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


   
                                  FORM 10-K/A
                                Amendment No. 2
/x/    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934

    

                   For the fiscal year ended December 31, 1996

                                       or

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

           For the transition period from             to                
                       Commission file number 000-26572

                                   NHP INCORPORATED
                (Exact name of registrant as specified in its charter)


Delaware                                                 52-1445137         
(State or Other Jurisdiction of                          (I.R.S. Employer   
Incorporation or Organization)                           Identification No.)

8065 Leesburg Pike, Suite 400, Vienna, Virginia          22182-2738 
Address of principal executive offices                   Zip Code 

     Registrant's telephone number, including area code (703) 394-2400

     Securities registered pursuant to Section 12(b) of the Act:  None

Title of Each Class                                      Name of Each Exchange
                                                         on which Registered




            Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $0.01 Par Value

     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.  /X/

     The aggregate market value of the voting stock held by nonaffiliates of 
the registrant was $131,665,608 at March 7, 1996, calculated in accordance 
with the Securities and Exchange Commission rules as to beneficial ownership.

     12,652,439 shares of the registrant's common stock were outstanding at 
March 7, 1996.

                   DOCUMENTS INCORPORATED BY REFERENCE:  None
<PAGE>
   
Item 8.    NHP INCORPORATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
                (RESTATED)
    
                                           
                                        INDEX
                                           
        
                                   
                                                                           Page
NHP Incorporated

Report of Independent Public Accountants  ................................ F-1
Index of 1994 Auditors' Reports  ......................................... F-2
Consolidated Statements of Operations for the Years Ended December 31, 
  1996, 1995 and 1994 (as restated for 1996 and 1995) .................... F-12
Consolidated Balance Sheets as of December 31, 1996 and 1995 (both as 
  restated)  ............................................................. F-13
Consolidated Statements of Cash Flows for the Years Ended December 31, 
  1996, 1995 and 1994 (as restated for 1996 and 1995)..................... F-14
Consolidated Statements of Shareholders' Equity (Deficit) for the Years
  Ended December 31, 1996, 1995 and 1994 (as restated for 1996 and 1995).. F-16
Notes to Consolidated Financial Statements................................ F-17



<PAGE>


                       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, 1996 and 1995, (both as restated--See Note 2 
and Note 5) and the related consolidated statements of operations, 
shareholders' equity (deficit) and cash flows for each of the three years in 
the period ended December 31, 1996 (as restated for 1996 and 1995--See Note 2 
and Note 5). These consolidated financial statements 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 
operating results are included in "income (loss) from discontinued real 
estate operations, net of income taxes," in the accompanying 1994 
consolidated financial statements. The net losses of these real estate 
partnerships ($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 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, 1996 and 1995, and the results of their operations and cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. 




                                       /s/ Arthur Andersen LLP
Washington, D.C.,
April 23, 1997 (except with respect to the matters 
               discussed in Note 5 and "Discontinued Real Estate Operations" 
               in Note 2 as to which the dates are October 3, 1997 and 
               October 21, 1997, respectively)


                                      F-1

<PAGE>
                            INDEX OF 1994 AUDITORS' REPORTS


* Anders, Minkler & Diehl, LLP
         Caroline Associates I
         Columbus Square Associates I
         Columbus Square Associates II
         Pershing Waterman Phase I
         PW III Associates
         PW IV Associates
         PW V Associates
         PW VI Associates
         Savoy Court Associates
         Wigar, Ltd.

  Arthur Andersen LLP
         NHP Incorporated

* Dauby O'Connor & Zaleski, LLC
         Brookview Apartments Company Limited
         Clover Ridge East Limited Partnership
         Colony Apartments Company Limited
         East Hampton Limited Partnership
         Edgewood II Associates
         Fairburn & Gordon Associates, Phase I
         Fairburn & Gordon Associates, Phase II
         Laing Village
         Oakland City/West End Associates, Ltd.
         Orangeburg Manor
         Parkways Associates
         Pleasant Valley Apartments, Ltd.
         Sandy Springs Associates, Ltd.
         The Oak Park Partnership
         The Rogers Park Partnership
         Tiffany Rehab Associates
         Village Green Apartments Company Limited
         Vineville Towers Associates, Ltd.
         Westgate Apartments

* Deloitte & Touche LLP
         107-145 West 135th Street Associates
         Algonquin Tower Limited Partnership
         All Hallows Associates
         Allentown Towne House Limited Partnership
         Anglers Manor Associates
         Antioch Apartments, Ltd.
         Arvada House
         Audobon Park Associates
         Baldwin Oaks Elderly, Ltd.
         Baldwin Towers Associates
         Basswood Manor Limited Partnership
         Bayview Hunters Point Apartments
         Bensalem Gardens Associates
         Berkley Limited Partnership
         Bloomsburg Elderly Associates
         Boynton Beach Limited Partnership
         Briarwood Apartments

--------------------
* Incorporated by reference from Exhibit 99 to the Registration Statement on 
Form S-1 (File No. 33-93110) of NHP Incorporated.

                                      F-2

<PAGE>

                            INDEX OF 1994 AUDITORS' REPORTS


         Brightwood Manor Associates
         Brinton Manor No. 1 Associates
         Brinton Towers Associates
         Brookside Apartments Associates
         Buena Vista Apartments, Ltd.
         Cabell Associates of Lakeview
         California Square Limited Partnership
         California Square II Limited Partnership
         Campbell Heights Associates
         Canterbury Gardens Associates
         Capital Park Limited Partnership
         Caroline Arms Limited Partnership
         Center Square Associates
         Central Village Associates
         Chapel NDP
         Cheek Road Limited Partnership
         Cheyenne Village Apartments, Ltd.
         Clay Courts Associates
         College Heights
         College Park Apartments
         College Park Associates
         Community Developers of High Point
         Congress Park Associates II
         Copperwood Limited
         Copperwood II Limited
         Cottonwood Apartments
         Cumberland Court Associates
         Cypress Gardens, Limited
         Darby Townhouses Associates
         Darbytown Development Associates
         Delcar-S, Ltd.
         Delcar-T, Ltd.
         DIP Limited Partnership
         DIP Limited Partnership - II
         DIP Limited Partnership - III
         Discovery Limited Partnership
         Doral Gardens Associates
         Duquesne Associates No. 1
         Eastman Associates
         Edmond Estates Limited Partnership
         Elden Limited Partnership
         Elm Creek Limited Partnership
         Esbro Limited Partnership
         Fairmeadows Limited Partnership
         Fairmont #1 Limited Partnership
         Fairmont #2 Limited Partnership
         Fairview Homes Associates
         Fairwood Associates
         Federal Square Village

--------------------
* Incorporated by reference from Exhibit 99 to the Registration Statement on 
Form S-1 (File No. 33-93110) of NHP Incorporated.

                                      F-3


<PAGE>

                            INDEX OF 1994 AUDITORS' REPORTS


         Field Associates
         Forest Green Limited Partnership
         Forest Park Elderly Associates
         Forrester Gardens, Ltd.
         Fort Carson Associates
         Foxwood Manor Associates
         Franklin Chapel Hill Associates
         Franklin Eagle Rock Associates
         Franklin Northwoods Associates
         Franklin Park Limited Partnership
         Franklin Pheasant Ridge Associates
         Franklin Ridgewood Associates
         Franklin Woods Associates
         Friendset Housing Company
         Frio Housing, Ltd.
         G. W. Carver Limited
         Galion Limited Partnership
         Garfield Hill Associates
         Gateway Village Associates
         Gladys Hampton Houses Associates
         Golden Apartments I
         Golden Apartments II
         Grandview Apartments
         Greater Mount Calvary Terrace, Ltd.
         Greater Richmond Community Development Corp. I and Associates
         Greater Richmond Community Development Corp. II and Associates
         Green Mountain Manor Limited Partnership
         Griffith Limited Partnership
         Gulfway Limited Partnership
         H.R.H. Properties, Ltd.
         Hamilton Gardens, Ltd.
         Hamilton Heights Associates
         Harold House Limited Partnership
         Hatillo Housing Associates
         Hickory Ridge Associates, Ltd.
         Hillcrest Green Apartments, Ltd.
         Hillside Village Associates
         Hilltop Apartments Associates
         Hilltop Limited Partnership
         Hopkins Renaissance Associates
         Hudson Terrace Associates
         Hurbell II Limited Partnership
         Indian Valley I Limited Partnership
         Indian Valley II Limited Partnership
         Indian Valley III Limited Partnership
         Ingram Square Apartments, Ltd.
         Jamestown Village Associates
         Jersey Park Associates
         JFK Associates
         Johnston Square Associates

--------------------
* Incorporated by reference from Exhibit 99 to the Registration Statement on 
Form S-1 (File No. 33-93110) of NHP Incorporated.

                                      F-4


<PAGE>

                            INDEX OF 1994 AUDITORS' REPORTS


         JVL Limited
         JVL 16 Associates
         JVL 18 Associates
         JVL 19 Associates
         Kennedy Homes Limited Partnership
         Kenneth Arms Apartments
         Key Parkway West Associates
         Kimberly Associates Limited Partnership
         Knollcrest Apartments
         La Salle Apartments
         La Vista Associates
         Lafayette Manor Associates
         Lafayette Towne Elderly, Ltd.
         Lafayette Towne Family, Ltd.
         Lake Forest Apartments
         Langenheim Associates
         Las Americas Housing Associates
         Lassen Associates
         Laurel Gardens
         Lewisburg Associates
         Lewisburg Elderly Associates
         Leyden Limited Partnership
         Lincmar Associates
         Lincoln Park Associates
         Lock Haven Elderly Associates
         Lock Haven Gardens Associates
         Loring Towers Apartments Limited Partnership
         M & P Development Company
         Madison Hill Limited Partnership
         Manzanita Arms Apartments
         Maple Hill Associates
         Maple Park East Limited Partnership
         Maple Park West Limited Partnership
         Mayfair Manor Limited Partnership
         Meadowood Apartments - Phase I (Meadowood Associates)
         Meadowood Apartments - Phase II (Meadowood Associates)
         Meadowood Associates III, Ltd.
         Meadows Apartments Limited Partnership
         Meadows East Apartments Limited Partnership
         Menlo Limited Partnership
         Merced Commons I
         Merced Commons II
         Mill Street Associates
         Miramar Housing Associates
         Montblanc Garden Apartments Associates
         Montblanc Housing Associates
         Morrisania Towers Housing Company
         Moss Gardens Ltd.
         Murphy Blair Associates III
         New Lake Village Apartments

--------------------
* Incorporated by reference from Exhibit 99 to the Registration Statement on 
Form S-1 (File No. 33-93110) of NHP Incorporated.

                                      F-5


<PAGE>

                            INDEX OF 1994 AUDITORS' REPORTS


         New West 111th Street Housing Company
         New West 111th Street Two Associates
         Newton Hill Limited Partnership
         Northgate Village Limited Partnership
         Northlake Terrace Associates
         Northwest Terrace Associates
         Oakland Village Townhouse Associates
         Ocala Place, Ltd.
         Olde Rivertowne Venture
         One Lytle Place
         One West Conway Associates
         Orange Village Associates
         Overbrook Park, Ltd.
         Palm House Limited Partnership
         Park Avenue West I Limited Partnership
         Park Avenue West II Limited Partnership
         Park Creek Limited Partnership
         Pavillion Associates
         Place One Limited Partnership
         Portland Plaza Partnership
         Portner Place Associates
         Post Street Associates
         Pride Gardens Limited Partnership
         Pueblo Apartments Associates, Ltd.
         Rancho Arms Apartments
         Retirement Manor Associates
         RI-15 Limited Partnership
         Richlieu Associates
         River Front Apartments Limited Partnership
         River Woods Associates
         Riverview II Associates
         Rockwell Limited Partnership
         Rolling Meadows Of Ada, Ltd.
         Royal Towers Limited Partnership
         Ruffin Road Associates
         Rutherford Park Townhouses Associates
         San Jose Limited Partnership
         San Juan Apartments
         San Juan Del Centro Limited Partnership
         Sencit Towne House Limited Partnership
         Sherman Terrace Associates
         Shoreview Apartments
         Site 10 Community Alliance Associates
         Sleepy Hollow Apartments
         SNI Development Company
         Southmont Apartments
         Southridge Apartments Limited Partnership
         Southward Limited Partnership
         Spring Meadow Limited Partnership
         Springfield Limited Partnership

--------------------
* Incorporated by reference from Exhibit 99 to the Registration Statement on 
Form S-1 (File No. 33-93110) of NHP Incorporated.

                                      F-6

<PAGE>


                            INDEX OF 1994 AUDITORS' REPORTS

    Spruce Limited Partnership
    Stafford Apartments
    Stock Island Limited Partnership
    Storey Manor Associates
    Strawbridge Square Associates Limited Partnership
    Summersong Townhouses Limited Partnership
    Sunrise Associates
    Sunset Plaza Apartments
    Susquehanna View Limited Partnership
    Timberlake Apartments Limited Partnership
    Timuquana Park Associates
    Tinker Creek Limited Partnership
    Town North
    Treeslope Apartments Associates
    Trinity Apartments
    Trinity Hills Village Apartments
    Trinity Towers - 14th Street Associates, Ltd.
    Tumast Associates
    United Handicap Federation Apartment Associates
    United House Associates
    United Housing Partners - Carbondale, Ltd.
    United Redevelopment Associates
    University Plaza Associates
    Vantage 78
    Verdes Del Oriente
    Villa De Guadalupe Associates
    Village Circle Apartments, Ltd.
    Village Green Limited Partnership
    Village Park II
    Vistas De San Juan Associates
    Waico Apartments Associates
    Waico Phase II Associates
    Walden Oaks Associates
    Walmsley Terrace Associates
    Walnut Hills Associates, Ltd.
    Wash-West Properties
    Washington Manor Limited Partnership
    Waterman Limited Partnership
    Waters Towers Associates
    West Oak Village Limited Partnership
    Whitefield Place, Ltd.
    Woodmark Limited Partnership
    Yadkin Associates

* Edwards Leap & Sauer
    Buffalo Village Associates
    Genessee Gardens Associates
    Ida Tower

--------------------
* Incorporated by reference from Exhibit 99 to the Registration Statement on 
Form S-1 (File No. 33-93110) of NHP Incorporated.

                                      F-7

<PAGE>

                            INDEX OF 1994 AUDITORS' REPORTS

* George A. Hieronymus & Company, LLC
    Athen Arms Associates
    Colonial Terrace I Associates
    Colonial Terrace II Associates

* Goldenberg Rosenthal Friedlander, LLP
    Baisley Park Associates
    Brunswick Village Limited Partnership
    Churchview Gardens Limited Partnership
    Harris Gardens Limited Partnership
    Hawksworth Limited Partnership
    Hollows Associates
    Kimberton Apartments Associates
    Washington Northgate Limited Partnership
    Washington Westgate Limited Partnership
    Windsor Apartments Associates

* Hansen, Hunter & Kibbee, P.C.
    Haines Associates Limited Partnership
    King-Bell Associates
    Monmouth Associates Limited Partnership
    Pendleton Riverside Apartments, Oreg., Ltd.
    Penn Hall Associates Limited Partnership
    Rodeo Drive Limited Partnership
    South Mountain Terrace, Ltd.
    Woodland Apartments, Oreg., Ltd.

* J.H. Cohn, LLP
    Marlboro Greens Limited Partnership

* J.A. Plumer & Co., P.A.
    630 East Lincoln Avenue Associates
    Aspen Stratford Apartments Company B
    Aspen Stratford Apartments Company C
    Benjamin Banneker Plaza Associates
    Brightwood Limited Partnership
    Cambridge Heights Apartments, Ltd.
    Carter Associates Limited Partnership
    Cherry Estates
    Christopher Court Housing Company
    Concord House Associates
    Duke Manor Associates
    Elderly Housing Associates Ltd. Partnership
    Forest Apartments Associates
    Gate Manor Apartments, Ltd.
    Greenfield Apartments Limited Partnership
    Greenfield North Apartments Limited Partnership
    Haili Associates
    Houston Aristocrat Apartments, Ltd.
    Kapuna Associates

--------------------
* Incorporated by reference from Exhibit 99 to the Registration Statement on 
Form S-1 (File No. 33-93110) of NHP Incorporated.

                                      F-8

<PAGE>

                            INDEX OF 1994 AUDITORS' REPORTS

    Kinloch Urban East Housing
    Koolau Housing Associates
    Lakeview Arms Associates
    Lee-Hy Manor Associates Limited Partnership
    Locust Park Associates
    Loring Towers Associates
    Mahoning Associates
    Milliken Apartments Company
    Monument Street Limited Partnership
    Neighborhoods of the Universities Lock Street Apartments Company
    Oak Hollow South Associates
    Orchard Mews Associates
    Oxford Place Associates
    Pittsfield Neighborhood Associates
    Prince Street Towers Limited Partnership
    Sencit-Lebanon Company
    St. Nicholas Associates
    Tamarac Pines, Ltd.
    Tamarac Pines II, Ltd.
    Taunton Green Associates
    Taunton II Associates
    Tompkins Terrace Associates
    Waipahu Associates
    Washington Chinatown Associates
    Woodcrest Apartments, Ltd.
    Worchester Episcopal Housing Company

* Marks Shron & Company, LLP
    Two Bridges Associates

* Reznick Fedder & Silverman
    Beautiful Village Associates Redevelopment Company
    Branchwood Towers Limited Partnership
    Citrus Park Associates, Ltd.
    Community Circle II Limited
    Copperstone Limited Partnership
    Diakonia Associates Limited Partnership
    Easton Terrace I Associates
    Easton Terrace II Associates
    Eastridge Apartments
    Emory Grove Associates Limited Partnership
    First Alexandria Associates
    Flatbush NSA Associates
    Franklin Square School Associates
    Gates Mill I Limited Partnership
    Grosvenor House Associates Limited Partnership
    Harris Park Limited Partnership
    Hollybush Gardens I
    Hollybush Gardens II
    Intown West Associates Limited Partnership

--------------------
* Incorporated by reference from Exhibit 99 to the Registration Statement on 
Form S-1 (File No. 33-93110) of NHP Incorporated.

                                      F-9

<PAGE>

                            INDEX OF 1994 AUDITORS' REPORTS

    Lake Avenue Associates
    Lake Crossing Limited Partnership
    Lakehaven Associates One
    Lakehaven Associates Two
    Linden Court Associates
    Loudoun House Limited Partnership
    Monaco Arms Associates I
    Monaco Arms Associates II
    Muske Limited Partnership
    Natick Associates
    Oakcrest Terrace Apartments
    Oakwood Limited Partnership
    Parkview Associates
    Queenstown Apartments Limited Partnership
    Rancho Townhouse Associates
    Ruscombe Gardens Limited Partnership
    Sencit-Jacksonville Company LTD
    Sheffield Associates
    Snap IV Limited Partnership
    Tara Bridge Limited Partnership
    Twin Towers Associates
    Tyee Associates Limited Partnership
    Urbanization Maria Lopez Housing Company
    Westminster Associates
    Wollaston Manor Associates
    Woodside Village Limited Partnership

* Russell Thompson Butler & Houston
    Chesterfield Housing Associates
    Community Developers Of Princeville
    Crosland Housing Associates
    Eastcourt Village Partners
    Eustis Apartments, Ltd.
    Grove Park Villas, Ltd.
    Hemingway Housing Associates
    Highlands Village II
    Housing Assistance of Mt. Dora, Ltd.
    Housing Assistance of Orange City, Ltd.
    Housing Assistance of Sebring, Ltd.
    Housing Assistance of Vero Beach, Ltd.
    Hurbell I Limited Partnership
    Hurbell IV Limited Partnership
    Lakeview Villas, Ltd.
    Mccoll Housing Associates
    Miami Elderly Associates
    Orange City Villas II, Ltd.
    Parkview Apartments, Ltd.
    Parkview Arms Associates I
    Parkview Arms Associates II
    Registry Square, Ltd.

--------------------
* Incorporated by reference from Exhibit 99 to the Registration Statement on 
Form S-1 (File No. 33-93110) of NHP Incorporated.

                                      F-10

<PAGE>

                            INDEX OF 1994 AUDITORS' REPORTS

    South Hiawassee Village, Ltd.
    St. George Villas
    The Meadows Apartments
    Townview Towers I Partnership, Ltd.
    Twin Gables Associates
    United Housing Partners Cuthbert, Ltd.
    United Housing Partners Elmwood, Ltd.
    United Housing Partners Morristown, Ltd.
    United Housing Partners Welch, Ltd.
    VOA-Nicollet Towers Associates
    Woodside Villas of Arcadia, Ltd.

--------------------
* Incorporated by reference from Exhibit 99 to the Registration Statement on 
Form S-1 (File No. 33-93110) of NHP Incorporated.

                                      F-11
<PAGE>
                                   NHP INCORPORATED
                        CONSOLIDATED STATEMENTS OF OPERATIONS
                       (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                                   ---------------------------------------
                                                    (Restated)    (Restated)
                                                       1996          1995         1994
                                                       ----          ----         ----
<S>                                                <C>           <C>             <C>
Revenue, substantially all from
 related parties
     Property management services                  $  54,632     $  48,336     $  40,953
     On-site personnel, general and
      administrative
      cost reimbursement                             127,266       117,249        98,158
     Administrative and reporting fees                 4,593         4,148         3,680
     Other                                             8,488         4,941         4,505
                                                   ---------     ---------     ---------
       Total revenue                                 194,979       174,674       147,296

Expenses
     Salaries and benefits
       On-site employees                             124,138       113,100        93,560
       Off-site employees                             26,641        22,371        19,099
     Other general and administrative                 14,074        11,899        10,968
     Costs charged to the Real Estate Companies        3,128         4,149         4,598
     Amortization of purchased management
       contracts                                       4,562         3,076         2,043
     Other depreciation and amortization               1,759           727           481
     Non-recurring expenses                              --             45         1,806
                                                   ---------     ---------     ---------
       Total expenses                                174,302       155,367       132,555
                                                   ---------     ---------     ---------

Operating income                                      20,677        19,307        14,741
Interest income                                          747           292           121
Interest expense                                      (3,982)       (5,788)       (5,857)
                                                   ---------     ---------     ---------

Income from continuing operations before
  income taxes and extraordinary item                 17,442        13,811         9,005
Income tax (provision) benefit                        (6,977)       17,802           --
                                                   ---------     ---------     ---------
Income from continuing operations before
 extraordinary item                                   10,465        31,613         9,005
Income (loss) from discontinued operations, net
 of income tax (provision) benefit of ($1,144),
 $2,515 and $0 in 1996, 1995 and 1994,
  respectively                                         1,155        (3,771)        7,490
                                                   ---------     ---------     ---------
Income before extraordinary item                      11,620        27,842        16,495
Extraordinary item, net of income taxes -
 (see Note 16)                                           --           (400)          --
                                                   ---------     ---------     ---------
       Net income                                  $  11,620     $  27,442     $  16,495
                                                   ---------     ---------     ---------
                                                   ---------     ---------     ---------
Net income (loss) per common share:
     Continuing operations before extraordinary
      item                                         $     .82     $    3.27     $    1.11
     Discontinued operations                             .09          (.38)          .93
     Extraordinary item                                 --            (.04)          --
                                                   ---------     ---------     ---------
       Net income                                  $     .91     $    2.85     $    2.04
                                                   ---------     ---------     ---------
                                                   ---------     ---------     ---------
</TABLE>

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


                                      F-12
<PAGE>

                           NHP INCORPORATED
                     CONSOLIDATED BALANCE SHEETS
                       (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                        December 31,
                                                                               ----------------------------
                                                                                 (Restated)        (Restated)
         ASSETS                                                                     1996              1995
                                                                                    ----              ----
<S>                                                                            <C>               <C>
Cash and cash equivalents                                                      $    4,779        $    5,996
Receivables, net, substantially all from related parties                           15,270            12,809
On-site cost reimbursement receivable, substantially all from related parties       3,816             2,747
Current portion of net deferred tax asset                                           6,357             5,916
Other current assets                                                                1,355               277
                                                                                 --------         ---------

    Total current assets                                                           31,577            27,745
Purchased management contracts, net                                                43,718            34,568
Net assets of discontinued operations                                              23,400               --
Goodwill, net                                                                       5,887               --
Property, equipment and capitalized software, net                                  10,415             3,523
Investment in real estate held for sale                                            84,871               --
Other assets                                                                       10,832             4,483
Net deferred tax asset                                                              7,441            14,451
                                                                                 --------         ---------

    Total Assets                                                                 $218,141         $  84,770
                                                                                 --------         ---------
                                                                                 --------         ---------

    LIABILITIES AND SHAREHOLDERS' EQUITY

Current portion of long-term debt, including amounts payable to related
    parties of $143 and $356 in 1996 and 1995, respectively                    $      720        $      412
Accounts payable                                                                    3,947             4,063
Accrued expenses, including amounts associated with related parties of
    $4,090 and $4,365 in 1996 and 1995, respectively                               11,452            10,001
Accrued on-site salaries and benefits                                               3,816             2,747
Deferred revenues and other                                                         3,400             2,232
                                                                                 --------         ---------

    Total current liabilities                                                      23,335            19,455
Long-term debt, including amounts payable to related parties of
    $0 and $139 in 1996 and 1995, respectively                                     62,607            23,278
Real estate related debt                                                           71,152               --
Other long-term liabilities                                                         5,034             2,883
                                                                                 --------         ---------
    Total liabilities                                                             162,128            45,616


Commitments and contingencies (Note 14)

Shareholders' equity
    Common stock, $0.01 par value, 25,000,000 shares authorized;
      12,586,629 and 12,264,675 shares issued and outstanding in
      1996 and 1995, respectively                                                     126               123
    Additional paid-in capital                                                    133,337           128,101
    Accumulated deficit                                                           (77,450)          (89,070)
                                                                                 --------         ---------
    Total shareholders' equity                                                     56,013            39,154
                                                                                 --------         ---------

      Total Liabilities and Shareholders' Equity                                 $218,141         $  84,770
                                                                                 --------         ---------
                                                                                 --------         ---------

</TABLE>

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


                                      F-13

<PAGE>
                        NHP INCORPORATED
             CONSOLIDATED STATEMENTS OF CASH FLOWS
                         (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                                       ----------------------------------------
                                                        (Restated)     (Restated)
                                                           1996           1995           1994
                                                           ----           ----           ----
<S>                                                    <C>            <C>            <C>
Cash Flows From Operating Activities:
    Net income                                         $  11,620      $  27,442      $  16,495
    Extraordinary item, net of income taxes                  --             400            --
    Discontinued operations, net of income taxes          (1,155)         3,771         (7,490)
                                                       ---------      ---------       --------
    Income before extraordinary item and
     discontinued operations                              10,465         31,613          9,005
    Depreciation and amortization                          6,321          3,803          2,524
    Income taxes                                           5,997        (18,744)           --
    Increase in receivables, substantially all from
     related parties                                      (3,529)        (5,893)        (2,389)
    (Increase) decrease in other assets                   (1,646)        (1,477)           160
    Increase (decrease) in accounts payable and
     accrued expenses                                      3,057           (293)           886
    Increase in deferred revenues and other
     liabilities                                           1,124            515             76
    Other                                                    176            176          1,630
                                                       ---------      ---------       --------

      Net cash provided by continuing operations          21,965          9,700         11,892
      Net cash used in discontinued operations              (164)        (8,554)          (217)
                                                       ---------      ---------       --------

      Net cash provided by operating activities           21,801          1,146         11,675
                                                       ---------      ---------       --------
Cash Flows From Investing Activities:
    Purchase of businesses                               (19,763)           --             --
    Investment in real estate held for sale, net
      of debt assumed                                    (13,719)           --             --
    Purchase of management contracts                      (8,798)       (13,809)        (2,059)
    Purchase of long-term notes receivable                (8,374)           --             --
    Purchase of fixed assets                              (6,161)        (2,217)        (2,484)
                                                       ---------      ---------       --------

    Net cash used in investing activities                (56,815)       (16,026)        (4,543)
                                                       ---------      ---------       --------
Cash Flows From Financing Activities:
    Additional borrowings                                 53,000         33,207            133
    Repayments of debt                                   (19,471)       (61,466)        (6,000)
    Borrowings from related parties                          --           1,119          3,903
    Repayments of notes payable to related parties          (352)       (10,369)          (332)
    Repurchases of common stock from related parties         --            (375)          (808)
    Proceeds from issuance of common stock, net              --          51,987            --
    Proceeds from option exercises                         1,211            --             --
    Proceeds from sale of stock to related parties           --             --             343
    Payment of financing, offering and disposition
     costs                                                  (591)        (5,317)        (1,515)
                                                       ---------      ---------       --------
    Net cash provided by (used in) financing
     activities                                           33,797          8,786         (4,276)
                                                       ---------      ---------       --------

(Decrease) increase in cash and cash equivalents          (1,217)        (6,094)         2,856
Cash and cash equivalents, beginning of period             5,996         12,090          9,234
                                                       ---------      ---------       --------

Cash and cash equivalents, end of period               $   4,779      $   5,996       $ 12,090
                                                       ---------      ---------       --------
                                                       ---------      ---------       --------
</TABLE>


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

                                      F-14
<PAGE>

                               NHP INCORPORATED
               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                                      ------------------------------------------
                                                        (Restated)
                                                           1996           1995           1994
                                                           ----           ----           ----
<S>                                                    <C>            <C>            <C>
Supplemental Disclosures of Cash Flow Information:
    Cash interest payments                             $   4,448      $   6,537      $   4,607
    Cash income tax payments                           $   2,380      $     942      $      49

    Non-cash items:
      Notes payable given as consideration for
       acquisitions                                    $   6,293      $     --      $      --
      Stock issued in acquisition of NHP
       Financial Services, Ltd.                        $   3,780      $     --      $      --
      Acquisition of leasehold improvements and
       other fixed assets through lease incentives     $   2,217      $     --      $      --
      Reduction in notes payable to related parties
       in consideration for the sale of the Real
       Estate Companies                                $     --       $   9,129     $      --
      Assumption of Real Estate related debt for
       Great Atlantic portfolio                        $  71,152      $     --      $      --
</TABLE>


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


                                      F-15
<PAGE>


                                 NHP INCORPORATED
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (RESTATED)
                       (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, 1994                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 1) (Restated)                      --          --        10,690            --          --       10,690
    Net income (Restated)                     --          --           --          27,442         --       27,442
                                       ----------        ----    ---------     ----------      ------   ---------

Balance, December 31, 1995             12,264,675         123      128,101        (89,070)        --       39,154

    Stock issued in acquisition           210,000           2        3,778            --          --        3,780
    Exercise of stock options             111,954           1        1,497            --         (39)       1,459
    Retirement of treasury stock              --          --           (39)           --          39         --
    Net income                                --          --          --           11,620         --       11,620
                                       ----------        ----    ---------     ----------      ------   ---------

Balance, December 31, 1996             12,586,629        $126    $ 133,337     $  (77,450)     $  -     $  56,013
                                       ----------        ----    ---------     ----------      ------   ---------
                                       ----------        ----    ---------     ----------      ------   ---------
</TABLE>


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


                                      F-16


<PAGE>


                               NHP INCORPORATED
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1) NATURE OF BUSINESS AND 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 continues 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.

    As of April 1, 1996, NHP Incorporated closed the acquisition of all of 
the outstanding capital stock of WMF Holdings, Ltd., which was subsequently 
renamed NHP Financial Services, Ltd., for consideration of approximately $21 
million in the form of $16.8 million in cash and 210,000 shares of the 
Company's common stock. NHP Financial Services, Ltd. is the owner of 
Washington Mortgage Financial Group, Ltd. ("Washington Mortgage Financial") 
of Fairfax County, Virginia, one of the nation's leading multifamily mortgage 
originators and servicers (collectively, "NHP Financial Services"). Included 
in Washington Mortgage Financial is WMF/Huntoon, Paige Associates Limited 
("WMF/Huntoon, Paige"), a leading FHA mortgage originator and servicer 
located in Edison, New Jersey.

    On April 19, 1997, the Company's Board of Directors approved a plan to 
spin-off NHP Financial Services  (the Company's former Financial Services 
business segment) to the Company's current shareholders. Accordingly, the 
accompanying financial statements have been restated to reflect NHP Financial 
Services as discontinued operations in accordance with GAAP. Previously reported
revenue related to the Financial Services business segment of $24.8 million is
now included in net income from discontinued operations. For further discussion,
see Note 2.

    NATURE OF BUSINESS

    The Company's continuing operations provide a broad array of real estate
services nationwide including property management and asset management as well
as related services including equity investments, purchasing, risk management
and home health care.

    The Company provides a full range of property management and related 
services to owners of multifamily 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 64% of the properties and 44% of the units managed by the 
Company as of December 31, 1996 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


                                      F-17
<PAGE>
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.

    For the past several years, various proposals have been advanced by HUD, 
the Congress and others proposing the restructuring of Section 8 of the 
United States Housing Act of 1937 ("Section 8"). 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. Some proposals 
include a phase-out of project-based subsidies on a property-by-property 
basis upon expiration of a property's Housing Assistance Payments Contract 
("HAP Contract"), with a conversion to a tenant-based subsidy. Under a 
tenant-based system, rent vouchers would be issued to qualified tenants 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.

    Congress has not yet accepted any of these restructuring proposals and 
instead has elected to renew expiring Section 8 HAP Contracts for one year 
terms, generally at existing rents. While the Company does not believe that 
the 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.

    DEPENDENCE ON THE REAL ESTATE COMPANIES FOR PROPERTY SERVICES 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 67% of the Company's property management revenue in 
1996 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 13, 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 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.

    PROPERTY SERVICES - REVENUE AND EXPENSES

    The Company recognizes property management, Buyers Access-Registered 
Trademark-, 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. 
Revenues from Preferred Home Health are recognized as services are performed. 
Property management services revenue includes direct management fees, central 
accounting fees, computer fees and asset management fees as well as various 
other fees earned in conjunction with the management of properties. Buyers 
Access-Registered Trademark- revenue, tax credit investment revenue, revenues 
from Preferred Home Health and insurance advisory fee revenue are included in 
other revenue on the Consolidated Statement of Operations.

    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,

                                      F-18
<PAGE>

which totaled $124.1, $113.1, and $93.6 million for the years ended December 
31, 1996, 1995 and 1994, 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 $3.1, $4.1 and $4.6 million for the years ended December 31, 
1996, 1995 and 1994, respectively.

    INCOME TAXES

    The benefit (provision) 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 9.

    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 12,729,636, 9,644,745, and 8,094,733 for the years ended December 31, 
1996, 1995 and 1994, 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 8).

    CASH AND CASH EQUIVALENTS

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

    RECEIVABLES

    Receivables, which are substantially all from related parties, are stated 
net of an allowance for doubtful accounts of $2.5 and $1.6 million at 
December 31, 1996 and 1995, respectively.

    PURCHASED MANAGEMENT CONTRACTS

    The cost of acquiring the rights to manage multifamily 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 1 
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. Purchased management contracts are 
stated net of accumulated amortization of $11.9 and $8.4 million at December 
31, 1996 and 1995, respectively.


                                      F-19
<PAGE>

    GOODWILL

    Goodwill represents the excess of the cost of acquired businesses over 
the fair value of their tangible and identified intangible assets. Goodwill 
was recorded in conjunction with the Goldberg acquisition described in Note 4.
Goodwill is being amortized on a straight-line basis over 10 years. The 
Company reviews the carrying value of goodwill for impairment whenever events 
or changes in circumstances indicate that the carrying amount may not be 
recoverable. Goodwill is stated net of accumulated amortization of $0.3 
million at December 31, 1996.

    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.

    OTHER ASSETS

    Other assets includes notes receivable, deferred acquisition costs, 
deferred financing costs and other non-current assets.

    NOTES RECEIVABLE - In conjunction with the 1996 Goldberg Acquisition 
discussed in Note 4, the Company purchased two notes receivable. The two 
notes bear interest at 9% and 9.75% and are due from the project limited 
partnerships of two Florida rental retirement communities to the extent the 
properties have net cash flow available for payment. The 9% note was recorded 
at its face value of $5.1 million, which approximates fair value. The 9.75% 
note has a face value of $7.4 million and was recorded at its estimated fair 
value of $3.3 million, net of a discount of $4.1 million. The discount is 
being amortized into interest income over 15 years using a method that 
approximates the effective interest method. The net balance as of December 
31, 1996, on these notes receivable, including approximately $0.5 million of 
which is considered current and is included in other current assets on the 
Consolidated Balance Sheet, was $8.4 million. The Company recognized $0.4 
million of interest income on these notes in 1996.

    DEFERRED FINANCING COSTS - Certain costs of obtaining the financing 
arrangements described in Note 8 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 Note 16). 
Deferred financing costs, net of accumulated amortization, were $0.4 and $0.6 
million as of December 31, 1996 and 1995, respectively.

    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. 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 $0.7 and $2.6 million at December 31, 1996 and 1995, 
respectively.

    RECLASSIFICATIONS

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


                                      F-20
<PAGE>

    NEW ACCOUNTING STANDARD

    The Company adopted SFAS No. 121, "Accounting for the Impairment of 
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the 
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based 
Compensation," on January 1, 1996. These statements did not have an effect on 
the Company's financial position or results of operations. See Note 11 for 
further discussion of SFAS No. 123.

    In February 1997, the Financial Accounting Standards Board issued SFAS 
No. 128, "Earnings Per Share," which will change the reporting of earnings 
per share effective in the fourth quarter of 1997.  Basic earnings per share 
will not include stock options as common stock equivalents and will be higher 
than previously reported primary earnings per share.  Diluted earnings per 
share will equal previously reported primary earnings per share under the 
Company's current capital structure.

(2) DISCONTINUED OPERATIONS

    NHP FINANCIAL SERVICES

    On April 19, 1997, the Company's Board of Directors approved a plan to 
distribute shares of NHP Financial Services (formerly the Company's Financial 
Services business segment) to the Company's existing shareholders pursuant to 
the terms of a Rights Agreement approved by the Board of Directors on that 
date. Pursuant to the Rights Agreement, the Company will issue to its 
stockholders rights to receive a distribution of one-third of a share of NHP 
Financial Services for each right at the earlier of the time of the AIMCO 
merger discussed in Note 3, or on December 1, 1997, if the AIMCO merger has 
not occurred by that date. NHP Financial Services is also expected to issue 
shares constituting approximately 11.5% of its common equity in a private 
transaction on or shortly after the distribution to the Company's 
stockholders. The Company has received a commitment, subject to certain 
conditions, to purchase 546,498 shares of NHP Financial Services for an 
aggregate purchase price of $5 million on or shortly after the distribution, 
which is equivalent to $9.15 per share. The distribution is conditioned on 
the consent of lenders under the Company's credit agreement. As a result of 
the distribution, each holder of shares of the Company's common stock at the 
time of the AIMCO merger will receive shares in NHP Financial Services in 
addition to the merger consideration described in Note 3. The Company 
anticipates that the rights will be distributed approximately May 9 to 
stockholders of record of the Company on May 2, 1997.

    Following the distribution of shares of NHP Financial Services, NHP 
Incorporated and NHP Financial Services will operate independently and 
neither will have any stock ownership in the other. In conjunction with the 
distribution of shares of NHP Financial Services, NHP Incorporated and NHP 
Financial Services will enter into a separation agreement that will govern 
their ongoing relationship. The separation agreement will provide, in part, 
for NHP Financial Services to assume all liabilities relating to the business 
and operations of NHP Financial Services prior to distribution (except for 
the costs of the distribution) and to indemnify NHP Incorporated for such 
liabilities and all expenses and costs and losses related thereto, all on 
terms reasonably acceptable to AIMCO. In addition, the separation agreement 
will also provide for the settlement, at or prior to the distribution of 
shares, of any intercompany amounts owed by NHP Financial Services to NHP 
Incorporated through retention by NHP Financial Services of Excess Free Cash 
flow, as defined by the AIMCO merger agreement, generated by NHP Incorporated 
during 1997, through the date of the AIMCO merger, and/or repayment of the 
remaining amounts by NHP Financial Services.  The intercompany balance due 
from NHP Financial Services to NHP Incorporated, of approximately $9 million 
as of April 1997, relates primarily to advances to NHP Financial Services 
related to the Proctor and Askew acquisitions, which are discussed further in 
Notes 4 and 17, respectively, and intercompany cash tax allocations.

    The operating results of NHP Financial Services for the nine-month period 
since acquisition are summarized below (in thousands):

                                               April 1 - December 31,
                                                        1996
                                               ----------------------
    Gross Revenue                                     $24,848
                                                      -------
                                                      -------
    Income before taxes                               $ 2,299
    Provision for income taxes                         (1,144)
                                                      -------

    Net income                                        $ 1,155
                                                      -------
                                                      -------
    Net income per share                              $   .09
                                                      -------
                                                      -------

    The assets and liabilities of NHP Financial Services as of December 31, 
1996, are summarized below (in thousands):

                                                        1996
                                                      -------
    Current assets                                    $51,060
    Noncurrent assets                                  34,304
                                                      -------
         Total assets                                 $85,364
                                                      -------
                                                      -------

    Current liabilities                               $52,254
    Noncurrent liabilities                              9,710
                                                      -------
         Total liabilities                             61,964
                                                      -------

    Net assets of discontinued operations             $23,400
                                                      -------
                                                      -------

    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. 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 1995 
financial statements of a partnership accounted for by The Real Estate 
Companies using the equity method have been restated to expense in 1995 the 
cost of acquiring the management contracts related to certain multifamily 
properties. The acquisition cost was originally capitalized by the 
partnership and amortized over a 70-month period. The Company's 1995 
financial statements have been restated to reflect the Company's share of the 
partnership's restated loss. The effect of the restatement was to increase 
the loss from discontinued operations, net of income taxes of $1.2 million, 
by $1.8 million in the accompanying 1995 consolidated statement of 
operations. The restatement also had the effect of increasing the net 
liabilities of the Real Estate Companies as of the date of the sale which 
resulted in the Company receiving an additional net gain on sale of $1.8 
million. The net liabilities of the Real Estate Companies as of the date of 
the sale were $6.4 million (restated) 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 
$10.7 million (restated). 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 multifamily 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 multifamily 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 13.
      
                                     F-21
<PAGE>

    The operating results of the discontinued real estate operations are 
summarized below (in thousands):

                                             Year Ended December 31,
                                       ----------------------------------
                                                     (Restated)
                                       1996             1995           1994
                                       ----             ----           ----
Gross revenues                          --            $23,874        $35,121
Net income (loss) before
 extraordinary item, net of minority
 interest and net of an income tax
 benefit of $2,515 for 1995 and $0
 for 1994                               --            $(3,771)       $ 7,490

    The net income (loss) before extraordinary item includes $1.0 and $12.0 
million for the years ended December 31, 1995 and 1994, 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.

(3) CHANGE IN CONTROL AND MERGER AGREEMENT

    On April 21, 1997, the Company announced that it had entered into a 
definitive Merger Agreement pursuant to which the Company will be acquired by 
Apartment Investment and Management Company ("AIMCO"), a real estate 
investment trust whose shares are traded on the New York Stock Exchange 
(AIV-NYSE). Upon completion of the merger, each of the Company's stockholders 
will receive for each share of Company common stock, at the stockholder's 
election, either (i) a combination of .37383 shares of AIMCO common stock and 
$10.00 cash per share of Company common stock, or (ii) .74766 shares of AIMCO 
common stock. The merger is conditioned on the approval of the Company's 
stockholders and AIMCO stockholders, the completion of the transactions 
between AIMCO and the majority stockholders of the Company described below, 
and customary state and federal regulatory and other approvals.

    AIMCO has separately entered into a Stock Purchase Agreement with Demeter 
and Capricorn, who together hold a majority of the outstanding shares of the 
Company's common stock. Pursuant to the Stock Purchase Agreement, AIMCO will 
acquire all of the Company's common stock currently held by Demeter and 
Capricorn. AIMCO will pay Demeter $20 in cash per share for 50% of the 
Company shares held directly and indirectly by Demeter. For the remainder of 
Demeter's shares and Capricorn's shares, AIMCO will pay .74766 shares of 
AIMCO common stock per share of Company common stock. The closing under the 
Stock Purchase Agreement is expected to occur in May 1997. Upon completion of 
AIMCO's purchase of shares held by Demeter and Capricorn, AIMCO will hold a 
majority of the issued and outstanding shares of the Company's common stock. 
The merger will, however, require approval by two-thirds vote of all shares 
of Company common stock held by persons other than AIMCO. Stockholder 
meetings to approve the merger are expected to be held in late summer.

    The Company has also been informed that AIMCO is negotiating a definitive 
agreement with Demeter and Capricorn to acquire interests in certain real 
estate properties owned or controlled by the Real Estate Companies, which are 
controlled by Demeter and Capricorn, most of which properties are managed by 
the Company pursuant to a long-term property management contract. Both the 
Company's and AIMCO's obligations to complete the merger are conditioned on 
signing the definitive agreement relating to the sale of real estate 
interests and the management agreement remaining in effect. As consideration 
for AIMCO's executing the Merger Agreement, the Company has waived, effective 
May 3, 1997, its right of first refusal to purchase the real estate being 
sold to AIMCO, subject to the condition that a definitive real estate 
agreement be signed by AIMCO and Demeter by May 31 on terms substantially in 
accordance with those described to the Company's Board of Directors.

(4) ACQUISITIONS AND NEW BUSINESS

    CONTINUING OPERATIONS

    GOLDBERG ACQUISITION

    As of July 12, 1996, the Company, directly and through subsidiaries, 
acquired the long-term management rights and certain notes receivable from 
two Florida rental retirement communities as well as all of the outstanding 
stock of Preferred Home Health, Inc. (the "Goldberg Acquisition"). In 
addition, the Real Estate Companies acquired certain other notes receivable 
from one of the properties and subsequently acquired all of the issued and 
outstanding stock of the corporate general partners of the limited 
partnership owners of the two properties. The Company and the Real Estate 
Companies acquired these assets from affiliates of the Stephen A. Goldberg 
Company of Washington, D.C. and certain other individuals. The cost of the 
Company's portion of the acquisition, including transaction costs, was 
approximately $16.3 million in cash and $4.0 million in long-term notes. The 
purchase price was funded through additional borrowings under the Company's 
revolving credit facility. The transaction was accounted for under the 
purchase method of accounting. All assets acquired were recorded at their 
estimated fair value. The excess of the purchase price over the fair value of 
the net assets acquired was approximately $6.2 million and has been recorded 
as goodwill. Preferred Home Health, Inc. is a provider of home health care 
services to residents of multifamily rental retirement communities.


                                      F-22
<PAGE>

    GUILFORD

    The Real Estate Companies completed the Guilford Acquisition in January 
1996, by which the Real Estate Companies acquired 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 began managing the remaining two properties containing 283 
units in early 1996. The Company acquired the right to manage all 14 of the 
Southport properties for $4.0 million, approximately $3.0 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 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.

    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.

    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 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.

    See also Note 17 for discussion of 1997 acquisitions.


                                      F-23
<PAGE>

    DISCONTINUED OPERATIONS

    NHP FINANCIAL SERVICES

    As previously discussed, as of April 1, 1996, NHP Incorporated acquired 
NHP Financial Services, for consideration of approximately $21 million in the 
form of $16.8 million in cash and 210,000 shares of the Company's common 
stock. The transaction has been accounted for under the purchase method of 
accounting. All assets acquired were recorded at their estimated fair value 
which resulted in recording an identifiable intangible asset of approximately 
$19.1 million related to acquired servicing rights. The excess of the 
purchase price over the fair value of the net assets acquired was 
approximately $5.0 million and has been recorded as goodwill. The goodwill is 
being amortized over seven years. The acquired servicing rights are being 
amortized over periods up to seven years. All purchase price allocations have 
been recorded by NHP Financial Services and are included in the net assets of 
discontinued operations on the Consolidated Balance Sheet.

    At closing, the 210,000 shares of the Company's common stock were placed 
in an escrow account as security for the satisfaction of claims by the 
Company under the stock purchase agreement against the former owner of NHP 
Financial Services (the "Seller"). Claims will be paid, subject in certain 
instances to a deductible, from the escrow by returning the number of shares 
to the Company equal to the value of the claim, as determined by the then 
current market value of the Company's common stock. 105,000 shares were 
released to the Seller on April 1, 1997. One-half of the shares remaining in
the escrow will be released to the Seller on April 1, 1998, with the remaining
shares to be released to the Seller on April 1, 1999.

    PROCTOR & ASSOCIATES

    As of December 31, 1996, Washington Mortgage Financial acquired 
Detroit-based Proctor & Associates ("Proctor"), the 37th largest commercial 
mortgage banking firm in the nation, according to June 30, 1996, data 
published by the Mortgage Banking Association, for $3.7 million. Included in 
the transaction is Proctor's $1.1 billion loan servicing portfolio of 
multifamily, retail, and office building mortgages, as well as the firm's 
fifteen active correspondent relationships with life insurance companies. 
Proctor originated nearly $180 million in commercial mortgage loans in 1996. 
The purchase has been accounted for under the purchase method of accounting 
by Washington Mortgage Financial. All assets acquired were recorded at their 
estimated fair value. The excess of the purchase price over the fair value of 
the net assets acquired was $3.1 million and has been recorded as goodwill by 
Washington Mortgage Financial and is included in net assets of discontinued 
operations on the Consolidated Balance Sheet.

    AMERICAN CAPITAL RESOURCE, INC.

    On May 13, 1996, WMF/Huntoon Paige, a subsidiary of Washington Mortgage 
Financial, completed the purchase of a portion of the loan production 
pipeline, as well as certain other assets, of American Capital Resource, Inc. 
("ACR") for approximately $2.2 million plus potential future payments based 
on realization of the pipeline through August 1997. The acquisition has been 
accounted for under the purchase method of accounting. In addition, during 
1996 WMF/Huntoon Paige also purchased the servicing rights to various loans 
from ACR for a total of $2.0 million.

(5) INVESTMENT IN REAL ESTATE HELD FOR SALE

    TRANSACTION AND ACCOUNTING

   On May 16, 1996, the Company acquired 12 multifamily properties containing 
2,905 apartment units, including the right to manage the units on a long-term 
basis, from affiliates of Great Atlantic Management, Inc. for a purchase 
price (including transaction costs) of approximately 86.8 million (the "Great 
Atlantic Acquisition"), in the form of approximately $71.2 million in 
third-party nonrecourse debt and $15.6 million in cash. The Company made this 
acquisition with the intention of selling the real estate ownership interests 
to third-party investors while retaining the management rights to the 
properties. Accordingly, the Company has reported on the Consolidated Balance 
Sheet its ownership interests in the Great Atlantic properties as an 
investment in real estate held for sale, which is reported at the lower of 
carrying value or fair value less estimated costs to sell. Previously, the 
investment in real estate was presented on the Consolidated Balance Sheet net 
of the associated debt, as discussed further below. The consolidated 
financial statements have been restated to separately report the real estate 
related debt as a liability. 1996 earnings from these properties since the 
date of acquisition, excluding depreciation, was $0.1 million. The 
recognition of the Company's pro rata share of these earnings increased the 
Company's investment. This increase was offset by the establishment of a 
valuation allowance to reduce the recorded investment to the lower of 
carrying value or fair value less estimated cost to sell which resulted in no 
net income being recognized related to these properties.

     DESCRIPTION OF REAL ESTATE RELATED DEBT

     The Company owns all of the limited and general partnership interests in 
the limited partnerships that in turn own the local partnerships (the 
partnerships that own and are responsible for the operations of the real 
estate). Eleven of the twelve local partnerships participate in joint 
financing, which was executed simultaneously with the acquisition. This 
financing consisted of three separate but related loans: (1) a senior 
mortgage loan; (2) a junior mortgage loan; and (3) a partnership loan, all of 
which are nonrecourse to the Company. The junior mortgage loan was paid in 
full on December 31, 1996. The remaining loans are discussed below.

     SENIOR MORTGAGE LOAN consists of eleven separate notes with an original 
face value totaling $55.3 million. The outstanding balance as of December 31, 
1996, is $51.0 million. Interest is payable monthly at a rate of 8.53% per 
annum. There are no required principal payments until the loans mature on May 
31, 2001. Principal may not be repaid prior to May 31, 1998, without the 
consent of the lender.

    THE PARTNERSHIP LOAN is evidenced by a single note, maturing June 3, 
2001. The borrowers are the eleven limited partnerships which own the 
majority limited partner interests in the local partnerships, which in turn 
own the real estate. The note allocates the principal among the limited 
partnerships, but each is jointly and severally liable for the indebtedness. 
The partnership loan includes two tiers, totaling $15.9 million. The first 
tier partnership loan amount is $9.9 million. Interest at a rate of 8.53% per 
annum is payable monthly. There are no required principal payments until the 
loan matures. Principal may not be prepaid until May 31, 1998, and then only 
if the second tier of the partnership loan has been retired. The second tier 
partnership loan amount is $6.0 million. The interest rate is the amount that 
would give the lender a pre-tax rate of return of 16%. Interest is paid at a 
rate of 12.588%. The difference is recorded by the partnerships as a deferred 
payable. There are no required principal payments until May 31, 1998. 
Thereafter, monthly principal payments are required in an amount equal to the 
lesser of 35% of monthly cash flow or $41,666. Any shortfall is deferred. In 
subsequent months, if 35% of monthly cash flow is greater than $41,666, the 
excess is applied to reduce prior deferred amounts. Principal prepayments are 
permitted prior to May 31, 1998, by paying a prepayment premium of 3% of the 
amount prepaid.

     Concurrent with the closing of the loan, the local partnerships entered 
into a guaranty agreement making them jointly and severally liable for the 
senior mortgage notes payable. Under the terms of this contract, each of the 
senior note mortgagors unconditionally guarantee the full and prompt payment 
of all amounts due under the senior mortgage loans. Under a related 
contribution agreement, the guarantors have agreed to allow funds from the 
cash collateral account to be used to satisfy any shortfall of an affiliate 
partnership. A separate guaranty agreement was entered into by the limited 
partnerships related to the partnerhip loan, with similar terms.

     The liability of the local partnerships under the senior mortgage note 
and the guaranty, and the liability of the limited partnerships under the 
partnership note and guaranty, is limited to the underlying value of the real 
estate collateral plus amounts deposited with the lender. The partnerships 
are also required to make monthly escrow deposites with the lender.

     The twelfth property has a separate mortgage note payable with a 
remaining balance as of December 31, 1996, of $4.3 million. The mortgage note 
payable is secured by a deed of trust on the real estate. The note bears 
interest at a rate of 7.95%. Principal and interest payments are payable by 
the local partnership in equal  monthly installments of $35,794 to June 2016. 
Principal amounts due on the mortgage payable are $0.1 million per year for 
the years 1997 through 2001 and $3.7 million thereafter. The liability of the 
local partnership under the mortgage note is limited to the underlying value 
of the real estate collateral plus other amounts deposited with the lender.


                                     F-24
<PAGE>

(6) PROPERTY, EQUIPMENT AND CAPITALIZED SOFTWARE

    Property, equipment and capitalized software consist of the following
    (in thousands):
                                                                December 31,
                                                         ---------------------
                                                            1996        1995
                                                            ----        ----
    Property and equipment                                $ 6,315    $  3,393
    Leasehold improvements                                  2,347         268
    Capitalized software                                    4,112       1,642
                                                          -------    --------
                                                           12,774       5,303
      Less accumulated depreciation and amortization        2,359       1,780
                                                          -------    --------
                                                          $10,415    $  3,523
                                                          -------    --------
                                                          -------    --------

(7) ACCRUED EXPENSES

    Accrued expenses consist of the following (in thousands):

                                                              December 31,
                                                         --------------------
                                                            1996         1995
                                                         -------      -------
    Accrued personnel and payroll costs                  $ 8,839      $ 7,990
    Other                                                  2,613        2,011
                                                         -------      -------
                                                         $11,452      $10,001
                                                         -------      -------
                                                         -------      -------

(8) LONG-TERM DEBT

    Long-term debt consists of the following (in thousands):
                                                            December 31,
                                                     ------------------------
                                                        1996             1995
                                                     -------          -------
    Lines of credit:
      $75 million Credit Facility                    $57,000          $23,000
    Notes payable - Goldberg                           4,000             --
    Notes payable - Southport (net of unamortized
     discount of $364 and $42 in 1996 and 1995,
     respectively)                                     2,184              195
    Note payable to Oxford                               143              495
                                                     -------          -------
                                                      63,327           23,690
        Less current portion                            (720)            (412)
                                                     -------          -------
          Long-term debt                             $62,607          $23,278
                                                     -------          -------
                                                     -------          -------


    CREDIT FACILITY - CONTINUING OPERATIONS

    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

                                     F-25
<PAGE>

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. In 1996, interest on the Credit Facility was equal to 
175 basis points over the London Interbank Offered Rate ("LIBOR") in effect 
from time to time. In 1996, the Credit Facility also required the payment of 
a commitment fee of 37.5 basis points per annum on the unused portion of the 
Credit Facility. During 1996, the Credit Facility required that any other 
borrowings be subordinated to the Credit Facility except up to $10 million of 
borrowings made in connection with the acquisition of assets that will result 
in additional management rights for the Company, Washington Mortgage 
Financial's Warehouse Line (described below), and any indebtedness of 
Washington Mortgage Financial incurred in the acquisition of mortgage loans 
or mortgage servicing rights. As of December 31, 1996, the Company had 
outstanding $6.2 million of additional unsubordinated borrowings from third 
parties. The Credit Facility limits the amount of loans or other advances by 
the Company to the Real Estate Companies to a total of $10 million. At 
December 31, 1996, $40 thousand was due directly from the Real Estate 
Companies. In February 1997, the terms of the Credit Facility were amended. 
See Note 17 for discussion of the changes in significant terms.

    At December 31, 1996, 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.

    LONG-TERM DEBT AND LINES OF CREDIT- DISCONTINUED OPERATIONS

    The following is a discussion of the long-term debt and lines of credit 
related to NHP Financial Services (formerly the Company's Financial Services
business segment). Any amounts outstanding as of December 31, 1996, related 
to these items are included in the net assets of discontinued operations on 
the Consolidated Balance Sheet.

    During the third quarter of 1996, Washington Mortgage Financial renegotiated
the terms of its existing warehouse line of credit (the "Warehouse Line"), which
is used for the purpose of originating loans. The Warehouse Line was increased
from $80 million to $150 million. The interest rate on the Warehouse Line was 1
to 1 1/2 percent during 1996 to the extent compensating balances are maintained
or LIBOR plus 1 to 1 1/2 percent for amounts borrowed in excess of compensating
balances. The Warehouse Line is secured by mortgage loans held for sale and is
repaid upon sale of the mortgage loans. The Warehouse Line expires in August
1997, at which time the Company expects to extend it or replace it with a
similar line of credit. As of December 31, 1996, Washington Mortgage Financial
had drawn $39.9 million on the Warehouse Line.

    Washington Mortgage Financial has an additional warehouse agreement
providing $15 million of revolving credit at 1 1/2 to 1 5/8 percent to the
extent compensating balances are maintained and the prime rate for amounts 
borrowed in excess of compensating balances. As of December 31, 1996, 
Washington Mortgage Financial had no amounts outstanding under this line of 
credit. Interest is payable monthly. This warehouse line of credit is secured 
by mortgage loans held for sale and is paid upon sale of the mortgage loans.

   Washington Mortgage Financial has a separate line of credit which was used 
exclusively for acquisition of mortgage servicing rights (the "Servicing 
Acquisition Line"). The interest rate on the Servicing Acquisition Line in 
1996 was 3 to 3 1/2 percent to the extent compensating balances are 
maintained or LIBOR plus 3 to 3 1/2 percent for amounts borrowed in excess of 
compensating balances. In October 1996, the Servicing Acquisition Line was 
converted to a term loan which is to be repaid in quarterly installments, 
based on a 10-year amortization schedule, with the remaining balance due in 
June 2001. The Servicing Acquisition Line is collateralized by servicing 
rights relating to loans with an approximate unpaid principal balance of $1.1 
billion. The original commitment amount of the Servicing Acquisition Line was 
$10 million and as of December 31, 1996, Washington Mortgage Financial had 
drawn $6.2 million on this line. Because this line has been converted to a 
term loan, Washington Mortgage Financial cannot borrow any additional amounts 
under this line.

   Washington Mortgage Financial also has a revolving credit agreement 
providing $10 million of revolving credit to be used for servicing 
acquisitions or working capital advances (the "Working Capital Line"). 
Interest on the Working Capital Line is 3 1/2 percent to the extent 
compensating balances are maintained or LIBOR plus 3 1/2

                                     F-26

<PAGE>

percent for amounts borrowed in excess of compensating balances. The Working 
Capital Line is renewable annually through June 2001 and requires monthly 
interest payments. Any principal balance outstanding at June 2001 would be 
converted to a term loan due in quarterly installments through June 2006. The 
Working Capital Line is collateralized by the same assets as the Servicing 
Acquisition Line. As of December 31, 1996, Washington Mortgage Financial had 
no amounts outstanding under the Working Capital Line.

   Washington Mortgage Financial has an additional unsecured line of credit 
agreement available for working capital purposes providing for $0.5 million 
of revolving credit. The interest rate on this line of credit is the prime 
rate and all borrowings must be paid off annually with interest payments due 
monthly. At December 31, 1996, Washington Mortgage Financial had no amounts 
outstanding under this line of credit.

   NOTES PAYABLE - GOLDBERG

   As a portion of the consideration in the Goldberg Acquisition, the Company 
issued various notes payable totaling $4.0 million. The notes bear interest 
at 9.5% per annum and require quarterly interest payments with the principal 
due at maturity, July 12, 2006.

   NOTES PAYABLE - SOUTHPORT

   In conjunction with the Real Estate Companies' purchase from Southport 
Financial Corporation of the general partner interests in partnerships that 
own 14 properties containing 2,140 units, the Company completed its 
acquisition of the management rights for these properties. As consideration 
for the acquisition of the management rights, the Company issued various 
non-interest bearing notes in 1996 and 1995 with a total face value of $3.0 
million which are due in various quarterly installments through the year 
2000. These notes were recorded at $2.5 million, net of an unamortized 
discount of $0.5 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 13).


                                     F-27

<PAGE>
    OTHER

    The following table provides more detail on interest rates (including 
commitment fees) and borrowings made under the Company's various credit 
agreements (dollar amounts in thousands):
                                                       Year Ended December 31,
                                                     --------------------------
                                                       1996     1995     1994
                                                       ----     ----     ----
Continuing Operations:
  $75 million Credit Facility (a):        
  Weighted average interest rate at
    period-end                                         7.61%     8.40%     6.42%
  Maximum month-end borrowings during
    the period                                      $57,000   $58,466   $57,126
  Average borrowings during the period              $43,917   $41,457   $54,454
  Weighted average interest rate, during
    the period                                         7.70%     9.03%     6.47%

Discontinued Operations:
  $150 million Warehouse Line:
  Weighted average interest rate at
    period-end                                         1.00%       --        --
  Maximum month-end borrowings during
    the period                                      $52,885        --        --
  Average borrowings during the period              $43,327        --        --
  Weighted average interest rate,
    during the period                                  1.17%       --        --

  $10 million Servicing Acquisition Line:
  Weighted average interest rate at
    period-end                                         3.00%       --        --
  Maximum month-end borrowings during
    the period                                     $  9,960        --        --
  Average borrowings during the period             $  8,884        --        --
  Weighted average interest rate, during
    the period                                         3.17%       --        --

  $15 million Warehouse Line:
  Weighted average interest rate at
    period-end                                         1.50%       --        --
  Maximum month-end borrowings during the
    period                                         $  7,100        --        --
  Average borrowings during the period             $  3,765        --        --
  Weighted average interest rate, during
    the period                                         1.50%       --        --


    (a)  Includes the Company's $75 million Credit Facility and/or any prior 
credit agreements in 1995 and 1994.

    Aggregate annual maturities of long-term debt for the Company's 
continuing operations as of December 31, 1996, are $0.7, $0.6, $57.7 and $0.3
million for the years 1997 through 2000, 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. Aggregate annual 
maturities of long-term debt for the Company's discontinued operations as of 
December 31, 1996, which excludes the Warehouse Line, are $1.0 million per 
year for the years 1997 through 2000 and $2.2 million for the year 2001.

(9) 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, 1996, the Company estimates that it has
remaining approximately $55 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 related to the
NOLs will be realized. Therefore, upon the sale of the Real Estate Companies in
the third quarter of 1995, the Company reduced its valuation allowance as those
entities historically generated operating losses, while continuing operations
have historically generated operating income.

                                      F-28
<PAGE>

     The amount of 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. Furthermore, 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, for 
example, 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. The sale of Company 
stock, discused in Note 3, by Demeter and Capricorn to AIMCO, if completed, 
would trigger the Section 382 limitations.

    The Company expects to recognize capital gain for federal income tax 
purposes as a result of the distribution of the rights combined with the 
later distribution of shares of NHP Financial Services, discussed in Note 2. 
The amount of gain recognized by the Company will be the excess of the fair 
market value of NHP Financial Services on the date of the distribution of the 
rights, over the Company's tax basis in NHP Financial Services. The Company 
expects to have regular federal NOLs available in sufficient amount to offset 
the gain under the regular federal income tax, but does not expect to have 
sufficient alternative minimum tax NOLs available to offset the gain under 
the alternative minimum tax.

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

                                                             December 31,
                                                           ---------------
                                                            1996     1995
                                                          -------   -------
Deferred tax assets:
     Net operating loss carryforwards                     $19,737   $26,904
     Tax credit carryforwards                               1,116       572
     Vacation and incentives                                  470        32
     Other temporary differences between book and tax       1,236       349
                                                          -------   -------
Total deferred tax assets                                  22,559    27,857
Valuation allowance for deferred tax assets                (7,547)   (5,020)
                                                          -------   -------
Deferred tax assets                                        15,012    22,837
Deferred tax liabilities:
     Amortization of purchased management contracts           476       847
     Management fees receivable                               567     1,623
     Other temporary differences between book and tax         171       -- 
                                                          -------   -------
Total deferred tax liabilities                              1,214     2,470
                                                          -------   -------
Net deferred tax asset                                    $13,798   $20,367
                                                          -------   -------
                                                          -------   -------

     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 of 1995. A reconciliation of income tax expense computed at the 
statutory Federal and state rates to the provision (benefit) for income taxes 
included in the Consolidated Statements of Operations is as follows (in 
thousands):

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                          --------------------------------------
                                                            1996           1995           1994
                                                          -------        --------       --------
<S>                                                      <C>            <C>            <C>
Federal income tax provision at the Federal statutory
     rate - 35% in 1996 and 1995, 34% in 1994            $  6,105       $  4,834       $  5,608
State income tax provision, net of Federal income tax
     benefit-5%                                               872            690            924
Change in net deferred tax asset                           (2,527)           --             --
Change in valuation allowance                               2,527        (23,326)        (6,532)
                                                         --------       --------       --------
Provision (benefit) for income taxes                     $  6,977       $(17,802)       $   ---
                                                         --------       --------       --------
                                                         --------       --------       --------
</TABLE>


                                      F-29
<PAGE>
    In conjunction with the preparation and filing of the Company's 1995 
Federal tax return in late 1996, the Company identified certain items which 
increased the Company's deferred tax asset due primarily to differences 
between estimates of items made at the time of the sale of the Real Estate 
Companies and actual amounts reported in the Company's tax return. Also as 
part of this analysis, the Company updated its evaluation of all of its 
deferred tax assets to determine if, in accordance with SFAS 109, the 
realization of these assets was more likely than not. Accordingly, the 
Company recorded an increase in the valuation allowance to offset the 
increase in the deferred tax asset.

    Prior to 1995, 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, 
reduced the annual provision for income taxes to zero. The components of the 
benefit (provision) for income taxes for 1996 and 1995 is summarized as 
follows (in thousands):

<TABLE>
<CAPTION>
                                                            1996           1995           1994
                                                           ------         ------         ------
<S>                                                      <C>            <C>             <C>
     Current provision                                   $    407       $    608        $  --
     Deferred provision                                     6,570          4,916           --
     Change in net deferred tax asset                      (2,527)           --            --
     Change in valuation allowance for deferred tax
      asset                                                 2,527        (23,326)          --
                                                         --------       --------        -------
     Provision (benefit) for income taxes                $  6,977       $(17,802)       $  --
                                                         --------       --------        -------
                                                         --------       --------        -------
</TABLE>

(10) 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 12,586,629 shares were issued and 
outstanding as of December 31, 1996.

     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 
assisted housing to low-income families. 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. 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.

     During the third quarter of 1996, 2,046 shares of the Company's common 
stock were received by the Company in partial payment for the exercise of 
certain options and were recorded as treasury stock. The shares were 
subsequently retired in the fourth quarter of 1996.

     AUTHORIZATION OF REPURCHASE OF SHARES

     On January 7, 1997, the Company's Board of Directors approved the 
repurchase of up to 750,000 shares of the Company's common stock over a 
period extending through June of 1998. The Company will acquire shares from 
time to time, depending on market conditions and subject to regulatory and 
legal restrictions. The Company expects to finance the stock repurchases 
through a combination of internally generated cash flows and its credit 
facility.

                                     F-30
<PAGE>

(11) 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, 
1996 and 1995, 310,000 and 405,000 options, respectively, were outstanding 
under the 1990 Plan. No further options may 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. This resulted in a new measurement date for the options, and 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 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 1,200,000 options to purchase shares of 
the Company's common stock may be granted to employees. In May 1996, the 
Company's Board of Director's approved an amendment to the 1995 Plan, which 
was subsequently approved by the stockholders of the Company in July 1996, 
that increased the maximum number of options which can be granted under the 
plan from 800,000 to 1,200,000. In February 1997, the Company's Board of 
Directors approved an amendment to the 1995 Plan which allows for all options 
issued under the 1995 Plan to become vested upon a change in control of the 
Company. Any options granted under the 1995 Plan must have an exercise price 
equal to the fair market value as of date of grant, become exercisable 
cumulatively over a five-year period beginning one year after date of grant, 
and must be exercised within ten years of the date of grant. As of December 
31, 1996 and 1995, 386,250 and 228,750 options, respectively, remain 
available to be granted under the 1995 Plan.

     Effective with the consummation of the IPO, the Company granted Mr. 
Heller non-qualified 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, including a change in 
control of the Company.

     Effective May 1, 1996, the Company granted non-qualified performance 
vesting options to purchase up to 120,000 shares of common stock at $19.43 
(fair market value at award date) to an executive vice president of the 
Company. The options vest only if certain performance criteria are met and 
expire April 30, 2001.

     In conjunction with the distribution of shares of NHP Financial Services 
to the Company's existing shareholders discussed in Note 2, all of the issued 
and outstanding options to acquire Company common stock will be converted 
into an option to receive the same number of shares of Company common stock 
and an option to receive the number of shares of NHP Financial Services' 
common stock the options holder would have been entitled to receive in the 
distribution, if the option had been exercised immediately prior to the 
distribution. In addition, the exercise price of the options will be adjusted 
pro rata based on the assumed value at the date of the distribution of NHP 
Financial Services shares.

     The following table summarizes option activity for the years ended 
December 31, 1996, 1995 and 1994.
                                                   1996       1995       1994
                                                 --------   --------   --------
Number of Shares Under Stock Options:
    Outstanding at the beginning of year       1,096,250    443,750    537,500
    Granted                                      492,500    711,250        --
    Exercised                                   (114,000)      --    (32,500)
    Forfeited                                   (130,000)   (58,750)   (61,250)
                                               ---------  ---------    -------
    Outstanding at the end of year             1,344,750  1,096,250    443,750
                                               ---------  ---------    -------
                                               ---------  ---------    -------
Stock options exercisable at the end of
  the year                                       418,250    420,000    341,250
                                               ---------  ---------    -------
                                               ---------  ---------    -------
Weighted-average fair value of options
  granted during the year                      $    7.73  $    5.38        N/A
                                               ---------  ---------
                                               ---------  ---------

                                     F-31
<PAGE>
<TABLE>
<CAPTION>
                                                        1996               1995           1994
                                                     ----------         ---------       --------
<S>                                                 <C>              <C>                 <C>
Price range of  Stock Options:
     Granted                                        $17.28-$19.43    $13.00-$16.00         --
     Exercised                                      $10.56-$13.00             --         $10.56
     Forfeited                                             $13.00           $10.56       $10.56
     Outstanding                                    $10.56-$19.43    $10.56-$16.00       $10.56
</TABLE>

        The following table summarizes information about fixed-price stock 
                   options outstanding at December 31, 1996:

<TABLE>
<CAPTION>
                                        Options Outstanding                     Options Exercisable
                          ---------------------------------------------    -----------------------------
                            Number             Weighted       Weighted          Number       Weighted
     Range of            Outstanding          Average          Average       Exercisable      Average
     Exercise Price      at 12/31/96       Remaining Life   Exercise Price   at 12/31/96  Exercise Price
     --------------      -----------       --------------   --------------   -----------  --------------
<S>                      <C>               <C>              <C>              <C>          <C>
     10.56                  310,000          4 years             10.56        310,000           10.56
     13.00                  417,250          9 years             13.00        108,250           13.00
     16.00                  120,000          9 years             16.00           --             16.00
     18.43                  175,000         10 years             18.43           --             18.43
     19.43                  207,500         10 years             19.43           --             19.43
     All Other              115,000         10 years             17.66           --             17.66
                          ---------                                           -------
     10.56 - 19.43        1,344,750                                           418,250
                          ---------                                           -------
                          ---------                                           -------
</TABLE>

      Weighted average option exercise price information for the years
                        1996 and 1995 is as follows:


                                               1996              1995
                                             --------          --------
     Outstanding at the beginning of year    $ 12.43           $ 10.56
     Granted                                 $ 18.72           $ 13.51
     Exercised                               $ 10.97              --
     Forfeited                               $ 13.00           $ 11.39
     Outstanding at the end of year          $ 14.80           $ 12.43


     The Company has adopted the disclosure-only provisions of SFAS 123, 
"Accounting for Stock Based Compensation." Accordingly no compensation 
expense cost has been recognized for the employee stock option plans. Had 
compensation cost for the Company's employee stock option plans been 
determined based on the fair value at the grant date for awards in 1995 and 
1996 consistent with the provisions of SFAS No. 123, the Company's net income 
and net income per common share would have been reduced to the pro forma 
amounts indicated below (dollars in thousands, except per share amounts):


                                                              (Restated)
                                               1996              1995
                                             --------          --------
     Net income - as reported                $11,620          
 $27,442
     Net income - pro forma                  $11,033           $27,247
     Net income per common share - as
      reported                               $   .91           $  2.85
     Net income per common share -
      pro forma                              $   .87           $  2.83

     The effects of applying SFAS No. 123 in this pro forma disclosure are 
not indicative of future amounts. SFAS No. 123 does not apply to awards prior 
to 1995, and additional awards in future years are anticipated. For purposes 
of this pro forma disclosure, fair value of each option grant is estimated on 
the date of grant using the Black-Scholes option-pricing model with the 
following weighted-average assumptions used for grants in 1995 and 1996: 
dividend yield 0.0%, expected volatility of 30.0%, risk-free interest rate of 
6.33% and expected lives of 5 years.

     The Black-Scholes option valuation model was developed for use in 
estimating the fair value of traded options which have no vesting 
restrictions and are fully transferable. In addition, option valuation models 
require the input of

                                     F-32

<PAGE>

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

(12) EMPLOYEE BENEFIT PLANS

     Substantially all of Property Services' 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 certain employees 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 up to 15% of their gross 
compensation up to the maximum allowable by the Internal Revenue Code, to 
various investment alternatives including, beginning in 1996, the Company's 
common stock. The Company will match 50 percent of each employee's 
contribution up to 6 percent of the employee's gross compensation. The plans 
also allow the Company to make discretionary contributions. Company matching 
contributions to the 401(k) plan vest as contributed. Company discretionary 
contributions to the 401(k) plan vest 20 percent after the first year of 
employment and an additional 20 percent in each subsequent year until fully 
vested in the fifth year. In addition to the vesting provisions for the 
401(k) plan, the executive retirement savings plan generally requires that a 
participant not compete with the Company for a two-year period following 
separation from the Company in order to vest in Company contributions. Total 
net expense related to the Company's contributions to these plans, after 
reimbursement from the partnerships for on-site employees, was $0.9, $0.8 and 
$0.7 million for the years ended December 31, 1996, 1995 and 1994, 
respectively. Approximately 19,100 shares of the Company's common stock was 
held by the plans as of December 31, 1996.

(13) RELATED PARTY TRANSACTIONS

     During 1994, the Company borrowed $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 8, 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 
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 $0.1, $0.9 and $0.2 million, during the years 
ended December 31, 1996, 1995 and 1994, 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 
multifamily 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

                                     F-33
<PAGE>

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 Notes 4 and 17 
for further discussion of acquisitions.

     The Company was due directly from the Real Estate Companies $40 thousand 
and $2.1 million as of December 31, 1996 and 1995, respectively. These 
amounts are included in receivables on the Consolidated Balance Sheet.

(14) COMMITMENTS AND CONTINGENCIES

     CONTINUING OPERATIONS

     GUARANTEES

     As of December 31, 1996, the Company was committed to performance 
guarantees, loan guarantees and other guarantees totaling $8.3 million, which 
relate primarily to transactions consummated by the Real Estate Companies 
prior to their sale in August 1995. As discussed in Note 13 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. Demeter, Capricorn and Mr. Heller have agreed to provide a 
line of credit to the Real Estate Companies in an aggregate amount of $5.5 
million. The line of credit is available through August 1998 and is to be 
used to satisfy the Real Estate Companies' indemnification obligations, if 
any, to the Company.

     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 noncancellable 
operating leases. Most office leases provide for the pass-through of 
increased operating expenses. In December 1995, the Company entered into a 
six-year lease agreement for new office space in Vienna, Virginia. The 
Company relocated its Washington, D.C. and Reston, Virginia offices to the 
new Vienna location during the second quarter of 1996. The Company has sublet 
its Reston facilities for the remainder of its lease, which expires in July 
1998, at approximately its obligation under the prime lease. Net rent 
expense, substantially all of which is minimum rentals under operating 
leases, was $2.0, $1.8 and $2.1 million in 1996, 1995 and 1994, respectively. 
1996 rent expense is stated net of sub-lease income. Future minimum rental 
commitments, net of sub-lease income, under existing operating leases having 
an initial or remaining noncancellable lease terms in excess of one year at 
December 31, 1996, are as follows (in thousands):


                                     F-34
<PAGE>

                                             Lease Commitments
     1997                                         $  2,714
     1998                                            2,527
     1999                                            2,478
     2000                                            2,574
     2001                                            2,594
     Thereafter                                      1,342
                                                  --------
          Total                                   $ 14,229
                                                  --------
                                                  --------

     DISCONTINUED OPERATIONS

     FANNIE MAE DUS PROGRAM

     NHP Financial Services bears the Level I risk of loss associated with 
the loans it services under the Fannie Mae Delegated Underwriting and 
Servicing ("DUS") multifamily loan origination program. The Level I risk of 
loss requires NHP Financial Services to bear a portion of the losses on 
mortgages it originates under the program that does not exceed 20% of the 
original balance of the loans. The unpaid principal balance of the Fannie Mae 
DUS loan servicing portfolio was approximately at $776 million at December 
31, 1996. The DUS loans are secured by first liens on the underlying 
multifamily properties and are concentrated primarily in Texas, Nevada, 
Arizona, Ohio and New York. No loans are delinquent as of December 31, 1996. 
NHP Financial Services has provided a reserve for losses of $4.4 million 
as of December 31, 1996, which is included in net asset of discontinued 
operations on the Consolidated Balance Sheet. This reserve represents 
management's estimate of losses which may be incurred on loans underwritten 
to date that are currently being serviced.

     Under the DUS program, NHP Financial Services has established a $4.2 
million irrevocable letter of credit on Fannie Mae's behalf to cover any loan 
losses at December 31, 1996.

     LOAN COMMITMENTS

     At December 31, 1996, the NHP Financial Services had mandatory delivery 
commitments in the amount of approximately $41.2 million to cover its 
origination commitments and loans held for sale.

     OTHER

     In connection with the construction loan portfolio, NHP Financial 
Services makes certain advances to borrowers. On FHA insured construction 
loans, the NHP Financial Services advances construction funds pending 
security holder purchases. Such advances amounted to approximately $4.2 
million at December 31, 1996. NHP Financial Services is obligated to advance 
another $258 million on construction loans administered at December 31, 1996.

     In addition, NHP Financial Services makes voluntary advances under 
certain of its servicing agreements pending receipt from the mortgagors and 
the Department of Housing and Urban Development ("HUD") on applicable 
subsidized loans. Such advances amounted to approximately $2.0 million at 
December 31, 1996 and are included in net assets of discontinued operations 
on the Consolidated Balance Sheet.

     Related escrow funds, which represent borrowers' insurance, taxes and 
replacement reserves, of approximately $228 million at December 31, 1996, are 
on deposit in escrow bank accounts and are not included in the accompanying 
Consolidated Balance Sheet. NHP Financial Services carries blanket bond 
coverage of $5 million and errors and omissions coverage in the amount of $10 
million.


                                     F-35
<PAGE>

     WAIVER OF FREDDIE MAC NON-COMPLIANCE

     As of December 31, 1996, Washington Mortgage Financial was not in 
compliance with a tangible net worth standard required by Freddie Mac for 
continued servicing and future origination of loans held by Freddie Mac. 
Washington Mortgage Financial's non-compliance with this standard results 
from the accounting treatment of servicing rights in connection with its 
acquisition by the Company and Freddie Mac's policy with respect to 
recognition of servicing rights as a tangible asset, and does not reflect any 
deterioration in the operating results or financial condition of Washington 
Mortgage Financial. On March 26, 1997, Freddie Mac advised Washington Mortgage
Financial that Washington Mortgage Financial has financial strengths not 
recognized in the tangible net worth calculation, and that Freddie Mac did 
not consider Washington Mortgage Financial to be out of compliance as of
December 31, 1996, and effective for the remainder of 1997.

(15) FAIR VALUE OF FINANCIAL INSTRUMENTS

     The estimated fair values of the Company's financial instruments are as 
follows (in thousands):

<TABLE>
<CAPTION>
                                               December 31, 1996              December 31, 1995
                                             ----------------------        ------------------------
                                             Carrying         Fair         Carrying            Fair
                                               Value          Value          Value             Value
                                             --------         -----        --------            -----
<S>                                          <C>            <C>            <C>                <C>
Assets:
     Cash and cash equivalents                $   4,779     $   4,779        $ 5,996          $ 5,996
     Receivables                                 15,270        15,270         12,809           12,809
     On-site cost reimbursement receivable        3,816         3,816          2,747            2,747
     Notes Receivable                             7,943         7,943            --               --

Liabilities:
     Accounts payable and accrued expenses       15,399        15,399         14,064           14,064
     Accrued on-site salaries and benefits        3,816         3,816          2,747            2,747
     Credit Facility
                                                 57,000        57,000         23,000           23,000
     Other notes payable, including
      current portion                             6,327         6,327            690              690
     Real Estate related debt (Great
      Atlantic portfolio)                        71,152        71,152            --               --
     Off-balance sheet instruments:
     Financial guarantees                           --          8,285            --             8,637
</TABLE>

    The estimated fair value of the financial instruments has been determined 
based on pertinent information available to management at December 31, 1996. 
The basic assumptions used and the estimates disclosed represent management's 
best judgment of appropriate valuation methods. In certain cases, fair values 
are not subject to precise quantification or verification and may change as 
economic and market factors, and management's evaluation of those factors, 
change. Although management uses its best judgment in estimating the fair 
value of these financial instruments, there are inherent limitations in any 
estimation technique. Therefore, these fair value estimates are not 
necessarily indicative of the amounts that the corporation would realize in a 
market transaction. The following methods and assumptions were used to 
estimate the fair value of each class of financial instruments for which it 
is practicable to estimate the value.

    The carrying amount of cash and cash equivalents, receivables, on-site 
cost reimbursement receivable, accounts payable and accrued expenses, and 
accrued on-site salaries and benefits approximates fair value because of the 
short-term maturity of these instruments.

    The fair value of notes receivable are estimated by discounting estimated 
future cash flows using current rates at which similar loans would be made to 
borrowers with similar credit ratings.

    The fair value of the Credit Facility approximates carrying value because 
the interest rate on this debt changes with market interest rates.


                                     F-36
<PAGE>

    The fair value of other notes payable and the Real Estate related debt 
approximates carrying value as these notes either have a stated interest rate 
comparable to a current market interest rate for similar obligations, or, if 
non-interest bearing, have been recorded at a discount based on a current 
market interest rate for similar obligations.

    The fair value of financial guarantees is based on the estimated cost to 
settle the obligations.

(16) 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 11, 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.

     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.


                                     F-37
<PAGE>

(17) SUBSEQUENT EVENTS

     1997 ACQUISITIONS

     In November 1996, the Company and Property Resources Corporation ("PRC") 
signed an agreement to enter into three separate joint ventures (the "PRC 
Acquisition"). The Company purchased a 15% interest in NHP/PRC Management 
Company, LLC ("NHPPRC"), a limited liability property management company, 
from PRC. NHPPRC is the management agent for a portfolio of 19 HUD subsidized 
properties containing 2,426 apartments in New York City and will subcontract 
the management of these properties to the Company. Because the Company has 
voting control over this entity, the results of NHPPRC will be consolidated 
with those of the Company and PRC's interest will be accounted for as a 
minority interest.

     The Company and PRC also formed Aptek Management Co. LLC which will 
provide property management services for third party-owned condominiums, 
cooperatives, public housing, university and hospital housing in the New York 
metropolitan region. In addition, the Company and PRC formed Aptek 
Maintenance Services, LLC, which will provide maintenance services for 
Company-managed properties and third-party-owned properties where 
competitive, initially in New York. Both Aptek Management Co. LLC and Aptek 
Maintenance Services, LLC are owned equally by PRC and the Company but PRC 
will control and oversee their operations. These two joint ventures will be 
accounted for under the equity method of accounting.

     The PRC Acquisition closed in escrow in late 1996 but did not receive HUD 
2530 approval until January 1997. Therefore, for financial accounting  
purposes, the transaction will be accounted for as a 1997 acquisition. Total 
consideration paid by the Company to PRC was approximately $1.4 million, 
including a commitment to issue approximately 31,000 shares of the Company's 
common stock in five years, or the cash equivalent of its then current market 
value. As part of the transaction, PRC has the right to require the Company, 
at any time, upon 30 days' notice through January 2002, to purchase the 
remaining 85% interest of NHPPRC for $3.8 million. In conjunction with the 
transaction, the Company lent $4.2 million to PRC under a promissory note. 
The note has a rate of 7% and requires PRC to make quarterly interest 
payments with the principal amount due in January 2002.

     In January 1997, the Company acquired all of the outstanding shares of 
Broad Street Management, Inc. ("Broad Street"), a Columbus, Ohio-based 
property management company for approximately $1.8 million. Broad Street, as 
a wholly owned subsidiary, will continue to manage a portfolio of 17 
apartment communities aggregating 1,942 units, located in Columbus, Ohio, 
Louisville, Kentucky and Augusta, Georgia. The acquisition will be accounted 
for under the purchase method of accounting.

     On April 16, 1997, Washington Mortgage Financial completed the 
acquisition of certain assets from Askew Investment Company for $4.6 million. 
The acquisition will be accounted for under the purchase method of accounting.

     AMENDMENT TO CREDIT FACILITY

     In February 1997, the terms of the Company's $75 million Credit Facility 
were amended. The significant changes in the agreement include the allowance 
of up to $100 million in additional senior unsecured term debt, an increase 
in the amount of unsubordinated borrowing allowed in connection with 
acquisitions from $10 million to $25 million, and a reduction in the Credit 
Facility's overall pricing. The interest rate has been reduced from The First 
National Bank of Boston's base rate or LIBOR plus 175 basis points to a 
sliding scale rate which ranges from LIBOR


                                     F-38
<PAGE>

plus 75 basis points to LIBOR plus 125 basis points, depending on the 
Company's ratio of debt to EBITDA. In addition, the commitment fee on the 
unused portion of the Credit Facility may be reduced from 37.5 basis points 
per annum to 25 basis points per annum, also depending on the ratio of debt 
to EBITDA.

(18) QUARTERLY FINANCIAL AND OPERATING DATA (UNAUDITED)

     The following table sets forth certain unaudited quarterly financial and 
operating data for the years ended December 31, 1996 and 1995. The Company 
believes that the following selected quarterly information includes all 
adjustments necessary for a fair presentation, in accordance with generally 
accepted accounting principles (dollars in thousands except per share 
amounts).

<TABLE>
<CAPTION>
                                                                           1996 Quarters 
                                                           --------------------------------------------
                                                           First       Second       Third       Fourth
                                                           -----       ------       -----       ------
<S>                                                      <C>          <C>         <C>          <C>
Total revenue                                            $45,805      $46,746     $47,934      $54,494
Operating income                                           5,080        4,963       4,760        5,874
Income from continuing operations before extraordinary
 item                                                      2,803        2,504       2,141        3,017
Income from discontinued operations                          --           421         182          552
Income before extraordinary item                           2,803        2,925       2,323        3,569

Per common share:
  Income from continuing operations before extraordinary
    item                                                 $   .22      $   .20     $   .17      $   .24
  Income from discontinued operations                        --           .03         .01          .04
  Income before extraordinary item                           .22          .23         .18          .28
  Dividends declared (a)                                     --            --          --           --

Stock price:
  High                                                   $19 5/8      $20 5/8     $20 7/8      $    19
  Low                                                         17       17 5/8      16 5/8       15 1/4

<CAPTION>
                                                                        1995 Quarters (Restated)       
                                                            --------------------------------------------
                                                            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    (4,493)         589         133           --
Income before extraordinary item                          (2,611)       3,334      23,853        3,266

Per common share:
  Income from continuing operations before
   extraordinary item                                    $   .24      $   .35     $  2.35     $    .26
  Income (loss) from discontinued operations                (.46)         .06         .02           --
  Income before extraordinary item                          (.22)         .41        2.37          .26
  Dividends declared (a)                                      --           --          --           --


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

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


                                      F-39
<PAGE>

(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.

                                      F-40


<PAGE>

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

 (a) 3 Exhibits

   
       Exhibit 23.1  -  Consent of Arthur Andersen LLP dated October 27, 1997.
       Exhibit 23.2  -  Consent of Deloitte & Touche LLP dated October 27, 1997.
       Exhibit 23.3  -  Consent of Anders, Minkler & Diehl LLP dated
                        October 27, 1997.
       Exhibit 23.4  -  Consent of Dauby O'Connor & Zaleski, LLC dated
                        October 27, 1997 
       Exhibit 23.5  -  Consent of Edwards Leap & Sauer dated October 27, 1997.
       Exhibit 23.6  -  Consent of George A. Hieronymous & Company, LLC dated
                        October 27, 1997.
       Exhibit 23.7  -  Consent of Goldenberg Rosenthal Friedlander, LLP dated
                        October 27, 1997.
       Exhibit 23.8  -  Consent of Hansen, Hunter & Kibbee, P.C. dated
                        October 27, 1997.
       Exhibit 23.9  -  Consent of J. H. Cohn LLP dated October 27, 1997.
       Exhibit 23.10 -  Consent of J. A. Plumer & Co., P.A. dated 
                        October 27, 1997.
       Exhibit 23.11 -  Consent of Marks Shron & Company, LLP dated
                        October 27, 1997.
       Exhibit 23.12 -  Consent of Reznick Fedder & Silverman dated
                        October 27, 1997.
       Exhibit 23.13 -  Consent of Russell Thompson Butler & Houston dated
                        October 27, 1997.
       Exhibit 27    -  Amended Financial Data Schedule
    
                                       2
<PAGE>
                                      SIGNATURES
                                           
                                           
    Pursuant to the requirements of the Securities Exchange Act of 1934, the 
registrant has duly caused this report to be signed on its behalf by the 
undersigned hereunto duly authorized.


                                         NHP INCORPORATED
                                         (Registrant)



                                    By:  /s/ Ann Torre Grant  
                                         Ann Torre Grant
                                         Executive Vice President,
                                         Chief Financial Officer
                                         and Treasurer (Authorized Officer
                                         and Principal Financial Officer) 
   
Dated October 27, 1997
    



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