 alone. The Company has provided a
full range of services and expertise to owners and managers of multifamily
residential real estate for over 20 years.

        The Company has recently entered into an agreement to acquire
Washington Mortgage Financial Group. Upon completion of this acquisition, the
Company will become engaged in the business of originating and servicing
mortgage loans on multifamily properties. See "Other Services - Multifamily
Residential Mortgage Banking Services."

        On August 18, 1995, the Company completed an initial public offering
("IPO") of 4.3 million shares of its common stock raising net proceeds of
approximately $52.0 million. Prior to that date the Company had been owned
solely by various private investors.  Concurrently with the closing of the IPO,
the Company sold those of its subsidiaries which held all of the Company's
direct and indirect interest in property-owning partnerships, along with its
captive insurance subsidiary and certain other related assets (collectively
referred to as the "Real Estate Companies") to the two controlling shareholders
of the Company, Demeter Holdings Corporation ("Demeter") and Capricorn
Investors, L.P. ("Capricorn"), and J. Roderick Heller, III, the Chairman,
President and Chief Executive Officer of the Company ("Mr. Heller").
Accordingly, operating results and cash flows attributable to the Real Estate
Companies have been presented as discontinued operations in the accompanying
financial statements in conformity with generally accepted accounting
principles.

BACKGROUND

        The NHP group of companies was formed in 1970 with the organization of
the National Corporation for Housing Partnerships ("NCHP") and The National
Housing Partnership (the "Partnership"). Both NCHP and the Partnership were
organized as private, for-profit entities pursuant to Title IX of the Housing
and Urban Development Act of 1968 and charged by Congress to promote private
investment in the production of low and moderate income housing . During their
first 15 years of operation, NCHP and the Partnership developed and syndicated
a portfolio of over 300 affordable housing projects, raising over $700 million
in equity from private investors.


                                      2

<PAGE>   4

        In connection with their development and ownership of low and moderate
income housing, NCHP and the Partnership developed systems for providing
property management and related services to such properties. Beginning in the
early 1980s, NCHP and the Partnership capitalized on the experience gained in
the affordable housing market by expanding into the development of, investment
in and provision of services to conventional multifamily properties. The
Company was incorporated in Delaware in 1986 as a holding corporation for NCHP,
the Partnership and other subsidiaries, in part to provide greater flexibility
to invest in and provide services to conventional properties. The Company has
ceased its development activities and has to a large extent divested itself of
businesses unrelated to managing multifamily residential properties.

        Subsequent to the sale of the Real Estate Companies, the Company does
not hold, and does not intend to hold hereafter, any ownership interests in
real estate ventures. Pursuant to certain agreements (the "Intercompany
Agreements") with the Real Estate Companies, the Company will be selected as
the management agent for the properties owned by the Real Estate Companies for
a period of at least twenty-five years, subject to certain conditions (see
"Intercompany Agreements with the Real Estate Companies"). The Company will
also seek to find joint venture parties to hold real property interests
where the Real Estate Companies choose not to acquire the interest. If the Real
Estate Companies are unwilling or unable to acquire real property interests in
such transactions and the Company cannot immediately locate another party to
acquire such interests, the Company may purchase such interests and hold them,
but only until such time as it can locate another party to acquire the
interests on acceptable terms, or it may finance the Real Estate Companies'
acquisition of the interests (see "Acquisition Program - Potential
Acquisitions").


        PROPERTIES SERVED


        The following table sets forth certain information regarding the
portfolio of properties managed by the Company as of the dates shown.
<TABLE>
<CAPTION>
                                                               PROPERTIES MANAGED
                                                               As of December 31,                       
                                       -----------------------------------------------------------------
                                         1995          1994           1993          1992        1991
                                         ----          ----           ----          ----        ----
        <S>                                <C>            <C>            <C>         <C>          <C>
        Affordable Properties         
            Affiliated owners               419            406           399          338          327
            Unaffiliated owners              29             28            16           15           16
                                      ---------     ----------   -----------    ---------   ----------
             Total                          448            434           415          353          343
                                      ---------     ----------   -----------    ---------   ----------
        Conventional Properties                                                             
            Affiliated owners               200            152           145           46           58
            Unaffiliated owners              63             28            12            6            3
                                      ---------     ----------   -----------    ---------   ----------
             Total                          263            180           157           52           61
                                      ---------     ----------   -----------    ---------   ----------
        Total                               711            614           572          405          404
                                      =========     ==========   ===========    =========   ==========
        Percent Affiliated                 87.1%          90.9%          95.1%       94.8%        95.3%
</TABLE>


<TABLE>
<CAPTION>
                                                                  UNITS MANAGED
                                                               As of December 31,                       
                                       -----------------------------------------------------------------
                                         1995          1994           1993          1992        1991
                                         ----          ----           ----          ----        ----
        <S>                             <C>            <C>           <C>           <C>          <C>
        Affordable Units
            Affiliated owners            51,998         49,815        49,436       43,173       42,123
            Unaffiliated owners           5,202          4,714         1,582        1,586        2,105
                                       --------        -------      --------      -------     --------
             Total                       57,200         54,529        51,018       44,759       44,228
                                       ========        =======      ========      =======     ========
        Conventional Units                                                                    
            Affiliated owners            61,921         50,002        46,631       18,609       19,271
            Unaffiliated owners          14,546          6,975         3,700        1,710          597
                                       --------        -------      --------      -------     --------
             Total                       76,467         56,977        50,331       20,319       19,868
                                       --------        -------      --------      -------     --------
        Total                           133,667        111,506       101,349       65,078       64,096
                                       ========        =======      ========      =======     ========
        Percent Affiliated                 85.2%          89.5%         94.8%        94.9%        95.8%
</TABLE>



                                      3

<PAGE>   5

        As of December 31, 1995, the Company provided property management
services to 133,667 units in 711 properties located in 38 states, the District
of Columbia and Puerto Rico. As of December 31, 1995, affiliated properties
constituted 113,919 units (85.2% of all units) in 619 properties, and
unaffiliated properties constituted 19,748 units (14.8% of all units) in 92 
properties. The Company's management portfolio includes 448 affordable
properties and 263 conventional properties containing 57,200 affordable units
and 76,467 conventional units.
        
        The properties served by the Company are located in urban, suburban and
rural areas throughout various regions of the United States other than the
Northwest region. This reduces the impact of local economic cycles on the
overall operations of the Company. The following table shows the distribution of
properties managed by the Company by region as of December 31, 1995.


<TABLE>
<CAPTION>
                                       Properties(1)                                Units(1)              
                           ----------------------------------      ---------------------------------------
                           Affordable   Conventional    Total      Affordable     Conventional      Total
                           ----------   ------------    -----      ----------     ------------      -----
<S>                            <C>          <C>          <C>         <C>             <C>           <C>
Northeast                      107           39          146         18,010          11,921         29,931
Mid-Atlantic                    90           49          139         10,986          16,559         27,545
South Atlantic                  57           52          109          6,323          11,751         18,074
Great Lakes                     61           57          118          7,514          16,209         23,723
Midwest                         38           12           50          3,603           2,436          6,039
Southwest                       59           35           94          6,935          12,261         19,196
West                            36           19           55          3,829           5,330          9,159
                               ---          ---          ---         ------          ------        -------
Total                          448          263          711         57,200          76,467        133,667
                               ===          ===          ===         ======          ======        =======
Percentage of Total             63%          37%                         43%             57%
</TABLE>

-----------  
(1)     Some affordable properties contain a limited number of conventional
        units and some conventional properties contain a limited number of
        affordable units.

        The Company provides property management services primarily to larger
residential properties where it can realize greater economies of scale. During
1995, the average number of units per property in the Company's portfolio of
conventional and affordable properties was approximately 253 and 150 units,
respectively. The properties served by the Company are diverse in nature,
including low-rise, garden style apartments in suburban communities and
high-rise towers in urban and suburban communities, and have low, middle and
high income residents.

ACQUISITION PROGRAM

        From January 1, 1991 through December 31, 1995, the Company increased
the number of units to which it provides services by approximately 129% through
the acquisition of property through the Real Estate Companies and asset
management rights to approximately 87,800 units. Of these units, management
rights to approximately 5,700 units have been lost as a result of foreclosures
and other transfers anticipated by the Company at the time the units were
acquired. However, as of December 31, 1995, the Company continued to act as
property manager with respect to approximately 82,100 of these units. There can
be no assurance that the Company will not lose asset or property management
rights to additional units as a result of a sale or other loss of control of
the properties by the Real Estate Companies.

        The Company achieved this growth primarily through the acquisition of
interests in projects through the Real Estate Companies that increased the
Company's management portfolio and through the Company's appointment as
property management agent for properties in which the Real Estate Companies
already held ownership interests. The following table sets forth information
regarding acquisitions of property management rights made by the Company from
January 1, 1991 through December 31, 1995. Additional information regarding
individual acquisitions occurring since January 1, 1995, is set forth below the
table.





                                      4


<PAGE>   6

<TABLE>
<CAPTION>
                                                                                     Number of Units
                                                                     ------------------------------------------
                          Year         Portfolio Acquired            Affiliated(1)    Unaffiliated        Total
                          ----         ------------------            ------------     ------------        -----
                    <S>                <C>                              <C>              <C>              <C>
                          1995         Guilford                          2,995              -              2,995
                          1995         Southport                         1,857              -              1,857
                          1995         Rescorp                           2,150              428            2,578
                          1995         Mattapony                           647              -                647
                          1995         Berman                              -                566              566
                          1995         Hall                              8,028              -              8,028
                          1995         MLG II                              -              6,080            6,080
                          1994         MLG I                               -              5,076            5,076
                          1994         Congress                          3,887              414            4,301
                          1994         AHD Program Units                   -                841              841
                          1993         Oxford                           37,695            1,611           39,306
                          1992         RTC I and II                      4,542              -              4,542
                          1991         Franklin Realty Group             7,155              -              7,155
                      1991-Present     NHP Properties                    3,851              -              3,851
                                                                        ------      -----------       ----------
                    Total                                               72,970           14,853           87,823
                                                                        ======      ===========       ==========
</TABLE>
-----------
(1)     Includes units owned by entities that became affiliated as a result of
        the acquisition transaction.


        Guilford Acquisition

        The Real Estate Companies completed the Guilford Acquisition in January
1996, by which the Real Estate Companies acquired, for approximately $4.8
million, the general partnership interests and certain limited partnership
interests in partnerships that own 14 properties containing 2,995 units. In
conjunction with this acquisition by the Real Estate Companies, the Company
paid the Real Estate Companies $2.6 million to enter into property management
contracts with each property for a period of four to five years, commencing in
December 1995.


        Southport Acquisition

        In December 1995, the Real Estate Companies entered into a binding
agreement to acquire from Southport Financial Corporation the general partner
interests in partnerships that own 14 properties containing 2,140 units. The
Company began managing 12 of these properties containing 1,857 units in
November 1995 and will begin managing the remaining two properties containing
283 units upon the receipt of the necessary consents. The Company will acquire
the right to manage all 14 of the Southport properties from the Real Estate
Companies for $4.0 million. The Company manages the Southport properties
pursuant to long-term contracts terminable only for cause, and has a right of
first refusal with respect to the sale of any of these properties or the Real
Estate Companies' general partnership interests in partnerships owning these
properties.

        Rescorp Acquisition

        On October 31, 1995, the Company acquired from Rescorp Realty, Inc. and
transferred to the Real Estate Companies the stock of entities owning the
general partnership interests in 11 properties. The Company manages these
properties pursuant to long-term contracts terminable only for cause, and has a
right of first refusal with respect to the sale of any of these properties or
the Real Estate Companies' general partnership interests in partnerships owning
these properties. The Company also entered into short-term property management
contract with respect to four other properties, which are owned by unaffiliated
owners. The 15 properties have an aggregate of 2,578 units. The Company paid
Rescorp approximately $2.4 million in connection with the acquisition, and
transferred the general partnership interests to the Real Estate Companies in
exchange for the Real Estate Companies assuming the cost and responsibilities
of the general partner.





                                       5


<PAGE>   7
        Mattapony Acquisition

        On August 3, 1995, the Real Estate Companies acquired for approximately
$300,000 the general partner interests in a partnership that owns a 647-unit
conventional property. The Company simultaneously acquired for $348,000, the
rights to manage the property  as the management agent pursuant to a 25-year
management contract.

        Berman Acquisition

        In June 1995, the Company acquired for $725,000 the management rights
for a term of 20 years with respect to two conventional properties containing
566 rental retirement units.

        Hall Acquisition

        The Company and the Real Estate Companies substantially completed a
major acquisition of general partner interests and property management rights,
the Hall Acquisition, in February 1995. In the Hall Acquisition, the Company
and the Real Estate Companies acquired, for approximately $12.5 million (of
which $4.0 million has been allocated to management rights), a 50% common
equity interest in a joint venture which, in turn, owns an interest in a
portfolio of 32 apartment properties containing 8,028 units (the Hall
Properties). Each property is owned by a limited partnership, the managing
general partner of which is an affiliate of the Real Estate Companies. As
managing general partner, each of these affiliates has entered into a
management contract with the Company having a term coinciding with the term of
the current financing of the properties, or approximately 5.75 years. Upon the
refinancing of a property, an affiliate of the Real Estate Companies, as
managing general partner, will have control of the selection of the property
manager. However, the current contracts may be terminated sooner if there is a
sale of the property or a default under the financing documents. The limited
partners have the power to remove the affiliate of the Real Estate Companies as
managing general partner without cause, which may result in the removal of the
Company as property manager. If the Company is removed as property manager
without cause, the Company is entitled to receive termination compensation
equal to 2% of the property's revenue for the remainder of the term of the
associated management contract.

        MLG Portfolios

        In December 1994 and January 1995, the Company was selected by General
Electric Credit Corporation and Bankers Trust Company to be the court-appointed
property manager for 38 multifamily properties containing 11,156 units of the
MLG portfolios. The properties were placed into receivership prior to the
Company's appointment because of significant financial difficulties encountered
by the properties, and the Company was appointed manager to stabilize the
properties and return them to sound operational condition. The Company has
received an annual management fee of 4% of gross revenue and an annual
receiver's fee of 1% of gross revenue. The Company does not have any ownership
interest in the MLG portfolios, and has been appointed to serve as property
manager at the discretion of the court supervising the receivership. Once the
properties emerge from receivership, it is likely that they will be sold and
there can be no assurance that the Real Estate Companies will be the purchaser
or that these properties will otherwise continue to be managed by the Company
following termination of the receivership.

        Potential Acquisitions

        In general, in future acquisitions, the Company expects the Real Estate
Companies to acquire and hold interests in real property and cause the Company
to be selected as manager pursuant to the Intercompany Agreements. The Company
will also seek to find joint venture parties to hold the real property
interests where the Real Estate Companies choose not to acquire the interests.
If the Real Estate Companies are unwilling or unable to acquire real property
interests in such transactions and the Company cannot immediately locate
another party to acquire such interests, the Company may purchase such
interests and hold them, but only until such time as it can locate another
party to acquire the interests on acceptable terms.

        On February 14, 1996, the Real Estate Companies agreed to acquire 13
multifamily properties containing 3,145 apartment units from affiliates of
Great Atlantic Management, Inc. At closing, the Company is expected to





                                       6


<PAGE>   8

acquire from the Real Estate Companies for approximately $1.6 million the right
to manage the units on a long-term basis with the exact terms to be determined.
In addition, the Company may provide the Real Estate Companies up to $16 million
in secured financing for acquisition of the properties until such time as a
third-party investor acquires an equity interest in the properties. Such
borrowing would bear interest at 10% per year. The Company's Credit Facility
limits the amount of loans or other advances the Company may make to the Real
Estate Companies in connection with the Real Estate Companies' acquisition of
real estate assets to $10.0 million, but this limitation has been waived for a
period of six months ending August 8, 1996 to permit the advance to the Real
Estate Companies in connection with this acquisition.

PROPERTY MANAGEMENT SERVICES

        Services Provided

        The Company's day-to-day property management services include
marketing, leasing, rent processing and collection, purchasing, accounts
payable, administration (including mortgages, taxes and insurance), payroll
services, financial reporting, on-site computer systems support and all
accounting functions. In addition, the Company provides longer term management
services necessary to maintain the quality and performance of properties,
including major repair and replacement planning, regulatory compliance and
budgeting. In addition to providing conventional property management services,
the Company, as the nation's largest manager of affordable properties, has
developed extensive expertise and familiarity with the affordable housing
regulatory process at all levels of government. One of the principal property
management services provided by the Company to owners of affordable properties
is interacting with HUD, the RTC and/or state regulatory agencies and
monitoring the properties' day-to-day compliance with federal and state
regulations. See "Regulation of Affordable Housing."

        Operations

        The Company, through its property management services, seeks to
maximize the financial performance for managed properties and maintain
properties to the owners' standards. To this end, the Company follows a
decentralized approach to the provision of the services that it believes
require on-site, individualized attention, permitting operating decisions to be
made by those most familiar with the properties and local market conditions.
On-site services include marketing, leasing, maintenance, purchasing,
regulatory compliance and budgeting. To help ensure quality control, the
Company provides extensive training of local personnel through its four-person
training staff based in Indianapolis, Indiana and its regional marketing
coordinator and staff of six regional engineering and technical services
professionals who oversee the planning and execution of the portfolio's capital
improvement program.

        The Company has also developed a proprietary system known as Precision
Management(R) to evaluate and manage the delivery of services. The Precision
Management(R) system measures twelve key performance indicators, including
gross and net operating income of the property, net cash flow, occupancy,
average rent, turnover and collections. Reports on each of these indicators are
generated monthly for each property, allowing senior management to quickly
identify properties that are deviating from expected performance, and promptly
target resources to such properties in order to solve problems. The Precision
Management(R) system clearly identifies the key areas of responsibility in
marketing, leasing and budgeting for properties and motivates the Company's
employees through an incentive compensation system based on property-specific
operating and profitability targets.

        The Company emphasizes hiring and retaining personnel who have the
requisite education, training and experience to render high quality service. In
addition, the Company supports continuing education of all of its employees
through annual training and industry-sponsored seminars. Approximately 90% of
the Company's property managers have earned one or more professional
designations such as Registered Apartment Manager, Accredited Resident Manager,
or Certified Apartment Manager. In addition, a number of individuals within the
Company are qualified Registered Apartment Manager instructors. The Company
believes that its size enables it to offer attractive career paths that are not
generally available in the industry.





                                       7


<PAGE>   9
        High volume services that do not require individual attention are
centralized because standardization in these areas is essential to achieving
high quality and control at low cost. Centralized services include human
resources, payroll processing, accounting and reporting, cash management and
computer systems support. These services are provided from the Company's
operational headquarters in Reston, Virginia and Indianapolis, Indiana.

        Provision of services by the Company is facilitated by its computer
system, which handles an average of over 15,000 transactions daily. The Company
also has an integrated property management information system, which provides
on-line information to the Company's senior management and staff, as well as
third-party clients. The Company is in the process of replacing its current
mainframe system with a client server system utilizing a nationwide wide
area/local area integrated network called "NHPNET." The client server system
will include enhanced property management, accounting and payroll applications.
The new system will also make it possible to easily connect new property and
office locations to NHPNET, giving the Company flexible expansion capacity to
support its acquisition strategy. Conversion to the new system is scheduled to
begin in May 1996 with a phased implementation through mid-1997.

        Contracts and Compensation

        Property management services are provided by the Company pursuant to
contracts with the individual entity owning each property. Pursuant to the
Intercompany Agreements, the Real Estate Companies are required to cause the
Company to be appointed as the management agent for properties it controls
throughout the twenty-five year term of the Intercompany Agreements and any
extensions thereof, subject to certain exceptions. See "Intercompany Agreements
with the Real Estate Companies." Although contracts with properties that
receive HUD or state assistance are terminable for cause at the direction of
those agencies, the Company has been successful in retaining its management
contracts for long periods, generally 15 years or more. Contracts with those
Affiliated Properties that are controlled by Oxford are generally for a period
of one year, but, pursuant to voting rights held by the Company and the Real
Estate Companies, those contracts cannot be terminated without the Company's
consent other than for cause or upon sale.  Contracts related to the Hall
properties are for an initial term of 5.75 years; upon the properties'
refinancing the Real Estate Companies will retain control over the selection of
the management agent. See "Acquisition Program." Contracts for unaffiliated
properties are for varying terms, generally one year.

        The Company earns revenues for providing management services through
fees that are generally calculated as a percentage of the property's monthly
collected income. Fees generally range from 3% to 7% of collected rents, plus
reimbursement for the cost of on-site personnel. Property management fees are
thus influenced by both rent and occupancy levels. In the case of negotiated
transactions, the property management fee percentage is influenced by
prevailing market conditions but also may be affected by pre-existing
agreements.

        Management fees for HUD-assisted affordable properties are regulated
under HUD guidelines and are generally expressed in dollars per unit per month
rather than as a percentage of rent collected. Periodically, each HUD field
office conducts a study of management fees charged to certain HUD-assisted
properties by property management firms that have arm's-length business
relationships with the owners of the properties. The results of those studies
are used to set allowable fees for properties where the management agent and
owner have an identity of interest, or where HUD has some other statutory or
regulatory basis for controlling the management fee.

        In addition to property management fees and reimbursements for on-site
personnel, the Company may receive additional amounts for ancillary services.
The Company receives a cash management fee for maintaining a HUD-approved cash
management system that permits each property under management to receive
investment earnings for all operating cash, from the day of deposit until the
day of disbursement. The Company also is paid computer charges and central
accounting charges, which are intended to reimburse the Company for its direct
costs for providing these services to most affordable properties in its
portfolio as well as to several of its conventional properties. In addition,
the Company receives capital improvement fees for planning and supporting major
capital improvements to certain of its properties. Such fees paid with respect
to properties receiving HUD assistance are subject to HUD audit and adjustment.





                                      8


<PAGE>   10


OTHER SERVICES

        In addition to traditional property management services, the Company
provides additional services to properties it manages, other properties and
property residents. These services include administrative and reporting
services, bulk buying services, risk management and insurance administration,
management consulting services, real estate investment banking services, and
asset management. The Company is also actively developing additional types of
services.

        Multifamily Residential Mortgage Banking Services

        On March 20, 1996, the Company and Commonwealth Overseas Trading
Company Limited ("Commonwealth") entered into a Stock Purchase Agreement
providing for the purchase from Commonwealth of all of the issued and
outstanding common stock of WMF Holdings Ltd. for $21 million, in the form of
$16.8 million in cash and 210,000 shares of the Company's common stock. WMF
Holdings Ltd. is the owner of Washington Mortgage Financial Group, Ltd.
("Washington Mortgage Financial"), located in Fairfax County, Virginia, one of
the nation's leading multifamily mortgage originators and servicers. Washington
Mortgage Financial had mortgage servicing contracts aggregating approximately
$4.5 billion as of February 29, 1996 and originated approximately $805 million
in multifamily and other commercial mortgages in 1995. Included in Washington
Mortgage Financial is WMF/Huntoon, Paige Associates Limited, a leading FHA
mortgage originator and servicer located in Edison, New Jersey. The transaction
is expected to be completed in early April 1996.


        Administrative and Reporting Services

        The Company receives administrative and reporting fees (A&R Fees) for
providing reports, financial statements and tax information to approximately
11,000 investors in the 500 syndicated partnerships for which the Real Estate
Companies have been managing general partner. A&R Fees are payable pursuant to
agreements entered into with investors at the time of formation of partnerships
or syndication of interests in the partnerships. These agreements generally
provide for the payment of A&R Fees annually from the investors' share of cash
flow of the partnership, subject to federal and state regulatory restrictions
on distribution of cash flow from affordable properties, after the repayment of
any loans (including general partner loans) and related interest, funding any
reserves and, generally, after a fixed percentage of the distributable cash is
first paid to investors. To the extent a partnership has insufficient
distributable cash to pay the required A&R Fees, the A&R Fees accumulate
without interest and can be paid out of future annual distributable cash or out
of sale or refinancing proceeds. The Company expects administrative and
reporting fees to decline in the future because these fees are not received
with respect to newly-acquired management contracts and as properties which
have A&R Fees are lost due to sale or other reasons.

        Buyers Access(R) Program

        The Company purchases many supplies required for operating properties
on a centralized basis, and thus is able to take advantage of bulk discounts.
In 1986, the Company developed the Buyers Access(R) program to offer its
expertise and the advantages of group purchasing to third parties. The program
has grown over the past several years, from 1,511 properties representing
238,308 units as of December 31, 1991 to 3,041 properties representing 485,616
units as of December 31, 1995. Only 22% of these properties (25% of units) are
owned by affiliates of the Company. Based on the combined purchasing power of
its members, the program is able to negotiate contracts with vendors providing
for 20% to 30% savings on products frequently purchased by apartment managers,
such as appliances, carpets, paints and other maintenance supplies. In 1995,
over $59 million of products were purchased through the program. The Company
does not itself purchase any of the products ordered through the program and
does not bear any warranty exposure or credit risk. The Company may also serve
as a purchasing agent for its member units, providing catalogs of products
offered, establishing credit accounts with vendors and preparing monthly
management reports and computerized cost comparison analyses. The Company had
contracts with 31 principal vendors as of December 31, 1995.

        The Company charges members in the Buyers Access(R) program an annual
membership fee on a per-unit basis, with a minimum charge per property. The
Company generated revenues of approximately $2.6 million, $2.1 million and $1.5
million from this program in 1995, 1994 and 1993, respectively.





                                      9


<PAGE>   11
        Risk Management and Insurance Administration

        For over fifteen years, the Company has administered "master" insurance
coverage programs primarily for Affiliated Properties.  After the sale of the
Real Estate Companies, the Company has continued to administer this program but
no longer provides brokerage services. The Company negotiates the terms of
master policies annually with the insurance carrier(s), allocates the master
policy premiums among all covered properties, oversees levels of insurance for
all covered properties, reports claims to the carrier(s), and processes such
claims through the adjustment and settlement process, acting as an intermediary
between the affected property and the insurance carrier. In addition, the
Company provides risk management services to covered properties, including
conducting educational seminars for property management personnel, reviewing
service contracts, disseminating a variety of risk awareness materials and
providing loss prevention analysis for selected properties each year.

        As of December 31, 1995, the Company provided insurance administration
and risk management services to 82,305 units, including 3,097 units in
unaffiliated properties. The master policies (representing a total insurable
value of approximately $3.5 billion) have made insurance coverage possible for
some otherwise difficult to insure properties and led to considerable savings
on an aggregate basis in premium costs, while providing dependable and
high-quality coverage. The Company's fees ($3.00 per $10,000 of total insurable
value) for its risk management and insurance administration services (which, in
the case of affordable properties, are approved by HUD and disclosed in each
property's annual audit) are included in each property's premium and are paid
to the Company. These fees have resulted in approximately $1 million in
revenues to the Company in each of 1995, 1994 and 1993.

        Property Management Consulting Services

        The Company provides management consulting services to approximately 43
third-party managers of approximately 98 affiliated properties, who manage an
aggregate of 11,913 units. The Company generally assists the third-party
managers in dealing with HUD and/or state regulatory agencies and monitoring
the properties' day-to-day compliance with comprehensive HUD and state
regulations, in preparing property budgets, in preparing or reviewing financial
and occupancy reports and resident income certifications and in major repair
and replacement planning and implementation. Fees for these management
consulting services are paid by the third-party manager, not by the property
owner. Fees are generally calculated as a percentage of the third-party
managers' management fee and are received during the term of the third-party
managers' contract. The Company generated revenues of approximately $0.6, $0.6
and $0.9 million from these services in 1995, 1994 and 1993, respectively.
These revenues are included in "Property management services" on the Company's
financial statements.

        Real Estate Investment Banking Services

        Since 1989, the Company has provided real estate investment banking
services in connection with the structuring of nine transactions under the Low
Income Housing Tax Credit Program ("LIHTC") involving combined equity
investments of over $7.2 million, and sponsoring the acquisition of 21
properties involving a combined equity investment of $13 million in two
transactions under the Affordable Housing Disposition Program of the Financial
Institutions Reform, Recovery and Enforcement Act. The Company also provided
assistance to unaffiliated third parties in the acquisition of debt and real
estate sold under the RTC's disposition program. Since 1993, the Company has
provided origination and asset management services to institutional investors in
connection with their equity investments in LIHTC transactions. In 1995, 1994
and 1993, the Company earned fees of approximately $1.2 million, $1.3 million
and $0.2 million, respectively, in connection with 19 such transactions. The
Company has entered into service agreements with the investment subsidiary of a
financial institution, an insurance company and a corporate equity fund
regarding their participation in LIHTC investments. After the sale of the Real
Estate Companies, the Company has continued to provide these and similar
services to third parties, and to the Real Estate Companies pursuant to the
Intercompany Agreements.

        Asset Management Services

        The Company provides asset management services with respect to both
Affiliated Properties and unaffiliated properties. Asset management services
include strategic planning for marketing, operations and capital improvements,





                                       10


<PAGE>   12
reviewing annual operating budgets, and establishing individual objectives for
each asset. The Company also prepares plans for refinancing, mortgage workouts,
and the disposition of properties and is responsible for the implementation of
the plans. In addition to the direct revenue provided from asset management
services, these services support revenue from property management and other
services by facilitating acquisitions of Affiliated Properties and stabilizing
or maintaining the financial position of properties once acquired, allowing
them to become or continue as sources of fee income. These services are
provided to the Real Estate Companies on a cost-reimbursement basis.

        On February 29, 1996, the Company entered into a three-year contract
with CRI, Inc., a Rockville, Maryland-based real estate investment firm, to
provide asset management, refinancing and disposition services for 286
affordable multifamily communities containing over 35,000 apartment units,
which are owned by 129 of CRI's public and private real estate partnerships.
The transaction increased the Company's total asset management portfolio by
over 50% to approximately 840 multifamily properties. The Company will seek to
provide asset management services to additional unaffiliated entities on a fee
basis, but there can be no assurance such third-party business will develop
further.

        New Services

        In addition to multifamily residential mortgage banking services, the
Company is exploring other services for owners, properties and their residents
that are consistent with the Company's nationwide scope of operations. These
other services may include, for example, delivery of cable television and 
long-distance telephone services. The Company believes that its role as property
manager will facilitate marketing and delivery of such services to residents and
owners of properties. However, the Company has not yet developed any such
services, and there can be no assurance that such services will in fact be
developed.

INTERCOMPANY AGREEMENTS WITH THE REAL ESTATE COMPANIES

        In connection with the sale of the Real Estate Companies on August 18,
1995 (the Effective Date), the Company and the Real Estate Companies entered
into the Intercompany Agreements, which govern their relationship on a
going-forward basis. Significant aspects of the Intercompany Agreements include
provisions whereby (i) the Company will be selected to provide property
management and related services for properties in which the Real Estate
Companies have a controlling interest, subject to certain conditions, for an
initial period of 25 years; (ii) upon the disposal by the Real Estate Companies
of properties or interests in properties which the Company managed on August
18, 1995, the Real Estate Companies will make a payment of up to 200%, subject
to certain conditions, of the annual fees the Company receives with respect to
the property; (iii) the Company will provide to the Real Estate Companies, at
cost, certain administrative services and advice regarding acquisition,
financing, asset restructuring, disposition and similar activities relating to
investment in multifamily properties, terminable on 30-days' notice by either
party; (iv) the Real Estate Companies and their equity holders have granted the
Company a right of first refusal with respect to any transactions resulting in
a change of control of the Real Estate Companies, as defined; (v) the Real
Estate Companies have indemnified the Company against any loss directly or
indirectly caused by, relating to, based upon, arising out of, or incurred in
connection with the Company's ownership (as opposed to management) of
properties prior to, on and after August 18, 1995; (vi) the Real Estate
Companies will limit the Company's liability, by an agreed-upon formula, for
taxes arising from the sale of the Real Estate Companies. The Intercompany
Agreements may only be amended with the approval of the Real Estate Companies
and the Company. A majority of the members of the Board of Directors of the
Company having no interest in the Real Estate Companies must approve such
amendments if they involve a conflict of interest with directors having an
interest in the Real Estate Companies. In addition, the Board of Directors has
created a Conflicts Committee, consisting of directors who have no direct or
indirect financial interest in and are not affiliated with entities having an
interest in the Real Estate Companies, which monitors dealings between the
Company and the Real Estate Companies which may present a conflict of interest.

REGULATION OF AFFORDABLE HOUSING

        Approximately 63% of the properties and 43% of the units managed by the
Company as of December 31, 1995 are affordable properties and units,
respectively. Assistance programs for HUD-assisted affordable properties have
the effect of insulating these properties from many of the competitive
pressures of the marketplace (helping to keep occupancy levels high and
management fees steady) and encouraging long-term ownership of the properties.
At





                                       11


<PAGE>   13
the same time, these programs impose extensive regulatory requirements that
govern, to a large extent, the operation of the underlying properties. A
summary of some of the ways in which these regulations affect the Company
follows.

        HUD Assistance Programs

        A substantial portion of the portfolio of Affiliated Properties was
built or acquired with the assistance of HUD-administered programs that provide
mortgage insurance, favorable financing terms, or rental assistance payments to
the owner. As a condition to the receipt of assistance under each of these
programs, the partnerships that own the assisted properties have entered into
regulatory agreements with HUD in which such partnerships agree to rent units
to residents whose incomes do not exceed certain limits, to limit the rent that
can be charged to such residents, to limit the uses of the property's operating
cash and generally to own and operate the property in accordance with HUD's
standards. Many of these restrictions also apply to state-assisted properties.
As property management agent, the Company has primary responsibility for
monitoring and carrying out the day-to-day compliance with these various HUD
requirements. In addition, as a condition of participation in its various
assistance programs, HUD has approval rights over both the identity of the
management agent and the fees charged and operating costs incurred by the
management agent. In certain instances, HUD has the authority to cancel an
existing management contract.

        In addition to the initial financing assistance, HUD provides
assistance to certain of the affordable Affiliated Properties through various
rental assistance payments programs, mortgage insurance programs for second
mortgage loans and direct loans for property improvements. While the HUD
assistance programs generally create a stable operating environment, there can
be no assurance that the operation of the properties within the HUD regulatory
context will be without risk. As a condition to receiving assistance from HUD
for a property, rents on that property must be limited to an amount approved by
HUD. Many of the affordable Affiliated Properties require timely and adequate
annual rent increases to ensure that property revenues will continue to be
sufficient to offset increases in operating expenses the property may
experience. The method of calculating rent increases may not be sufficiently
responsive to the needs of a property, rent increases may not be granted at the
levels requested, or, in the case in which the HUD assistance is in the form of
a rental payment subsidy, HUD may be unable to award housing assistance
payments to additional dwelling units in the property. As a result, the
property may experience a revenue shortfall or a reduction in its surplus cash.

        Under Section 8 of the National Housing Act of 1937 ("Section 8"), HUD
provides rental assistance payments to owners who agree to make rental units
available to tenants whose incomes do not exceed specified guidelines. Section
8 assistance can either be project-based (i.e., the assistance is attached to
the property) or be in the form of Section 8 certificates or vouchers that are
awarded to (and are portable by) specific individual tenants. Under both
programs, tenants pay to the owner 30% of their adjusted monthly income as rent
and HUD pays the difference between the tenant's payment and the HUD-approved
rent for that unit. If an eligible tenant's income rises, but still remains
below the maximum allowed income, the tenant's contribution increases and HUD's
rental assistance payment decreases. In general, affordable Affiliated
Properties that receive Section 8 assistance also have government-insured
mortgages.

        Under the project-based Section 8 program, HUD provides long-term
rental assistance payments to owners pursuant to a Housing Assistance Payments
Contract ("HAP Contract"). The HAP Contract can cover all or only a portion of
a property's units, and the HAP Contract is awarded to the property and is not
dependent upon either the operation of the property by any particular owner or
the occupancy of the covered units by any particular tenant. Instead, the HAP
Contract remains in place so long as the property is operated as required and
so long as the tenants in occupancy fall within the applicable income
guidelines. The HAP Contracts are typically for an initial term of 20 years
with four 5-year renewals, for a total possible term of 40 years, or in the
case of more recent HAP Contracts, for an initial term of 5 years with three
5-year renewals, for a total possible term of 20 years. Affordable Affiliated
Properties have both types of HAP Contracts. In many cases, the property's HAP
Contract is for a period shorter than the term of the property's mortgage loan.

        Under the Section 8 voucher and certificate program, HUD awards
assistance to a particular individual or family whose income meets the
applicable income guideline, and that individual or family is then free to live
in any apartment whose rent is at or below the approved maximum rent for that
area.





                                       12


<PAGE>   14
        HUD-insured projects at risk of default are eligible to apply for
additional Section 8 assistance known as Loan Management Set Aside ("LMSA").
Under this program, projects receive rental subsidy for additional units. In
recent years, there has not been sufficient LMSA Section 8 funding available to
meet the needs of all eligible projects.

        Proposed HUD Reorganization and Restructuring of HUD Programs

        Various proposals are currently pending before Congress proposing a
reorganization of HUD and a restructuring of certain of its housing assistance
programs. These proposals generally seek to lower subsidized rents to market
levels and to lower required debt service costs as needed to ensure financial
viability at the reduced rents, but vary greatly as to how that result is to be
achieved.  The Clinton Administration, in its fiscal 1996 budget proposal, put
forward the "HUD reinvention plan" that focused on three central concepts: (1)
consolidation of HUD's sixty programs into three by 1998, (2) a phase-out of
project-based Section 8 rental assistance and conversion to a tenant-based rent
voucher system, and (3) a restructuring of HUD-insured mortgage debt (commonly
referred to as "mark to market").

        The HUD reorganization plan, if enacted by Congress, would change HUD's
role in affordable housing to one that would support, rather than control, the
administration of housing programs and the day-to-day management of properties.
The Company anticipates that this change in HUD's mandate, in conjunction with
other proposed reforms, would significantly reduce the regulatory burdens
associated with the management of HUD-assisted properties.

        The proposed phase-out of project-based subsidies would take place on a
property-by-property basis upon expiration of a property's HAP Contract, with a
conversion to a tenant-based subsidy. Under a tenant-based system, rent
vouchers would be issued to qualified participants who then could elect to
reside at a property of their choice, provided the tenant has the financial
ability to pay the difference between the selected property's monthly rent and
the value of the voucher, which would be established based on HUD's regulated
fair market rent for that geographic area.

        Under one form of the mark-to-market program, HUD would, when a
property's HAP Contract expires, re-underwrite the property's mortgage debt
based on its expected cash flow before debt service, when operated as
market-rate housing. The debt would be divided into a performing first mortgage
loan with required debt service and a second mortgage loan with no required
payments. Tenant-based subsidy, as described above, would replace the expired
project-based assistance.

        The Administration's reinvention plan is still pending before Congress,
and it is too early in the legislative process to predict which, if any, of
these fundamental changes to national housing policy will receive Congressional
approval. While the Company does not believe that the proposed conversion to
tenant-based assistance or other proposed changes would result in a significant
number of tenants relocating from properties managed by the Company, there can
be no assurance that the proposed changes would not significantly affect the
Company's management portfolio. Furthermore, there can be no assurance that
changes in federal subsidies will not be more restrictive than those currently
proposed or that other changes in policy will not occur. Any such changes could
have an adverse effect on the Company's property management revenues.

        2530 Previous Participation Review

        Under its regulations, HUD reserves the right to approve the owner and
the management agent of HUD-assisted projects, as well as their "principals"
(e.g., general partners, limited partners with more than a 25% interest,
shareholders with more than a 10% share, officers and directors) in connection
with the acquisition of a property or the award of a management contract,
respectively. This approval process is commonly referred to as "2530
Clearance." 2530 Clearance also is technically required, but is typically given
automatically, in connection with applications for additional HUD loans or
assistance such as awards of LMSA units.  2530 Clearance is not required for
annual rent increases, rent subsidy contract renewals or withdrawals from
property reserves. Under the 2530 Clearance process, the prospective owner, the
management agent, and their principals must disclose on HUD Form 2530 (the
"2530 Form") their performance history for the previous 10-year period in all
projects receiving any form of assistance from HUD, the Farmers Home
Administration or state housing finance agencies. Any future holder of over 10%
of the





                                       13


<PAGE>   15
common stock of the Company will be listed on the Company's 2530 Form and
subject to review in the 2530 Clearance process.

        The 2530 Clearance process is conducted by HUD field offices that
review the Company's and its affiliates' performance records at all HUD, state
housing agency-assisted and Farmers Home Administration properties. If the 2530
Form discloses any below average or unsatisfactory management reviews,
unsatisfactory physical inspections, open and unresolved audit findings,
mortgage or regulatory defaults, foreclosures or other adverse matters
applicable to an owner or manager, or their principals or affiliates, the HUD
Field or Regional Office with jurisdiction over the applicable project has the
authority to enter a "flag" into the computerized 2530 Clearance system, which
alerts all other Field and Regional Offices and HUD Headquarters in Washington,
D.C. to the existence of the flagged matter. The decision whether to grant 2530
Clearance is then subject to review by HUD's Multifamily Participation Review
Committee in Washington, D.C. (the "2530 Committee"). In May 1992, the
Assistant Secretary for Housing-Federal Housing Commissioner issued a directive
to all offices that for the first time provided owners and property managers
the opportunity to participate in the review of a preliminary decision to raise
a flag prior to its issuance and that restricted the number of field officers
who could enter a flag into the system.

        As of December 31, 1995, the Company has outstanding 25 below average
or unsatisfactory management reviews, 15 of which were based solely on
unsatisfactory physical inspections or mortgage defaults, the causes of which
are in the control of the owner of the properties. The Company and its
affiliates are seeking to resolve these matters  and have made progress in
mitigating the underlying problems, which progress, to date, is believed to be
acceptable to HUD. This is evidenced by HUD's approval during 1994 of 104
additional 2530 filings by the Company and its most recent approvals of the
Company as management agent in April and December 1995. The Company believes
that it enjoys a good working relationship with HUD and that the 2530 Committee
will continue to apply the 2530 Clearance process to large management
portfolios such as the Company's and large ownership portfolios such as the
Real Estate Companies' with discretion and flexibility. The Company believes
that neither the below average or unsatisfactory management reviews nor the two
currently outstanding flags (both of which relate to mortgage defaults) have
had or will have a material impact on the Company's results of operations or
liquidity.

        Although 2530 Clearance is applicable only to the specific action for
which approval is sought, the denial of 2530 Clearance could have a serious
effect on the ability of the Company to expand its management, and the Real
Estate Companies to expand their ownership, of HUD-assisted properties until
such time as 2530 Clearance was reinstated.

        Suspension or Debarment

        Under its regulations, HUD has the authority to take more serious
action against an owner or manager, such as suspension or denial of
participation in HUD programs within a geographic region or complete denial of
participation, where such person or entity has committed criminal acts or
evidenced a pattern of consistently violating its contractual and regulatory
responsibilities to HUD.

        Transfers of Physical Assets ("TPA")

        Both HUD regulations and the regulatory agreement applicable to each
HUD-assisted property prohibit an owner from conveying such property or
conveying a 25% or greater partnership interest in the entity owning such
property, or any percentage general partner interest, without the prior
approval of HUD. The process by which HUD consent is received is known as
Transfer of Physical Assets ("TPA"). It is a set of administrative and legal
procedures prescribed by HUD pursuant to which HUD reviews the terms of a
proposed change in control of the ownership of a HUD-assisted multifamily
project. As part of this review the prospective purchaser must also receive
2530 Clearance.

        HUD's control of the transfer process affords it the opportunity to
review all aspects of the proposed transfer, including the identity of
transferees, the physical and financial soundness of the project and the
proposed management agent, and provides HUD with an ability to require
prospective owners to correct deficiencies as a condition of approval. If the
Real Estate Companies were unable to obtain TPA approval with respect to an
acquisition of affordable properties, the Company's growth strategy might be
adversely affected.





                                       14


<PAGE>   16
DEPENDENCE ON THE REAL ESTATE COMPANIES FOR PROPERTY MANAGEMENT REVENUES

        The Company is, and will continue to be, substantially dependent on
revenue from the provision of services to properties controlled by the Real
Estate Companies. Approximately 65% of the Company's property management
revenue for the year ended December 31, 1995 was derived from fees for services
to properties controlled by the Real Estate Companies. Pursuant to the
Intercompany Agreements, the Real Estate Companies will be required for a
period of at least 25 years (subject to certain conditions) to cause the
Company to be selected to provide services to each of the properties the Real
Estate Companies control (and any property they may control in the future). The
Real Estate Companies are required to make penalty payments to the Company
equal to up to two years of management revenues if management rights are
terminated with respect to properties managed on the effective date of the sale
of the Real Estate Companies as a result of certain dispositions of properties.
See "Intercompany Agreements with the Real Estate Companies." The Real Estate
Companies' obligations under the Intercompany Agreements are subject to their
fiduciary duties as general partner of the partnerships that own the
properties. The obligation of the Real Estate Companies to cause the selection
and to retain the Company is also subject to certain conditions provided for in
the Intercompany Agreements (see "Intercompany Agreements with the Real Estate
Companies"), and there can therefore be no assurance that contracts to provide
services to the properties controlled by the Real Estate Companies will be
granted or, if granted, will not be terminated. There can also be no assurance
that penalty payments will adequately compensate the Company for the loss of
related revenues. The Company will, in any event, be substantially dependent on
the Real Estate Companies' ability and desire to retain ownership and control
of their portfolios of properties. Moreover, the Company's strategy for
expanding the number of properties under management through transactions
involving the purchase of interests in real estate may be dependent in part on
the desire and the ability of the Real Estate Companies to acquire additional
properties or general partner interests. There can be no assurance that the
Real Estate Companies will have sufficient resources available to acquire
additional properties or general partner interests.

        The Company's continuing revenue from the provision of services to
properties controlled by the Real Estate Companies is dependent upon, among
other things, the financial stability of the Real Estate Companies and their
affiliates and their ability to retain control of the selection of the property
manager for such properties. The Real Estate Companies' sources of revenue are
fees and partner distributions received in connection with the sale or
refinancing of properties in the ordinary course of business, repayment of
principal and interest on general partner loans to property-owning
partnerships, payment of administrative and reporting fees accrued prior to the
sale of the Real Estate Companies to the extent available after payment of fees
to the Company, and annual distributions of available cash from property-owning
partnerships. If the Real Estate Companies were unable to satisfy their
obligations out of funds generated by current operations and sales or
refinancings of properties in the ordinary course of business, they might be
required to dispose of additional assets, including interests in properties
managed by the Company. If this were to happen, the Company could lose revenues
from such properties. There can be no assurance that the Real Estate Companies
will be able to meet their financial obligations.

        Selection of the management agent for certain of the Affiliated
Properties (including the Oxford properties) is controlled by the Company or
the Real Estate Companies pursuant to contractual arrangements, but the
properties are owned by partnerships that are not controlled by the Real Estate
Companies. The Company's continuing receipt of revenue from the provision of
services to such Affiliated Properties may depend on the financial stability of
other parties who have controlling interests in such properties or such other
parties' decision to sell certain Affiliated Properties. If a party with a
controlling interest in a property lacks the necessary financial resources to
retain its interest in the property or otherwise determines to sell the
property, the Company may not be able to prevent a transfer of such party's
interests and, therefore, the loss of management rights with respect to the
property.  Furthermore, the termination penalty payable by the Real Estate
Companies upon the disposition of other properties does not apply to the Oxford
properties. There can be no assurance that payments pursuant to an escrow
arrangement established as part of the Oxford Acquisition would be available
or, if available, sufficient to cover the loss of revenue to the Company from
dispositions of any Oxford properties.





                                       15


<PAGE>   17
ENVIRONMENTAL REGULATION

        Although the Company does not own interests in any real property after
the sale of the Real Estate Companies, environmental laws impose liability on
the operator of a property as well as its owner. In light of the Company's role
as a manager of properties, it could be held liable as an operator for the
costs of investigation, removal or remediation of certain hazardous or toxic
substances, if any, at a property, and such liability may be imposed without
regard to whether the Company knew of, or was responsible for, the presence of
such hazardous or toxic substances. A manager of a property may also be liable
under common law to third parties for damages and injuries resulting from
environmental contamination at or emanating from or at the site, including the
presence of asbestos-containing materials and lead-based paint.

        The Company generally has not undertaken any review, on a
property-by-property basis, of the presence or extent of asbestos-containing
materials, lead-based paint or any other environmental risks at the properties
it manages. Although the Company is not aware of any conditions at any of the
properties it manages that would have a material adverse effect on the Company,
many of the properties it manages were constructed at times when
asbestos-containing materials and lead-based paint were in use. There can be no
assurance that conditions requiring significant expense with respect to such
properties do not exist or may not arise in the future.

        Prior to its ban by the Consumer Products Safety Commission in 1978,
lead was often used in oil-based paints, particularly high-grade gloss paints
that were used on interior trim, exterior walls, window frames and railings of
both single-family homes and multifamily apartment buildings. Although paint
manufacturers significantly reduced the lead content of paint, particularly
after 1950, lead-based paint is present in a significant percentage of the
country's housing stock. HUD regulations currently require owners of properties
constructed or rehabilitated prior to 1978 and receiving rental assistance from
HUD's Section 8 program to inspect regularly for defective paint surfaces and
to abate lead-based paint by covering or removal. In addition, the Residential
Lead-Based Paint Hazard Reduction Act of 1992 requires owners of
federally-associated housing built prior to 1960 to conduct an initial risk
assessment for lead-based paint by January 1, 1996, and owners of housing built
between 1960 and 1978 to conduct an initial risk assessment by January 1, 2002.
HUD has yet to issue regulations to implement these risk assessment provisions.
If the expense of removal of lead-based paint, or related liability, resulted
in the Real Estate Companies needing to dispose of, or decline to acquire,
properties, the Company could experience a reduction in actual or expected
management fee revenues.

        The Company has obtained indemnification from the Real Estate Companies
with respect to any environmental liabilities arising at Affiliated Properties
(other than liability resulting from the direct introduction of toxic
substances into a property by the Company after the sale of the Real Estate
Companies). There can be no assurance that the Real Estate Companies will be
able to meet their indemnification obligations or that a determination of
liability would not otherwise have a material adverse effect on the Company.
See "Intercompany Agreements with the Real Estate Companies." Furthermore, the
Real Estate Companies could be subject to additional liability under the
environmental laws by virtue of their control of properties. Any such liability
could have a material adverse effect on the Real Estate Companies, which could
result in the disposition of Affiliated Properties and the loss of management
rights by the Company with respect to those properties.

COMPETITION

        The property management industry is highly competitive and fragmented.
Increasing competition in recent years has resulted in decreased property
management fees and margins in the conventional segment of the market. The
Company's competitors include firms with greater financial resources than the
Company. The Company also competes with a large number of regional and local
organizations which manage a relatively small number of properties.

        The Company competes for the right to manage properties controlled by
third parties primarily on the basis of experience, quality of service, cost
and the ability to deliver favorable operating results. The Company in
combination with the Real Estate Companies and other joint venture partners
expects to compete for acquisitions of controlling interests in properties
primarily on the basis of the acquisition price and to a lesser extent on the
basis of experience, quality of service, cost and the ability to deliver
favorable operating results. The Company believes it has a reputation for
providing favorable operating results and quality service, which, together with
the quality of its employees, its





                                       16


<PAGE>   18
national field organization, and its management information and reporting
system, enable it to compete effectively for additional management contracts.
Because of the Company's emphasis on controlling costs and improving the
efficiency of its property management operations, it believes that it is able
to offer quality service at competitive rates. While the Company believes that
it will continue to compete effectively in the property management industry,
there can be no assurance that it will do so or that the Company will not
encounter further increased competition in the future which could limit the
Company's ability to maintain or increase its market share.

EMPLOYEES

        The Company employs approximately 5,300 people, approximately 4,800 of
whom are on-site employees at Company-managed properties. Fewer than 5% of the
Company's employees are members of unions. Costs associated with on-site
employees are paid by the Company but are reimbursed out of property operations
(by the property owner) pursuant to the terms of each property management
contract. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Overview."

ITEM 2.          FACILITIES

        The Company's headquarters are located in Washington, D.C. where the
Company currently occupies approximately 19,000 square feet which is rented
from the Real Estate Companies on a month-to-month basis. Additional corporate
offices are located in Reston, Virginia, where the Company currently occupies
43,000 square feet under a lease expiring in 1998, and Indianapolis, Indiana,
where the Company currently occupies 38,000 square feet under a lease expiring
in July 1996. In March 1996, the Company entered into a six-year lease
agreement for 50,600 square feet of office space in connection with the
relocation of its Indianapolis offices under a lease expiring in July 2002. In
addition, in December 1995, the Company entered into a six-year lease agreement
for approximately 65,000 square feet of office space in Vienna, Virginia. The
Company will relocate its Washington, D.C. and Reston, Virginia offices to the
new Vienna location during the second quarter of 1996. In March 1996, the
Company executed a binding letter of intent for a sublease agreement for all of
its Reston facilities which extends through the remaining term of its lease at
a rental rate not less than the Company's obligation under its prime lease.

        In addition to its offices in Washington, D.C., Reston, Virginia, and
Indianapolis, Indiana, the Company's operations are administered from regional
offices in Rockville, Maryland, Yardley, Pennsylvania, Irving, Texas, and
Charlotte, North Carolina. The Company also has 17 district offices located
throughout the country. The Company's Buyers Access program also has regional
offices in Salt Lake City, Utah and Maitland, Florida. Under various leasehold
arrangements with terms ranging from month-to-month to three years, the Company
occupies approximately 33,000 square feet for these regional and district
operations. District offices are often located within properties under
management, for which the Company pays fair market rent to the property.

ITEM 3.          LEGAL PROCEEDINGS

        The Company is a party to various legal actions arising primarily in
the ordinary course of its property management business.  Management of the
Company does not believe that there is any litigation pending against the
Company which, if determined adversely to the Company, would have a material
adverse effect on the Company or its financial position, cash flows or results
of operations.

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

        No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the year ended December 31, 1995.





                                       17


<PAGE>   19
                                    PART II

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

        NHP Incorporated common stock trades on The Nasdaq Stock Market under
the symbol NHPI.

        The high and low market price of NHP Incorporated common stock and the
cash dividends declared for each quarterly period with the two most recent
fiscal years is included in Note 15 of Item 8, Financial Statements and
Supplementary Data, appearing on page 53. The Company has never paid
dividends and does not intend to pay dividends in the foreseeable future. Any
payment of future dividends and the amounts thereof will be dependent upon the
Company's earnings, financial and other requirements, including contractual
obligations.

        There were 66 common shareholders of record of NHP Incorporated common
stock at December 31, 1995. In addition, the Company estimates that there were
approximately 315 beneficial shareholders at December 31, 1995.

ITEM 6.          SELECTED FINANCIAL DATA

        The following table sets forth selected financial and operating data of
the Company as of and for each of the years in the five-year period ended
December 31, 1995. The selected financial data of the Company was  derived from
the Company's audited consolidated financial statements. The selected financial
and operating data should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations and the
Consolidated Financial Statements contained herein as Item 7 and Item 8,
respectively.



                     SELECTED FINANCIAL AND OPERATING DATA
   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND PROPERTIES AND UNITS MANAGED)

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                                        -----------------------
                                                   1995             1994           1993       1992             1991
                                                   ----             ----           ----       ----             ----
<S>                                             <C>             <C>           <C>           <C>             <C>
OPERATING RESULTS:
   Total revenues (a)                           $ 174,674        $ 147,296     $  95,900    $  91,559       $  86,913
   Operating income                                19,307           14,741 (b)    12,469       11,964           9,476
   Income from continuing operations
      before income taxes                          13,811            9,005         8,528        8,276           5,413
   Income from continuing operations               31,613(c)         9,005         8,528        8,276           5,413
   Income per common share from continuing                                     
     operations                                 $    3.27(c)     $    1.11     $   1.04     $    1.00       $     .75

FINANCIAL POSITION:
   Total assets                                 $  84,770        $  57,668     $  46,353    $  15,095       $  14,511
   Notes payable, including current portion        23,690           70,133        72,429       44,523          42,714
   Shareholders' equity (deficit) (d)              39,154         (47,554)      (63,584)     (61,709)        (63,925)

OTHER INFORMATION:
   EBITDA (e)                                   $  23,110        $  17,265     $  13,848    $  13,249       $  10,908
   Cash dividends per share                         -                -             -            -               -
   Weighted average shares outstanding              9,645            8,095         8,209        8,291           7,258
   Properties managed:
     Affiliated                                       619              558           544          384             385
     Unaffiliated                                      92               56            28           21              19
                                                ---------        ---------     ---------    ---------       ---------
   Total                                              711              614           572          405             404
                                                =========        =========     =========    =========       =========
                                                
   Units managed:
     Affiliated                                   113,919           99,817        96,067       61,782          61,394
     Unaffiliated                                  19,748           11,689         5,282        3,296           2,702
                                                ---------        ---------    ----------   ----------      ----------
   Total                                          133,667          111,506       101,349       65,078          64,096
                                                =========        =========    ==========   ==========      ==========
</TABLE>





                                       18


<PAGE>   20
------------

(a)     Adjusted revenues, which exclude On-Site personnel, general and
        administrative cost reimbursement, were $57,425, $49,138, $35,677,
        $33,059, and $31,827 for the years ended December 31, 1995, 1994, 1993,
        1992 and 1991, respectively.

(b)     Includes a $1.8 million ($.22 per share) write-off in 1994 of the costs
        of transferring operations to a new computer system that was not
        completed in a timely manner.

(c)     Includes a credit of $23.3 million ($2.42 per share) in 1995 related to
        a change in the valuation allowance on the Company's net deferred tax
        asset.

(d)     The deficit in shareholders' equity prior to 1995 is the result of
        losses recorded from the Company's discontinued operations.


(e)     EBITDA consists of income from continuing operations before interest,
        income taxes, depreciation and amortization. EBITDA is included because
        it is widely used in the industry as a measure of a company's operating
        performance, but should not be construed as an alternative either (i)
        to income from continuing operations (determined in accordance with
        generally accepted accounting principles) as a measure of profitability
        or (ii) to cash flows from operating activities (determined in
        accordance with generally accepted accounting principles). EBITDA does
        not take into account the Company's debt service requirements and other
        commitments and, accordingly, is not necessarily indicative of amounts
        that may be available for discretionary uses.


                                      19

<PAGE>   21



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

INTRODUCTION

        On August 18, 1995, NHP Incorporated (the "Company") completed an
initial public offering (the "IPO") of 4.3 million shares of its common stock
for net proceeds of approximately $52.0 million. Prior to that date the Company
had been owned by various private investors. Concurrently with the closing of
the IPO, the Company sold those of its subsidiaries which held all of the
Company's direct and indirect interest in property-owning partnerships, along
with its captive insurance subsidiary and certain other related assets
(collectively referred to as the "Real Estate Companies") to the two
controlling shareholders of the Company, Demeter Holdings Corporation
("Demeter") and Capricorn Investors, L.P. ("Capricorn"), and J. Roderick
Heller, III, the Chairman, President and Chief Executive Officer of the Company
("Mr. Heller"). Accordingly, operating results and cash flows attributable to
the Real Estate Companies have been presented as discontinued operations in the
accompanying financial statements in conformity with generally accepted
accounting principles. For a summary and discussion of the operating results of
discontinued operations and the financial impact from the disposal of
discontinued operations, see Note 2 to the Consolidated Financial Statements.
The following discussion, except where specifically stated otherwise, relates
only to the Company's continuing operations.

        Overview

        The Company has experienced growth in its revenues and income from
continuing operations before income taxes during each of the three years ended
December 31, 1995. Historically, substantially all of this growth has been the
result of increased property management revenues caused by increases in the
number of units under management. The increase in units under management has
resulted primarily from acquisitions of management rights, most notably the
Oxford Acquisition in December 1993, the Congress Acquisition in December 1994,
and the Hall Acquisition in February 1995. As a result of these and other
acquisitions of management rights, the Company experienced a net gain in the
number of units under property management of 22,161 units during 1995, an
increase of 19.9% over the end of 1994, 10,157 units during 1994, an increase
of 10.0% over the end of 1993, and 36,271 units during 1993, an increase of
55.7% over the end of 1992.

        The Company manages 66 affordable affiliated properties (representing
approximately 10,400 units) which have secondary financing expiring in the next
one to six years. Most of these properties currently have a fair market value
less than the amount necessary to repay such secondary financing in full. The
Company expects the Real Estate Companies to renegotiate these mortgages where
necessary, but some attrition in the Company's management portfolio is expected
from maturity of these secondary mortgages.  These properties generated
approximately $5.3 million in property management revenue in 1995, and the
Company believes that less than 50% of such annual revenue is at risk over the
next seven years due to a possible loss of property management revenues with
respect to such properties. Such a revenue loss would not be material compared
with expected total revenue of the Company and would not have a significant
impact on  the Company's financial condition or results of operations.

        Approximately 63% of the properties and 43% of the units managed by the
Company as of December 31, 1995 are affordable properties and units. A
substantial portion of the affordable properties were built or acquired by the
owners with the assistance of programs administered by the United States
Department of Housing and Urban Development ("HUD") that provide mortgage
insurance, favorable financing terms, or rental assistance payments to the
owners. As a condition to the receipt of assistance under these and other HUD
programs, the properties must comply with various HUD requirements including
limiting rents on these properties to amounts approved by HUD. Various
proposals are pending before Congress proposing reorganizaton of HUD and a
restructuring of certain of its housing assistance programs. It is too early in
the legislative process to predict which, if any, changes might be implemented.
Any such changes could have an adverse effect on the Company's property
management revenue.

        The Company manages 71 properties for unaffiliated third parties with
property management contracts terminable within one year. Some of the contracts
may be terminated on short notice and others may not be renewed for another
term. In either case, the Company would experience a revenue loss. Although the
Company does not believe that any anticipated revenue loss would have a
significant impact on its financial condition or results of operations,


                                      20

<PAGE>   22

if the contracts that are terminated or not renewed generate favorable margins,
operating income would be adversely affected. These properties generated
approximately $3.7 million in property management revenue in 1995.

        On a going-forward basis, to the extent that the Company is successful
in acquiring new management contract rights, the Company will experience
increased expenses associated with the amortization of the acquired rights or
completing other acquisitions (such as the Washington Mortgage acquisition
discussed in Item 1 above) and, if the acquisitions are financed by
additional indebtedness, an increase in interest expense. Accordingly,
acquisitions may result in a decrease in income from continuing operations.
However, the Company intends to pursue acquisitions of property management
rights and other acquisitions that result in an increase in income from
continuing operations before interest, income taxes, depreciation and
amortization ("EBITDA") after all transition costs relating to the acquisition
are absorbed (see "Part I - Business - Acquisition Program"). EBITDA is widely
used in the industry as a measure of a company's operating performance, but
should not be considered as an alternative either (i) to income from continuing
operations (determined in accordance with generally accepted accounting
principles) as a measure of profitability or (ii) to cash flows from operating
activities (determined in accordance with generally accepted accounting
principles). EBITDA does not take into account the Company's debt service
requirements and other commitments and, accordingly, is not necessarily
indicative of amounts that may be available for discretionary uses.

        The Company files a consolidated Federal income tax return and prior to
the third quarter of 1995 had recognized no provision or benefit for income
taxes primarily because of net operating losses generated in prior years by the
discontinued real estate operations. Prior to the sale of the Real Estate
Companies, losses from discontinued operations typically caused the Company to
report no taxable income, making realization of net operating loss
carryforwards ("NOLs") uncertain. As a result, historically, the Company had
established a valuation allowance for the full amount of the NOLs. Subsequent
to the sale of the Real Estate Companies, the Company reduced its valuation
allowance, resulting in the recognition of a net deferred tax asset. For
further discussion see Note 5 to the Company's Consolidated Financial
Statements.

        The Real Estate Companies have indemnified the Company against any
environmental liability with respect to any property in which the Real Estate
Companies have had, have or acquire an interest in, unless such liability
results from the direct introduction of toxic substances into a property by the
Company after the consummation of the sale of the Real Estate Companies. The
Company has no known material environmental liabilities that require an accrual
and has obtained the indemnification from the Real Estate Companies in the
event any such liabilities should arise in the future. For further discussion,
see "Part I - Business - Intercompany Agreements with the Real Estate
Companies."

        The Company is, and will continue to be, substantially dependent on
revenue from services provided to properties controlled by the Real Estate
Companies. Approximately 65% of the Company's property management revenue in
1995 was derived from fees for services provided to properties controlled by
the Real Estate Companies. For further discussion, see "Part I - Business -
Dependence on the Real Estate Companies for Property Management Revenues."

RESULTS OF OPERATIONS

        Table 1 below sets forth the percentage of the Company's total revenue
represented by each operating statement line presented.  This table is
presented as supplemental information to enable the reader to better analyze
the Company's change in revenues and expenses during the three years ended
December 31, 1995. The percent of revenue comparison is intended to make the
periods more comparable by removing the absolute effect of growth in revenues
and expenses which results from the Company's acquisition of additional
management contracts. Such a presentation would also reflect economies in the
Company's operating expenses, to the extent they exist.



                                      21

<PAGE>   23


    TABLE 1 - SUMMARY FINANCIAL AND OPERATIONAL DATA - REVENUE AND EXPENSES
                        AS A PERCENTAGE OF TOTAL REVENUE

<TABLE>
<CAPTION>
                                                                                          Year Ended December 31,
                                                                              ---------------------------------------------
                                                                                1995               1994               1993
                                                                              --------           --------           -------
         <S>                                                                    <C>                <C>                <C> 
         Revenue
            Property management services                                         27.7%              27.8%              29.9%
            On-Site personnel, general and administrative cost                                                             
            reimbursement                                                        67.1               66.7               62.8
            Administrative and reporting fees                                     2.4                2.5                4.5
            Buyers Access(R) fees                                                 1.5                1.4                1.6
            Tax credit investment fees                                            0.7                0.9                0.2
            Insurance advisory fees                                               0.6                0.7                1.0
                                                                                -----            -------           --------
               Total revenue                                                    100.0              100.0              100.0
                                                                                -----            -------           --------
         Expenses                                                                                                  
            Salaries and benefits                                                                                  
              On-Site employees                                                  64.7               63.5               55.7
              Off-Site employees                                                 12.8               13.0               14.3
            Other general and administrative                                      6.8                7.4                8.4
            Costs charged to the Real Estate Companies                            2.4                3.1                7.1
            Amortization of purchased management contracts                        1.8                1.4                0.9
            Depreciation and amortization                                         0.4                0.3                0.5
            Other non-recurring expenses                                            -                1.2                  -
                                                                                -----            -------           --------
               Total expenses                                                    88.9               89.9               86.9
                                                                                -----            -------           --------
         Operating income                                                        11.1               10.1               13.1
            Interest expense, net                                                (3.2)              (3.9)              (4.1)
                                                                                -----            -------           -------- 
            Income from continuing operations before income taxes                 7.9                6.2                9.0
            Income tax benefit                                                   10.2                  -                  -   
                                                                                -----            -------           ---------   
            Income from continuing operations                                    18.1%               6.2%               9.0%
                                                                                =====            =======           ======== 
</TABLE>

        The Company's expenses include salaries and benefits with respect to
employees working at managed properties, which are fully reimbursed by the
property-owning partnerships, and certain general and administrative costs that
are fully reimbursed by the Real Estate Companies. The reimbursements, recorded
as revenue under "On-Site personnel, general and administrative cost
reimbursement," fully offset the corresponding expenses, with no impact on the
Company's net income. Therefore, reimbursed expenses and related revenue are
not analyzed in any detail below.

        Table 2 shows the Company's adjusted revenue and expenses, which
exclude on-site personnel, general and administrative cost reimbursements, and
related expenses. Table 3 sets forth the percentage of the Company's total
revenue excluding on-site personnel and general and administrative cost
reimbursement (adjusted revenue) represented by each operating statement line
presented. See discussion regarding Table 1 above.





                                       22


<PAGE>   24
    TABLE 2 - SUMMARY FINANCIAL AND OPERATIONAL DATA - ADJUSTED REVENUE AND
                          ADJUSTED OPERATING EXPENSES
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                          Year Ended December 31,
                                                                               -----------------------------------------
                                                                                   1995            1994            1993
                                                                               ----------      -----------    ----------
             <S>                                                                 <C>            <C>             <C>
             Revenue
                Property management services                                     $48,336         $40,953         $28,651
                Administrative and reporting fees                                  4,148           3,680           4,338
                Buyers Access(R) fees                                              2,631           2,108           1,521
                Tax credit investment fees                                         1,234           1,307             200
                Insurance advisory fees                                            1,076           1,090             967
                                                                                 -------        --------        --------
                    Adjusted revenue (1)                                          57,425          49,138          35,677
                                                                                 -------        --------        --------

             Expenses
                Salaries and benefits
                  Off-Site employees                                              22,371          19,099          13,706
                Other general and administrative                                  11,899          10,968           8,123
                Amortization of purchased management contracts                     3,076           2,043             875
                Depreciation and amortization                                        727             481             504
                Other non-recurring expenses                                          45           1,806              -   
                                                                                 -------        --------        --------
                    Adjusted operating expenses (2)                               38,118          34,397          23,208
                                                                                 -------        --------        --------
             Operating income                                                     19,307          14,741          12,469
                Interest expense, net                                             (5,496)         (5,736)         (3,941)
                                                                                 -------        --------        -------- 
                Income from continuing operations before income taxes             13,811           9,005           8,528
                Income tax benefit                                                17,802              -               -    
                                                                                 -------          ------        --------
                Income from continuing operations                                $31,613         $ 9,005         $ 8,528
                                                                                 =======        ========        ========
</TABLE>

 TABLE 3 - SUMMARY FINANCIAL AND OPERATIONAL DATA - ADJUSTED OPERATING REVENUE
                             AND ADJUSTED EXPENSES
                      AS A PERCENTAGE OF ADJUSTED REVENUE

<TABLE>
<CAPTION>
                                                                                          Year Ended December 31,
                                                                                -----------------------------------------
                                                                                   1995            1994            1993
                                                                                ----------      ----------      ---------
        <S>                                                                     <C>             <C>             <C>
             Revenue
                Property management services                                         84.2%           83.3%           80.3%
                Administrative and reporting fees                                     7.2             7.5            12.1
                Buyers Access(R) fees                                                 4.6             4.3             4.3
                Tax credit investment fees                                            2.1             2.7             0.6
                Insurance advisory fees                                               1.9             2.2             2.7
                                                                                   ------         -------         -------
                    Adjusted revenue (1)                                            100.0           100.0           100.0
                                                                                   ------         -------         -------
             Expenses                                                                                             
                Salaries and benefits                                                                             
                  Off-Site employees                                                 39.0            38.9            38.4
                Other general and administrative                                     20.7            22.2            22.8
                Amortization of purchased management contracts                        5.4             4.2             2.4
                Depreciation and amortization                                         1.3             1.0             1.4
                Other non-recurring expenses                                            -             3.7               -
                                                                                   ------         -------         -------
               Adjusted operating expenses (2)                                       66.4            70.0            65.0
                                                                                   ------         -------         -------
                                                                                                                  
        Operating income                                                             33.6            30.0            35.0
           Interest expense, net                                                     (9.6)          (11.7)          (11.0)
                                                                                   ------          ------         -------
           Income from continuing operations before income taxes                     24.0            18.3            24.0
           Income tax benefit                                                        31.0               -               - 
                                                                                   ------          ------         -------
              Income from continuing operations                                      55.0%           18.3%           24.0%
                                                                                   ======          ======         ======= 
</TABLE>
------------------
(1)     Adjusted revenue excludes On-Site personnel, general and administrative
        cost reimbursement.
(2)     Adjusted operating expenses exclude salaries and benefits for on-site
        employees and costs charged to the Real Estate Companies.





                                       23


<PAGE>   25




        RESULTS OF OPERATIONS - 1995 COMPARED WITH 1994

         In 1995, the Company recorded pre-tax income (before discontinued
operations and extraordinary items) of  $13.8 million compared with $9.0 million
for 1994, an improvement of  $4.8 million, or 53.4%. Both revenues and expenses
of the Company show increases in 1995 over 1994, primarily as a result of the
acquisition of additional property management contracts in late 1994 and during
1995. The Company's earnings from continuing operations before interest, income
taxes, depreciation and amortization (EBITDA) was $23.1 million for 1995
compared with $17.3 million for 1994, an improvement of $5.8 million, or 33.9%.
EBITDA consists of income from continuing operations before interest, income
taxes, depreciation and amortization. EBITDA is widely used in the industry as
a measure of a company's operating performance, but should not be construed as
an alternative either (i) to income from continuing operations (determined in
accordance with generally accepted accounting principles) as a measure of
profitability or (ii) to cash flows from operating activities (determined in
accordance with generally accepted accounting principles). EBITDA does not take
into account the Company's debt service requirements and other commitments and,
accordingly, is not necessarily indicative of amounts that may be available for
discretionary uses.


        Net income for 1995 of  $29.3 million includes a $17.8 million income
tax benefit. The income tax benefit resulted from the recognition, in the third
quarter, of a $23.3 million net asset primarily consisting of tax NOLs
following the sale of the Real Estate Companies on August 18, 1995, net of the
year-to-date tax provision of $5.5 million. No tax provision was recorded in
1994 due to NOLs generated by the Real Estate Companies in prior years. For
further discussion, see Note 5 to the Consolidated Financial Statements.  Net
income for 1994 included a non-recurring charge of $1.8 million related to a
terminated computer technology project. In addition, the Company recorded an
extraordinary after-tax charge of $0.4 million in the third quarter of 1995
related to the early termination of a credit facility.

        Revenue

        Total revenue of the Company consists of property management services
fees, administrative and reporting fees, Buyers Access(R) fees, tax credit
investment fees, insurance advisory fees and on-site personnel, general and
administrative cost reimbursement. Adjusted revenue equals total revenue less
on-site personnel, general and administrative cost reimbursement. Total revenue
increased $27.4 million, or 18.6%, to $174.7 million in 1995 from $147.3
million in 1994. Adjusted revenue increased $8.3 million, or 16.9%, to $57.4
million in 1995  from $49.1 million in 1994. The reasons for these increases
are set forth below.

        Property management services revenue consists primarily of fees earned
on property management contracts. This revenue increased $7.3 million, or
18.0%, to $48.3 million in 1995 from $41.0 million in 1994. As a percentage of
total revenue, property management revenue remained essentially the same. As a
percentage of adjusted revenue, property management revenue increased to 84.2%
from 83.3%. The increase in absolute terms resulted from an increase in the
average number of units managed due primarily to the acquisition of additional
property management rights discussed above.

        Administrative and reporting fees consist of fees payable from
property-owning partnerships, which are payable from investor limited partners'
share of distributable cash flow of the partnerships, as compensation for
providing certain administrative services to the property-owning partnerships.
These fees are payable only to the extent cash flow is available, and therefore
the receipt and timing of such fees cannot be assured. The amount of these fees
received is dependent in part on the operating results and cash requirements of
the underlying properties. The Company accrues these fees as services are
rendered and establishes a reserve equal to the amount of accrued fees that are
not assured of being paid. The Company has experienced significant variations
in these fees from one period to another and these variations may occur in the
future. Administrative and reporting fees revenue increased by $0.4 million, or
12.7%, to $4.1 million in 1995 from $3.7 million in 1994. As a percentage of
total revenue, administrative and reporting fees revenue remained essentially
the same. As a percentage of adjusted revenue, administrative and reporting
fees revenue decreased to 7.2% from 7.5%. The Company expects administrative
and reporting fees to continue to decline as a percentage of adjusted revenue
because these fees generally are not received with respect to newly-acquired
management contracts and as the properties which have A&R fees are lost due to
sale or other reasons.





                                       24

<PAGE>   26



        Buyers Access(R) fees consist of annual membership fees paid by
property-owning partnerships and rebates paid to the Company by suppliers
participating in the Company's Buyers Access(R) program. This revenue increased
$0.5 million, or 24.8%, to $2.6 million in 1995 from $2.1 million in 1994. As a
percentage of total revenue, Buyers Access(R) fees remained essentially the
same. As a percentage of adjusted revenue, this revenue increased to 4.6% from
4.3%. The increase in absolute terms resulted from an increase in the average
number of units enrolled in the Buyers Access(R) program.

        Tax credit investment fees consist of fees earned from providing a
variety of real estate investment banking services. The Company has experienced
significant variations in these fees from one period to another, and these
variations may recur in the future.  This revenue decreased $0.1 million, or
5.6%, to $1.2 million in 1995 from $1.3 million in 1994. As a percentage of
total revenue, tax credit investment fees decreased to 0.7% from 0.9%. As a
percentage of adjusted revenue, this revenue decreased to 2.1% from 2.7%. The
decrease in absolute terms and as a percentage of adjusted revenue is the
result of fewer tax credit investment transactions being completed during 1995
as compared to 1994.

        Insurance advisory fees revenue consists of fees received by the
Company in connection with administration of insurance programs for managed
properties, and currently amount to approximately $3.00 per $10,000 of
coverage. This revenue was essentially flat year over year at approximately
$1.1 million. As a percentage of total revenue, insurance advisory services
revenue remained essentially the same. As a percentage of adjusted revenue,
this revenue decreased to 1.9% from 2.2%.

        Expenses

        Total expenses of the Company consist of salaries and benefits for
On-Site and Off-Site employees, other general and administrative expenses,
costs charged to the Real Estate Companies, depreciation and amortization,
amortization of purchased management contracts and other non-recurring
expenses. Adjusted operating expenses equal total expenses less salaries and
benefits for On-Site employees and costs charged to the Real Estate Companies.
Total expenses increased $22.8 million, or 17.2%, to $155.4 million in 1995
from $132.6 million in 1994. Total expenses as a percentage of total revenue
decreased to 88.9% in 1995 from 89.9% in 1994.  Adjusted operating expenses
increased $3.7 million, or 10.8%, to $38.1 million in 1995 from $34.4 million
in 1994. Adjusted operating expenses as a percent of adjusted revenue decreased
to 66.4% from 70.0%. The reasons for these changes are set forth below.

        Salaries and benefits - off-site employees consist of personnel
expenses incurred for employees other than employees working at the properties.
These expenses increased $3.3 million, or 17.1%, to $22.4 million in 1995 from
$19.1 million in 1994. As a percentage of total revenue, salary and benefits -
off-site employees decreased slightly to 12.8% from 13.0%. As a percentage of
adjusted revenue, these expenses remained essentially the same. The increase in
absolute terms resulted primarily from the Company's growth and increased
executive incentive compensation during 1995.

        Other general and administrative expenses consist of professional fees,
travel, management information systems, occupancy, telephone and equipment
rental, and other expenses. These expenses increased $0.9 million, or 8.5%, to
$11.9 million in 1995 from $11.0 million in 1994. As a percentage of total
revenue, other general and administrative expenses decreased to 6.8% from 7.4%.
As a percentage of adjusted revenue, these expenses decreased to 20.7% from
22.2%. The increase in absolute terms resulted primarily from higher transition
and management expenses related to the expansion of the management portfolio.

        Amortization of purchased management contracts consists of the
amortization of the costs of acquisition of property management rights. Costs
are amortized over the shorter of 15 years or the estimated life of the
management contracts which include projected renewals. Amortization periods
range from 5 to 15 years. These expenses increased $1.1 million, or 50.6%, to
$3.1 million in 1995 from $2.0 million in 1994. As a percentage of total
revenue, amortization of purchased management contracts increased to 1.8% from
1.4%. As a percentage of adjusted revenue, these expenses increased to 5.4%
from 4.2%. The increase in absolute terms and as a percentage of total and
adjusted revenues resulted primarily from amortization of management contracts
related to the Congress and Hall Acquisitions.





                                      25

<PAGE>   27



        Depreciation and amortization consist primarily of the depreciation of
furniture, equipment (primarily computer equipment) and software, and
amortization of costs of leasehold improvements. These expenses increased $0.2
million, or 51.1%, to $0.7 million in 1995 from $0.5 million in 1994. As a
percentage of total revenue, depreciation and amortization remained essentially
the same. As a percentage of adjusted revenue, these expenses increased to 1.3%
from 1.0%. The increase in absolute terms resulted primarily from the purchase
of new personal computers and increased depreciation on leasehold improvements
at the Company's Indianapolis facility.

        Other non-recurring expenses include stock option compensation expense
of $0.5 million due to the extension of the exercise period of stock options
held by one former and five current employees. The extension was approved by
the Company's Board of Directors in February 1995. Additionally, the Company
recorded an expense reduction of $0.4 million, reflecting partial
reimbursements by third parties with respect to the costs of transferring
operations to a new computer system. A $1.8 million charge for the termination
of this systems project was originally recorded in December 1994 as a
non-recurring expense.

        Interest Expense, Net

        Interest expense, net decreased $0.2 million, or 4.2%, to $5.5 million
in 1995 from $5.7 million in 1994. As a percentage of total revenue, interest
expense, net decreased to 3.2% from 3.9%. As a percentage of adjusted revenue,
interest expense, net decreased to 9.6% from 11.7%. The decreases are due to a
lower level of debt in the second half of 1995 following the application of the
proceeds from the Company's IPO to repay debt.

        RESULTS OF OPERATIONS - 1994 COMPARED WITH 1993

        Revenues

        Total revenue of the Company increased $51.4 million, or 53.6%, to
$147.3 million in 1994 from $95.9 million in 1993. Adjusted revenue increased
$13.4 million, or 37.7%, to $49.1 million from $35.7 million. The reasons for
these increases are set forth below.

        Property management services revenue increased $12.3 million, or 42.9%,
to $41.0 million in 1994 from $28.7 million in 1993.  As a percentage of total
revenue, property management revenue decreased to 27.8% from 29.9%. As a
percentage of adjusted revenue, this revenue increased to 83.3% from 80.3%. The
increase in absolute terms resulted from an increase in the average number of
units managed during 1994 as a result of the Oxford Acquisition in December
1993, as well as from increases in rents on properties managed by the Company
and other factors. The increase as a percentage of adjusted revenue resulted
from the same reasons, and from a decrease in administrative and reporting fees
during 1994.

        Administrative and reporting fees decreased $0.6 million, or 15.2%, to
$3.7 million in 1994 from $4.3 million in 1993. As a percentage of total
revenue, administrative and reporting fees decreased to 2.5% from 4.5%. As a
percentage of adjusted revenue, this revenue decreased to 7.5% from 12.1%. The
decrease in absolute terms resulted from unusually high fees in 1993 caused
primarily by non-recurring government rent subsidy payments to the
property-owning partnerships and the timing of certain cash requirements of the
partnerships, which increased amounts available for payment of these fees in
1993. The decreases as a percentage of total and adjusted revenue resulted from
the same reason and because property management revenue, the major component of
revenue, increased at a faster rate than other revenue types.

        Buyers Access(R) fees increased $0.6 million, or 38.6%, to $2.1 million
in 1994 from $1.5 million in 1993. As a percentage of total revenue, Buyers
Access(R) fees decreased to 1.4% from 1.6%. As a percentage of adjusted
revenue, Buyers Access(R) fees remained the same. The increase in absolute
terms resulted from an increase in the average number of units enrolled in the
Buyers Access(R) program during 1994, as well as from an increase in the
average membership fees charged to the property-owning partnerships.

        Tax credit investment fees increased $1.1 million to $1.3 million in
1994, from $0.2 million in 1993. As a percentage of total revenue, tax credit
investment fees increased to 0.9% from 0.2%. As a percentage of adjusted





                                      26

<PAGE>   28



revenue, tax credit investment fees increased to 2.7% from 0.6%. The increase
in absolute terms and as a percentage of total and adjusted revenue resulted
from the fact that 1994 was the first full year of tax credit operations.

        Insurance advisory fees increased by $0.1 million, or 12.7%, to $1.1
million in 1994 from $1.0 million in 1993. As a percentage of total revenue,
insurance advisory fees decreased to 0.7% from 1.0%. As a percentage of
adjusted revenue, insurance advisory services fees decreased to 2.2% from 2.7%.

        Expenses

        Total expenses increased $49.2 million, or 58.9%, to $132.6 million in
1994 from $83.4 million in 1993. Total expenses as a percentage of total
revenue increased to 89.9% from 86.9%. Net operating expenses increased $11.2
million, or 48.2%, to $34.4 million from $23.2 million. Adjusted operating
expenses as a percent of adjusted revenue increased to 70.0% for 1994 from
65.0% for 1993. The reasons for these increases are set forth below.

        Salaries and benefits - off-site employees increased by $5.4 million,
or 39.3%, to $19.1 million in 1994 from $13.7 million in 1993. As a percentage
of total revenue, salary and benefits - off-site employees decreased to 13.0%
from 14.3%. As a percentage of adjusted revenue, these expenses remained
essentially the same. The increase in absolute terms resulted primarily from
additional personnel cost incurred to manage the Oxford properties, an increase
in the number of employees engaged in implementing the Company's acquisition
strategy, the additional personnel to support the tax credit investment fee
business which began in late 1993, and normal annual salary increases.

        Other general and administrative expenses increased $2.9 million, or
35.0%, to $11.0 million in 1994 from $8.1 million in 1993. As a percentage of
total revenue, other general and administrative expenses decreased to 7.4% from
8.4%. As a percentage of adjusted revenue, these expenses decreased to 22.2%
from 22.8%. The increase in absolute terms resulted primarily from additional
administrative cost incurred to manage the Oxford properties and higher legal
expenses incurred in connection with the Company's property management
operations.

        Amortization of purchased management contracts increased $1.1 million,
or 133.5%, to $2.0 million in 1994 from $0.9 million in 1993. As a percentage
of total revenue, amortization of purchased management contracts increased to
1.4% from 0.9%. As a percentage of adjusted revenue, these expenses increased
to 4.2% from 2.4%. The increase in absolute terms and as a percentage of total
and adjusted revenue resulted from amortization of purchased management
contracts for the Oxford Acquisition and the fact that the managed portfolio
prior to the Oxford Acquisition had relatively little purchased management cost
to be amortized.

        Other non-recurring expenses of $1.8 million in 1994 consisted of a
write-off of costs of transferring operations to a new computer system that was
not completed in a timely manner.

        Interest Expense, Net

        Interest expense, net, increased $1.8 million, or 45.5%, to $5.7
million in 1994 from $3.9 million in 1993. As a percentage of total revenue,
interest expense, net, decreased to 3.9% from 4.1%. As a percentage of adjusted
revenue, this expense increased to 11.7% from 11.0%. The increase in absolute
terms and as a percentage of adjusted revenue resulted from additional interest
expense incurred on additional borrowings from banks to finance the Oxford
Acquisition as well as from interest expense on additional shareholder loans.

LIQUIDITY AND CAPITAL RESOURCES

        Continuing operations, particularly property management operations,
have historically provided a steady, noncyclical source of cash flow to the
Company. Net cash provided by continuing operations for the years ended
December 31, 1995, 1994 and 1993 was $9.7, $11.9 and $12.1 million,
respectively. The decrease in net cash provided by continuing operations in
1995 was due primarily to the increase in payments for income taxes and the
timing of receipts and payments on various working capital items. At December
31, 1995, the Company's liquidity was approximately $58.0 million, which
consists of approximately $6.0 million in cash and $52.0 million of available
borrowings available under the Company's credit facility.





                                      27

<PAGE>   29



        For 1995, net cash used in investing activities was $16.0 million,
reflecting primarily cash used in the Congress, Hall and other acquisitions.
Net cash used in investing activities in 1994 of $4.5 million includes
additional payments for the Oxford Acquisition and purchases of fixed assets
consisting primarily of computer equipment and software. Net cash used in
investing activities was $19.7 million in 1993, primarily due to the Oxford
Acquisition.

        In 1995, net cash provided by financing activities was $8.8 million,
reflecting proceeds from the Company's IPO in August and borrowings on the
Company's Credit Facility (see discussion below), reduced by the net repayment
of borrowings under the Company's previous credit facility, repayment of notes
to related parties and payment of financing, offering and disposition costs. In
1994, net cash used in financing activities was $4.3 million, reflecting
scheduled payments under the then existing credit facility. Net cash provided
by financing activities of $23.4 million in 1993 results primarily from
financing obtained in connection with the Oxford Acquisition. For further
discussion of the Company's debt, see Note 4 to the Consolidated Financial
Statements.

        As previously discussed, on August 18, 1995, the Company completed an
IPO of 4.3 million shares of common stock and received net proceeds of
approximately $52.0 million (the "Closing"). At that time, the Company entered
into a $75 million, three-year unsecured revolving credit facility with a group
of banks (the "Credit Facility"). At the end of two years, the Company may
extend the Credit Facility (as a revolving facility) for a fourth year or
convert it to a two-year term loan. Availability under the Credit Facility is
subject to the Company's compliance with various ratios, operating covenants
and other customary conditions. The Credit Facility also restricts the payment
of dividends by the Company unless the Company's ratio of EBITDA to interest
expense is greater than 3 to 1, calculated on a four quarter average basis.
Interest on the Credit Facility is equal to, at the Company's option, either
The First National Bank of Boston's base rate from time to time or 175 basis
points over the London Interbank Offered Rate ("LIBOR") in effect from time to
time. The Credit Facility also requires the payment of a commitment fee of 37.5
basis points per annum on the unused portion of the Credit Facility. The Credit
Facility generally prohibits any additional borrowings by the Company, except
that up to $10.0 million of additional unsubordinated borrowings from third
parties will be permitted if entered into in connection with the acquisition of
assets which will result in additional management contracts for the Company.
The Credit Facility also permits the Company to make loans or other advances to
the Real Estate Companies up to a total of $10 million in connection with the
Real Estate Companies' acquisition of real estate assets. The Company's
compliance with this latter requirement was waived by the bank group for a
period of six months ending August 8, 1996, to permit up to $16.0 million of
borrowings in connection with the Real Estate Companies' pending acquisition of
a portfolio of 13 properties containing 3,145 units (see "Subsequent Events"
below). As of December 31, 1995 the Company had $23.0 million outstanding under
the Credit Facility leaving $52.0 million of available borrowings.

        At Closing, the Company drew $20.0 million on the Credit Facility and
used those funds together with the net proceeds of the IPO as follows:  (i)
$54.7 million was used to repay in full the Company's indebtedness under its
previous credit facility, which was simultaneously terminated by the Company;
(ii) $7.0 million was used to repay a note to a former institutional
shareholder of the Company; and (iii) $5.5 million was used to repay
indebtedness to Demeter, Capricorn, and Mr. Heller. The remaining proceeds were
added to the Company's working capital.

        In consideration for the sale of the Real Estate Companies, Demeter,
Capricorn and Mr. Heller canceled approximately $9.1 million of indebtedness
owed by the Company to them. For further discussion, see Note 9 to the
Company's Consolidated Financial Statements.

        The Company's future capital expenditures are expected to consist
largely of funds required in connection with the acquisition of property
management rights and other acquisitions. The Company intends to finance such
acquisitions primarily out of operating cash flow and bank or other borrowings,
including borrowings under the Credit Facility. The Company may also issue
additional common stock, either for cash to be used in connection with, or as
consideration for, acquisitions. The Company believes that it can repay
indebtedness out of operating cash flow or additional equity offerings.

        Capital expenditures also include costs to acquire computer hardware
and software, including software in connection with the Company's move from
mainframe technology to client-server based technology to serve its





                                      28

<PAGE>   30



information systems needs. See Part I - Business - "Property Management
Services - Operations." As of December 31, 1995, the client-server software and
related hardware had been purchased with funds from operating cash flow. The
Company currently has no material commitments for capital expenditures.

        As discussed in Note 5 to the Company's Consolidated Financial
Statements, the Company has substantial unused net operating loss carryforwards
("NOLs") for Federal tax purposes. In addition, the Company estimates that,
based on current projections, it has sufficient Federal alternative minimum tax
NOLs to offset the allowable limit of Federal alternative minimum taxable
income at least through 1996. Therefore, the Company expects its cash income
tax rate to be approximately 10% for 1995 and 1996.

        If the Internal Revenue Service were to determine that the
consideration received by the Company in the sale of the Real Estate Companies
was less than the fair market value of the assets transferred or that other
valuations of assets made in connection with the sale were inaccurate, the
amount of the net operating loss carryforwards available to the Company could
be reduced, thus increasing the Company's future federal income tax liability.
The ability of the Company to utilize NOLs may also be limited in the future if
an "ownership change" within the meaning of Section 382 of the Internal Revenue
Code of 1986, as amended, were deemed to occur. Such an ownership change may be
deemed to occur if the Company engages in certain transactions involving the
issuance of shares of common stock, including the issuance of a sufficient
number of shares of common stock in connection with an acquisition or
otherwise. If an ownership change were to occur, Section 382 would impose an
annual limit on the ability of the Company to utilize NOLs. The amount of NOLs
is, in any event, subject to uncertainty until such time as they are used to
offset income as their validity is not reviewed by the Internal Revenue Service
until such time as they are utilized.

        Discontinued Operations

        Net cash used in discontinued operations for the years ended December
31, 1995, 1994 and 1993  was $8.6 million, $0.2 million and $10.5 million,
respectively. The single largest use of cash over these years has been advances
to property-owning partnerships to fund operations and capital improvements of
the underlying properties. A large part of the 1993 fundings were required by
operating guarantees or to avoid calls on letters of credit and guarantees
issued on behalf of property-owning partnerships. The reduction of cash used in
discontinued operations in 1994 compared to 1993 is primarily the result of
proceeds received in 1994 on dispositions of investments in real estate
partnerships.

        In 1993, net cash used in discontinued operations was primarily related
to multifamily partnership and single family joint-venture investments targeted
for disposition. In 1994, net cash used was primarily for additional
investments in certain partnerships rather than for partnership fundings as had
been required in prior years, offset by any proceeds from dispositions of
certain properties and partnership interests. In 1995, cash was used primarily
to invest in the general partnership interests acquired in the Hall
Acquisition.

NET INCOME PER SHARE

        In February 1995, the Company's Board of Directors declared a 25 for 1
split of the Company's common stock. Accordingly, all share and per share
amounts have been restated to give retroactive recognition  to the stock split
for all periods presented.

        As previously discussed, on August 18, 1995, the Company completed an
IPO of 4.3 million shares of its common stock for net proceeds of approximately
$52.0 million. Although this transaction had no earnings impact, net income per
share subsequent to the IPO decreased due to the increase in shares
outstanding.

NEW ACCOUNTING STANDARDS

        In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of  Long-Lived Assets and Assets to be Disposed Of," which
requires the adjustment of  the carrying value of long-lived assets and certain
identifiable intangibles if their value is determined to be impaired as defined
by the standard. The Company intends to adopt SFAS No. 121 on





                                      29

<PAGE>   31



January 1, 1996. In the opinion of management, the adoption of this statement
will not have a material effect on the Company's financial position or results
of operations.

        In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock Based Compensation," which allows companies to
adopt the fair value method for recognition of stock-based compensation expense
or to continue to use the intrinsic value method as prescribed by Accounting
Principles Board Opinion (APB) No. 25 "Accounting for Stock Issued to
Employees." SFAS 123's fair value method requires companies to record
compensation expense on the date of the grant of stock options based on the
fair value of the options as calculated by option pricing models or current
market prices. For those companies that do not elect to adopt the fair value
method of accounting for stock-based compensation expense, SFAS 123 requires
disclosure of the pro forma impact on net income and earnings per share as if
the Company had accounted for its employee stock options under the fair value
method of that statement. The Company intends to adopt the disclosure
provisions of SFAS 123 for 1996 and will continue to follow APB No. 25 in
accounting for employee stock options. In accordance with APB No. 25, because
the exercise price of the Company's employee stock options equals the market
price on the underlying stock on the date of the grant, no compensation expense
is recognized. Because the Company's adoption of SFAS 123 will require only
additional disclosure, it will not have a material effect on the Company's
financial position or results of operations.

SUBSEQUENT EVENTS

        On February 29, 1996, the Company entered into a three-year contract
with CRI, Inc., a Rockville, Maryland-based real estate investment firm, to
provide asset management, refinancing and disposition services for 286
affordable multifamily communities containing over 35,000 apartment units,
which are owned by 129 of CRI's public and private real estate partnerships.
The transaction increased the Company's total asset management portfolio by
over 50% to approximately 840 multifamily properties.

        On March 20, 1996, the Company and Commonwealth Overseas Trading
Company Limited ("Commonwealth") entered into a Stock Purchase Agreement
providing for the purchase from Commonwealth of all of the issued and
outstanding common stock of WMF Holdings Ltd. for $21 million, in the form of
$16.8 million in cash and 210,000 shares of the Company's common stock. WMF
Holdings Ltd. is the owner of Washington Mortgage Financial Group, Ltd.
("Washington Mortgage Financial"), located in Fairfax County, Virginia, one of
the nation's leading multifamily mortgage originators and servicers. Washington
Mortgage Financial had mortgage servicing contracts aggregating approximately
$4.5 billion as of February 29, 1996 and originated approximately $805 million
in multifamily and other commercial mortgages in 1995. Included in Washington
Mortgage Financial is WMF/Huntoon, Paige Associates Limited, a leading FHA
mortgage originator and servicer located in Edison, New Jersey. The transaction
is expected to be completed in early April 1996.

        On February 14, 1996, the Real Estate Companies agreed to acquire 13
multifamily properties containing 3,145 apartment units from affiliates of
Great Atlantic Management, Inc. At closing, the Company is expected to acquire
from the Real Estate Companies for approximately $1.6 million the right to
manage the units on a long-term basis with the exact terms to be determined. In
addition, the Company may provide the Real Estate Companies up to $16 million
in secured financing for acquisition of the properties until such time as a
third-party investor acquires an equity interest in the properties. Such
borrowing would bear interest at 10% per year. The Company's Credit Facility
limits the amount of loans or other advances the Company may make to the Real
Estate Companies in connection with the Real Estate Companies' acquisition of
real estate assets to $10.0 million, but this limitation has been waived for a
period of six months ending August 8, 1996 to permit the advance to the Real
Estate Companies in connection with this acquisition.





                                      30

<PAGE>   32



ITEM 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                                          Page
                                                                                                          ----
NHP INCORPORATED
<S>                                                                                                       <C>
Statement of Financial Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        32
Reports of Independent Public Accountants   . . . . . . . . . . . . . . . . . . . . . . . . . . . .       33-34
Consolidated Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993  . . . .        35
Consolidated Balance Sheets as of December 31, 1995 and 1994  . . . . . . . . . . . . . . . . . . .        36
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993  . . . .        37
Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended December 31, 1995,
    1994 and 1993   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        38
Notes to Consolidated Financial Statements  . . . . . . . . . . . . . . . . . . . . . . . . . . . .        39
</TABLE>





                                      31

<PAGE>   33




STATEMENT OF FINANCIAL RESPONSIBILITY

 To the Shareholders of NHP Incorporated:

        The management of NHP Incorporated is responsible for the preparation
and integrity of the accompanying consolidated financial statements. The
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis and include amounts based
on estimates and judgments. Other financial information included herein is
consistent with that in the financial statements.

        The Company maintains a system of internal accounting controls,
designed and intended to provide reasonable assurance that assets are
safeguarded, that transactions are executed and recorded in accordance with
management's authorization and that accountability for assets is maintained. An
environment that establishes an appropriate level of control consciousness is
maintained and monitored by management and is supported by qualified personnel
and appropriate division of responsibilities.

        In addition, the financial statements have been audited by independent
public accountants, whose reports follow. These audits provide an objective,
independent review of management's discharge of its responsibilities as they
relate to the fairness of reported operating results and financial condition.
The independent public accountants obtain and maintain an understanding of the
Company's accounting and financial controls and conduct such tests and related
procedures as they deem necessary to arrive at an opinion on the fairness of
the Company's consolidated financial statements.

        The Board of Directors has also created an Audit Committee, which is
composed of three outside directors, and will meet periodically and, when
appropriate, separately with the independent auditors and management to review
the activities of each.





<TABLE>
        <S>                                                                 <C>
        Ann Torre Grant                                                     Jeffrey J. Ochs
        Executive Vice President and                                        Vice President and
        Chief Financial Officer                                             Chief Accounting Officer
</TABLE>





                                      32

<PAGE>   34





                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors and Shareholders of
   NHP Incorporated:

We have audited the accompanying consolidated balance sheets of NHP
Incorporated (formerly NHP, Inc.), a Delaware corporation, and subsidiaries
(the "Company") as of December 31, 1995 and 1994 and the related consolidated
statements of operations, shareholders' equity (deficit), and cash flows for
the years then ended. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We did not audit the 1994 financial statements
of certain real estate partnerships whose net assets (deficits) and operating
results are included in "net liabilities of discontinued operations" and
"income (loss) from discontinued real estate operations, net of income taxes,"
respectively, in the accompanying 1994 consolidated financial statements. The
net liabilities of these real estate partnerships represent 7% of total
liabilities, and their net losses ($1,706,000) represent 10% of 1994 net
income. The financial statements of these real estate partnerships were audited
by other auditors whose reports have been furnished to us and our opinion,
insofar as it relates to the amounts (including the 1994 gross revenues, assets
and liabilities disclosed in Note 2) included in the consolidated financial
statements for these real estate partnerships, is based solely on the reports
of the other auditors.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 and the reports of other
auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of NHP Incorporated and subsidiaries
as of December 31, 1995 and 1994, and the results of their operations and cash
flows for the years then ended in conformity with generally accepted accounting
principles.

Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II - Allowance for
Doubtful Accounts is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not a part of the basic consolidated
financial statements. This schedule, for the years ended December 31, 1995 and
1994, has been subjected to the auditing procedures applied in the audits of
the basic consolidated financial statements and, in our opinion, fairly states
in all material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.



                                                           ARTHUR ANDERSEN LLP
Washington, D.C.,
January 26, 1996 (except with respect
 to the matters discussed in Note 13, as
 to which the date is March 21, 1996)





                                       33

<PAGE>   35





                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders of
 NHP Incorporated
Washington, D.C.

We have audited the accompanying consolidated statements of operations, changes
in shareholders' equity (deficit) and cash flows of NHP Incorporated (formerly
NHP, Inc.) and subsidiaries for the year ended December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of NHP Incorporated and subsidiaries as of December 31, 1993 in
conformity with generally accepted accounting principles.





Deloitte & Touche LLP
Washington, D.C.
July 22, 1994





                                       34


<PAGE>   36
                                NHP INCORPORATED
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                      --------------------------------------------------
                                                                         1995                 1994               1993
                                                                      -----------      ----------------   --------------
             <S>                                                      <C>               <C>                   <C>
             Revenue, substantially all from related parties
               Property management services                            $  48,336         $ 40,953               $ 28,651
               On-Site personnel, general and administrative          
                cost reimbursement                                       117,249           98,158                 60,223
               Administrative and reporting fees                           4,148            3,680                  4,338
               Buyers Access(R) fees                                       2,631            2,108                  1,521
               Tax credit investment fees                                  1,234            1,307                    200
               Insurance advisory fees                                     1,076            1,090                    967
                                                                       ---------        ---------           ------------
                                                                      
                     Total revenue                                       174,674          147,296                 95,900
                                                                       ---------        ---------           ------------
              Expenses                                                
               Salaries and benefits                                  
                     On-Site employees                                   113,100           93,560                 53,446
                     Off-Site employees                                   22,371           19,099                 13,706
               Other general and administrative                           11,899           10,968                  8,123
               Costs charged to the Real Estate Companies                  4,149            4,598                  6,777
               Amortization of purchased management contracts              3,076            2,043                    875
               Depreciation and amortization                                 727              481                    504
               Other non-recurring expenses                                   45            1,806                     -
                                                                       ---------        ----------          ------------
                                                                      
                     Total expenses                                      155,367          132,555                 83,431

              Operating income                                            19,307           14,741                 12,469
              Interest expense, net                                       (5,496)          (5,736)                (3,941)
                                                                       ---------        ----------          ------------ 
                                                                      
              Income from continuing operations before income         
                     taxes and extraordinary items                        13,811            9,005                  8,528
              Income tax benefit                                          17,802                -                     -
                                                                       ---------        ----------             ---------
              Income from continuing operations before                
                     extraordinary items                                  31,613            9,005                  8,528
              Income (loss) from discontinued real estate             
                     operations, net of income taxes                      (1,963)           7,490                (12,965)
                                                                       ---------        ----------             --------- 
                                                                      
              Income (loss) before extraordinary items                    29,650           16,495                 (4,437)
              Extraordinary items, net of income taxes - (see
                     Note 12)                                               (400)               -                  3,847
                                                                       ---------        ----------             ---------

                     Net income (loss)                                 $  29,250         $ 16,495              $    (590)
                                                                       =========        =========              ========= 
                                                                      
              Net income (loss) per common share:                     
                Continuing operations before extraordinary items       $    3.27         $   1.11             $     1.04
                                                                                         
                Discontinued operations                                     (.20)             .93                  (1.58)
                                                                                        
                Extraordinary items                                         (.04)               -                    .47
                                                                       ---------        ---------              ---------
                     Net income (loss)                                 $    3.03       $     2.04              $    (.07)
                                                                       =========        =========              ========= 
</TABLE>





 The accompanying notes are an integral part of these consolidated statements.

                                       35

<PAGE>   37
                                NHP INCORPORATED
                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                                  December 31,
                                                                                       --------------------------------------
                                             ASSETS                                         1995                  1994
                                                                                       -------------        -----------------
             <S>                                                                        <C>                     <C>
             Cash and cash equivalents                                                  $    5,996              $   12,090
             Receivables, substantially all from related parties, net of allowance
               for doubtful accounts of $1,613 and $1,861 in 1995 and 1994,
               respectively                                                                 12,809                   6,288
             On-Site cost reimbursement receivable, substantially all from related
               parties                                                                       2,747                   3,376
             Other current assets                                                              277                      85
             Current portion of net deferred tax asset                                       5,916                      - 
                                                                                        ----------              ----------

                Total current assets                                                        27,745                  21,839

             Purchased management contracts, net of accumulated amortization of
               $8,409 and $5,333 in 1995 and 1994, respectively                             34,568                  30,153
             Property and equipment, net of accumulated depreciation of $1,666 and
               $969 in 1995 and 1994, respectively                                           1,995                   1,878
             Capitalized software, net of accumulated amortization of $114 and $51
               in 1995 and 1994, respectively                                                1,528                     128
             Deferred costs and other                                                        4,483                   3,670
             Net deferred tax asset                                                         14,451                       -
                                                                                        ----------              ----------

                                                                                        $   84,770              $   57,668
                                                                                        ==========              ==========
                         LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

             Current portion of long-term debt, including amounts payable to
               related parties of $356 and $351 in 1995 and 1994, respectively          $      412              $    7,851
             Accounts payable                                                                4,545                   9,384
             Accrued expenses, including amounts associated with related parties
               of $3,365 and $3,882 in 1995 and 1994, respectively                           9,552                   9,604
             Accrued On-Site salaries and benefits                                           2,747                   3,376
             Deferred revenues                                                               2,199                   1,685
                                                                                        ----------              ----------

                Total current liabilities                                                   19,455                  31,900

             Notes payable to banks                                                         23,000                  43,759
             Notes payable - other, including amounts payable to related parties
               of $139 and $18,523 in 1995 and 1994, respectively                              278                  18,523
             Other long-term liabilities                                                     2,883                   1,224
             Net liabilities of discontinued operations                                          -                   9,816
                                                                                        ----------              ----------

                Total liabilities                                                           45,616                 105,222
                                                                                        ----------              ----------
             Commitments and contingencies (Note 10)

             Shareholders' equity (deficit)
                Common stock, $0.01 par value; 25,000,000 shares authorized;
                  12,264,675 and 7,986,925 shares issued and outstanding in 1995
                  and 1994, respectively                                                       123                      80
                Additional paid-in capital                                                 126,293                  68,878
                Accumulated deficit                                                        (87,262)               (116,512)
                                                                                        ----------              ---------- 

                Total shareholders' equity (deficit)                                        39,154                 (47,554)
                                                                                        ----------              ---------- 
                                                                                        $   84,770              $   57,668
                                                                                        ==========              ==========
</TABLE>





 The accompanying notes are an integral part of these consolidated statements.

                                       36

<PAGE>   38
                                NHP INCORPORATED
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                            Year Ended December 31,
                                                                               ---------------------------------------------------
                                                                                   1995                1994                1993
                                                                               -----------       -------------       -------------
    <S>                                                                        <C>                 <C>                <C>
    Cash Flows From Operating Activities:
        Net income (loss)                                                       $  29,250           $  16,495          $     (590)
        Extraordinary items, net of income taxes                                      400               -                  (3,847)
        Discontinued operations, net of income taxes                                1,963              (7,490)             12,965
                                                                                ---------           ---------          ----------
        Income before extraordinary items and discontinued operations              31,613               9,005               8,528
        Depreciation and amortization                                               3,803               2,524               1,379
        Amortization of deferred financing costs                                      440                 399                  88
        Income taxes                                                              (18,744)                  -                   -
        Write-off of receivables, substantially all from related parties             (298)               (288)               (225)
        Increase in receivables, substantially all from related parties            (5,595)             (2,101)               (464)
        Increase in deferred costs and other                                       (1,917)               (239)               (363)
        Increase (decrease) in accounts payable and accrued expenses                 (293)                886               1,149
        Increase in deferred revenues                                                 515                  76               1,964
        Other                                                                         176               1,630                   -
                                                                                ---------           ---------         -----------
                                                                                                                      
         Net cash provided by continuing operations                                 9,700              11,892              12,056
         Net cash used in discontinued operations                                  (8,554)               (217)            (10,468)
                                                                                ---------           ----------        -----------
         Net cash provided by operating activities                                  1,146              11,675               1,588
                                                                                ---------           ---------         -----------
    Cash Flows From Investing Activities:                                                                             
        Purchase of management contracts                                          (13,809)             (2,059)            (18,710)
        Purchase of fixed assets and software                                      (2,217)             (2,484)               (985)
                                                                                ---------           ----------        -----------
                                                                                                                      
        Net cash used in investing activities                                     (16,026)             (4,543)            (19,695)
                                                                                 --------           ----------        -----------
    Cash Flows From Financing Activities:                                                                             
        Bank borrowings                                                            33,207                 133              58,171
        Repayments of bank borrowings                                             (61,466)             (6,000)            (38,568)
        Borrowings from related parties                                             1,119               3,903               9,000
        Repayments of notes payable to related parties                            (10,369)               (332)             (1,897)
        Repurchases of common stock from related parties                             (375)               (808)             (1,523)
        Proceeds from issuance of common stock, net                                51,987                   -                   -
        Payment of offering costs                                                  (3,746)                  -                   -
        Proceeds from sale of stock to related parties                              -                     343                 238
        Payment of financing and disposition costs                                 (1,571)             (1,515)             (2,005)
                                                                                ---------           ---------         -----------
                                                                                                                      
        Net cash provided by (used in) financing activities                         8,786              (4,276)             23,416
                                                                                ---------           ---------         -----------
    Increase (decrease) in cash and cash equivalents                               (6,094)              2,856               5,309
    Cash and Cash Equivalents, beginning of period                                 12,090               9,234               3,925
                                                                                 --------           ---------         -----------
    Cash and Cash Equivalents, end of period                                    $   5,996            $ 12,090         $     9,234
                                                                                =========           =========         ===========

    Supplemental Disclosures of Cash Flow Information:
        Cash interest payments                                                  $   6,537            $  4,607          $    3,788
        Cash income tax payments                                                $     942            $     49          $       14
        Non-cash item:
         Reduction in notes payable to related parties in consideration
         for the sale of the Real Estate Companies                              $   9,129                   -                   -
</TABLE>
                      





 The accompanying notes are an integral part of these consolidated statements.

                                       37

<PAGE>   39
                                NHP INCORPORATED
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                              Common Stock             Additional
                                     -----------------------------       Paid-In         Accumulated       Treasury
                                         Shares         Par Value        Capital           Deficit          Stock          Total
                                     ------------       ----------    -----------     ---------------    -----------    -----------
    <S>                              <C>                 <C>           <C>             <C>                <C>            <C>
    Balance, January 1, 1993          8,166,300          $  82         $  70,626        $(132,417)       $       -      $ (61,709)
       Sale of common stock              22,500             -                238            -                    -            238
       Repurchase of common stock           -               -                  -            -               (1,523)        (1,523)
       Retirement of treasury stock    (157,875)            (2)           (1,521)           -                1,523             -
       Net loss                             -               -                 -              (590)               -           (590)
                                      ---------           ----         ---------         -----------      --------      --------
                                                                                                                         
    Balance, December 31, 1993        8,030,925             80            69,343         (133,007)               -        (63,584)
       Sale of common stock              32,500             -                343            -                    -            343
       Repurchase of common stock          -                -                 -             -                  (808)         (808)
       Retirement of treasury stock     (76,500)            -               (808)           -                   808             -
       Net income                          -                -                 -            16,495                 -        16,495
                                      ---------            ---         --------         ----------         --------     ---------

    Balance, December 31, 1994        7,986,925             80            68,878         (116,512)                -       (47,554)
       Stock option compensation          -                 -                583            -                     -           583
       Repurchase of common stock         -                 -                -              -                  (375)         (375)
       Retirement of treasury stock     (31,250)            -               (375)           -                   375             -
       Issuance of common stock in                                     
          public offering, net        4,300,000             43            48,198            -                     -        48,241
       Issuance of common stock to                                     
          Directors                       9,000             -                127            -                     -           127
       Sale of Real Estate                                             
          Companies (Note 2)              -                 -              8,882            -                     -         8,882
       Net income                         -                 -                -             29,250                 -        29,250
                                     ----------        -------         ---------       ----------           -------      --------
                                                                       
    Balance, December 31, 1995       12,264,675           $123          $126,293       $  (87,262)        $       -     $  39,154
                                     ==========        =======         =========       ===========         ========    ==========
</TABLE>





 The accompanying notes are an integral part of these consolidated statements.

                                       38

<PAGE>   40
                                NHP INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)     ACCOUNTING POLICIES

        Basis of Presentation

        The consolidated financial statements include the accounts of NHP
Incorporated and its wholly-owned subsidiaries (the "Company"). On August 18,
1995, the Company sold those of its subsidiaries which held all of the
Company's direct and indirect interests in property-owning partnerships, along
with its captive insurance subsidiary and certain other related assets
(collectively referred to as the "Real Estate Companies") to the two
controlling shareholders of the Company, Demeter Holdings Corporation
("Demeter") and Capricorn Investors, L.P. ("Capricorn"), and J. Roderick
Heller, III, the Chairman, President and Chief Executive Officer of the Company
("Mr. Heller"). The consolidated financial statements include the accounts of
the Real Estate Companies through August 18, 1995, presented as discontinued
operations in accordance with generally accepted accounting principles
("GAAP"). The Company will continue to provide services to the Real Estate
Companies and, therefore, intercompany revenues and expenses between the
Company and the Real Estate Companies have not been eliminated from the
Company's revenues and expenses in the consolidated financial statements for
the periods prior to August 18, 1995. All other material intercompany accounts
and transactions have been eliminated in consolidation.

        Nature of Business

        The Company provides a full range of property management and related
services to owners of multi-family rental housing properties, primarily
properties owned by partnerships in which the Real Estate Companies have an
ownership interest. The properties served by the Company are located in urban,
suburban and rural areas throughout various regions of the United States other
than the Northwest region. This reduces the impact of local economic cycles on
the overall operations of the Company. The Company provides services to both
"conventional" (market rate) and "affordable" properties. Affordable properties
receive some form of Federal and/or state assistance and are generally
restricted to low or moderate income tenants.

        Approximately 63% of the properties and 43% of the units managed by the
Company as of December 31, 1995 are affordable properties and units. A
substantial portion of the affordable properties were built or acquired by the
owners with the assistance of programs administered by the United States
Department of Housing and Urban Development ("HUD") that provide mortgage
insurance, favorable financing terms, or rental assistance payments to the
owners. As a condition to the receipt of assistance under these and other HUD
programs, the properties must comply with various HUD requirements including
limiting rents on these properties to amounts approved by HUD. Various
proposals are pending before Congress proposing reorganizaton of HUD and a
restructuring of certain of its housing assistance programs. It is too early in
the legislative process to predict which, if any, changes might be implemented.
Any such changes which negatively impact the properties revenues or cash flows
could have an adverse effect on the Company's property management revenue.

        Dependence on the Real Estate Companies for Property Management Revenues

        The Company is, and will continue to be, substantially dependent on
revenue from services provided to properties controlled by the Real Estate
Companies. Approximately 65% of the Company's property management revenue in
1995 was derived from fees for services provided to properties controlled by
the Real Estate Companies. Pursuant to the agreements with the Real Estate
Companies discussed in Note 9, the Real Estate Companies are required for a
period of at least 25 years, subject to certain conditions, to cause the
Company to be selected to provide services to each of the properties the Real
Estate Companies control and properties they may control in the future.

        Accounting Estimates

        The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at





                                       39

<PAGE>   41
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

        Revenue and Expenses

        The Company recognizes property management, Buyers Access(R), tax
credit investment and insurance advisory fee revenues as services are rendered
and the revenue is earned. Administrative and reporting fees are earned for
providing administrative services to certain partnerships in which the Real
Estate Companies have ownership interest. These fees are payable only to the
extent distributable cash flow of the partnerships, as defined, is available.
The Company accrues these fees as services are rendered and establishes a
reserve equal to the amount of accrued fees that are not assured of being paid.
Prepayments received on service contracts are deferred and recognized as
revenue when the related services are performed.

        Personnel hired to provide operating and management services to the
individual properties which the Company manages are employees of the Company
("On-Site Employees"). All payroll costs, including payroll taxes and benefits,
relating to On-Site Employees are reimbursable to the Company by the individual
properties. These costs, which totaled $113.1, $93.6 and $53.4 million for the
years ended December 31, 1995, 1994 and 1993, respectively, have been reflected
as operating expenses, and the related reimbursements have been included in
operating revenue as part of on-site personnel, general and administrative cost
reimbursements. The Company accrues as a liability amounts charged to the
individual properties for On-Site Employee benefits (health insurance and
401(k) Plan employer contributions) which have not yet been paid to third party
providers of services. All other employees of the Company are classified as
"Off-Site Employees."

        The Company also provides asset management, finance, accounting and tax
services to the Real Estate Companies on a cost reimbursable basis. The costs
charged back to the Real Estate Companies have been reflected as operating
expenses and the related reimbursements have been included in operating revenue
as part of on-site personnel, general and administrative cost reimbursements in
the accompanying consolidated financial statements and amounted to $4.1, $4.6
and $6.8 million for the years ended December 31, 1995, 1994 and 1993,
respectively.

        Income Taxes

        The benefit for income taxes includes Federal and state income taxes
currently payable and those deferred or prepaid because of temporary
differences between financial statement and tax bases of assets and
liabilities. The net deferred tax asset relates primarily to net operating loss
carryforwards ("NOLs") recognized by the Company subsequent to the sale of the
Real Estate Companies.  For further discussion see Note 5.

        Net Income Per Share

        Net income per share is computed using the weighted average number of
common shares and equivalents outstanding during each period. Common share
equivalents are attributable primarily to outstanding stock options. The
weighted average shares and equivalents used in the per share calculations were
9,644,745, 8,094,733 and 8,208,684 for the years ended December 31, 1995, 1994
and 1993, respectively. As there is not a material difference (less than 3%)
between net income per share and fully-diluted net income per share, only net
income per share is presented.

        In February 1995, the Company's Board of Directors declared a 25 for 1
split of the Company's common stock. All share and per share amounts have been
restated to reflect the stock split.

        On August 18, 1995, the Company completed an initial public offering
("IPO") of 4.3 million shares of common stock and received net proceeds of
approximately $52.0 million. The net proceeds were used in their entirety to
repay certain of the Company's outstanding debt (see Note 4).





                                       40

<PAGE>   42
        New Accounting Standards

        In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of  Long-Lived Assets and Assets to be Disposed Of," which
requires the adjustment of the carrying value of long-lived assets and certain
identifiable intangibles, if their value is determined to be impaired as
defined by the standard. The Company intends to adopt SFAS No. 121 on January
1, 1996. In the opinion of management, the adoption of this statement will not
have a material effect on the Company's financial position or results of
operations.

        In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock Based Compensation," which allows companies to
adopt the fair value method for recognition of stock-based compensation expense
or to continue to use the intrinsic value method as prescribed by Accounting
Principles Board Opinion (APB) No. 25 "Accounting for Stock Issued to
Employees." SFAS 123's fair value method requires companies to record
compensation expense on the date of the grant of stock options based on the
fair value of the option as calculated by option pricing models or current
market prices. For those companies that do not elect to adopt the fair value
method of accounting for stock-based compensation expense, SFAS 123 requires
disclosure of the pro forma impact on net income and earnings per share as if
the Company had accounted for its employee stock options under the fair value
method of that statement. The Company intends to adopt the disclosure
provisions of SFAS 123 for 1996 and will continue to follow APB No. 25 in
accounting for employee stock options. In accordance with APB No. 25, because
the exercise price of the Company's employee stock options equals the market
price on the underlying stock on the date of the grant, no compensation expense
is recognized. Because the Company's adoption of SFAS 123 will require only
additional disclosure, it will not have a material effect on the Company's
financial position or results of operations.

        Cash Equivalents

        The Company considers all highly liquid investments with initial
maturities of 90 days or less to be cash equivalents.

        Purchased Management Contracts

        The cost of acquiring the rights to manage multi-family real estate
properties is capitalized and amortized over the shorter of 15 years or the
estimated life of the management contracts which include projected renewals.
Purchased management contracts are being amortized over terms ranging from 5 to
15 years. The Company periodically reevaluates its assumptions regarding
projected renewals for the purpose of determining the need to adjust the
estimated life of management contracts.

        Property, Equipment and Capitalized Software

        Property and equipment is carried at cost net of accumulated
depreciation and includes all major renewals and betterments.  Maintenance,
repairs and minor replacements are expensed as incurred. Depreciation expense
is computed on the straight-line basis over the estimated useful lives of the
related assets, or the lesser of useful life or lease term for leasehold
improvements. The lives used for calculating depreciation vary from 5 to 7
years.

        Computer software purchased from or developed by outside vendors is
capitalized and is carried at cost net of accumulated amortization.
Amortization expense is computed on a straight-line basis over the shorter of
the estimated useful life of the software or five years.

        Deferred Financing Costs

        Certain costs of obtaining the financing arrangements described in Note
4 have been deferred and are being amortized to interest expense over the
remaining term of the related debt. In 1995, the Company recorded as an
extraordinary item the write off of deferred financing costs related to the
Company's previous credit facility (see





                                       41

<PAGE>   43
Note 12). Deferred financing costs, net of accumulated amortization, were $0.6
and $0.9 million as of December 31, 1995 and 1994, respectively, and are
included in deferred costs and other on the consolidated balance sheet.

        Deferred Acquisition Costs

        Certain costs related to the investigation, pursuit and negotiation of
potential acquisitions are deferred until the acquisition is consummated or
until the Company determines that it will no longer pursue a particular
acquisition. Deferred costs associated with a completed acquisition are
considered part of the acquisition price and are allocated, along with the costs
incurred at closing, to the asset or assets acquired (usually management
rights). Costs associated with potential acquisitions that are determined to no
longer be viable are expensed in the period of the determination. Deferred
acquisition costs were $2.6 million at December 31, 1995 and are included in
deferred costs and other on the consolidated balance sheet. There were no
deferred acquisition costs at December 31, 1994.

        Reclassifications

        Certain prior year amounts have been reclassified to conform with the
current year presentation.

(2)     DISCONTINUED REAL ESTATE OPERATIONS

        On June 14, 1994, the Company's Board of Directors approved a plan (the
"Plan") to dispose of the Company's real estate operations immediately prior to
an IPO of the Company's common stock, expected to be completed during 1995. On
August 18, 1995, the Company completed its IPO and sold the Real Estate
Companies. In consideration for the sale of the Real Estate Companies, Demeter,
Capricorn and Mr. Heller canceled $9.1 million of indebtedness owed to them by
the Company. The net liabilities of the Real Estate Companies as of the date of
the sale were $4.6 million and transaction costs related to the sale, including
taxes of $2.3 million, were $4.8 million, which resulted in the Company
recording a net gain on the sale of the Real Estate Companies of $8.9 million.
The gain was recorded as a direct adjustment to additional paid-in capital.

        The Real Estate Companies' operations consist primarily of the
ownership of general and limited partnership interests (generally 1% to 5%) in
approximately 700 affordable and conventional multi-family housing properties
located in 38 states, the District of Columbia and Puerto Rico. The Real Estate
Companies also own majority interests in several real-estate partnerships
(primarily multi-family housing properties), interests in joint ventures
(primarily land and single family housing developments) and a "captive"
insurance company which are consolidated with the accounts of the Real Estate
Companies for financial reporting purposes.

        In addition to managing the majority of the properties for which the
Real Estate Companies act as general partner, the Company provides asset
management, finance, accounting and tax services to the Real Estate Companies
on a cost-reimbursable basis. For further discussion of transactions with the
Real Estate Companies, see Note 9.

        The operating results of discontinued operations are summarized below
(in thousands).

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,         
                                                           --------------------------------------------
                                                              1995             1994             1993
                                                              ----             ----             ----
<S>                                                        <C>               <C>             <C>
Gross revenues                                             $ 23,874          $ 35,121         $ 38,666
Net income (loss) before extraordinary items, net of
  minority interest and net of an income tax benefit of
  $1,309 for 1995 and $0 for 1994 and 1993                 $ (1,963)         $  7,490         $(12,965)
Extraordinary items - gains on restructuring of debt
  of real estate partnerships (discontinued operations),
  net of minority interest and net of income taxes of
  $0 for 1993                                              $     -           $      -         $  3,847
</TABLE>





                                       42

<PAGE>   44

        The net income (loss) before extraordinary items includes $1.0, $12.0
and $7.8 million for the years ended December 31, 1995, 1994 and 1993,
respectively, of gains resulting from sales and foreclosures of properties
owned by real estate partnerships for which the Real Estate Companies act as
general partner.

        The net liabilities of discontinued operations as of December 31, 1994
were as follows (in thousands).

<TABLE>
                 <S>                                                              <C>
                 Land, buildings and improvements and other fixed assets,
                   net of accumulated depreciation                                  $ 110,710
                 Investments in real estate partnerships, including loans and
                   notes receivable                                                    37,957
                 Other assets                                                          17,698
                                                                                    ---------
                                                                                      166,365
                                                                                    ---------
                 Mortgage notes payable and other debt (primarily
                   non-recourse)                                                      113,526
                 Cumulative losses in excess of investments in real estate
                   partnerships                                                        21,592
                 Other liabilities                                                     41,235
                 Minority interests                                                      (172)
                                                                                    --------- 
                                                                                      176,181
                                                                                    ---------
                 Net liabilities                                                    $  (9,816)
                                                                                    ========= 
</TABLE>

(3)     ACQUISITIONS

        Guilford

        The Real Estate Companies completed the Guilford Acquisition in January
1996, by which the Real Estate Companies acquired, for approximately $4.8
million, the general partnership interests and certain limited partnership
interests in partnerships that own 14 properties containing 2,995 units. In
conjunction with this acquisition by the Real Estate Companies, the Company
paid the Real Estate Companies $2.6 million ($1.5 million of which was paid in
December 1995) to enter into property management contracts with each property
for a period of four to five years, commencing in December 1995.

        Southport

        In December 1995, the Real Estate Companies entered into a binding
agreement to acquire from Southport Financial Corporation the general partner
interests in partnerships that own 14 properties containing 2,140 units. The
Company began managing 12 of these properties containing 1,857 units in
November 1995 and will begin managing the remaining two properties containing
283 units upon the receipt of the necessary consents. The Company will acquire 
the right to manage all 14 of the Southport properties from the Real Estate
Companies for $4.0 million, approximately $3.2 million of which will be paid in
various quarterly installments through the year 2000. The Company manages the
Southport properties pursuant to long-term contracts terminable only for cause,
and will have a right of first refusal with respect to the sale of any of these
properties or the Real Estate Companies' general partnership interests in
partnerships owning these properties.

        Rescorp

        On October 31, 1995, the Company acquired from Rescorp Realty, Inc. and
transferred to the Real Estate Companies the stock of entities owning the
general partnership interests in 11 properties. The Company manages these
properties pursuant to long-term contracts terminable only for cause, and
has a right of first refusal with respect to the sale of any of these
properties or the Real Estate Companies' general partnership interests in
partnerships owning these properties. The Company also entered into short-term
property management contract with respect to four other properties, which are
owned by unaffiliated owners. The 15 properties have an aggregate of 2,578
units. The Company paid Rescorp approximately $2.4 million in connection with
the acquisition, and transferred the general partnership interests to the Real
Estate Companies in exchange for the Real Estate Companies assuming the cost
and responsibilities of the general partner.





                                       43

<PAGE>   45
        Hall

        In February 1995, the Company and the Real Estate Companies
substantially completed the Hall Acquisition. In the Hall Acquisition, the
Company and the Real Estate Companies acquired, for $12.5 million (of which
$4.0 million was allocated to management rights), a 50% common equity interest
in a joint venture which, in turn, owns an interest in a portfolio of 32
apartment properties containing 8,028 units and the associated property
management rights. Each property is owned by a limited partnership, the
managing general partner of which is an affiliate of the Real Estate Companies.
As managing general partner, each of these affiliates has entered into a
management contract with the Company having a term coinciding with the term of
the current financing of the properties, or approximately 5.75 years.

        Other

        In addition in 1995, the Company acquired the management rights to an
additional 1,213 units at a total cost of approximately $1.0 million.

        Congress

        On December 31, 1994, the Company and the Real Estate Companies entered
into a binding agreement to purchase for $6.7 million from Congress Realty
Companies the general partner interests, property management rights and rights
to certain receivables related to a 13-property portfolio containing 4,301
units (the "Congress Properties"). Pursuant to the agreements between the
Company and the Real Estate Companies discussed in Note 9, the Real Estate
Companies are required to select the Company as the property manager for the
Congress Properties. The acquisition was accounted for as a 1994 transaction
using the purchase method of accounting.  Substantially all of the purchase
price was paid in January 1995.

        Oxford

        In December 1993, the Company purchased for $23.4 million substantially
all of the assets used by Oxford Development Corporation and its affiliates
(collectively "Oxford") in its property management and services operations,
including the rights to manage 174 Oxford properties consisting of 39,000
apartments and a 9.5% ownership interest (of nominal value) in Oxford Holding
Company, which contractually secures the Company's property management rights
relating to the Oxford properties. The transaction was accounted for as a 1993
transaction using the purchase method of accounting.

        As consideration for the acquisition of Oxford, the Company and the
Real Estate Companies paid cash of $18.7 million, issued a $1.2 million note
payable to Oxford, bearing interest at 6% (which was retained as a liability of
the Company after the sale of the Real Estate Companies), and agreed to pay
certain Oxford employees consulting compensation of $2.1 million in 1994. The
cash payment included $3.4 million paid to the Company's controlling
shareholder to acquire a note receivable from Oxford which had been previously
acquired by the shareholder. This note receivable from Oxford was retained by
the Real Estate Companies.





                                       44

<PAGE>   46
(4)     NOTES PAYABLE

        Notes payable consist of the following (in thousands).

<TABLE>
<CAPTION>
                                                                            December 31,      
                                                                      ---------------------
                                                                      1995             1994
                                                                      ----             ----
        <S>                                                         <C>              <C>
        Total notes payable to banks                                 $23,000          $51,259
             Less current portion                                          -           (7,500)
                                                                   ---------          -------
               Note payable to banks                                 $23,000          $43,759
                                                                   =========          =======

        Notes payable issued to certain shareholders (Note 9)        $     -          $11,006
        Note payable issued to former shareholder                          -            7,000
        Note payable to Oxford                                           495              868
        Notes payable-other (net of unamortized discount of $42)         195                -
                                                                   ---------          -------
        Total notes payable - other                                      690           18,874
             Less current portion                                       (412)            (351)
                                                                   ---------          -------
               Notes payable - other                                 $   278          $18,523
                                                                   =========          =======
</TABLE>

        Notes Payable to Banks

        In December 1993, in connection with the Oxford acquisition, the
Company amended its then existing credit agreement (the "Amended Credit
Agreement"), increasing the number of participating banks to three and
increasing the loan balance. The Amended Credit Agreement had a five-year term.
Interest on borrowings under the Amended Credit Agreement was, at the Company's
option, based on either the prime rate plus 1% per annum or the London
Interbank Offered Rate ("LIBOR") plus 2.5% per annum.

        In August 1995, the Company entered into a $75.0 million, three-year
unsecured revolving credit facility (the "Credit Facility") with a group of
banks. At the end of two years, the Company may extend the Credit Facility (as
a revolving facility) for a fourth year or may convert it at the end of the
second year to a two-year term loan with equal quarterly installments based on
a five year amortization schedule and the remaining balance (approximately 60%)
due at the end of the two-year term. Availability under the Credit Facility is
subject to the Company's compliance with various financial ratios, operating
covenants and other customary conditions. The Credit Facility restricts the
payment of dividends by the Company unless the Company's ratio of income from
continuing operations before interest, income taxes, depreciation and
amortization ("EBITDA") to interest expense is greater than 3 to 1, calculated
on a four quarter average basis. Interest on the Credit Facility is equal to,
at the Company's option, either The First National Bank of Boston's base rate
from time to time or 175 basis points over the LIBOR in effect from time to
time. The Credit Facility also requires the payment of a commitment fee of 37.5
basis points per annum on the unused portion of the Credit Facility.  The
Credit Facility requires that any other borrowings be subordinated to the
Credit Facility, except that up to $10.0 million of additional unsubordinated
borrowings will be permitted if entered into in connection with the acquisition
of assets which will result in additional management contracts for the Company.
The Credit Facility limits the amount of loans or other advances by the Company
to the Real Estate Companies to a total of $10.0 million. The Company's
compliance with this latter requirement was waived by the bank group for a
period of six months ending August 8, 1996, to permit up to $16.0 million of
borrowings in connection with the Company's pending acquisition of a portfolio
of 13 properties containing 3,145 units (for further discussion see Note 13).

        At December 31, 1995 the Company classified all borrowings under the
Credit Facility due within one year as long-term. The Company has both the
intent and the ability, through the Credit Facility, to refinance these amounts
on a long-term basis.

        Notes Payable - Other

        The notes payable issued to certain shareholders of $11.0 million as of
December 31, 1994 had an interest rate of 13% and were due on demand after
payment of all borrowings under the credit agreement existing at the time.
Additional notes payable issued by the Company include a note for $7.0 million
issued in February 1992 to a former





                                       45

<PAGE>   47
shareholder in connection with the repurchase of certain shares of the
Company's outstanding stock. The interest rate on the note to the former
shareholder was 8 3/4% with interest payments due on a quarterly basis and the
entire principal amount due in February 1997.

        In December 1993 as part of the Oxford acquisition, the Company issued
a $1.2 million note (the "Oxford Note"). The Oxford Note bears interest at 6%
and is due in varying installments through 1997. In addition, in December 1995,
in connection with the acquisition of certain additional property management
rights, the Company issued a $0.2 million noninterest bearing note which is due
in quarterly installments through December 1999. This note has been recorded
net of an unamortized discount of $0.04 million based on an imputed interest
rate of 9.5%.

        Repayments of Debt

        Upon the completion of the IPO in August of 1995, the Company drew
$20.0 million on the Credit Facility and used those funds together with the net
proceeds of the IPO as follows:  (i) $54.7 million was used to repay in full
the Company's indebtedness under its previous credit facility, which was
simultaneously terminated by the Company; (ii) $7.0 million was used to repay a
note to a former institutional shareholder of the Company; and (iii) $5.5
million was used to repay indebtedness to Demeter, Capricorn, and Mr. Heller.
The remaining proceeds were added to the Company's working capital.

        In consideration for the sale of the Real Estate Companies in August of
1995, Demeter, Capricorn and Mr. Heller canceled $9.1 million of indebtedness
owed to them by the Company (for further discussion, see Notes 2 and 9).

        Other

        The following table provides more detail on interest rates and
borrowings made under the Company's various credit agreements (dollar amounts
in thousands).

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,            
                                                           ----------------------------------------------
                                                              1995             1994             1993
                                                              ----             ----             ----
        <S>                                                  <C>              <C>              <C>
        Weighted average interest rate, including
           commitment fee, at period-end                        8.40%            6.42%            5.83%
        Maximum month-end borrowings during the period       $58,466          $57,126          $57,126
        Average borrowings during the period                 $41,457          $54,454          $31,389
        Weighted average interest rate, during the
           period (including commitment fee, payment
           premium and penalties)                               9.03%            6.47%            7.05%
</TABLE>

        Aggregate annual maturities for the Company's notes payable as of
December 31, 1995, are $0.4, $0.2, $0.06 and $23.1 million for the years 1996
through 1999, respectively. For the purposes of calculating aggregate
maturities, the Credit Facility is assumed to be extended for a fourth year but
the Company has not yet determined what option it will choose under the terms
of the Credit Facility.

(5)     INCOME TAXES

        The Company files a consolidated Federal income tax return, and in
certain states, consolidated state income tax returns. As of December 31, 1994,
the Company had net operating loss carryforwards (NOLs) of approximately $140
million which were attributable primarily to partnership losses related to the
Real Estate Companies. In connection with the sale of the Real Estate Companies
(discontinued operations), the Company utilized approximately $60 million of
its NOLs, and the remaining NOLs were allocated between the Company and the
Real Estate Companies. At December 31, 1995, the Company estimates that it has
approximately $75 million of gross unused NOLs for Federal tax purposes which
expire in varying amounts between 2004 and 2008. Realization of the NOLs is
dependent on generating sufficient taxable income prior to the expiration of
the NOLs. Although realization is not assured, management believes it is more
likely than not that all of the deferred tax asset will be realized. The amount
of





                                       46

<PAGE>   48
deferred tax asset considered realizable, however, could be reduced in the near
term if estimates of future taxable income during the carryforward period are
reduced.

        Upon the sale of the Real Estate Companies, the Company reduced its
valuation allowance resulting in a net deferred tax asset as of December 31,
1995 of $20.4 million. The Company reduced the valuation allowance after the
sale of the Real Estate Companies as these entities have historically generated
operating losses, while continuing operations have historically generated
operating income.

        The following table summarizes the consolidated tax effect related to
the Company's deferred tax assets and liabilities (in thousands):


<TABLE>
<CAPTION>
                                                                                    December 31,
                                                         ---------------------------------------------------------------
                                                                                                1994
                                                                          ----------------------------------------------
                                                                           Continuing       Discontinued
                                                            1995           Operations        Operations           Total
                                                         --------         ------------     --------------      ---------
<S>                                                     <C>                <C>                <C>               <C>
   Deferred tax assets:
      Net operating loss carryforwards                   $26,904            $30,417            $25,099           $55,516 
      Tax credit carryforwards                               572                 64                131               195 
      Other temporary differences between book                                                                           
        and tax                                              381                617                -                 617 
                                                         -------            -------            -------           -------
   Total deferred tax assets                              27,857             31,098             25,230            56,328 
   Valuation allowance for deferred tax assets            (5,020)           (28,346)           (17,448)          (45,794)
                                                         -------            -------            -------           -------
   Deferred tax assets                                    22,837              2,752              7,782            10,534 
   Deferred tax liabilities:                                                                                             
      Amortization of purchased management               
        contracts                                            847               (488)               -                (488)
      Management fees receivable                           1,623              1,283                -               1,283 
      Tax Partnership losses in excess of book                -                  -               9,739             9,739 
                                                         -------            -------            -------           ------- 
   Total deferred tax liabilities                          2,470                795              9,739            10,534 
                                                         -------            -------            -------           ------- 
   Net deferred tax asset                                $20,367            $ 1,957            $(1,957)          $   -   
                                                         =======            =======            =======           ======= 
</TABLE>


        The Company did not record a tax provision during the first and second
quarter of 1995, therefore, a year-to-date tax provision was recorded in the
third quarter. A reconciliation of income tax expense computed at the statutory
Federal and state rates to the provision for income taxes included in the
consolidated statements of operations is as follows (in thousands):


<TABLE>
<CAPTION>
                                                                                  Year Ended December 31,
                                                                      ----------------------------------------------------
                                                                         1995                1994                1993
                                                                      ---------          -----------        -------------
               <S>                                                    <C>                   <C>                <C>
               Federal income tax provision (benefit) at the
                 Federal statutory rate - 35% in 1995, 34% in           $ 4,834             $ 5,608               $(201)
                 1994 and 1993
               State income tax provision (benefit), net of
                 Federal income tax benefit - 5%                            690                 924                 (33)
               Change in valuation allowance                            (23,326)             (6,532)                234
                                                                        -------             --------              -----
               Benefit for income taxes                                 $17,802             $     -               $   -
                                                                        =======             ========              =====
</TABLE>


        On a consolidated basis, and for continuing and discontinued
operations, the Company had no current or deferred provision or benefit for
income taxes for either 1994 or 1993, primarily because of NOLs generated in
prior years which resulted largely from partnership tax losses generated by the
Real Estate Companies. Historically, a valuation allowance equal to the net
deferred tax asset was established due to the uncertainty, on a consolidated
basis, surrounding the Company's ability to generate sufficient taxable income
in future years to utilize the NOLs. The net change in the valuation allowance
in 1994 and 1993, reduced the annual provision (benefit) for income taxes to
zero for 1994 and 1993. The components of the benefit for income taxes for 1995
is summarized as follows (in thousands):



                                      47

<PAGE>   49

<TABLE>
<CAPTION>
                                                                     1995
                                                                 -----------
             <S>                                                   <C>
             Current provision                                    $    608
             Deferred provision                                      4,916
             Change in valuation allowance for deferred 
               tax asset                                           (23,326)
                                                                  -------- 
                    
             Benefit for income taxes                             $ 17,802
                                                                  ========
</TABLE>



 (6)    SHAREHOLDERS' EQUITY

        Authorized Stock

        The authorized capital stock of the Company consists of 25,000,000
shares of Common Stock, $.01 par value, of which 12,264,675 shares were issued
and outstanding as of December 31, 1995.

        Treasury Stock

        In February 1993, effective as of December 31, 1992, the Company
entered into a Stock Purchase Agreement (the "Stock Agreement") with The NHP
Foundation (the "Foundation"), a non-profit organization formed to provide aid
to low-income families through assisted housing. The Stock Agreement provided
for reimbursement to the Company for services provided to the Foundation via
redemption of shares, at approximately $10.56 per share, of the Company's
common stock held by the Foundation. On December 31, 1993, the Foundation
exchanged 53,500 shares in satisfaction of $0.6 million due the Company for
services rendered to the Foundation in 1993. In 1994, the Foundation exchanged
46,500 shares in satisfaction of $0.5 million due the Company for services
rendered to the Foundation in 1994. In an unrelated transaction in 1994, the
Company purchased 30,000 shares at a price of $12 per share, from a member of
management upon his resignation from the Company. All shares were retired by
the Company, as received.

        On January 27, 1995, 331,950 shares of Company stock owned by the
Foundation were purchased by other current Company shareholders. Additionally,
on May 1, 1995, 31,250 shares of Company stock were repurchased from the
Foundation at a price of $12 per share, effectively terminating the Stock
Agreement.

(7)     STOCK OPTION PLANS

        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. In accordance
with 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.

        The Company has a non-qualified stock option plan (the "1990 Plan")
under which options to purchase shares of the Company's common stock have been
granted to key employees. Options were granted at the fair market value of the
shares on the date of grant and become exercisable cumulatively over a
five-year period beginning one year after date of grant. As of December 31,
1995,  405,000 options under the 1990 Plan have been granted. No further
options are expected to be granted under the 1990 Plan.

        On February 8, 1995, the Company's Board of Directors extended the
exercise period of the options granted under the 1990 Plan from five to ten
years. As a result, in the first quarter of 1995, compensation expense of $0.5
million was recognized by the Company, of which $0.1 million was allocated to
the discontinued Real Estate Companies. Additionally, on March 3, 1995, as part
of a severance agreement, the Company agreed to extend a departing employee's
time to exercise his 1990 Plan options through February 28, 1997. Related
compensation expense of $0.1 million was recorded in the first quarter of 1995.
The corresponding credit for both of these transactions was to additional
paid-in capital.

        On February 8, 1995, the Company's Board of Directors approved the 1995
Stock Option Plan (the "1995 Plan"). The 1995 Plan is a qualified stock option
plan under which a maximum of 800,000 options to purchase shares




                                       48

<PAGE>   50

of the Company's common stock may be granted to employees. Any options granted
under the 1995 Plan must have an exercise price equal to the fair market value
as of date of grant and must be exercised within ten years of the date of
grant. As of December 31, 1995, 228,750 options remain available to be granted
under the 1995 Plan.

        Effective with the consummation of the IPO, the Company granted Mr.
Heller performance vesting options to purchase 120,000 shares of common stock
at $16.00. The options will vest in 10 years but are subject to accelerated
vesting under certain circumstances.

        The following table summarizes option activity for the years ended
December 31, 1995, 1994 and 1993.

<TABLE>
<CAPTION>
                                                                    1995                  1994                 1993
                                                               -------------         -------------        -------------
          <S>                                                  <C>                        <C>                  <C>
           Number of Shares Under Stock Options:
                  Outstanding at the beginning of year              443,750               537,500              612,500
                  Granted                                           711,250                 -                    -
                  Exercised                                           -                   (32,500)             (22,500)
                  Forfeited                                         (58,750)              (61,250)             (52,500)
                                                              -------------             ---------            --------- 
                  Outstanding at the end of year                  1,096,250               443,750              537,500
                                                              =============             =========            =========
                                                                                
           Stock options exercisable at the end of the year         420,000               341,250              290,000
                                                              =============             =========            =========
          
           Price of Stock Options:                                                                              
                  Granted                                     $13.00-$16.00                -                    -
                  Exercised                                            -                  $10.56               $10.56
                  Forfeited                                          $10.56               $10.56               $10.56
                  Outstanding                                 $10.56-$16.00               $10.56               $10.56
</TABLE>

(8)     EMPLOYEE BENEFIT PLANS

        Substantially all full-time Off-Site and On-Site Employees with at
least one year of continuous service are eligible to participate in a 401(k),
defined contribution retirement plan. The Company also has a non-qualified
supplemental executive retirement savings plan which permits employees who are
vice-presidents and above, who participate, to defer salary that they would
otherwise be prohibited from deferring under the 401(k) plan due to IRS
restrictions. Under these plans, the employees may contribute to various
investment alternatives. The plans allow the Company to make discretionary and
matching contributions. Total net expense related to the Company's
contributions to these plans, after reimbursement from the partnerships for
On-Site Employees, was $0.8, $0.7 and $0.5 million for the years ended December
31, 1995, 1994 and 1993, respectively.

(9)     RELATED PARTY TRANSACTIONS

        On January 28, 1993, in connection with the extension of the credit
agreement in existence at the time (the "Previous Credit Agreement"), the
Company issued $9.0 million in notes to certain shareholders. The shareholders
were repaid an aggregate of $2.0 million on July 15, 1993. Additionally, in
connection with the extension of the Previous Credit Agreement, on January 28,
1993, the same shareholders purchased a $2.3 million interest in the Previous
Credit Agreement for $2.0 million from one of the participating banks. The
shareholders became parties to the loan agreement at that time, but as a
condition of the purchase of the interest, had no voting rights in the bank
consortium. The shareholders were repaid on July 15, 1993, in full, in
connection with the refinancing of the Previous Credit Agreement.

        During 1994, the Company borrowed an additional $3.9 million from
certain shareholders to purchase general partnership interests in properties
which the Company already managed. As of December 31, 1994, a total of $11.0
million was due to shareholders, excluding accrued interest of $1.4 million.
These notes were due on demand, but only after repayment of all borrowings
under the then existing credit agreement, and had an interest rate of 13%. As
discussed in Note 4, a portion of the proceeds from the IPO along with amounts
drawn on the Credit Facility was used to repay $5.5 million of the shareholder
notes, including $2.4 million of interest. In addition, in consideration for
the





                                       49

<PAGE>   51

sale of the Real Estate Companies in August 1995, certain shareholders
(Demeter, Capricorn and Mr. Heller) canceled $9.1 million of the Company's
shareholder notes.

        One of the Company's directors is counsel to a law firm which provides
legal services to the Company. Amounts paid for legal services provided for the
Company by this firm were $0.9, $0.2 and $0.6 million, during the years ended
December 31, 1995, 1994 and 1993, respectively.

        In November 1995, the Company issued 1,500 shares of stock to each of
the members of the Board of Directors other than Mr. Heller (total of 9,000
shares) as a portion of their 1995 and 1996 annual compensation.

        In connection with the sale of the Real Estate Companies, the Company
and the Real Estate Companies entered into agreements (the "Intercompany
Agreements") which govern their ongoing relationship. Significant aspects of
the Intercompany Agreements include provisions whereby (i) the Company will be
selected to provide property management and related services for properties in
which the Real Estate Companies have a controlling interest, subject to certain
conditions, for an initial period of 25 years; (ii) upon the disposal by the
Real Estate Companies of properties or interests in properties which the
Company managed on August 18, 1995, the Real Estate Companies will make a
payment of up to 200%, subject to certain conditions, of the annual fees the
Company receives with respect to the property; (iii) the Company will provide
to the Real Estate Companies, at cost, certain administrative services and
advice regarding acquisition, financing, asset restructuring, disposition and
similar activities relating to investment in multi-family properties,
terminable on short notice by either party; (iv) the Real Estate Companies and
their equity holders have granted the Company a right of first refusal with
respect to any transactions resulting in a change of control of the Real Estate
Companies, as defined; (v) the Real Estate Companies have indemnified the
Company against any loss directly or indirectly caused by, relating to, based
upon, arising out of, or incurred in connection with the Company's ownership
(as opposed to management) of properties prior to, on and after August 18,
1995; (vi) the Real Estate Companies will limit the Company's liability, by an
agreed-upon formula, for taxes arising from the sale of the Real Estate
Companies. The Intercompany Agreements may only be amended with the approval of
the Real Estate Companies and the Company. A majority of the members of the
Board of Directors of the Company having no interest in the Real Estate
Companies must approve such amendments if they involve a conflict of interest
with directors having an interest in the Real Estate Companies. In addition,
the Board of Directors has created a Conflicts Committee, consisting of
directors who have no direct or indirect financial interest in and are not
affiliated with entities having an interest in the Real Estate Companies which
monitors dealings between the Company and the Real Estate Companies which may
present a conflict of interest.

        Going forward, the Company will participate in additional acquisitions
with the Real Estate Companies primarily in the form of identifying and
negotiating acquisitions and providing other asset acquisition services to the
Real Estate Companies, acquiring rights to manage the properties through the
Intercompany Agreements or other arrangements, and paying that portion of the
acquisition costs allocable to the management rights. See Note 3 for further
discussion of acquisitions.

        As of December 31, 1995, $2.1 million was due to the Company directly
from the Real Estate Companies. These amounts are included in receivables on
the consolidated balance sheet.

(10)    COMMITMENTS AND CONTINGENCIES

        Guarantees

        As of December 31, 1995, the Company was committed to performance
guarantees, loan guarantees and other guarantees totaling $8.6 million, which
relate primarily to transactions consummated by the Real Estate Companies
prior to their sale in August 1995.  As discussed in Note 9 above, the Real
Estate Companies have indemnified the Company for any costs which might be
incurred by the Company related to these guarantees. In the opinion of
management, future calls, if any, on these guarantees are not expected to have
a material adverse effect on the Company's financial position or results of
operations.




                                       50

<PAGE>   52

        Litigation

        In the normal course of business, the Company is a party to various
legal actions and claims. In the opinion of management, based on advice of
counsel, the resolution of these actions and claims is not expected to have a
material adverse effect on the Company's financial position or results of
operations.

        Leases

        The Company leases office space and equipment under noncancelable
operating leases. Most office leases provide for the pass-through of increased
operating expenses. Net rent expense, substantially all of which is minimum
rentals under operating leases, was $1.8, $2.1 and $1.5 million in 1995, 1994
and 1993, respectively. Future minimum rental commitments under existing
operating leases having an initial or remaining noncancelable lease terms in
excess of one year at December 31, 1995, are as follows (in thousands):

<TABLE>
<CAPTION>
                                           Lease Commitments
                                           -----------------
                    <S>                         <C>
                    1996                        $ 2,565
                    1997                          2,539
                    1998                          2,093
                    1999                          1,686
                    2000                          1,642
                    Thereafter                    1,905
</TABLE>

        In December 1995, the Company entered into a six-year lease agreement
for new office space in Vienna, Virginia. The Company will relocate its
Washington, D.C. and Reston, Virginia offices to the new Vienna location during
the second quarter of 1996. The Company currently has no long-term commitment
on its Washington facilities and plans to sublet its Reston facilities for the
remainder of its lease, which expires in July 1998.

 (11)   FAIR VALUE OF FINANCIAL INSTRUMENTS

        The carrying amounts of the Company's financial instruments approximate
fair value. The estimated fair value of the financial instruments has been
determined based on pertinent information available to management and
appropriate valuation methodologies. The carrying amounts of cash and cash
equivalents, receivables, accounts payable and accrued expenses approximate
fair value because of the short-term maturities of those items. The carrying
amount of the Company's Credit Facility approximates fair value because the
interest rates on the Credit Facility change with market interest rates. The
fair value of the Company's other debt instruments was determined based upon
the present value of expected cash flows considering expected maturities and
using the Company's incremental borrowing rate.

(12)    NON-RECURRING EXPENSES AND EXTRAORDINARY ITEMS

        Non-recurring Expenses

        In 1993, the Company initiated a systems project to replace its three
current computer systems with a single system based on a client-server
technology. In December 1994, the Company concluded that the conceptual design
of the new system was flawed and expensed all costs associated with the
project, totaling $1.8 million, as a non-recurring expense. Subsequently, in
June 1995, the Company received a net cash payment of $0.4 million from two of
the parties participating in the project which has been reflected as a
reduction of non-recurring expenses in the accompanying financial statements.

        In February 1995, as discussed in Note 7, the Company extended the
exercise term of options granted under the Company's 1990 Stock Option Plan and
granted a terminating employee the right to exercise his options for up to two
years after his departure. As a result of these actions, non-recurring
compensation expense of $0.5 million was recognized in the first quarter of
1995.




                                       51

<PAGE>   53

        Extraordinary Items

        In connection with the repayment of the Company's credit facility in
the third quarter of 1995, the Company expensed the remaining $0.7 million of
deferred financing costs related to the Company's previous credit facility.
This charge was recorded net of a $0.3 million income tax benefit and
classified as an extraordinary item in the Consolidated Statement of
Operations.

        The extraordinary item for the year ended 1993 is the result of gains
on restructuring the debt of various real estate partnerships in which the Real
Estate Companies have an ownership interest. The amounts recorded represent the
Real Estate Companies' equity interest in the gains realized by the
partnerships. No taxes were recorded on these gains.

(13)    SUBSEQUENT EVENTS

        On February 29, 1996, the Company entered into a three-year contract
with CRI, Inc., a Rockville, Maryland-based real estate investment firm, to
provide asset management, refinancing and disposition services for 286
affordable multifamily communities containing over 35,000 apartment units,
which are owned by 129 of CRI's public and private real estate partnerships.
The transaction increased the Company's total asset management portfolio by
over 50% to approximately 840 multifamily properties.

        On March 20, 1996, the Company and Commonwealth Overseas Trading
Company Limited ("Commonwealth") entered into a Stock Purchase Agreement
providing for the purchase from Commonwealth of all of the issued and
outstanding common stock of WMF Holdings Ltd.  for $21 million, in the form of
$16.8 million in cash and 210,000 shares of the Company's common stock. WMF
Holdings Ltd. is the owner of Washington Mortgage Financial Group, Ltd.
("Washington Mortgage Financial"), located in Fairfax County, Virginia, one of
the nation's leading multifamily mortgage originators and servicers. Washington
Mortgage Financial had mortgage servicing contracts aggregating approximately
$4.5 billion as of February 29, 1996 and originated approximately $805 million
in multifamily and other commercial mortgages in 1995. The transaction is
expected to be completed in early April 1996.

        On February 14, 1996, the Real Estate Companies agreed to acquire 13
multifamily properties containing 3,145 apartment units from affiliates of
Great Atlantic Management, Inc. At closing, the Company is expected to acquire
from the Real Estate Companies for approximately $1.6 million the right to
manage the units on a long-term basis with the exact terms to be determined. In
addition, the Company may provide the Real Estate Companies up to $16 million
in secured financing for acquisition of the properties until such time as a
third-party investor acquires an equity interest in the properties. Such
borrowing would bear interest at 10% per year. The Company's Credit Facility
limits the amount of loans or other advances the Company may make to the Real
Estate Companies in connection with the Real Estate Companies' acquisition of
real estate assets to $10.0 million, but this limitation has been waived for a
period of six months ending August 8, 1996 to permit the advance to the Real
Estate Companies in connection with this acquisition.




                                       52

<PAGE>   54

(14)    SUPPLEMENTAL NET INCOME PER SHARE INFORMATION

        As previously discussed, on August 18, 1995 the Company completed an
IPO of 4.3 million shares of common stock and used the proceeds in their
entirety to repay certain outstanding debt. The following is provided as
supplemental information to illustrate the effect on net income from continuing
operations per share as if the Company had issued the 4.3 million shares on
January 1, 1995 and used the $52.0 million of net proceeds to repay debt at
that time, thereby increasing shares outstanding for the entire year and
reducing interest expense.

<TABLE>
<CAPTION>
                                                               1995
                                                              -------
                 <S>                                            <C>
                 Net income from continuing operations per      
                   share as reported                            $3.27
                 Net income from continuing operations per      
                   share pro forma                              $2.67
</TABLE>

(15)    QUARTERLY FINANCIAL AND OPERATING DATA (UNAUDITED)

        The following table sets forth certain unaudited quarterly financial
and operating data for the years ended December 31, 1995 and 1994. The Company
believes that the following selected quarterly information includes all
adjustments necessary for a fair presentation, in accordance with generally
accepted accounting principles.

<TABLE>
<CAPTION>
                                                                                     1995 Quarters (in thousands)
                                                                            ----------------------------------------------
                                                                               First      Second      Third       Fourth
                                                                               -----      ------      -----       ------
             <S>                                                              <C>         <C>        <C>         <C>
             Total revenue                                                    $42,002     $42,916    $43,877     $45,879
             Operating income                                                   3,705       4,674      5,056       5,872
             Income from continuing operations before extraordinary item        1,882       2,745     23,720       3,266
             Income (loss) from discontinued real estate operations            (2,557)        504         90        -
             Income before extraordinary item                                    (675)      3,249     23,810       3,266

             Per Common Share:                                                                                          
                 Income from continuing operations before extraordinary                                                 
                   item                                                       $   .24     $   .35    $  2.35     $   .26
                 Income (loss) from discontinued real estate operations          (.32)        .06        .01           -
                 Income before extraordinary item                                (.08)        .41       2.36         .26
                 Dividends declared (a)                                             -           -          -           -

             Stock Price (b):
                High                                                                -           -    $    14      18 5/8
                Low                                                                 -           -         12      13 3/4
</TABLE>


<TABLE>
<CAPTION>
                                                                                     1994 Quarters (in thousands)
                                                                             -------------------------------------------
                                                                               First      Second       Third      Fourth
                                                                               -----      ------       -----      ------
             <S>                                                              <C>         <C>         <C>        <C>
             Total revenue                                                    $34,440     $35,341     $39,981     $37,534
             Operating income                                                   4,487       4,024       4,398       1,832
             Income from continuing operations before extraordinary item        3,127       2,680       2,908         290
             Income (loss) from discontinued real estate operations            (1,443)     (2,659)      2,792       8,800
             Income before extraordinary item                                   1,684          21       5,700       9,090

             Per Common Share:                                                                                           
                 Income from continuing operations before extraordinary                                                   
                   item                                                       $   .39     $   .33     $   .36     $   .04 
                 Income (loss) from discontinued real estate operations          (.18)       (.33)        .35        1.10
                 Income before extraordinary item                                 .21         -           .71        1.14
                 Dividends declared (a)                                           -           -           -           -
</TABLE>




                                       53 

<PAGE>   55

------------------
(a)     The Company has never paid dividends and does not intend to pay
        dividends in the foreseeable future. Any payment of future dividends
        and the amounts thereof will be dependent upon the Company's earnings,
        financial and other requirements, including contractual obligations.
(b)     The Company completed its initial public offering on August 18, 1995.
        Stock prices shown are only for periods subsequent to that date.


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

        None.





                                       54

<PAGE>   56
                                    PART III

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

             The directors and executive officers of the Company are as
follows:

<TABLE>
<CAPTION>
Name                          Age         Position
----                          ---         --------
<S>                            <C>        <C>
J. Roderick Heller, III        58         Chairman of the Board, President and Chief Executive Officer

Richard S. Bodman              57         Director

John W. Creighton, Jr.         63         Director

Lloyd N. Cutler                78         Director

Michael R. Eisenson            40         Director

Tim R. Palmer                  38         Director

Herbert S. Winokur, Jr.        52         Director

Linda J. Brower                44         Executive Vice President - Asset Management

Linda G. Davenport             46         Executive Vice President - Acquisitions

Ann Torre Grant                37         Executive Vice President, Chief Financial Officer and Treasurer

Robert M. Greenfield           48         Executive Vice President - Acquisitions

J. Robert Hiner                44         Executive Vice President  - Management Company Operations

Joel F. Bonder                 47         Senior Vice President, General Counsel and Secretary

Christine Freeland             41         Senior Vice President - Management Company Operations

Richard M. Powell              45         Senior Vice President - Special Services

Joseph P. Stefan               43         Senior Vice President - Buyers Access

Charles S. Wilkins, Jr.        45         Senior Vice President - Regulatory and Legislative Affairs

Jeffrey J. Ochs                38         Vice President and Chief Accounting Officer
</TABLE>

        J. Roderick Heller, III has served as a Director, President and Chief
Executive Officer of the Company since its organization in 1986 and has served
as Chairman of the Board since 1988. From 1982 until 1985, Mr. Heller served as
President and Chief Executive Officer of Bristol Compressors, Inc., a Bristol,
Virginia-based company involved in the manufacturing of air conditioning
compressors.  From 1971 until 1982, he was a partner in the Washington, D.C.
law firm of Wilmer, Cutler & Pickering. Mr. Heller is a Director of Auto-Trol
Technology Corporation and a number of nonprofit organizations, including
public television station WETA, the National Trust for Historic Preservation
and The Civil War Trust.

        Richard S. Bodman has served as a director of the Company since August
1995. He is a member of the Management Executive Committee of AT&T and has
served as Senior Vice President of AT&T for Corporation




                                       55

<PAGE>   57

Strategy and Development since joining AT&T in 1990.  Mr. Bodman manages
AT&T's intellectual property portfolio and is Chairman of AT&T Ventures, a high
technology venture capital partnership. Mr. Bodman is a director and Chairman of
the Compensation Committee of Tyco International, Inc.

        John W. Creighton, Jr. has served as a director of the Company since
August 1995. He has served as Chief Executive Officer of Weyerhaeuser Company
since 1991. Mr. Creighton joined Weyerhaeuser Company in 1970 and was elected
Vice President in December of that year, Executive Vice President in 1985 and
President and Director in 1988. He also served as President of Weyerhaeuser
Real Estate Company from 1983 to 1989. Mr. Creighton previously served as a
director of NHP from 1986 to 1988 and as a director of NCHP from 1981 to 1988.
Mr. Creighton serves as a director of Washington Energy Company, Portland
General Corporation, Unocal Corporation, Quality Food Centers, Inc. and MIP
Properties, Inc.

        Lloyd N. Cutler has served as a director of the Company since August
1995. He is Senior Counsel at the law firm of Wilmer, Cutler & Pickering, a
position he has held since September 1994 and from 1990 to March 1994. Mr.
Cutler served as Special Counsel to President Clinton from March 1994 through
September 1994 and Counsel to President Carter from 1979 to 1980. Mr. Cutler
previously served as a director of the Company from 1987 until March 1994.

        Michael R. Eisenson has served as a director of the Company since 1990.
Mr. Eisenson has been President and Chief Executive Officer of Harvard Private
Capital Group, Inc. ("Harvard Capital") since December 1993, which manages the
direct investment and private placement portfolio of the Harvard University
endowment fund. Harvard Capital is an affiliate of Demeter. Mr. Eisenson has
been a partner of Harvard Management Company, Inc., the parent of Harvard
Capital, since 1986. Mr. Eisenson is a Director of ImmunoGen, Inc., Harken
Energy Corporation, and Somatix Therapy Corporation.

        Tim R. Palmer has served as a director of the Company since 1990. Mr.
Palmer joined Harvard Capital in 1990 and is currently Managing Director. From
1987 to 1990, Mr. Palmer was a manager of business development at The Field
Corporation, a private investment firm. Mr. Palmer is a director of PriCellular
Corporation.

        Herbert S. Winokur, Jr. has served as a director of the Company since
1991. Since 1987, he has served as the President of Winokur & Associates, Inc.,
an investment and management services firm, and Winokur Holdings, Inc., which
is the managing general partner of Capricorn, a private investment partnership.
Mr. Winokur is the Chairman of DynCorp and serves as a director of Enron
Corporation and NacRe Corporation.

        Linda J. Brower has served as Executive Vice President of NHP since
March 1994 and served as Senior Vice President of NCHP from February 1992 to
March 1994. Ms. Brower is responsible for asset management of the multifamily
portfolio. From 1984 to 1991, Ms.  Brower was Vice President and Area Director
for the Orange County, California and Washington, D.C. offices of Citicorp Real
Estate and was responsible for analyzing investment proposals, asset management
and restructuring.

        Linda G. Davenport has served as Executive Vice President of the
Company since March 1994. She is primarily responsible for corporate and
portfolio acquisitions and was responsible for two bulk acquisitions by NCHP of
multifamily properties from the RTC in 1992. Ms. Davenport served as Executive
Vice President and Chief Operating Officer of NCHP from 1990 to January 1994
and as General Counsel and Senior Vice President of the Company from 1986 to
1989. Prior to joining NCHP in 1979 as Assistant General Counsel, Ms.
Davenport was employed in the Office of the General Counsel of the Federal
Deposit Insurance Corporation.

        Ann Torre Grant has served as Executive Vice President, Chief Financial
Officer and Treasurer of NHP since February 1995. She was Vice President and
Treasurer of USAir, Inc. and USAir Group, Inc. from 1991 through January 1995,
and held other finance positions at the airline between 1988 and 1991. From
1983 to 1988, she held various finance positions with American Airlines, Inc.
Ms. Grant serves as a director of the Mutual Series Funds.





                                       56

<PAGE>   58

        Robert M. Greenfield has served as Executive Vice President of NHP
since March 1994. He joined NCHP in October 1991 as Senior Vice President. Mr.
Greenfield is primarily responsible for corporate and portfolio acquisitions
and was instrumental in the negotiation and closing of the Oxford and Congress
Acquisitions. From 1978 to 1984, and from 1990 to 1991, Mr. Greenfield was a
consultant in corporate strategy for the Boston Consulting Group, providing
analyses and recommendations to clients in the areas of corporate strategy,
business development and divestiture. From 1991 to 1994, he was a principal in
Schindler Greenfield, Inc. and OCC, Inc., closely held real estate development
firms. In February of 1992, Mr. Greenfield and his wife filed for protection
under Chapter 7 of the United States Bankruptcy Code as a result of their
inability to meet certain direct and guaranteed obligations on borrowings by or
on behalf of Schindler Greenfield, Inc., and its affiliates.

        J. Robert Hiner has served as Executive Vice President of NHP
Management Co. since October 1993. He previously served as Senior Vice
President of NHP Management Co. from 1991 to 1993. During 1990, Mr. Hiner
served as President of Shadwell-Jefferson Property Management, Inc., a retail
property management company formed to manage 71 shopping centers in the
midwestern and southern United States. From 1986 to 1990, he served as
President of Cardinal Apartment Management Group, Inc., which was responsible
for the management of 55,000 apartment units.

        Joel F. Bonder has served as Senior Vice President and General Counsel
of the Company since April 1994. Mr. Bonder also served as Vice President and
Deputy General Counsel from June 1991 to March 1994, as Associate General
Counsel from 1986 to 1991, and as Assistant General Counsel of the Company from
1985 to 1986. From 1983 to 1985, he was with the Washington, D.C. law firm of
Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law
firm of Ross and Hardies.

        Christine Freeland has served as Senior Vice President of NHP
Management Co. since February 1995. She previously served as Regional Vice
President of NHP Management Co. from 1990 to 1995, as Division Vice President
from 1988 to 1990, and as Senior Asset Manager from 1987 to 1988. Ms. Freeland
is a graduate of the University of Maryland and holds a graduate degree from
the University of Tulsa.

        Richard M. Powell has served as Senior Vice President of NHP since
February 1996. He is primarily responsible for large-scale acquisitions and
transactions to privatize military, public and student housing. Prior to
joining NHP, Mr. Powell was vice president of commercial real estate services
with Barnes Morris Pardoe & Foster from 1987 to 1996.

        Joseph P. Stefan has served as President of Property Services Group,
Inc. (which administers the Company's Buyers Access(R) program) since 1986.
Prior to joining the Company, Mr. Stefan served as Executive Vice President of
ADEC, Inc., a manufacturer of energy management systems for the multifamily
housing industry, from 1981 to 1986.

        Charles S. Wilkins, Jr. has served as Senior Vice President of NCHP
since September 1988 and is currently responsible for legislative and
regulatory affairs. He was formerly responsible for asset and property
management of the affordable multifamily portfolio. Prior to joining NCHP, Mr.
Wilkins was Senior Vice President of Westminster Company, a regional real
estate development firm where he was responsible for the property management of
a diverse portfolio of properties. Mr. Wilkins is immediate past- president of
the National Assisted Housing Management Association and is a director of the
National Leased Housing Association as well as various regulatory committees,
including the Executive Committee of the HUD Occupancy Task Force.

        Jeffrey J. Ochs has served as Vice President and Chief Accounting
Officer of  NHP Incorporated since September 1995. From 1994 until September
1995, Mr. Ochs was Assistant Controller of USAir, Inc. From 1987 to 1994, he
held various accounting positions with USAir, Inc.

        Fifty percent (50%) of the compensation received by non-management
members of the Company's Board of Directors for service on the Board is paid in
NHP stock. Accordingly, on November 1, 1995, each of Messrs. Bodman, Creighton,
and Cutler, and Demeter (with which Messrs. Eisenson and Palmer are affiliated)
and Capricorn (with which Mr. Winokur is affiliated) received 1,500 shares of
NHP common stock for services during




                                       57

<PAGE>   59

the period August 18, 1995 through December 31, 1996. The Forms 4 required with
respect to the issuance of these shares inadvertently were not filed on behalf
of each of the foregoing, and the transactions were reported in Forms 5 filed
on February 14, 1996.

ITEM 11.    EXECUTIVE COMPENSATION

            The following table sets forth information with respect to the
compensation paid by the Company for services rendered during the years ended
December 31, 1995 and 1994 to the Chief Executive Officer and to each of the
four other most highly compensated executive officers of the Company (the
"Named Officers").

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                       
                                       ANNUAL COMPENSATION                  LONG TERM                  
                                -------------------------------------      COMPENSATION       ALL OTHER
NAME AND PRINCIPAL POSITION      YEAR        SALARY         BONUS(1)        OPTIONS(#)     COMPENSATION(2)
---------------------------      ----        ------         --------        ----------     ---------------
<S>                              <C>        <C>             <C>               <C>              <C>
J. Roderick Heller, III          1995       $345,961        $192,500          220,000          $15,078
Chairman of the Board,           1994        331,609         160,000                            20,352
President and Chief
Executive Officer

Ann Torre Grant                  1995        212,981         120,000           80,000              467
Executive Vice President,
Chief Financial Officer
and Treasurer

J. Robert Hiner                  1995        195,038          85,000           61,250           11,958
Executive Vice President         1994        167,191          50,000                            13,843

Linda G. Davenport               1995        190,961          45,000           15,000           12,282
Executive Vice President         1994        179,139          20,000                            16,838

Robert M. Greenfield             1995        191,525          30,000           55,000           12,461
Executive Vice President         1994        176,339          50,000                            15,594
</TABLE>
------------------

(1)     The amounts reported below were paid in 1996 and 1995 with respect to
        the years ended December 31, 1995 and December 31, 1994, respectively.
        Messrs. Heller, Hiner and Greenfield and Ms. Davenport were paid
        $140,000, $40,000, $65,000 and $30,000, respectively, in bonuses in
        1994 with respect to the year ended December 31, 1993.

(2)     These amounts represent NHP's payment of life insurance premiums and
        matching and discretionary contributions to the NCHP 401(k) Retirement
        Plan.





                                       58

<PAGE>   60
             The following table sets forth certain information regarding
options granted to the named officers during the year ended December 31, 1995.

<TABLE>
<CAPTION>
                                                                                                 POTENTIAL REALIZABLE
                                                                                                   VALUE AT ASSUMED
                                                                                                   ANNUAL RATES OF
                                                                                                     STOCK PRICE
                                             PERCENT OF                                            APPRECIATION FOR
                                           TOTAL OPTIONS                                            OPTION TERM            
                               OPTIONS       GRANTED IN    EXERCISE        EXPIRATION        ------------------------------
NAME                        GRANTED (#)     FISCAL YEAR   PRICE (#/SH)        DATE           5%($)                 10%($)
----                        -----------     -----------   ------------        ----           -----                 ------
<S>                            <C>               <C>         <C>            <C>              <C>                 <C>
J. Rockerick Heller, III       100,000           14.5%       $13.00         8/17/05          $817,563            $2,071,865
                               120,000           17.4%        16.00         8/17/05           621,076             2,126,238
Ann Torre Grant                 80,000           11.6%        13.00         8/17/05           654,050             1,657,492
J. Robert Hiner                 61,250            8.9%        13.00         8/17/05           500,757             1,269,017
Linda G. Davenport              15,000            2.2%        13.00         8/17/05           122,634               310,780
Robert M. Greenfield            55,000            8.0%        13.00         8/17/05           449,660             1,139,526
</TABLE>
------------------

(1)     All options become exercisable over a five year period, with one-fifth
        of the options becoming exercisable at the end of each year except as
        follows. Mr. Heller's 120,000 options are subject to accelerated
        vesting in certain circumstances as described under "Employment and
        Related Contracts," below. Ms. Grant's options are exercisable 20% six
        months after the date of grant and 20% each year thereafter. Of the
        55,000 options granted to Mr. Greenfield, 25,000 are exercisable
        immediately and the remainder become exercisable over five years, with
        one-fifth of the options becoming exercisable at the end of each year.

       The following table sets forth certain information regarding
unexercised options held by the Named Officers at December 31, 1995. No options
were exercised by the named Officers during the year ended December 31, 1995.

                      AGGREGATED OPTION EXERCISES IN 1995
                        AND YEAR-END 1995 OPTION VALUES


<TABLE>
<CAPTION>
                                       NUMBER OF SECURITIES
                                      UNDERLYING UNEXERCISED                      VALUE OF UNEXERCISED
                                        DECEMBER 31, 1995                        IN THE MONEY OPTIONS(1)    
                              -------------------------------------       ----------------------------------
 NAME                          EXERCISABLE           UNEXERCISABLE         EXERCISABLE         UNEXERCISABLE
-----                          -----------           -------------         -----------         -------------
 <S>                            <C>                      <C>                <C>                   <C>
 J. Roderick Heller, III        156,250                  220,000            $1,240,625            $850,000
 Ann Torre Grant                 16,000                   64,000                88,000             352,000
 J. Robert Hiner                 18,750                   61,250               148,875             336,875
 Linda G. Davenport              75,000                   15,000               595,500              82,500
 Robert M. Greenfield            65,000                   40,000               455,100             244,400
</TABLE>

-------------------

(1)     Calculated on the closing price of the underlying securities on
        December 29, 1995 minus the exercise price.



DIRECTORS COMPENSATION

        Non-management directors are entitled to compensation in the amount of
$20,000 per year for their service as directors, plus $1,000 for each board
meeting in excess of six meetings per year. One half of this amount is to be
paid in the form of shares of common stock. Each non-management director of the
Company received compensation





                                       59



<PAGE>   61
of $5,000 for the period August 18, 1995 through December 31, 1995 and 1,500
shares of NHP common stock for the period August 18, 1995 through December 31,
1996.

EMPLOYMENT AND RELATED CONTRACTS

        On August 18, 1995, the Company granted Mr. Heller performance vesting
options to purchase 120,000 shares of common stock at a price equal to $16 per
share. The options vest in 2005, subject to acceleration of vesting under
certain circumstances. Acceleration of vesting will occur as follows upon a
control transfer: options with respect to 40,000 shares will vest upon a control
transfer if, upon such occurrence, the stock has appreciated from $16 per share
at a compound annual rate (the "Appreciation Rate") in excess of 20%; options
with respect to 80,000 shares will vest upon a control transfer if the
Appreciation Rate is in excess of 22.5%; and options with respect to 120,000
shares will vest upon a control transfer if the Appreciation Rate is in excess
of 25%. A control transfer is defined as an event in which Demeter, Capricorn
and Mr. Heller have "meaningful liquidity," including a sale of interests after
which the purchaser owns more than 50% of the issued and outstanding shares of
the Company, or a series of offerings as a result of which shareholders not
affiliated with Demeter, Capricorn or Mr. Heller own more than 50% of the issued
and outstanding shares of the Company.

        In January 1995, the Company entered into an agreement with Ms. Grant,
the Executive Vice President, Chief Financial Officer and Treasurer of the
Company, establishing Ms. Grant's base compensation as $225,000. The agreement
provides that Ms. Grant's employment could be terminated at anytime by NHP or
Ms. Grant, subject to Ms. Grant's right to receive severance pay under certain
circumstances equal to one year's base salary in effect at the time of such
event plus the greater of (a) 20% of her base salary and (b) the bonus she
received with respect to the immediately preceding fiscal year.

        In February 1996, the Company entered into an agreement with Mr.
Powell, Senior Vice President - Special Services, establishing Mr. Powell's
base compensation as $180,000. The agreement provides that Mr. Powell's
employment could be terminated at anytime by NHP or Mr. Powell, subject to Mr.
Powell's right to receive severance pay under certain circumstances equal to
one year's base salary in effect at the time of such event plus the greater of
(a) 20% of his base salary and (b) the bonus he received with respect to the
immediately preceding fiscal year.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

        The Board of Directors has created a Compensation Committee which
consists of Messrs. Eisenson, Winokur and Creighton. The Compensation Committee
is charged with determining the compensation of all executive officers. No
member of the Compensation Committee has ever been an officer of the Company or
any of its subsidiaries. Mr. Eisenson and Mr. Winokur are officers of Demeter
and Capricorn, respectively, the controlling shareholders of the Company.
Demeter and Capricorn have engaged in a variety of transactions with the
Company, as described under "Item 13 - Certain Relationships and Related
Transactions."

ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following table sets forth as of March 15, 1996 the number and
percentage of outstanding shares of the Company's Common Stock beneficially
owned by (i) all persons known by the Company to own beneficially more than 5%
of the Company's Common Stock, (ii) each director and each executive officer
who is a stockholder, and (iii) all directors and executive officers as a
group. The business address of each of the following is 1225 Eye Street, N.W.,
Washington, D.C. 20005, unless otherwise specified.

<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER                                NUMBER                   PERCENT
------------------------------------                                ------                   -------
<S>                                                                <C>                         <C>
Demeter Holdings Corporation                                       5,568,425                   45.4%
   600 Atlantic Ave.
   Boston, MA  02210
</TABLE>





                                       60

<PAGE>   62
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER                                NUMBER                   PERCENT
------------------------------------                                ------                   -------
<S>                                                                <C>                         <C>
Capricorn Investors, L.P.                                          1,309,492                   10.7%
   72 Cummings Point Rd.
   Stamford, CT  06902

Warburg, Pincus Counsellors, Inc.                                    814,500                    6.6%
   466 Lexington Ave.
   New York, NY  10017

J. Roderick Heller, III (1)                                          392,500                    3.2%

Michael R. Eisenson (2)                                            5,568,425                   45.4%
   600 Atlantic Ave.
   Boston, MA  02210

Tim R. Palmer (2)                                                  5,568,425                   45.4%
   600 Atlantic Ave.
   Boston, MA  02210

Herbert S. Winokur, Jr. (3)                                        1,309,492                   10.7%
   72 Cummings Point Rd.
   Stamford, CT  06902

John W. Creighton                                                     17,125                    *
   CH5 33663 Weyerhaeuser Way South
   Federal Way, Washington  98003

Richard S. Bodman                                                      4,900                    *

Lloyd N. Cutler                                                        2,500                    *

Ann Torre Grant (4)                                                   17,800                    *

J. Robert Hiner (5)                                                   19,250                    *

Linda G. Davenport (6)                                                82,325                    *

Robert M. Greenfield (7)                                              65,000                    *

Charles S. Wilkins, Jr. (8)                                           26,000                    *

Joseph P. Stefan                                                       8,175                    *

Joel F. Bonder                                                           400                    *

Christine Freeland                                                       200                    *

All directors and executive officers as a group (14 persons) (9)   7,514,092                   62.4%
</TABLE>

------------------
*   Less than 1%

(1)     Includes 156,250 shares subject to options that are exercisable
        currently or within 60 days of the date of this report and 101,250
        shares held in trusts for the benefit of Mr. Heller's children. Mr.
        Heller disclaims beneficial ownership of the shares held in these
        trusts. The total excludes shares Mr. Heller has the right to acquire
        pursuant to a performance vesting option. See "Item 11 - Executive
        Compensation - Employment and Related Contracts."





                                       61

<PAGE>   63
(2)     Includes all shares held by Demeter Holdings Corporation, for which
        Messrs. Eisenson and Palmer serve as representatives on the Company's
        Board of Directors. Messrs. Eisenson and Palmer disclaim beneficial
        ownership of the shares held by Demeter.

(3)     Includes all shares held by Capricorn Investors, L.P., for which Mr.
        Winokur serves as a representative on the Company's Board of Directors.
        Mr. Winokur disclaims beneficial ownership of shares held by Capricorn.

(4)     Includes 16,000 shares subject to options that are exercisable
        currently or within 60 days of the date of this report.

(5)     Includes 18,750 shares subject to options that are exercisable
        currently or within 60 days of the date of this report.

(6)     Includes 75,000 shares subject to options that are exercisable
        currently or within 60 days of the date of this report.

(7)     Includes 65,000 shares subject to options that are exercisable
        currently or within 60 days of the date of this report.

(8)     Includes 25,000 shares subject to options that are exercisable
        currently or within 60 days of the date of this report.

(9)     Includes all shares set forth above other than those held by Warburg,
        Pincus Counsellors, Inc. The reported amount excludes 607,250 shares of
        Common Stock reserved for issuance to executive officers under the
        Company's Stock Option Plans that are not exercisable within 60 days of
        the date of this report.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        During the year ended December 31, 1995, the Company engaged in the
following transactions and is a party to the following agreements with entities
in which its directors or executive officers have the interests described.

SALE OF THE REAL ESTATE COMPANIES

        At the time of NHP's IPO, the Company sold the Real Estate Companies,
which owned all of the Company's direct and indirect interests in real estate
and the Company's captive insurance subsidiary, and certain related assets and
liabilities, to entities owned and controlled by Demeter (with which Messrs.
Eisenson and Palmer are affiliated), Capricorn (with which Mr. Winokur is
affiliated) and Mr. Heller. The purchasing entities paid an aggregate of
approximately $9.1 million in the form of cancellation of indebtedness of NHP
to Demeter, Capricorn and Mr. Heller in exchange for 100% of the equity
interest in the Real Estate Companies. In addition, the Real Estate Companies
retained all liabilities associated with their assets and assumed approximately
$5.3 million of obligations of the Company. In addition, the Real Estate
Companies agreed to indemnify the Company for any taxes incurred by the Company
arising from the sale to the extent such taxes exceed the sum of (i) $2.5
million and (ii) an amount equal to the present value of the estimated
alternative minimum tax credit benefits that will be available to NHP as a
result of the sale.

        At the time of the sale of the Real Estate Companies, certain
intercompany balances existed between the Real Estate Companies and NHP. The
net amount of these balances was approximately $59,000 owed to the Real Estate
Companies by NHP. Subsequent to the sale, the Real Estate Companies incurred
obligations to NHP as described below, and the amount owed the Real Estate
Companies was offset against these obligations.





                                       62

<PAGE>   64
MANAGEMENT FEES

        Pursuant to a Master Property Management Agreement between NHP and the
Real Estate Companies, the Real Estate Companies have agreed to cause the
Company to be retained as the property manager of all multifamily properties
owned by the Real Estate Companies, their subsidiaries or any affiliate
controlled by the Real Estate Companies or their subsidiaries, subject to
certain exceptions.  Pursuant to this agreement, the Company manages
approximately 455 properties and received approximately $31.2 million in
management fees. In addition, the Master Property Management Agreement requires
the Real Estate Companies to pay NHP a termination fee upon sale or disposition
of a property managed by NHP in certain circumstances unless there is no
termination of management fees with respect to the property for 36 months after
disposition. The amount of the fee is 200% of the annual fees the Company
receives with respect to the property, reduced on a pro rata basis to the
extent the Company receives management fees for periods less than 36 months
after disposition. The Real Estate Company incurred obligations to NHP of
approximately $0.2 million in termination fees pursuant to this agreement in
the year ended December 31, 1995.

FINANCIAL AND ADVISORY SERVICES

        The Company has agreed to provide to the Real Estate Companies, their
subsidiaries and their controlled affiliates, administrative services and
advice regarding acquisition, financing, asset restructuring, disposition and
similar activities relating to investments in multifamily properties. The
services provided by the Company to the Real Estate Companies include
accounting, data processing, insurance administration, payroll, personnel
administration, investor administrative and reporting, investment, tax and
legal services. The Real Estate Companies are required to reimburse the Company
for its costs of providing these services. Either the Company or the Real
Estate Companies may terminate this relationship on 30-days' written notice.
The Real Estate Companies incurred obligations to NHP of approximately $1.2
million pursuant to this agreement in the year ended December 31, 1995.

PROPERTY OCCUPANCY

        The Real Estate Companies lease office space in Washington, D.C., a
portion of which the Company occupies as its headquarters facility. In
connection with the sale of the Real Estate Companies, the Company agreed to
reimburse to the Real Estate Companies a portion of the costs incurred by the
Real Estate Companies in leasing this space. Under a separate agreement, the
Real Estate Companies are required to reimburse the Company for the cost of
space leased by the Company (in Reston, Virginia) and allocable to the services
provided to the Real Estate Companies. The Company and the Real Estate Companies
subsequently agreed that the respective obligations to reimburse leasing costs
would completely offset one another, so that no amount would be due either
party. As noted under "Item 2 - Facilities," the Company has signed a lease
for property in Vienna, Virginia and intends to move all of its Washington and
Reston operations to that location. At the time of this relocation, the Real
Estate Companies will once again be obligated to reimburse the Company for
their allocable portion, if any, of the cost of occupying space in the new
facility.

INDEMNIFICATION

        The Real Estate Companies have agreed to indemnify the Company against
any loss directly or indirectly caused by, relating to, based upon, arising out
of, or incurred in connection with the Company's ownership (as opposed to
management), through the Real Estate Companies, of properties prior to, on and
after the date of the IPO, and the management contracts for individual
properties generally contain standard indemnification provisions providing for
indemnity by and to the Company. The Real Estate Companies have also agreed to
indemnify the Company against any environmental liability with respect to any
property in which the Real Estate Companies have had, have or acquire an
interest, unless such liability results from the direct introduction of toxic
substances into a property by the Company after the IPO.

        The Company remains the guarantor (along with the Real Estate
Companies) of a portion of the indebtedness on two properties and the guarantor
of certain obligations relating to the sale of limited partnership interests in
another property. The Real Estate Companies are prohibited from taking any
action that would increase





                                       63

<PAGE>   65
the maximum exposure under these guarantees above the current maximum level of
approximately $4 million, and the Real Estate Companies have agreed to
indemnify NHP for the full amount of any liability it incurs with respect to
these guarantees. There can be no assurance that the Real Estate Companies will
be able to satisfy their indemnity obligations. The Company believes that its
ultimate exposure to liability under these guarantees is not material.

TAX ALLOCATION AGREEMENT

        In connection with the sale of the Real Estate Companies, the Company
and the Real Estate Companies entered into a tax allocation agreement. Pursuant
to this agreement, the Company will be required to bear liability for only the
first $2.5 million in taxes arising from the transaction plus an amount equal
to the present value of the estimated alternative minimum tax credit benefits
that will be available to the Company as a result of the sale of the Real
Estate Companies. The Real Estate Companies have indemnified the Company for
any taxes arising from the sale in excess of this amount including any taxes
payable on tax indemnification payments from the Real Estate Companies.
Pursuant to this agreement, NHP paid approximately $45,000 in taxes incurred by
the Real Estate Companies in connection with the sale of the Real Estate
Companies.

        The Company and/or the properties to which the Company has provided
services may be liable for certain past state sales and use taxes, including
interest and penalties thereon. Pursuant to the tax allocation agreement, the
properties owned by partnerships of which the Real Estate Companies are the
general partners, partnerships owning such properties and/or the general
partners thereof will be responsible for any such taxes and interest that are
assessed against the Company with respect to such properties, or that are
assessed against the properties but cannot be paid by the properties. However,
pursuant to this arrangement, the Company will be responsible for any penalties
that are assessed with respect to such taxes. As of December 31, 1995, no
payments have been made with respect to such taxes. In the Company's opinion,
the resolution of these matters will not have a material adverse effect on the
financial condition or results of operations of the Company.

WORKING CAPITAL ADVANCES

        The Company has provided advances of working capital to the Real Estate
Companies to offset certain of the obligations described above and to meet
short-term capital needs of the Real Estate Companies. Such advances are
payable upon demand and incur interest at the rate equal to the prime rate plus
1% (currently 9.25%), accruing from the end of the month in which the advance
is made. The maximum amount owing the Company pursuant to this arrangement
during the year ended December 31, 1995 was approximately $2.1 million as of
December 31, 1995, including approximately $27,000 in accrued interest.

        Among the amounts owed NHP at the time of the sale of the Real Estate
Companies was $1.0 million which the Real Estate Companies contributed to a
subsidiary that was a vehicle for a pending acquisition. The Real Estate
Companies were able to repay this amount pending completion of the acquisition,
and the amount was repaid in September 1995. NHP advanced this amount back to
the Real Estate Companies in November 1995, and it was part of the balance
outstanding of $2.1 million on December 31, 1995. The Real Estate Companies
expect to be able to repay this amount promptly upon completion of the
acquisition.

GUILFORD ACQUISITION

        The Real Estate Companies completed the Guilford Acquisition in January
1996, by which the Real Estate Companies acquired, for approximately $4.8
million, the general partnership interests and certain limited partnership
interests in partnerships that own 14 properties containing 2,995 units. In
conjunction with this acquisition by the Real Estate Companies, the Company
paid the Real Estate Companies $2.6 million to enter into property management
contracts with each property for a period of four to five years, commencing in
December 1995.

SOUTHPORT ACQUISITION

        In December 1995, the Real Estate Companies entered into a binding
agreement to acquire from Southport Financial Corporation the general partner
interests in partnerships that own 14 properties containing





                                       64

<PAGE>   66
2,140 units. The Company began managing 12 of these properties containing 1,857
units in November 1995 and will begin managing the remaining two properties
containing 283 units upon receipt of the necessary consents. The Company will
acquire from the Real Estate Companies the right to manage all 14 of the
Southport properties for $4.0 million. The Company manages the Southport
properties pursuant to long-term contracts terminable only for cause, and has a
right of first refusal with respect to the sale of any of these properties or
the Real Estate Companies' general partnership interests in partnerships owning
these properties.

RESCORP ACQUISITION

        On October 31, 1995, the Company acquired from Rescorp Realty, Inc. and
transferred to the Real Estate Companies the stock of entities owning the
general partnership interests in 11 properties. The Company manages these
properties pursuant to long-term contracts terminable only for cause, and
has a right of first refusal with respect to the sale of any of these
properties or the Real Estate Companies' general partnership interests in
partnerships owning these properties. The Company also entered into short-term
property management contracts with respect to four other properties, which are
owned by unaffiliated owners. The 15 properties have an aggregate of 2,578
units. The Company paid Rescorp approximately $2.4 million in connection with
the acquisition, and transferred the general partnership interests to the Real
Estate Companies in exchange for the Real Estate Companies assuming the cost
and responsibilities of the general partner.

GREAT ATLANTIC ACQUISITION

        On February 14, 1996, the Real Estate Companies agreed to acquire 13
multifamily properties containing 3,145 apartment units from affiliates of
Great Atlantic Management, Inc. At closing, the Company is expected to acquire
from the Real Estate Companies for approximately $1.6 million the right to
manage the units on a long-term basis with the exact terms to be determined.
In addition, the Company may provide the Real Estate Companies up to $16
million in secured financing for acquisition of the properties until such time
as a third-party investor acquires an equity interest in the properties.
Such borrowing would bear interest at 10% per year. See "Item 1 - Business -
Acquisition Program."

SHAREHOLDER LOANS

        In connection with a variety of transactions since January 1993,
Demeter, Capricorn and Mr. Heller loaned an aggregate amount of approximately
$12.1 million to the Company  (the "Shareholder Loans"). As of the time of the
IPO, the principal amounts outstanding to Demeter, Capricorn and Mr. Heller
were $9,456,198, $2,321,023 and $347,990, respectively, and interest and
premiums were $1,926,873, $464,571 and $60,179, respectively. Approximately
$9.1 million of these obligations were canceled as consideration for the
acquisition of interests in the Real Estate Companies. The remaining
approximately $5.4 million was repaid out of the proceeds of the offering and a
draw on the Credit Facility.

LEGAL SERVICES

        Lloyd N. Cutler is Senior Counsel to the law firm of Wilmer, Cutler &
Pickering. Wilmer, Cutler & Pickering has provided legal advise to the Company
with respect to the IPO, the sale of the Real Estate Companies and other
matters.





                                       65

<PAGE>   67
                                    PART IV

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

                 (a) 1. Financial Statements - see Index on page 31.

                     2.  Financial Statement Schedules - Schedule II -
                         Valuation and Qualifying Account - Allowance for
                         Doubtful Accounts, see page 68.

                         All other schedules are not submitted because they are
                         not applicable or not required, or because the
                         required information is included in the consolidated
                         financial statements and the notes thereto.

                     3.  Exhibits - See Index on Pages 69 and 70,

                 (b) Reports on Form 8-K

                     There were no reports on Form 8-K filed during the forth 
                     quarter of 1995.





                                       66

<PAGE>   68
                                   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.

                                          NHP INCORPORATED


                                          By:      /s/ J. Roderick Heller, III
                                                   ---------------------------
                                                   J. Roderick Heller, III
                                                   Chairman, President and
                                                     Chief Executive Officer

Dated:  March 29, 1996

        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 indicated:

<TABLE>
<CAPTION>
            Signature                                  Title                             Date
            ---------                                  -----                             ----
<S>                                       <C>                                       <C>
/s/ J. Roderick Heller, III               Chairman of the Board,                    March 29, 1996
----------------------------                 President and Chief Executive                        
J. Roderick Heller, III                      Officer                      
                                                                          

/s/ Ann Torre Grant                       Executive Vice President,                 March 29, 1996
----------------------------              Chief Financial Officer                                 
Ann Torre Grant                              and Treasurer       
                                                                 

/s/ Jeffrey J. Ochs                       Vice President and Chief                  March 29, 1996
-------------------------------           Accounting Officer                                      
Jeffrey J. Ochs                                             

/s/ Richard S. Bodman                     Director                                  March 29, 1996
-------------------------                                                                         
Richard S. Bodman

/s/ John W. Creighton, Jr.                Director                                  March 29, 1996
--------------------------                                                                        
John W. Creighton, Jr.

/s/ Lloyd N. Cutler                       Director                                  March 29, 1996
------------------------------                                                                    
Lloyd N. Cutler

/s/ Michael R. Eisenson                   Director                                  March 29, 1996
--------------------------                                                                        
Michael R. Eisenson

/s/ Tim R. Palmer                         Director                                  March 29, 1996
------------------------------                                                                    
Tim R. Palmer

/s/ Herbert S. Winokur                    Director                                  March 29, 1996
--------------------------                                                                        
Herbert s. Winokur
</TABLE>





                                       67

<PAGE>   69

                                NHP INCORPORATED
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNT
                        ALLOWANCE FOR DOUBTFUL ACCOUNTS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                               Balance at         Charged to                   Balance at End
               Description                Beginning of Period       Expense       Write-Offs     of Period
               -----------                -------------------       -------       ----------     ---------
<S>                                            <C>                   <C>          <C>              <C>
1993 Allowance for Doubtful Accounts           $2,195                $126         $(225)           $2,096
1994 Allowance for Doubtful Accounts            2,096                  53          (288)            1,861
1995 Allowance for Doubtful Accounts            1,861                  50          (298)            1,613
</TABLE>





                                       68

<PAGE>   70
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
   NOTE      EXHIBIT
  NUMBER      NUMBER     DESCRIPTION
  ------      ------     -----------
    <S>       <C>        <C>
    (1)        1.1       Form of Underwriting Agreement
    (1)        3.1       Certificate of Incorporation of the Company
    (1)        3.2       Bylaws of the Company
    (1)        4.1       Specimen certificate for Common Stock
    (1)        5.1       Opinion of Wilmer, Cutler & Pickering as to the validity of the issuance of the Common Stock
    (1)       10.1       Form of Master Property Management Agreement between NHP Incorporated, NHP Partners, Inc. and The National
                         Housing Partnership
    (1)       10.2       Form of Equity Purchase Agreement between NHP Incorporated, NHP Partners Limited Partnership and Demeter
                         Holdings Corporation
    (1)       10.3       Form of Services Agreement between NHP Incorporated and NHP Partners, Inc.
    (1)       10.4       Form of Administrative and Reporting Fee Allocation Agreement between NHP Incorporated, NHP Partners, Inc.,
                         National Corporation for Housing Partnerships and National Housing Partnership
    (1)       10.5       Form of Right of First Refusal Agreement between NHP Incorporated, NHP Partners, Inc., The National Housing
                         Partnership, Demeter Holdings Corporation, NHP Partners Limited Partnership, Capricorn Investors, L.P., and
                         J. Roderick Heller, III
    (1)       10.6       Form of Indemnification Agreement between NHP Incorporated, NHP Partners, Inc., The National Housing
                         Partnership and National Corporation for Housing Partnerships
    (1)       10.7       Form of Credit Agreement among NHP Incorporated, certain of its subsidiaries and The First National Bank of
                         Boston, Fleet Bank of Massachusetts, N.A. and Morgan Guaranty & Trust Company of New York and The First
                         National Bank of Boston, as agent
    (1)       10.8       Deed of Lease between OP&F Schroder Trust and NHP Property Management, Inc. dated June 16, 1993
    (1)       10.9       1990 Stock Option Plan
    (1)       10.10      1995 Incentive Stock Option Plan
    (1)       10.11      Stock Redemption Agreement dated as of December 23, 1991, by and between NHP and Weyerhaeuser Real Estate
                         Company.
    (1)       10.12      Oxford Purchase Agreement dated as of July 15, 1993 by and among Oxford Holding Corporation, Oxford
                         Management Company, Inc., Oxford Retirement Services, Inc., Oxford Realty Services Corp. and Oxford
                         Development Corporation and NHP-HG, Inc., NHP, Inc. and NHP Property Management, Inc.
    (1)       10.13      Stock and Asset Transfer Restrictions Agreement dated December 10, 1993 by and among Oxford Holding
                         Corporation, Oxford Management Company, Inc., Oxford Retirement Services, Inc., Oxford Realty Services
                         Corp., Oxford Development Corporation, NHP-HG, Inc., NHP, Inc., NHP Property Management, Inc., Oxford Asset
                         Management Corporation and Leo E. Zickler
    (1)       10.14      Lease Agreement dated June 22, 1982 between Oxford Development Corporation and Castle Creek II Associates
                         and amendments thereto.
    (1)       10.15      Form of Cost Allocation Agreement by and between NHP Incorporated and National Corporation for Housing
                         Partnerships
              10.15a     First Amendment to Cost Allocation by and between NHP Incorporated, National Corporation for Housing
                         Partnerships and NHP Partner, Inc. dated October 15, 1996.
              10.15b     First Amendment to Services Agreement by and between NHP Incorporated, National Corporation for Housing
                         Partnerships and NHP Partners, Inc. dated October 15, 1996
    (1)       10.16      Letter Agreement between Michael R. Eisenson and J. Roderick Heller, III dated February 17, 1995 regarding
                         performance vesting options
    (1)       10.17      Letter Agreement between NHP Incorporated and Ann Torre Grant dated January 24, 1995
    (1)       10.18      Form of Tax Sharing Agreement among NHP Incorporated, NHP Partners, Inc. and The National Housing
                         Partnership Limited Partnership
    (1)       10.19      Form of Amended and Restated Shareholders Agreement among NHP Incorporated, Demeter Holdings Corporation,
                         John Frick and Capricorn Investors, L.P.
    (1)       10.20      Shareholders Agreement dated December 10, 1993 by and among Leo E. Zickler, NHP-HG II, Inc. and Oxford
                         Asset Management Corporation
</TABLE>





                                       69

<PAGE>   71

<TABLE>
<CAPTION>
   NOTE      EXHIBIT
  NUMBER      NUMBER     DESCRIPTION
  ------      ------     -----------
    <S>       <C>        <C>
    (1)       10.21      Shareholders Agreement dated December 10, 1993 by and among Leo E. Zickler, Francis P. Lavin, ML Oxford
                         Finance Corp., NHP-HG III, Inc., Oxford Asset Management Corporation
    (1)       10.22      Promissory Note dated December 10, 1993 in the amount of $1,200,000 by NHP-HG, Inc., NHP Property
                         Management, Inc., and NHP, Inc., Payor, and Oxford Management Company, Inc., Oxford Retirement Services,
                         Inc., Oxford Realty Services Corp., Oxford Holding Corporation and Oxford Development Corporation
    (1)       10.23      Cash Escrow Account Agreement dated December 10, 1993 by and among NHP Property Management, Inc., Oxford
                         Asset Management Corporation, Oxford Corporation, Oxford Development Corporation, Oxford Development
                         Enterprises, Inc., Oxford Management Company, Inc., Oxford Equities Corporation, Indiana Mortgage &
                         Investment Corporation, Oxford Engineering Services, Inc., Oxford Properties Corporation, Oxford Mortgage
                         and Investment Corporation, Oxford Real Estate Holdings Corporation, Oxford Securities Corporation, Oxford
                         Holding Corporation, Oxford Realty Services Corp., Oxford Retirement Services, Inc. and Oxford Investment
                         Corporation
              10.24      Fairfax Square Office Lease Agreement by and between Fairfax Square Associates II and NHP Incorporated
                         dated December 8, 1995
              10.25      Keystone Office Lease between WRC Properties, Inc. and NHP Incorporated dated March 14, 1996
              10.26      Asset Management Agreement between C.R.I., Inc. and NHP Incorporated dated February 29, 1996
              10.27      Letter Agreement between Richard M. Powell and J. Roderick Heller, III dated February 2, 1996
              10.28      Stock Purchase Agreement by and between NHP Incorporated and Commonwealth Overseas Trading Company
                         Limited and Sheik Mohammed A. Al-Tuwaijri dated March 20, 1996
              10.29      Purchase agreement by and between NHP HDV-Three, Inc. and NHP HDV-Two, Inc. dated October 31, 1995
              10.30      Right of First Refusal by and between NHP Incorporated, NHP-HDV Four, Inc., NHP-HDV Five, Inc.,
                         NHP-HDV Six, Inc., NHP-HDV Seven, Inc. and NHP-HDV Eight, Inc., dated December 1, 1995
              11         Statement re computation of per share earnings
    (1)       16.1       Letter regarding change in certifying accountant
              21         Subsidiaries
              27         Financial Data Schedule
</TABLE>

------------------
(1) Filed as an exhibit to the Company's report on Form S-1 Registration
    Statement effective August 14, 1995, and incorporated herein by reference.





                                      70