SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

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

                                    FORM 10-K

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

(MARK ONE)

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

For the fiscal year ended  MARCH 31, 1996

                                       OR

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

For the transition period from               to
                              ---------------  ---------------

                          Commission file number 0-5097

                           UNITED VANGUARD HOMES, INC.
--------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

                Delaware                              11-2032899
--------------------------------------------------------------------------------
    (State or other jurisdiction of      (I.R.S. employer identification no.)
     incorporation or organization)    

4 Cedar Swamp Road, Glen Cove, New York                  11542
--------------------------------------------------------------------------------
(Address of principal executive offices)               (Zip code)

Registrant's telephone number, including area code: (516) 759-1188

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

                                      None

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

                          Common Stock, $.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 or any
amendment to this Form 10-K. / /

         As  of  September  30,  1996,   the  aggregate   market  value  of  the
Registrant's  outstanding  voting  Common  Stock held by  non-affiliates  of the
Registrant was $4,219,408. This amount is based on $8.50 per share, the midpoint
of the proposed public offering price range. See "Item 1. BUSINESS."  Solely for
purposes of this  calculation,  shares held by directors of the Registrant  have
been  excluded.  Such  exclusion  should  not be  deemed a  determination  or an
admission by the Registrant that such  individuals  are, in fact,  affiliates of
the Registrant.

         As of September 30, 1996,  there were 2,240,950  shares  outstanding of
the Registrant's Common Stock, $.01 par value.

                       DOCUMENTS INCORPORATED BY REFERENCE

         None.
<PAGE>

                                     PART I
Item 1.  BUSINESS
         THIS REPORT  CONTAINS  CERTAIN  FORWARD-LOOKING  STATEMENTS  WITHIN THE
MEANING OF SECTION 27A OF THE  SECURITIES  ACT OF 1933, AS AMENDED,  AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, WHICH ARE INTENDED TO BE
COVERED BY THE SAFE  HARBORS  CREATED  HEREBY.  ALL  FORWARD-LOOKING  STATEMENTS
INVOLVE RISKS AND  UNCERTAINTY,  INCLUDING  WITHOUT  LIMITATION,  THE SUCCESSFUL
CONSUMMATION  OF THE OFFERINGS (AS  HEREINAFTER  DEFINED),  THE  ACQUISITION  OF
HARVEST VILLAGE AND TURNAROUND STRATEGIES FOR SENIOR LIVING FACILITIES. ALTHOUGH
THE REGISTRANT  BELIEVES THAT THE  ASSUMPTIONS  UNDERLYING  THE  FORWARD-LOOKING
STATEMENTS  CONTAINED  HEREIN ARE REASONABLE,  ANY OF THE  ASSUMPTIONS  COULD BE
INACCURATE,  AND THEREFORE,  THERE CAN BE NO ASSURANCE THAT THE  FORWARD-LOOKING
STATEMENTS  INCLUDED IN THIS REPORT WILL PROVE TO BE  ACCURATE.  IN LIGHT OF THE
SIGNIFICANT  UNCERTAINTIES  INHERENT IN THE FORWARD-LOOKING  STATEMENTS INCLUDED
HEREIN,  THE  INCLUSION  OF  SUCH  INFORMATION  SHOULD  NOT  BE  REGARDED  AS  A
REPRESENTATION  BY THE  REGISTRANT OR ANY OTHER PERSON THAT THE  OBJECTIVES  AND
PLANS OF THE REGISTRANT WILL BE ACHIEVED.

GENERAL

         United Vanguard  Homes,  Inc., a Delaware  corporation,  was originally
organized  on  September  26,  1988  ("Old  UVH") in order  to  combine  various
activities  relating to the  development,  ownership  and  management  of senior
living facilities organized and operated by Vanguard Ventures, Inc. ("Vanguard")
and its  principals  beginning in 1980.  On March 30, 1993,  Old UVH merged into
Coap Systems Inc. ("Coap"), a relatively inactive,  publicly-owned subsidiary of
Vanguard,  and  simultaneously  Coap changed its name to United  Vanguard Homes,
Inc.  Although  the Company is subject to the  information  requirements  of the
Securities Exchange Act of 1934, as amended, there are less than 6,000 shares of
the Company's  common stock,  $.01 par value per share  ("Common  Stock") in the
public float and there is no public market for the Common Stock.  The Company is
currently a majority-owned  subsidiary of Vanguard. United Vanguard Homes, Inc.,
its predecessor and subsidiaries are hereinafter collectively referred to as the
Registrant.

         The  Registrant  has filed a  Registration  Statement on Form SB-2 (No.
33-80812)  for sale to the public of up to 2,070,000  shares of Common Stock and
2,070,000 common stock purchase warrants ("Warrants"),  each Warrant to purchase
one-half share of Common Stock (the "Common Stock Offering"). The Registrant has
also filed a  Registration  Statement on Form SB-2 (No.  333- 09037) for sale to
the public of up to  $14,375,000  aggregate  amount  Convertible  Senior Secured
Notes Due 2006 (the  "Notes  Offering,"  and,  together  with the  Common  Stock
Offering,  the  "Offerings").  The notes to be sold in the Notes  Offering  (the
"Notes")  are to be  convertible  into shares of Common  Stock.  The  Registrant
expects that the Offerings will commence as soon as market  conditions  improve.
Upon   consummation   of  the  Offerings,   the  Company  will  cease  to  be  a
majority-owned subsidiary of Vanguard.


                                       -2-
<PAGE>

         On June 21, 1996, the Board of Directors of the Registrant  declared it
advisable and in the best interests of the Registrant and directed that there be
submitted to the stockholders a proposed  1-for-1.6667 reverse split of the then
issued and outstanding shares of Common Stock (the "Reverse Split"). On June 21,
1996, of the 3,723,129 shares of Common Stock outstanding,  2,726,769 shares (or
73.2%) delivered written consents to the Registrant  adopting the Reverse Split.
The effect of the Reverse  Split upon holders of Common Stock was that the total
number of shares of the  Registrant's  Common Stock held by each Stockholder was
automatically converted into the number of whole shares of Common Stock equal to
the number of shares of Common  Stock  owned  immediately  prior to the  Reverse
Split  divided by 1.6667,  adjusted,  as  described  below,  for any  fractional
shares. Each Stockholder's  percentage  ownership interest in the Registrant and
proportional  voting  power  remained  unchanged,  except for minor  differences
resulting from adjustments for fractional  shares.  The rights and privileges of
the  holders of shares of Common  Stock  were  substantially  unaffected  by the
Reverse Split. No certificates or scrip  representing  fractional  shares of the
Registrant's  Common  Stock were issued to  Stockholders  because of the Reverse
Split.  All  fractional  shares of one-half  share or more were increased to the
next  higher  whole  number of shares,  and all  fractional  shares of less than
one-half  share  were  decreased  to the next  lower  whole  number  of  shares,
respectively.

         The  Board  of  Directors  believed  the  Reverse  Split  was the  most
expeditious  and  cost-effective  method  by  which  the  capitalization  of the
Registrant  could be restructured to conform to the terms of the Offerings.  The
effective date of the Reverse Split was August 30, 1996.

         The  Registrant  is an owner,  manager and  developer of senior  living
facilities which provide housing and various levels of care and services for the
elderly.


                                             FISCAL YEAR ENDED MARCH 31,

                                          1994           1995          1996
                                          ----           ----          ----
Statement of Operations Data:                       (in thousands)

   Revenues:

         Resident services.........     $ 4,765       $ 4,887       $ 4,966

         Healthcare services.......       2,464         2,491         2,555

         Development fees..........         150           700         1,004
                                         ------        ------       -------

            Total revenues.........      $7,379        $8,078        $8,525


         Senior living facilities provide a combination of housing, personalized
support and healthcare  services  generally  identified as  INDEPENDENT  LIVING,
ASSISTED LIVING and SKILLED NURSING.  INDEPENDENT LIVING facilities are designed
to enable  residents  to live  independently  yet remain free from the chores of
home  ownership  and  concerns  of  daily  life,  such as  transportation,  meal
preparation,  personal  security and  housekeeping.  ASSISTED LIVING  facilities
offer a combination of


                                       -3-
<PAGE>

housing and personal  care and  healthcare  services  designed to respond to the
individual  needs of those who require help with the  activities of daily living
but  are  not  sick or  bedridden.  SKILLED  NURSING  facilities  are for  those
residents who require  extensive care. A continuing  care  retirement  community
("CCRC")  provides all three levels of services  (independent  living,  assisted
living and skilled  nursing) in the same  facility,  whereas  other  facilities,
known as  congregate  care  facilities,  provide  only  independent  living  and
assisted living services.

         The Registrant  currently owns and manages three  properties  (Hillside
Terrace,  Olds  Manor  and The  Whitcomb)  and  manages a fourth  property,  The
Whittier,  which is owned by Vanguard.  Upon the  successful  completion  of the
Offerings,  the Registrant will own and manage an additional  property,  Harvest
Village, a 360-unit senior living facility located in Atco, New Jersey ("Harvest
Village"). See "--Proposed Acquisition." The five properties mentioned above are
hereinafter referred to collectively as the "Initial Properties."

         Two of the Initial  Properties are independent  living  facilities with
assisted living services, as required,  provided by outside homecare agencies of
the residents' choice, and the remaining three Initial Properties are CCRCs. The
Initial Properties contain 1,071 apartments and nursing units. Additionally, the
Registrant is in the process of  developing,  acquiring or leasing for itself or
on behalf of others,  eight  facilities  expected to contain  approximately  780
apartments and nursing units. One of these facilities  (containing 201 apartment
and nursing units) is currently under  construction,  and two others (containing
168 apartment units) have received zoning approval;  two proposed facilities are
in the zoning process and three are subject to acquisition or lease  agreements.
Of the eight  properties,  one is a CCRC, six are assisted living facilities and
one is an  expansion  at one of the  Initial  Properties  to add 64  independent
living units.  The  Registrant's  three-year  expansion  objective is to develop
principally  for others at least 24 senior living  facilities,  consisting of 20
assisted living facilities and four CCRCs with an estimated  aggregate  capacity
of  approximately  3,000  units.  The  purchase  of  nine  other  sites  for the
development of senior living facilities are currently being negotiated.

         As residents of senior living facilities "age-in-place," they generally
require more  assistance.  In each of the  Registrant's  currently  owned and/or
managed senior living facilities,  a significant shift in the needs of residents
from  independent  living  services to assisted living services has taken place,
and to accommodate  residents,  the Registrant is in the initial stages, subject
to  regulatory  approval,  of  converting  a number  of its  independent  living
apartments in each of the Initial Properties to assisted living units.

         The Registrant's growth objective is to capitalize on the experience of
its management  team in the senior living industry and on the growing demand for
senior living facilities as an increasingly  preferred lifestyle for the elderly
by (i)  providing a full range of  high-quality  personalized  resident care and
services;  (ii) pursuing  development  opportunities  for itself or on behalf of
others;  and  (iii)  acquiring  properties  in the open  market or  through  the
exercise of purchase options obtained in the development process.


                                       -4-
<PAGE>

         The  Registrant   believes  that  its  business  will  benefit  in  the
foreseeable   future  from  significant  trends  affecting  the  long-term  care
industry, including an increase in the demand for senior care resulting from the
aging of the U.S.  population,  efforts to contain  healthcare costs by both the
public and private sector and the  increasing  financial net worth of the senior
population  which  makes the senior  living  facility an  available  option to a
broader  market.  The  Registrant  believes  that these  trends  will  result in
increasing  demand for senior  living  facilities  that  generally  offer a more
secure, trouble-free environment and improved quality of life.

PROPOSED ACQUISITION

         On April  19,  1996,  the  Registrant  entered  into an  agreement,  as
amended,  to purchase  Harvest  Village from Harvest Village  Partners,  L.P., a
Delaware limited partnership  ("Harvest Partners") and an affiliate of Vanguard.
The purchase by the  Registrant of Harvest  Village is  contingent  upon certain
events,  including the consummation of the Offerings and the satisfaction of the
Harvest  Village  construction  loan  mortgage.  The purchase  price for Harvest
Village is $17,400,000,  consisting of (i)  $13,500,000  cash (which may include
the  assumption of a first mortgage in the amount of  $12,500,000)  and (ii) the
assignment to Vanguard of a promissory  note in the amount of $7,481,953  due to
the  Registrant  from  Gateway  Communities,   Inc.  ("Gateway"),   a  501(c)(3)
organization (as hereinafter  defined)  organized under Michigan  not-for-profit
corporation  law, the lessee of Harvest Village from Harvest  Partners,  and the
cancellation of $6,094,000 of debt owed to the Registrant by Vanguard, which the
parties, based upon an appraisal,  have deemed to collectively have a stipulated
value of $3,900,000.  In addition,  Harvest  Partners will assign the lease with
Gateway to the Registrant.  The Registrant will enter into a management contract
with Gateway to operate and manage Harvest Village,  subject to the consummation
of the  Offerings.  The  Registrant  will have an option to terminate  Gateway's
lease in exchange for a sum equal to the fair value of the lease. The Registrant
does not anticipate  exercising this option until Harvest Village has attained a
stabilized occupancy rate in excess of 90%.

BUSINESS STRATEGY

         GENERAL.   The  Registrant's   business  strategy  is  based  upon  the
experience  of its  management  team in the senior  living  industry  and on the
growing demand for senior living  facilities as an  increasingly  preferred life
style for the elderly. The Registrant intends to capitalize on these two factors
by (i)  providing a full range of  high-quality  personalized  resident care and
services;  (ii) pursuing  development  opportunities  for itself or on behalf of
others;  and  (iii)  acquiring  properties  in the open  market or  through  the
exercise of purchase options obtained in the development process.

         PERSONALIZED  RESIDENT CARE AND SERVICES.  The Registrant believes that
income  qualified  elderly would choose  residential  CCRCs and assisted  living
facilities over skilled nursing facilities when given the choice. The Registrant
believes that the elderly would choose the residential  assisted living facility
alternative because of the significant quality of life advantages which they


                                       -5-
<PAGE>

offer.  Consequently,  providing a high  quality of life for its  residents in a
safe,  healthy and secure  environment  is the  foundation  of the  Registrant's
business strategy.

         In  furtherance  of this  strategy,  the  Registrant has structured its
senior living  facilities to offer residents a supportive,  "home-like"  setting
and  availability of assistance with  activities of daily living  ("ADLs").  Its
facilities are, in many respects,  similar to conventional apartment living with
enhanced  services  allowing  residents a more  independent and social lifestyle
than they would  receive in a skilled  nursing  facility  or, in most cases,  at
home.  At the same time,  support is  provided  in a manner  sufficient  to meet
residents' requirements. General services in the Registrant's residences include
the provision of three meals per day,  laundry,  housekeeping  and  maintenance.
Available support services include personal and routine nursing care, social and
recreational services and transportation. Personal care includes assistance with
activities such as bathing, dressing, personal hygiene, grooming, and eating and
ambulating.  The Registrant  also provides or makes  available  routine  nursing
services (in addition to its skilled nursing facility services),  entertainment,
banking and shopping.  Generally,  however, the Registrant is able to tailor the
changing needs of its residents through the use of individual  service contracts
and flexible staffing patterns.

         DEVELOPMENT  OPPORTUNITIES.  Operating revenues and management fees are
generally  stable once a facility is fully  occupied.  At that point,  growth in
revenue of the Registrant becomes dependent upon development and management fees
received  through the  development  and  management of additional  senior living
facilities  on  behalf  of  others.   Consequently,   the  second  part  of  the
Registrant's  business  strategy  is to  increase  the  number of senior  living
facilities  it develops  and manages for itself or on behalf of others,  in part
through a strategy  whereby the  Registrant  may enter into an agreement with an
unaffiliated  third-party  entity,  which may be a  not-for-profit  organization
exempt from  federal  income taxes under ss.  501(c)(3) of the Internal  Revenue
Code of 1986, as amended (the "Code") (a "501(c)(3) organization"), to develop a
senior living facility for such entity.  The Registrant would generally  attempt
to obtain a management  agreement to operate the facility upon its completion as
well as a fair market  value  option to purchase  the facility at a future time.
Through  this type of  transaction,  if the  unaffiliated  entity is  adequately
financed,  the  Registrant  would not incur the start-up  development  costs and
operating losses typically associated with the development and initial operation
of a senior  living  facility  because  the  Registrant  would not be the owner.
However, prior to entering into such agreement, the Registrant may incur certain
initial  expenses  associated  with its site selection  process.  The Registrant
would earn a development  fee for the  development of the senior living facility
and a management fee for its operation and might exercise its option, if any, to
purchase the senior living facility. The unaffiliated  third-party entity (which
would often be a 501(c)(3) organization) would benefit through the attainment of
a turnkey  senior living  facility.  There can be no assurance  that a 501(c)(3)
organization will be willing to enter into such a contractual  arrangement,  and
moreover,  there  can be no  assurance  that  this  form  of  transaction  for a
501(c)(3) organization will withstand regulatory challenge. To date, neither the
Registrant nor any of the 501(c)(3)  organizations involved with Vanguard or the
Registrant  has received any inquiry or comment  from any  regulatory  authority
with respect to its contractual arrangements with 501(c)(3) organizations.


                                       -6-
<PAGE>

         The  Registrant's  development  program  will  initially  focus on site
selection  and  residence  size,  both of  which  the  Registrant  believes  are
essential  to  the  success  of  its  development   projects.  In  evaluating  a
prospective  development  site,  the  Registrant  will  consider  primarily  the
strength of the market demand and the ability to maximize the  efficiency of its
management  resources  in a  specific  market  or  "cluster."  Accordingly,  the
Registrant  intends to select sites so that it can strategically  place three to
five senior  living  facilities  within a 200-mile  radius,  creating a regional
cluster of senior living facilities. The Registrant believes that the clustering
concept will allow it to reduce costs by sharing certain  management,  marketing
and operational resources within the regional cluster. The Registrant intends to
locate  its  assisted   living   facilities  in   well-established   residential
neighborhoods in communities  where the population  typically ranges from 40,000
to 100,000 people. The size of a typical community for a CCRC would generally be
somewhat  larger,  ranging between  100,000 and 500,000  people.  The Registrant
intends to pursue the  development  of senior living  facilities in  communities
that show a strong need for senior  living  services  and a higher than  average
percentage  of  middle-aged  or  elderly  individuals.  Other  factors  that are
considered in the site selection  process include the level of competition,  the
local labor market,  the state and local legislative and regulatory  environment
and the presence of strong community support for senior living facilities.

         Once a site is selected, the Registrant may either advance funds to the
unaffiliated  third-party owner of the facility, which funds would be secured by
the assets of the  unaffiliated  third-party  entity  acquired with the advanced
funds,  principally the land for the proposed facility,  or expend funds itself,
on behalf of the third  parties.  To the extent such advances are not secured by
land, they will be reserved as uncollectible  until the unaffiliated  entity can
repay the advances.  The Registrant will be limited pursuant to the terms of the
Notes to be offered in the Notes  Offering to advance no more than $1.5  million
for any one senior living facility. While these advances may at times consist of
the  Registrant's  working capital  (including the proceeds from the Offerings),
the  Registrant  may also seek to arrange,  through  Vanguard or other  sources,
short term financing to satisfy the project's initial funding requirements.  The
Registrant  may set up a special  purpose  wholly-owned  subsidiary  which would
issue the debt, which debt may then be convertible into the Registrant's  Common
Stock.  It is intended that these  advances would be repaid from the proceeds of
construction  financing arranged by the Registrant on behalf of the unaffiliated
third-party  entity.  The  Registrant  may be  restricted  from  recording  as a
receivable  any advances to the  unaffiliated  third-party  entity under certain
circumstances.  The  Registrant  would  then,  pursuant  to project  development
agreements,  act  as  the  project  developer  for  what  would  typically  be a
development  fee of 7.5 percent of the project's  soft and hard costs.  Once the
project is  completed,  the  Registrant  may act as the manager of the  facility
pursuant to a management agreement,  which would provide for a management fee of
between four and five percent of the facility's gross revenue,  depending on the
type of facility.

         ACQUISITION  OF  PROPERTIES.   In  addition  to  the   development  and
management of senior living  facilities  for third  parties,  the Registrant may
acquire existing senior living  facilities.  These  acquisitions may be effected
either through the exercise of a purchase  option  obtained on properties  which
the  Registrant had developed for third parties or through  acquisitions  in the
open market.


                                       -7-
<PAGE>

         When  a  facility  managed  by  the  Registrant   attains  a  level  of
profitability  after the payment of debt service and  management  fees  (usually
after stabilized  occupancy in excess of 90% and at times lower depending on the
level of debt service) and the Registrant has a purchase option, the exercise of
the Registrant's option will be considered.

SERVICES AND AMENITIES

         GENERAL.  The Registrant's  senior living  facilities offer residents a
supportive,  "home-like"  setting and  availability of assistance with ADLs. The
independent  and assisted  living  community is very similar in many respects to
conventional  apartment living with enhanced  services allowing the residents to
live  independently  but yet  socialize  in a safe  environment.  Residents  are
individuals  who,  for a  variety  of  reasons,  cannot  live  alone  but do not
typically  need the 24-hour  skilled  medical care  provided in skilled  nursing
facilities.  Services  provided or available to these  residents are designed to
respond to their  individual  needs and to improve their  quality of life.  This
individualized  assistance is available 24 hours a day, to meet both anticipated
and unanticipated needs. General services in the Registrant's residences include
the provision of three meals per day,  laundry,  housekeeping  and  maintenance.
Available  support  services  provided  by  facility  staff or outside  agencies
include  personal and routine nursing care,  social and  recreational  services,
transportation  and  special  services  needed by the  resident.  Personal  care
includes assistance with activities such as bathing, dressing, personal hygiene,
grooming, as well as eating and ambulating assistance. Routine nursing services,
which are made available and are provided according to the resident's individual
need  and  state  regulatory   requirements,   include  assistance  with  taking
medication,  skin care and  injections.  Organized  activities are available for
social  interaction  and  entertainment.   Special  services  available  include
banking,  grocery  shopping  and pet care.  Although a typical  package of basic
services  provided  to a resident  includes  meals,  housekeeping,  laundry  and
personal care, the Registrant  does not have a standard  service package for all
residents.  Instead,  it is  able  to  accommodate  the  changing  needs  of its
residents through the use of individual  service contracts and flexible staffing
patterns.

         As the  Registrant's  residents  age,  the  level of care  required  by
particular residents is expected to increase. The Registrant's multi-tiered rate
structure  for the services it provides is based upon the acuity of, or level of
services  needed by, each  resident.  Supplemental  and  specialized  health and
personal care services for those residents requiring 24-hour supervision or more
extensive  assistance  with ADLs is provided  to the  residents  by  third-party
providers who are  reimbursed  directly by the resident or a  third-party  payor
(such as Medicaid or Medicare).  In the event that a resident's acuity reaches a
level such that the  Registrant  is unable to meet such  resident's  needs,  the
Registrant  maintains  relationships  with local  hospitals and skilled  nursing
facilities  to  facilitate  a  transfer  of  the  resident.  A  resident  of the
Registrant's  CCRCs would be transferred to the skilled nursing component at the
facility.

         Amenities common to the Initial Properties include  convenience stores,
barber shops and beauty parlors,  exercise and/or physical therapy rooms, pools,
clubrooms, music rooms, card rooms, mail facilities, communal kitchen and dining
areas, extensive  recreational  programs,  including arts and crafts, day trips,
parties, dinner dances, lectures, cards, pool tables, exercise


                                       -8-
<PAGE>

classes,  nature walks, movies, and other group activities,  church services and
healthcare monitoring. In addition, one of the Initial Properties, The Whittier,
has a swimming pool.

         Special design features for independent and assisted living  facilities
include large bathrooms with easy-to-operate fixtures and roll-in showers, wide,
barrier-free,  well-lighted corridors, handicap access to all building interiors
and exteriors, large storage spaces, emergency call systems, ramps and elevators
(in addition to stairs), extensive signage,  easy-to-operate kitchen appliances,
abundant common areas with  appropriate  seating and centralized  service areas.
All of the  Initial  Properties  have the  features  listed  above,  except only
Hillside  Terrace  and Harvest  Village  have an  emergency  call system for all
units; The Whitcomb, The Whittier and Olds Manor have emergency call systems for
selective units only.

         Three of the Initial  Properties  have skilled  nursing  units.  At the
Registrant's  other senior  living  facilities  arrangements  are made with home
healthcare  providers to fill most of the needs of those  residents  who require
skilled nursing  assistance when and if they become ill.  Phoenix Lifecare Corp.
("Phoenix"),  a  not-for-profit  entity  managed  by  the  Registrant,  provides
assisted  living and home healthcare  services to two of the Initial  Properties
(The Whitcomb and The  Whittier)  that are  independent  living  facilities  not
licensed to provide assisted living or healthcare services.

         In  connection  with the  Registrant's  purchase  of  Harvest  Village,
Gateway,  the current  lessee of Harvest  Village,  will enter into a management
agreement  with the  Registrant  for the  management  of  Harvest  Village.  The
Registrant will have the right to terminate  Gateway's lease for Harvest Village
upon the payment to Gateway of the fair market value of the lease at the time of
termination.  In  addition,  Vanguard and Harvest  Partners  have agreed to lend
Gateway $1.5 million for working capital  purposes after the consummation of the
Offerings.

REGISTRANT OPERATIONS

         MANAGEMENT.  The day-to-day  operations of each senior living  facility
are  managed by an on-site  administrator  who is  responsible  for the  overall
operation of the senior living facility,  including quality of care,  marketing,
social  services and financial  performance.  The  administrator  is assisted by
professional  and  non-professional  personnel,  some of whom may be independent
providers or part-time personnel, including nurses, personal service assistants,
maintenance and dietary personnel.  The routine nursing services are provided by
a nurse who is typically employed by the Registrant, subject to state regulatory
requirements.  The nursing hours vary  depending on the  residents'  needs.  The
Registrant consults with outside providers,  such as pharmacists and dieticians,
for purposes of medication  review,  menu planning and responding to any special
dietary needs of its residents.  Personal care,  dietary services,  housekeeping
and laundry services are performed  primarily by personal service assistants who
are full-time employees of the Registrant. In two of the Initial Properties, The
Whitcomb and The  Whittier,  which are not licensed to provide  personal care or
nursing services, such services are provided by third-party contractors.


                                       -9-
<PAGE>

         The  Registrant  provides  management  services  to each of its  senior
living  facilities which include the development of operating  standards and the
provision of  recruiting,  training and accounting  services.  It is anticipated
that, as the  Registrant  grows,  it will establish  regional  offices that will
include a regional manager to oversee six to ten senior living  facilities.  The
regional  manager will be responsible for monitoring and supervising all aspects
of operations in the region,  including reviewing and monitoring compliance with
corporate  policies and  procedures  and acting as a liaison  between the senior
living facilities and corporate headquarters.

         Presently,   senior  living  facility  personnel  are  supported  by  a
corporate staff based at the Registrant's headquarters. Corporate personnel work
with the  on-site  administrator  with  respect to the  establishment  of senior
living facility goals and strategies,  quality assurance oversight,  development
of Registrant  policies and procedures,  development and  implementation  of new
programs, cash management and treasury functions,  human resource management and
development.

         The Registrant's  executive team has been carefully selected based upon
each member's  knowledge  and  experience in the senior living field and related
areas.  The  Registrant  has sought  talented  self-starters  who are capable of
handling many aspects of the senior living  business.  The  Registrant  believes
that a  successful  senior  living  facility  is  operationally  related  to the
hotel/hospitality  field and programmatically  related to the residential/social
model of healthcare.

         MARKETING. The Registrant's senior living facilities provide affordably
priced  housing,  personalized  support and  healthcare  services and  primarily
target private-pay  residents.  By targeting senior living facility  development
projects  primarily  in  upper  middle  income  communities  and by  maintaining
competitive  pricing,  the  Registrant  believes it will be able to achieve high
occupancy  levels.  The  Registrant  has found an  effective  niche in the upper
middle income market  between the high income  prospect who can afford to obtain
services at home and the low income  prospect  who cannot  afford to live in the
Registrant's senior living facilities.

         For its assisted  living  facilities,  the  Registrant  targets  senior
citizens  who,  although  generally  ambulatory,  need help  with the ADLs.  For
instance,  a typical prospective  resident for the Registrant's  assisted living
facilities may not be eating properly,  may not be taking medication properly or
may be forgetful and need assistance with activities such as bathing,  dressing,
medication  monitoring,  transportation  and diet  monitoring.  The Registrant's
target market also includes senior citizens who are socially  isolated or unable
to perform housework,  such as cooking, yardwork or home repairs or maintenance.
The  Registrant's  strategy  is to develop in each  assisted  living  facility a
setting with a wide range of related services  provided to serve primarily those
individuals  whose care requirements fall between a typical nursing facility and
the independent living provided in a private home or a congregate care facility.
The Registrant assesses the level of need of each resident regularly.

         The  marketing  of  independent  living  facilities  is done  through a
combination of media and direct mail  advertising,  referrals from residents and
various centers of influence (e.g., hospital administrators,  religious leaders,
service clubs, attorneys, accountants, bankers, etc.) and various


                                      -10-
<PAGE>

types of social functions at a senior living facility. Marketing assisted living
facilities  is  better  accomplished  through  networking  with  major  referral
sources.  During the  rent-up  stage of a project,  the  marketing  staff  would
consist of a Director of  Marketing,  two sales  persons,  and a secretary.  The
senior living facility's administrator would also assist with special events and
market-oriented   social   affairs.   After  the  senior   living   facility  is
substantially  rented,  the  staff  can be  reduced  to a  single  or  part-time
Marketing Director and secretary.

PAYING FOR SENIOR LIVING CARE

         The residents of CCRCs and assisted living facilities or their families
generally pay the cost of care from their own financial resources.  Depending on
the  nature of an  individual's  health  insurance  program  or  long-term  care
insurance  policy,  the  individual may receive  reimbursement  for the costs of
care.

         Government  payments for assisted  living outside of a skilled  nursing
facility have been limited.  Some state or local governments offer subsidies for
rent or services  for low income  elderly.  Others may provide  subsidies in the
form of additional payment for those who receive SSI payments. Medicaid provides
reimbursement for certain financially or medically needy persons,  regardless of
age, and is funded  jointly by federal,  state and local  governments.  Medicaid
reimbursement  varies from state to state.  According to the Report on Long-Term
Care published in February 1994,  only 11 states have Medicaid  Waiver  programs
that allow  them to pay for  assisted  living  care.  Without a Medicaid  Waiver
Program,  states can only use federal Medicaid funds for care in skilled nursing
facilities.

         Potential  residents  of Cottage  Grove Place and  Harvest  Village are
required to pay an  application  fee upon  submission  of each  application.  At
Harvest Village, for example,  applicants are required to pay an application fee
of $500 per residency agreement. Additionally, new residents are required to pay
an entrance  fee that ranges from $40,000 to  $147,000.  The specific  amount is
determined  by (i) the type of residency  agreement  signed by each resident and
(ii) the size of the apartment that is chosen by the resident.  Harvest  Village
has two  different  types of residency  agreements.  One is called the Return of
Capital  Residency  Agreement  the  other  is  entitled  Traditional   Residency
Agreement.

         The Return of Capital  Residency  Agreement  allows the  resident to be
eligible for a partial  reimbursement of up to 90% of the entrance fee, and upon
the resident's death, the estate may be eligible for partial reimbursement of up
to 90% of the  entrance  fee.  Partial  resident  reimbursement  is  subject  to
deductions specified in the agreement and will be paid only after receipt of the
proceeds  paid  by a  new  resident.  Under  the  Return  of  Capital  Residency
Agreement,  if a resident is permanently  assigned to the healthcare center, the
resident  will pay a healthcare  fee each month and 90% of the entrance fee will
be amortized at 2% for each full or partial month the resident  receives care in
the healthcare center.

         Under the Traditional  Residency Agreement admission payments are lower
than under the Return of Capital Residency Agreement. Any refund of the entrance
fee is determined by length


                                      -11-
<PAGE>

of residency; amortization of the entrance fee for care in the healthcare center
does not apply. If the resident is permanently assigned to the healthcare center
the  resident  will pay the  healthcare  fee for each  month or  partial  month.
Amortization of the entrance fee does not apply. The resident is responsible for
the cost of two  additional  meals or  medical  treatment,  prescription  drugs,
prescribed therapy,  nursing supplies and other medical  miscellaneous  supplies
and services  associated  with medical  treatment.  The  healthcare fee includes
semi-private  room,  one  meal  per day and  basic  nursing  care.  There  is an
additional service fee when a second person shares a living unit.

GOVERNMENT REGULATION OF SENIOR LIVING FACILITIES

         In general,  senior  living  facilities  and  healthcare  services  are
subject to extensive government  regulation.  The senior living facilities owned
and managed by the  Registrant  are subject to state  regulation  and  licensing
requirements and to CON or similar statutes under which a proposed operator must
demonstrate  public need for skilled  nursing beds or assisted  living units and
satisfy other criteria.  The operators of those facilities must also comply with
any cost  reporting  or other  reporting  requirements  imposed by the  Medicaid
program as well as any reimbursement  limitations on amounts that may be charged
to the  program  or to  program  beneficiaries.  In order to  qualify as a state
licensed  facility and,  where  applicable,  qualify for Medicaid  reimbursement
and/or resident SSI supplemental  payments,  the senior living  facilities owned
and managed by the Registrant must comply with regulations  that address,  among
other  things,  staffing,   physical  design,  required  services  and  resident
characteristics.  Such  facilities  are also subject to various  local  building
codes and similar  ordinances,  including fire safety codes.  These requirements
vary from state to state and are monitored by varying state and local agencies.

         Currently,  assisted living facilities are not regulated as such by the
federal government.  Current state requirements for assisted living providers in
many states are  typically  less  stringent  than the  requirements  for skilled
nursing  facilities.  Management  anticipates that states that regulate assisted
living  facilities,  to the  extent  they do not  already  do so,  will  require
licensure as an assisted living facility and will establish varying requirements
with respect to such licensure.  The facilities  that the Registrant  intends to
develop and manage in New York and Florida will apply for appropriate licensure.
In  addition,  the  Registrant  expects  that  it,  or the  facilities  that the
Registrant  manages,  will obtain  licenses in other states as  required.  Under
current New York law, a public for-profit corporation such as the Registrant may
own the land and  buildings  in which a  nursing  facility  or  assisted  living
facility  (denoted  under New York law as an "adult home") is located but is not
eligible  to be the  licensed  operator  of  the  facility.  It is  anticipated,
therefore, that a not-for-profit entity or other legally eligible person will be
the licensed  operator of the New York  facilities and that the Registrant  will
enter into lease, management and/or other service contract arrangements with the
licensee.

         The  facilities  owned and  managed by the  Registrant  are  subject to
periodic survey or inspection by governmental authorities. From time to time, in
the  ordinary  course  of  business  a  facility  may be  cited  for one or more
deficiencies  which  are  typically  addressed  in a plan of  correction  by the
facility. None of the Initial Properties is subject to any proceedings to revoke


                                      -12-
<PAGE>

any of its licenses nor is the  Registrant  aware of any  conditions  that could
reasonably lead to such  proceedings.  The Registrant  believes that the Initial
Properties  are  in  substantial   compliance  with  all  applicable  licensing,
reimbursement and similar regulatory requirements.

         The  Registrant  and the  facilities  it  manages  are also  subject to
various state and federal "fraud and abuse" laws, including  "anti-kickback" and
"physician  self-referral"  laws. The federal  "anti-kickback" law prohibits the
knowing and willful solicitation,  receipt or offering of any direct or indirect
remuneration or consideration to induce or in exchange for referrals of patients
or for the  ordering  of services  covered by  Medicaid or Medicare  and certain
other state healthcare programs.  The federal  "self-referral" law, known as the
Stark II law,  imposes  restrictions on physician (and other licensed  provider)
referrals  of patients for physical  therapy,  occupational  therapy and certain
other  designated  healthcare  services,  to  certain  entities  with  which the
provider or any immediate  family member has a financial  relationship.  Several
states in which the  Registrant  operates or proposes  to operate  have  similar
"anti-kickback" and  "self-referral"  laws. In some cases, such state laws apply
to a broader  range of services  and a broader  class of payors.  Penalties  for
violating  existing  fraud and abuse  laws  include  civil  monetary  penalties,
criminal  sanctions and exclusion from the Medicare and Medicaid  programs.  The
Registrant  and/or the facilities  managed by the  Registrant  have a variety of
management  and/or lease agreements with various entities to which or from which
referrals  may  be  made  for  healthcare  services.  In  all  such  cases,  the
compensation received by Registrant or the facility under such agreements is for
fair market value  determined at arms-length  and does not take into account the
volume or value of referrals between the parties.

         The  Registrant  believes that its  operations and those of the Initial
Properties that the Registrant manages are in material compliance with such laws
and regulations.  The laws,  rules and regulations  which govern the Registrant,
the  Initial   Properties  and  other  persons  with  whom  the  Registrant  has
relationships   are  very  broad  and  are  subject  to  continuing  change  and
interpretation.  Thus,  it is  possible  that  certain  of the  past of  present
contractual  arrangements or business practices of the Registrant or the Initial
Properties might be challenged. No assurance can be given that the Registrant or
the facilities  managed by the Registrant will be able to obtain or maintain the
CONs,  licenses and  approvals  necessary to conduct  their  current or proposed
businesses.  Further,  no assurance can be given that  federal,  state and local
laws,  rules and regulations will not be amended or interpreted so as to require
the  Registrant or a facility  managed by the Registrant to change its contracts
or practices or to obtain additional CONs,  approvals or licenses to conduct its
business as now conducted or as proposed to be conducted or that the  Registrant
or such  facility will be able to obtain such CONs,  approvals or licenses.  The
failure to obtain or  maintain  requisite  CONs,  licenses  or  approvals  or to
otherwise  comply  with  existing  or  future  laws,  rules and  regulations  or
interpretations thereof could have a material adverse effect on the Registrant's
results of operations or financial condition.


                                      -13-
<PAGE>

COMPETITION

         The long-term  care industry  generally is highly  competitive  and the
Registrant  expects that the assisted  living business in particular will become
more  competitive in the future.  The Registrant will be competing with numerous
other  companies  providing  similar  long-term care  alternatives  such as home
health agencies, lifecare at home, community-based service programs,  congregate
care  communities  and  convalescent  centers.  While  there  presently  are few
assisted  living  facilities  existing in the markets the Registrant  intends to
serve,  the  Registrant  expects that,  as assisted  living  receives  increased
attention  and the  number  of states  which  include  assisted  living in their
Medicaid  Waiver  Program  increases,  competition  will  grow  from new  market
entrants,  including  companies focusing  primarily on assisted living.  Nursing
facilities that provide  long-term care services are also a potential  source of
competition for the Registrant.

         Providers of senior living facilities  compete for residents  primarily
on the basis of quality of care, price,  reputation,  physical appearance of the
facilities,  services  offered,  family  preferences,  physician  referrals  and
location. Some of the Registrant's competitors are significantly larger than the
Registrant  and  have,  or may  obtain,  greater  resources  than  those  of the
Registrant.

         The Registrant believes that the rate at which competition will grow in
the CCRC industry market will be slower than assisted living facilities  because
of the increased  difficulty of locating larger sites,  obtaining  financing for
this type of project and the longer  rent-up  periods for CCRCs.  The Registrant
expects  that its major  competitors  will be other  long-term  care  facilities
within  the  same  geographic  area  as  the  Registrant's   facilities  because
management's  experience  indicates  that senior  citizens  who move into senior
living facilities frequently choose communities near their homes.

EMPLOYEES

         The Registrant has  approximately  250 employees of whom  approximately
147 are full-time employees.


                                      -14-
<PAGE>

Item 2.  PROPERTIES.

         The table below sets forth  certain  information  regarding the Initial
Properties as of October 31, 1996.

<TABLE>
<CAPTION>
                                                 Years     Independent   Assisted     Skilled      Occupancy Rate(%)
        Name and Location         Year Built   Renovated      Living      Living      Nursing        June 30, 1996
------------------------------    ----------   ---------   -----------  ----------   ----------    -----------------
<S>                                  <C>         <C>           <C>          <C>         <C>            <C>
PROPERTIES OWNED:

Hillside Terrace, Ann Arbor, MI      1969        1994          66           9           23             99
                                                                                                    
Olds Manor, Grand Rapids, MI         1920s       1964,         97          55           44             97
                                                 1970                                               
                                                                                                    
The Whitcomb, St. Joseph, MI         1928        1973,        102          34(1)        --             96
                                                 1989                                               
                                                                                                    
                                                                                                    
                                                                                                    
TO BE ACQUIRED:                                                                                     
                                                                                                    
Harvest Village, Atco, NJ(2)         1989                     300          --           60             58
                                                                                                    
                                                                                                    
                                                                                                    
MANAGED ONLY PROPERTY:                                                                              
                                                                                                    
The Whittier, Detroit, MI(3)         1920s       1972,        229          52(1)        --             56
                                                 1989                                               
                                                              ---         ---          ---          
                                                              794         150          127     
</TABLE>

(1)      Assisted  living units at The Whitcomb and The Whittier are independent
         living  apartments with assisted  living  services  provided by outside
         homecare agencies.

(2)      In  connection  with the  Registrant's  purchase  of  Harvest  Village,
         Gateway,  the  current  lessee of  Harvest  Village,  will enter into a
         management  agreement with the Registrant for the management of Harvest
         Village.  The  Registrant  will have the right to  terminate  Gateway's
         lease for  Harvest  Village  upon the  payment  to  Gateway of the fair
         market value of the lease at the time of  termination.  The fair market
         value of the lease at the time of  termination  will be determined by a
         panel  of  three  real  estate  appraisers,  one  selected  by  Harvest
         Partners,  one selected by Gateway and the third  selected by the other
         two  appraisers.  The panel of three  real  estate  appraisers  will be
         unaffiliated with Harvest Partners, Gateway or the Registrant.

(3)      Owned by Vanguard and managed by the Registrant.  The Registrant has an
         option to purchase The Whittier at the lesser of (i) its appraised fair
         market value,  but not less than the  outstanding  balance of the first
         mortgage  encumbering  the  facility,  and (ii) (a) the  amount  of its
         current mortgage debt, (b) accrued management fees payable, (c) amounts
         paid by Vanguard or Whittier Towers, Inc. on or after April 1, 1996 for
         capital  improvements,  (d) sums spent by Vanguard on or after April 1,
         1996 to fund  negative  cash  flow of  Whittier  Towers,  Inc.  and (e)
         interest on (c) and (d) at 12% per annum.

         HILLSIDE  TERRACE.  Hillside  Terrace  is a CCRC  located in Ann Arbor,
Michigan, approximately 30 miles from Detroit. The facility is located 1.5 miles
from downtown Ann Arbor,  the main business  district and home to the University
of Michigan,  which  enables  residents to attend  nearby  cultural and athletic
events.  Hillside  Terrace  was  built in 1969 and was  renovated  in 1994.  The
facility  currently has 75 apartment  units and 23 nursing  beds,  and a 64-unit
expansion has been approved by the city of Ann Arbor.  This will  facilitate the
conversion of a majority of the existing  independent  living apartment units to
assisted living units.


                                      -15-
<PAGE>

         OLDS MANOR.  Olds Manor is a CCRC  located in Grand  Rapids,  Michigan.
Olds Manor was built as a hotel in the 1920s, but was renovated in the 1960s for
use as a retirement center and nursing facility.  Olds Manor borders the central
business  district of Grand  Rapids,  adjacent to the Post Office and across the
street from city and county  administrative  offices. It has 97 apartment units,
55 assisted living units and 44 skilled nursing beds.

         THE  WHITCOMB.  The Whitcomb is an  independent  living  facility  with
assisted living services, as required, provided by the outside homecare agencies
of the residents' choice, located in downtown St. Joseph,  Michigan, which is on
Lake  Michigan at the mouth of the St. Joseph River.  St.  Joseph's  population,
approximately 80,000 residents,  and proximity to four cosmopolitan cities, make
The Whitcomb  accessible to a large population and secondary market.  St. Joseph
is 85 miles from Chicago,  195 miles from  Detroit,  80 miles from Grand Rapids,
Michigan and 35 miles from South Bend, Indiana. The Whitcomb,  formerly a hotel,
was built in 1928. It was renovated in 1973 and in 1989 and has 136 apartments.

         HARVEST VILLAGE.  Harvest Village is a congregate care facility located
in Atco, New Jersey.  With respect to the Registrant's  proposed  acquisition of
Harvest Village,  the Registrant  believes that Harvest Village's  occupancy and
its  profitability can be improved as a result of several  significant  factors,
including:   (i)  the  removal  of  the  present  risk  of  foreclosure  of  the
construction loan (due September 30, 1996), which has negatively  impacted sales
over the past three years because  prospective  residents have been reluctant to
commit resources to a potentially unstable situation, and (ii) the conversion of
an independent living wing to a 52 unit assisted living facility. The Registrant
believes  that  removing  the  financial  uncertainty  and the  assisted  living
conversion will accelerate the increase of Harvest Village's occupancy level and
improve its  operating net income and cash flow.  In any event,  the  Registrant
believes  that the purchase  price at which it will acquire  Harvest  Village is
substantially  lower than its current market value of  $24,700,000  based upon a
recent  appraisal.  The appraisal does not represent the current market value of
the facility "as is," but assumes,  among other  things,  the  conversion of the
facility to its highest and best use, that of a retirement facility comprised of
264  independent  living units,  52 assisted  living rental units and 60 skilled
nursing beds which is the use for the  facility  planned by the  Registrant.  In
addition, the appraisal considered the eventual improvement in public perception
upon the  refinancing  of its current debt and management of the facility by the
Registrant.  The purchase  price ($17.4  million)  breaks down to an average per
unit cost of $48,333 for the 360 apartments and licensed nursing beds located at
the facility.  This is significantly under the national average of $69,892 for a
CCRC  unit  and   approximately  50  percent  of  the  cost  of  developing  and
constructing  the  facility.  Moreover,  after the  conversion  of one of the 36
apartment unit wings to 51 assisted living apartment units, Harvest Village will
still  have  100  remaining  saleable  apartment  units  at an  average  cost of
approximately $ 100,000 per unit ($ 10 million),  or  approximately  $60,000 per
unit ($6  million)  if all units are sold  pursuant to a  Traditional  Residency
Agreement,  which can be used to augment the facility's cash flow. Finally, when
Harvest Village was originally constructed during the late 1980s, the population
density in its  primary  market  area was  significantly  lower than the present
population density.


                                      -16-
<PAGE>

         In  connection  with the  Registrant's  purchase  of  Harvest  Village,
Gateway,  the current  lessee of Harvest  Village,  will enter into a management
agreement  with the  Registrant  for the  management  of  Harvest  Village.  The
Registrant will have the right to terminate  Gateway's lease for Harvest Village
upon the payment to Gateway of the fair market value of the lease at the time of
termination.

         THE  WHITTIER.  The Whittier is an  independent  living  facility  with
assisted living services, as required,  provided by outside homecare agencies of
the residents'  choice,  located in Detroit and has experienced a decline in its
occupancy over the last several years as a result of local demographic  changes.
However,  the Registrant has instituted a number of changes consisting of, among
other things, shifting the operational focus to assisted living and changing the
target   market,   which  now  targets  the  upper   middle   income,   retired,
African-American  community.  These  changes  have  resulted  in  a  significant
improvement in The Whittier's occupancy during the last eight months, increasing
from a low of 130  apartments as of October 31, 1995 to the current level of 160
in June 30, 1996,  which represents an eight-month  increase of 23 percent.  The
Registrant  has  reason to  believe  that The  Whittier  will  break  even after
operating  expenses and debt service  upon  attaining an occupancy  level of 180
residents.  Thereafter,   profitability  can  be  expected  to  increase  at  an
increasing  rate  as  The  Whittier's   occupancy   expands,   after  which  the
Registrant's  option  to  purchase  the  facility  pursuant  to the terms of its
purchase option can be exercised, subject to the terms of the Notes, which limit
the Registrant's ability to exercise its option.

PROJECTS IN DEVELOPMENT

         To provide the  appropriate  level of  personal  care  efficiently  and
economically,  the  Registrant  intends  to  develop  for itself or on behalf of
others, or acquire assisted living facilities  generally ranging in size from 80
to 120 units. The Registrant has developed a prototype assisted living facility.
It is anticipated  that the prototype  assisted living facility will be built on
its Hollywood, Florida, Huntington, New York and Stroudsburg, Pennsylvania sites
as well as on other qualified sites  presently being  negotiated.  Each assisted
living facility will generally be built on a parcel of land ranging in size from
3 to 10 acres and will  contain  approximately  70,000 to 105,000  square  feet.
Approximately  40 percent of the  building  will be devoted to common  areas and
amenities,  including  reading  rooms,  family or living  rooms and other  areas
designed to promote  social  interaction  among  residents.  These areas will be
located  primarily  in a basic  central  core  structure  which  is  essentially
repeatable  in all of the  Registrant's  proposed  facilities.  Modular wings of
similar  design are added to the central  core,  depending  upon the size of the
facility. The building is usually two or three stories and of either steel frame
or masonry construction built to institutional healthcare standards but strongly
residential  in  appearance.  The  interior  layout  is  designed  to  promote a
"home-like"  environment,  efficient  delivery  of  resident  care and  resident
independence.  Each  residential unit will be between  approximately  375 to 550
square  feet  and is  expected  to cost  approximately  $60,000  to  $90,000  to
construct, depending upon construction costs which vary from state to state.


                                      -17-
<PAGE>

         Resident units in the Registrant's  prototype  assisted living facility
are functionally  arranged in eight to twelve apartment  clusters  surrounding a
"neighborhood"  living  area in  order  to  foster  social  interaction  between
residents.  The Registrant's  prototype may be configured with several different
types of  resident  units,  including a mix of one- and  two-bedroom  suites and
large studio or alcove  apartments.  All units have a small  kitchen and roll-in
showers  for easy  wheelchair  access.  The ground  level  typically  contains a
kitchen and common  dining area,  administrative  offices,  exercise or physical
therapy  room,  arts and crafts,  beauty salon,  laundry room, a private  dining
room,  library,  living room,  and TV room.  Typically,  one floor or one or two
wings of a facility contain resident units and common areas,  including separate
dining  facilities,  specifically  designed to serve  residents  with  cognitive
impairments (e.g., Alzheimer's disease) or other special needs.

         CCRCs will generally be built on a parcel of land ranging from 10 to 30
acres and will contain  from 150 to 200 units with an average  size  independent
living unit of between 900 and 1,000 square feet. The cost will average  between
$100,000 and $200,000 per independent living unit. Each CCRC will be tailored to
the specific needs of each site selected.

         The following table sets forth certain information  regarding sites and
facilities  that  are  either  owned,  under  construction  or  are  subject  to
development, management or purchase contracts as of October 31, 1996:


                                               Number of Units
                            ---------------------------------------------------
                            Independent            Assisted             Skilled
        Name                  Living                Living              Nursing
        ----                  ------                ------              -------

Cottage Grove Place,            135                   50                   16
Cedar Rapids, IA(a)

Presidential Place,             --                   104                   --
Hollywood, FL(b)(c)

Camelot Village,                --                   132                   --
Huntington, NY(b)(d)

Orchard Terrace,                64                    --                   --
Ann Arbor, MI(c)(e)

Camelot Village,                --                    80                   --
Stroudsburg, PA(b)(d)

Camelot Village,                --                    80                   --
Columbus, IN(f)

Home Place,                     --                    60                   --
Indianapolis, IN(g)

Sanders Glen,                   --                    69                   --
Westfield, IN(g)


                                      -18-
<PAGE>

(a)      A  201-unit  CCRC  being  developed  by  the  Registrant   pursuant  to
         development   and   management    agreements   with   an   unaffiliated
         not-for-profit entity. Initial occupancy commenced October 15, 1996.

(b)      The Registrant has entered into  development and management  agreements
         and has a purchase option on this proposed senior living facility.

(c)      Zoning  approval  has been  obtained,  and the  Registrant  is awaiting
         Federal Housing Administration financing approval.

(d)      Zoning approval is in the process of being obtained.

(e)      This  site is  owned by the  Registrant  and is  being  used to  expand
         Hillside Terrace by 64 independent  living units. Upon completion,  the
         Registrant  will convert 66 of Hillside  Terrace's  independent  living
         units into assisted living units.  The  commencement of construction is
         contingent  upon  financing  which the  Registrant  expects  to arrange
         within the next nine months. Completion is anticipated in Fall 1998.

(f)      The  Registrant has entered into a letter of intent to develop a senior
         living facility on this site.

(g)      The Registrant  intends to lease this existing  senior living  facility
         following its proposed acquisition by an unaffiliated third party.

INDEBTEDNESS

         Upon the consummation of the Offerings,  the Registrant's  indebtedness
for borrowed money will consist  primarily of the mortgage loans described below
(the "Mortgage  Loans") and the Notes sold in the Notes Offering.  See Note E to
Consolidated  Financial  Statements.  The  Mortgage  Loans  encumber  all of the
Initial Properties.

         GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

         As of June 30, 1996, Hillside Terrace, Inc., a wholly-owned  subsidiary
of the Registrant and the owner of Hillside Terrace,  was indebted to Great-West
Life & Annuity  Insurance  Company ("GWL") in the aggregate  principal amount of
$2,250,700.  Such  indebtedness  is  secured  by a first  mortgage  on  Hillside
Terrace. As of June 30, 1996, Whitcomb Tower Corp., a wholly-owned subsidiary of
the  Registrant  and the  owner  of The  Whitcomb,  was  indebted  to GWL in the
aggregate  principal  amount of $2,100,500.  Such  indebtedness  is secured by a
first mortgage on The Whitcomb. The payment of principal and interest on each of
the foregoing first mortgages has been guaranteed by Vanguard.  In addition,  as
of June 30, 1996, Whittier Towers,  Inc., a wholly-owned  subsidiary of Vanguard
and the owner of The Whittier,  was indebted to GWL in the  aggregate  principal
amount of $4,087,500.  Such  indebtedness  is secured by a first mortgage on The
Whittier. Each of the foregoing first mortgages bears interest at 7.5% per annum
and is due April 30, 1997. The first mortgage  encumbering The Whittier provides
that a  default  under  such  loan is also a  default  under  both of the  first
mortgages encumbering Hillside Terrace and The Whitcomb. Consequently, a default
under  the  first  mortgage   encumbering  The  Whittier  could  result  in  the
foreclosure of Hillside Terrace and The Whitcomb.


                                      -19-
<PAGE>

         Under the Second  Amendment to Mortgage and  Security  Agreements  with
GWL,  dated as of September 1, 1994,  in the event that any of Whittier  Towers,
Inc., Whitcomb Tower Corp., or Hillside Terrace, Inc. sells, conveys, transfers,
pledges or further  encumbers its property  without the prior written consent of
GWL, then GWL has the right to declare due and payable the entire balance of the
unpaid  principal  with  accrued  and  unpaid  interest  due  thereon,  plus the
prepayment premium provided in the promissory note related to its mortgage.

         In the event that Olds Manor,  Inc., a  wholly-owned  subsidiary of the
Registrant  and the owner of Olds Manor sells,  conveys,  transfers,  pledges or
further  encumbers its property  without the prior written  consent of GWL, then
GWL shall have the right,  at its option,  to declare  forthwith due and payable
the entire  balance of the unpaid  principal  with  accrued and unpaid  interest
thereon,  plus the prepayment  premium provided in the promissory notes executed
by Hillside Terrace, Inc., Whittier Towers, Inc. and Whitcomb Tower Corp.

         OLD KENT BANK

         As of June 30, 1996, Olds Manor, Inc., a wholly-owned subsidiary of the
Registrant  and the owner of Olds  Manor,  was  indebted  to Old Kent Bank ("Old
Kent") in the  aggregate  principal  amount of $243,947.  Such  indebtedness  is
secured  by a first  mortgage  lien on Olds  Manor.  The  foregoing  loan  bears
interest  at Old Kent's  prime rate plus one percent per annum (9 1/4% per annum
as of August 31, 1996) and is due August 7, 2001.

         Under a  Negative  Pledge  Agreement  dated as of  September  1,  1994,
between Olds Manor, Inc. and GWL, Olds Manor, Inc. agreed that prior to the date
on which the loans of GWL to Whittier  Towers,  Inc.,  Whitcomb  Tower Corp. and
Hillside  Terrace,  Inc. are repaid in full, Olds Manor,  Inc. will not, without
the prior written consent of GWL,  assign,  transfer,  sell,  convey,  mortgage,
pledge,  hypothecate,  or  otherwise  dispose of or  encumber  Olds  Manor,  any
interest therein or any portion thereof.

         OLDS MANOR MORTGAGE TRUST

         As of June 30,  1996,  Olds  Manor,  Inc.  was  indebted  to Olds Manor
Mortgage Trust in the aggregate principal amount of $360,000. Such obligation is
secured by a convertible mortgage on Olds Manor that is subordinate to the first
mortgage on Olds Manor held by Old Kent to a maximum  amount of  $436,459  and a
second  mortgage on Olds Manor held by Citibank,  N.A.  ("Citibank")  and Lloyds
Bank Plc ("Lloyds") to a maximum amount of $1,400,000.  The foregoing loan bears
interest  at prime rate of  Citibank  plus three  percent per annum (11 1/4% per
annum as of August 31, 1996), is due May 31, 2000 and is convertible at any time
prior to repayment  into 51,873  shares of Common  Stock,  subject to adjustment
(the "Olds Manor Note"). The Registrant is the guarantor of the Olds Manor Note.


                                      -20-
<PAGE>

         WHITCOMB MORTGAGE TRUST

         As of June 30, 1996,  Whitcomb Tower Corp. was indebted to The Whitcomb
Mortgage Trust in the aggregate principal amount of $850,000. Such obligation is
secured by a  convertible  mortgage on The Whitcomb that is  subordinate  to the
first  mortgage on The Whitcomb held by GWL and prior and superior to a mortgage
on Whitcomb Tower held by Citibank and Lloyds. The foregoing loan bears interest
at prime rate of Citibank  plus three percent per annum (11 1/4% per annum as of
August 31, 1996),  is due March 31,1999 and is  convertible at any time prior to
repayment  into  117,729  shares of Common  Stock,  subject to  adjustment  (the
"Whitcomb Tower Note"). The Registrant is guarantor of the Whitcomb Tower Note.

         SEVEN PERCENT PROMISSORY NOTES

         During 1993 and 1994, the Registrant issued and sold $795,000 aggregate
principal  amount of Seven Percent  Promissory  Notes due December 31, 2000 (the
"7% Notes").  As of September 20, 1996, the outstanding  principal amount of the
7% Notes was currently convertible into 21,274 shares of Common Stock.

         CITIBANK, N.A. AND LLOYDS BANK PLC

         Citibank and Lloyds hold a second  mortgage on Olds Manor in the amount
of  $1,400,000  and a  consolidated  mortgage in the amount of $1,000,000 on The
Whittier,  The Whitcomb  and Hillside  Terrace  securing  Vanguard's  $6,350,000
guarantee  of a  construction  loan  in  connection  with  Harvest  Village.  In
addition,  as of June 30, 1996,  Vanguard had pledged 1,340,573 shares of Common
Stock it owns as security for its guarantee. In connection with the consummation
of the Offerings and the acquisition of Harvest Village,  the construction  loan
encumbering Harvest Village will be repaid and the Citibank and Lloyds mortgages
on Olds Manor, The Whittier, The Whitcomb and Hillside Terrace will terminate.


Item 3.  LEGAL PROCEEDINGS.  The Registrant is not a party to any material legal
         proceedings.


Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.  Not applicable.


                                      -21-
<PAGE>

                                     PART II

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

                  (a) Market  Information.  There is currently no public  market
for the equity securities of the Registrant.

                  (b) Holders.


                                          Approximate Number of Record
            Title of Class             Holders (as of September 30, 1996)
            --------------             ----------------------------------

Common Stock, Par Value $.01 Per Share                800


                  (c) Dividends.  The Registrant has not paid any cash dividends
on the Common  Stock since its  inception  and the Board of  Directors  does not
anticipate  declaring any cash dividends on the Common Stock in the  foreseeable
future. The Registrant  currently intends to utilize any earnings it may achieve
for the development of its business (including the acquisition or development of
other senior  living  facilities)  and working  capital  purposes.  In addition,
certain  provisions of existing  indebtedness of the Registrant  limit,  and the
terms of the Notes will limit,  future indebtedness of the Registrant as well as
the Registrant's ability to pay cash dividends.


Item 6.  SELECTED FINANCIAL DATA.


                                      -22-
<PAGE>

<TABLE>
<CAPTION>
                                                                 Fiscal Year Ended March 31,
                                          -----------------------------------------------------------------------
                                             1992           1993           1994           1995           1996
                                          -----------    -----------    -----------    -----------    -----------

STATEMENT OF OPERATIONS DATA:                               (In thousands, except per share amounts)
<S>                                       <C>            <C>            <C>            <C>            <C>        
   Revenues:

         Resident services ............   $     4,589    $     4,698    $     4,765    $     4,887    $     4,966

         Healthcare services ..........         2,184          2,252          2,464          2,491          2,555

         Management fees ..............           202           --             --             --             --

         Development fees .............          --             --              150            700          1,004
                                          -----------    -----------    -----------    -----------    -----------

            Total revenues ............         6,975          6,950          7,379          8,078          8,525
                                          -----------    -----------    -----------    -----------    -----------

   Expenses:

         Residence operating expenses .         4,791          5,064          5,372          5,595          5,913

         General and administrative
         expenses .....................           579            585            606            503            414

         Depreciation and amortization            529            551            549            565            378

         Provision for loss on advances
         to affiliates ................         1,715          1,662            829          1,651            296
                                          -----------    -----------    -----------    -----------    -----------

            Total expenses ............         7,614          7,862          7,356          8,314          7,001
                                          -----------    -----------    -----------    -----------    -----------

   Income (loss) from operations ......          (639)          (912)            23           (236)         1,524

Other income (expense):

   Interest (expense) net .............          (622)          (613)          (750)          (623)          (601)

   Other income .......................           255            251            145            232            109
                                          -----------    -----------    -----------    -----------    -----------

Income (loss) before income taxes .....        (1,006)        (1,274)          (582)          (627)         1,032

   Income taxes .......................          --             --             --             --              420
                                          -----------    -----------    -----------    -----------    -----------

   Net income (loss) ..................   $    (1,006)   $    (1,274)   $      (582)   $      (627)   $       612
                                          ===========    ===========    ===========    ===========    ===========

   Earnings (loss) per share (1) ......   $      (.41)   $      (.54)   $      (.24)   $      (.27)   $       .51
                                          ===========    ===========    ===========    ===========    ===========

Weighted average common shares and
equivalents outstanding (1) ...........     2,458,925      2,339,533      2,443,974      2,355,077      1,199,146
</TABLE>


                                      -23-
<PAGE>

                                                                  March 31, 1996
                                                                  --------------
BALANCE SHEET DATA:                                                   Actual
                                                                    ----------

         Deficit and working capital...........................        $(100)

         Total assets..........................................         6,088

         Long term debt, excluding current portion:

            Convertible mortgages and notes....................         2,616

            Other debt.........................................         4,557

         Stockholders' deficiency..............................       (3,328)

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

(1)      The weighted  average number of shares of Common Stock and  equivalents
         outstanding  at March 31,  1996 and June 30,  1996  give  effect to the
         cancellation  by the  Registrant  in March 1995 of 1,200,000  shares of
         Common  Stock  held by  Vanguard.  See Note I of Notes to  Consolidated
         Financial  Statements.   Fully  diluted  earnings  per  share  are  not
         presented as the effect would be anti-dilutive.  In addition,  excluded
         for all periods  presented,  from the weighted average number of common
         shares  and  common  equivalent  shares  are  certain  shares  owned by
         Vanguard which are to be held in escrow  pursuant to an agreement to be
         entered  into in  connection  with  the  Registrant's  proposed  public
         offering. See Note A to Consolidated Financial Statements.


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

OVERVIEW

         The  Registrant is a long-term  care  provider  that owns,  manages and
develops for itself or on behalf of others  senior  living  facilities.  For the
fiscal year ended March 31, 1996, the  Registrant had revenues of  approximately
$8.5 million and income from operations of approximately $1.5 million.

         Three of the Initial Properties,  Hillside Terrace,  Olds Manor and The
Whitcomb,  presently  have a high  average  occupancy  rate  and are  profitable
operations.  The fourth Initial Property,  known as The Whittier, which is owned
by  Vanguard  and  managed by the  Registrant,  is  located  in Detroit  and has
experienced a decline in its  occupancy  over the last several years as a result
of local demographic changes. However, the Registrant has instituted a number of
changes  consisting of, among other things,  shifting the  operational  focus to
assisted  living and  changing  the target  market,  which now targets the upper
middle income, retired,  African-American community. These changes resulted in a
significant  improvement  in The  Whittier's  occupancy  during  the last  eight
months, increasing from a low of 130 apartments as of October 31, 1995 to 160 as
of June 30,  1996,  representing  an  eight-month  increase of 23  percent.  The
Registrant  believes  that at an occupancy  level of 180  residents The Whittier
will generate  sufficient revenues to cover operating expenses and debt service.
The  Registrant's  approach  in this and  other  underperforming  senior  living
facilities is to obtain a management contract, without incurring the


                                      -24-
<PAGE>

corresponding   losses  and  risks  inherent  in  turnaround   situations   but,
nevertheless,  obtaining  a fair  market  value  purchase  option to acquire the
property at some future date.

         The  Registrant's  two primary  sources of revenue are:  (i)  operating
revenue  and  management  fees  from  senior  living  facilities  owned  by  the
Registrant and managed by the  Registrant,  respectively,  and (ii)  development
fees  from   unaffiliated   third  parties  for  senior  living   facilities  in
development.

         INCOME FROM OWNED PROPERTIES. When a facility managed by the Registrant
attains  a  level  of  profitability  after  the  payment  of debt  service  and
management  fees and the Registrant has a purchase  option,  the exercise of the
Registrant's  option,  if any, will  generally be considered.  The  Registrant's
income from  facilities  that have  attained a level of  profitability,  usually
after stabilized  occupancy in excess of 90 percent and at times lower depending
upon the level of debt service, will generally increase at an increasing rate as
occupancy  increases above the breakeven point. The Registrant  expects that the
operating  income of a  typical  facility,  once it has  attained  a 90  percent
average occupancy rate, is approximately 40 percent of gross revenue.

         MANAGEMENT FEES. The Registrant's  typical  management  agreement calls
for a  management  fee between  four and five  percent of the  facility's  gross
revenue. In addition, where the Registrant provides data processing services, an
additional  one percent  fee would be charged.  These fees are paid on a monthly
basis.

         DEVELOPMENT  FEES.  The  Registrant's  project  development  agreements
generally  call for a development  fee of 7.5 percent of the project's  hard and
soft  construction  cost. This fee is generally paid over a three-year period in
the case of  assisted  living  projects  and a  four-year  period for CCRCs with
installments  triggered  by  various  benchmark  events  during  the  course  of
development,  construction and occupancy fill-up. With the number of development
projects expected to increase to approximately 10 projects per year by the third
year,  development fee revenue can be expected to represent a major component of
the future revenue and profitability of the Registrant. While the profit margins
on development fee revenue are high, the nature of this revenue is more episodic
and less reliable than  operational  and  management fee revenue due to external
factors beyond the control of the Registrant such as market factors  relating to
site  acquisition  and  regulatory   factors   impacting  zoning  and  licensing
approvals.  The recognition by the Registrant of development fees will generally
be contingent  upon the  completion  of  construction  financing,  therefore the
Registrant's   quarterly   recognition  of  development  fee  revenue  can  vary
materially from quarter to quarter.

RESULTS OF OPERATIONS

         The  following  table  sets  forth for the  periods  indicated  certain
financial  information derived from the Registrant's  consolidated  statement of
operations.  There can be no assurance  that trends in sales growth or operating
results will continue in the future.


                                      -25-
<PAGE>

<TABLE>
<CAPTION>
                                                                                              Percentage Change
                                                       Fiscal Year Ended March 31,           Increase (Decrease)
                                                       ---------------------------           -------------------
                                                    1994           1995          1996      1994-1995    1995-1996
                                                    ----           ----          ----      ---------    ---------
<S>                                                 <C>           <C>           <C>         <C>          <C>   
Net revenues, as a percentage of total
revenues

   Resident services ......................          64.6%         60.5%         58.3%       (4.1)%       (2.2)%

   Healthcare services ....................          33.4          30.8          30.0        (2.6)         (.8)

   Development fees .......................           2.0           8.7          11.7         6.7          3.0
                                                    -----         -----         -----         ---         ----

Total revenues ............................         100.0%        100.0%        100.0%        --          --
                                                    =====         =====         =====         ===         ====

Expenses as a percentage of total revenues:

Resident operating expenses ...............          72.8%         69.3%         69.3%       (3.5)        --

General and administrative expenses .......           8.2           6.2           4.9        (2.0)        (1.3)%

Depreciation and amortization .............           7.4           7.0           4.4         (.4)        (2.6)

Provision for loss on (recovery of)
advances to affiliates ....................          11.3          20.4           3.5         9.1        (16.9)
                                                    -----         -----         -----         ---         ----

   Total expenses .........................          99.7         102.9          82.1         3.2        (20.8)
                                                    -----         -----         -----         ---         ----

   Income (loss) from operations ..........            .3          (2.9)         17.9         3.2         20.8

Other income (expense):

   Interest (expense) net .................         (10.2)         (7.7)         (7.1)       (2.5)          .6

   Other income ...........................           2.0           2.8           1.3         (.8)        (1.5)
                                                    -----         -----         -----         ---         ----

Income (loss) before income taxes .........          (7.9)         (7.8)         12.1         (.1)        19.9

   Income taxes ...........................          --            --            (4.9)        --          (4.9)
                                                    -----         -----         -----         ---         ----

Net income (loss) .........................          (7.9)%        (7.8)%         7.2%        (.1)        15.0%
                                                    =====         =====         =====         ===         ====
</TABLE>

FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1995

REVENUES

         Net revenues of the Registrant represent gross consolidated revenues of
the  Registrant,  less  charitable  and  Supplemental  Security  Income  ("SSI")
discounts.

         Net  revenues  increased by  $699,000,  or 9%, in fiscal  1995,  and by
$447,000,  or 6%, in fiscal 1996.  The growth in net revenues in fiscal 1995 and
fiscal 1996 was largely  attributable to a further  increase in development fees
in the amount of $550,000 and  $304,000  respectively.  Resident and  healthcare
services increased $149,000 in fiscal 1995 and $143,000 in fiscal 1996.


                                      -26-
<PAGE>

Resident and healthcare  revenues  increased as a result of higher rates,  while
occupancy  rates  remained  relatively  constant from fiscal 1994 through fiscal
1996.

RESIDENCE OPERATING EXPENSES

         Resident  operating  expenses  include all  retirement  and  healthcare
center operating expenses, including, among other things, payroll and employment
costs, food, utilities, repairs and maintenance, insurance and property taxes.

         Residence  operating  expenses  have  increased  for each  fiscal  year
presented,  primarily due to normal  inflationary cost increases.  Said expenses
increased by $223,000,  or 4%, in fiscal 1995, and by $318,000, or 6%, in fiscal
1996.

GENERAL AND ADMINISTRATIVE EXPENSES

         General and  administrative  expenses  include all marketing  costs, as
well as the general and  administrative  expenses  incurred at the  Registrant's
principal executive offices.  General and administrative expenses include, among
other things,  administrative salaries,  rent, utilities,  insurance and related
expenses.

         General  and   administrative   expenses   decreased  by  approximately
$103,000,  or 17%, in fiscal 1995 and $89,000 or 18%, in fiscal 1996,  primarily
due to the closing of the Registrant's Florida office in fiscal 1995.

PROVISION FOR LOSS ON ADVANCES TO AFFILIATES

         The  provision for loss on advances to  affiliates  represents  the net
expense  pertaining  to  amounts  advanced  to the  Registrant's  parent and its
affiliates.  Said advances have been made to fund, among other things, operating
losses of these affiliates.  As their ultimate repayment is uncertain, a reserve
has been provided for doubtful  collection.  Any net reimbursements are recorded
as income in the period received.  For the two fiscal years ended March 31, 1996
and  1995,  the  Registrant  recorded  losses  in the  amount  of  $296,000  and
$1,651,000, respectively, net of recoveries.

INTEREST EXPENSE, NET

         Interest expense,  net, also fluctuated during the reporting period. In
fiscal 1995,  interest  expense,  net,  decreased by $137,000,  or 22%, which is
directly  attributable to a 3% interest rate decrease on two of the Registrant's
three  mortgages  on the Initial  Properties  in  Michigan,  and in fiscal 1996,
interest decreased by 4%, or $22,000.


                                      -27-
<PAGE>

INCOME TAXES

         The income tax expense was zero and $420,000 for the fiscal years ended
March 31,  1995 and 1996,  respectively.  Under  generally  accepted  accounting
principles,  future tax  benefits  can be  recognized  for  financial  reporting
purposes if it is more likely than not that such benefits will ultimately result
in the reduction of a future tax  liability.  The  Registrant  has net operating
loss  carryforwards  for  Federal  income tax  purposes  as of March 31, 1996 of
approximately  $2,464,000.  Such net operating loss carryforwards are subject to
several statutory  limitations which limit their current and future utilization,
and,  accordingly,  no benefit from such  utilization has been provided for. The
net  operating  loss  carryforwards  expire  during  fiscal 1997  through  2005;
$2,083,000  of which  expire  in  fiscal  1998.  See Note F to the  Consolidated
Financial Statements.

         The Common Stock Offering or subsequent equity transactions may trigger
an ownership change which could serve to limit the use of some or all of the net
operating loss carryforwards.
See Note F to the Consolidated Financial Statements.

FISCAL YEAR ENDED MARCH 31, 1995 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1994

REVENUES

         Net  revenues  increased  by  $429,000,  or 6%, in  fiscal  1994 and by
$699,000,  or 9%, in fiscal 1995.  The growth in net revenues in fiscal 1994 and
fiscal 1995 was largely  attributable to a further  increase in development fees
in the amount of $150,000 and  $550,000  respectively.  Resident and  healthcare
services increased $279,000 in fiscal 1994 and $149,000 in fiscal 1995. Resident
and healthcare  revenues  increased as a result of higher rates, while occupancy
rates remained relatively constant from fiscal 1994 through fiscal 1996.

RESIDENCE OPERATING EXPENSES

         Residence  operating  expenses  have  increased  for each  fiscal  year
presented,  primarily due to normal  inflationary cost increases.  Said expenses
increased  $308,000,  or 6%, in fiscal  1994 and by  $223,000,  or 4%, in fiscal
1995.

GENERAL AND ADMINISTRATIVE EXPENSES

         General and administrative expenses increased by approximately $21,000,
or 4%, in fiscal 1994 and  decreased  by $103,000,  or 17%, in fiscal 1995.  The
increase in fiscal 1994 was primarily due to normal inflationary cost increases,
while the  decrease  in fiscal  1995 was  primarily  due to the  closing  of the
Registrant's Florida office in fiscal 1995.


                                      -28-
<PAGE>

PROVISION FOR LOSS ON ADVANCES TO AFFILIATES

         The  provision for loss on advances to  affiliates  represents  the net
expense  pertaining  to  amounts  advanced  to the  Registrant's  parent and its
affiliates.  Said advances have been made to fund, among other things, operating
losses of these affiliates.  As their ultimate repayment is uncertain, a reserve
has been provided for doubtful  collection.  Any net reimbursements are recorded
as income in the period received.  For the two fiscal years ended March 31, 1994
and  1995,  the  Registrant  recorded  losses  in the  amount  of  $829,000  and
$1,651,000, respectively, net of recoveries.

INTEREST EXPENSE, NET

         Interest expense,  net, also fluctuated during the reporting period. In
fiscal 1994,  interest expense,  net increased by $137,000 or 18%, and in fiscal
1995,  interest expense,  net, decreased by $127,000,  or 17%, which is directly
attributable  to a 3% interest  rate decrease on two of the  Registrant's  three
mortgages on the Initial Properties in Michigan.

INCOME TAXES

         The income tax  expense  was zero for each of the  fiscal  years  ended
March 31,  1994 and 1995,  respectively.  Under  generally  accepted  accounting
principles,  future tax  benefits  can be  recognized  for  financial  reporting
purposes if it is more likely than not that such benefits will ultimately result
in the reduction of a future tax  liability.  The  Registrant  has net operating
loss  carryforwards  for  Federal  income tax  purposes  as of March 31, 1996 of
approximately  $2,464,000.  Such net operating loss carryforwards are subject to
several statutory  limitations which limit their current and future utilization,
and,  accordingly,  no benefit from such  utilization has been provided for. The
net  operating  loss  carryforwards  expire  during  fiscal 1997  through  2005;
$2,083,000  of which  expire  in  fiscal  1998.  See Note F to the  Consolidated
Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

         Cash flow from operations was approximately $589,000 for the year ended
March 31, 1996 as compared with a negative cash flow of approximately $2,010,000
for the year ended March 31, 1995.  Cash flows from  operations were negative in
the fiscal year ended March 31, 1995  primarily due to the cash advances made to
development  projects  and fees  earned but not  collected.  For the fiscal year
ended March 31, 1995,  such net cash advances were  approximately  $495,000.  In
addition,  for the fiscal  year ended  March 31,  1995,  the  Registrant  earned
development  fees of approximately  $700,000,  that were not collected until the
subsequent  year.  The  Registrant's  primary source of funds for these advances
have been through the private  placement of convertible notes secured in certain
instances by subordinate mortgages.  These obligations are intended to be repaid
if not converted from the proceeds of construction and/or permanent financing on
a project by project  basis.  During the fiscal year ended March 31,  1995,  the
Registrant generated cash flow of approximately $1,400,000 by issuing promissory
notes to


                                      -29-
<PAGE>

private  investors.  Said notes were paid in their entirety by December 31, 1995
from the proceeds of a tax exempt bond issue  arranged for the  construction  of
one of the Registrant's  senior living  facilities.  The funds from this private
placement represented the major portion of the cash used in financing activities
during 1996.

         The Registrant has financed the operating losses of certain  affiliates
with  advances  when the  Registrant  believed that the affiliate at some future
date would be able to repay such advances. In connection with such advances, the
Registrant  has  generally  obtained  an option to buy a  facility  owned by the
affiliate to which  advances have been made for a price equal to the  facility's
fair market  value.  In the event the  Registrant  exercises  its  option,  such
advances may constitute a portion of the purchase price.

         Amounts due from affiliates consist of cash advances, unpaid management
fees,  interest income and other revenue items. Most of the affiliates have been
operating at a loss and their ability to repay cash advances and earned fees due
to the Registrant is uncertain. Accordingly, a reserve for such amounts has been
provided for by the Registrant,  reducing revenues, fees and interest income and
providing for losses on cash advances to affiliates.  In the event such advances
or fees are  remitted  by the  affiliates,  the reserve is reduced and income is
recorded.  At June 30, 1996,  the aggregate  amount due from  affiliates and the
unreserved   amounts  due  from   affiliates   were   $7,182,272  and  $658,717,
respectively.  In connection with the acquisition of Harvest Village, $6,094,000
due  from  Vanguard  and its  affiliates  was  cancelled.  See  Notes C and L to
Consolidated Financial Statements.

         The  Registrant  intends to use the net proceeds of the  Offerings  and
available lines of credit,  together with cash flows from operations and private
placements,   to  finance  its  operations  (including  expenses  of  additional
personnel  required as the Registrant's  business grows) and future  development
projects.  Registrant  believes  that  existing  cash  balances,  cash flow from
operations  and  available  lines  of  credit,  will be  sufficient  to meet its
liquidity and capital spending requirements for at least 12 months.

IMPACT OF INFLATION AND CHANGING PRICES

         Operating  revenue from assisted living  facilities and congregate care
facilities  operated by the Registrant are the primary sources of revenue earned
by the  Registrant.  These  properties  are  affected by rental  rates which are
highly dependent upon market conditions and the competitive  environments  where
the facilities are located.  Employee compensation is the principal cost element
of property  operations.  Although  there can be no assurance it will be able to
continue  to do so,  the  Registrant  has been able  historically  to offset the
effects of  inflation  on salaries and other  operating  expenses by  increasing
rental and assisted living rates.


Item 8.  FINANCIAL  STATEMENTS AND SUPPLEMENTARY  DATA. The financial statements
and supplementary data are included under Item 14 of this Report.


                                      -30-
<PAGE>

Item 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.

         On May 16, 1996, the  Registrant  dismissed  Farber,  Blicht & Eyerman,
LLP. The dismissal of Farber, Blicht & Eyerman, LLP was approved by the Board of
Directors.  On May 16, 1996, the Registrant  engaged Grant Thornton LLP to audit
its  financial  statements  for the fiscal  year ended March 31,  1996.  For the
fiscal year ended March 31, 1995, the  Registrant's  financial  statements  were
audited by Farber, Blicht & Eyerman, LLP.

         The  Registrant  believes,  and has been  advised by  Farber,  Blicht &
Eyerman,  LLP that it concurs in such belief,  that during the fiscal year ended
March 31, 1995, the Registrant  and Farber,  Blicht & Eyerman,  LLP did not have
any disagreement on any matter of accounting principles or practices,  financial
statement disclosure or auditing scope or procedure, which disagreement,  if not
resolved to the satisfaction of Farber,  Blicht & Eyerman, LLP would have caused
it to make reference in connection with its report on the Registrant's financial
statements to the subject matter of the disagreement.

         No  report  of  Farber,  Blicht  &  Eyerman,  LLP on  the  Registrant's
financial  statements  for  either of the past two  fiscal  years  contained  an
adverse opinion, a disclaimer of opinion or a qualification,  or was modified as
to  uncertainty,  audit  scope or  accounting  principles.  During  such  fiscal
periods,  there were no "reportable events" within the meaning of Item 304(a)(1)
of Regulation S-K promulgated under the Securities Act.


                                      -31-
<PAGE>

                                    PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         The following table sets forth information  regarding the Directors and
executive officers of the Registrant.


          Name                  Age                  Positions(s)
          ----                  ---    -----------------------------------------
Carl G. Paffendorf..........    63     Chairman of the Board and Chief Executive
                                         Officer
Larry L. Laird..............    59     President, Chief Operating Officer and
                                         Director
Paul D'Andrea...............    63     Vice President--Finance
Theresa A. Govier...........    57     Vice President--Administration and
                                         Secretary
Craig M. Shields............    54     Vice President and General Counsel
Alan Guttman................    47     Treasurer
James E. Eden...............    58     Director
Benjamin Frank..............    62     Director
Francis S. Gabreski.........    77     Director
Robert S. Hoshino, Jr.......    49     Director
Stanford J. Shuster.........    54     Director


         CARL G.  PAFFENDORF has been Chairman of the Board and Chief  Executive
Officer of the  Registrant  since 1988 as well as a Director  of the  Registrant
since  inception.   Mr.   Paffendorf  has  been  involved  in  the  development,
management,  acquisition  and/or  financing of 12 retirement  communities  since
1979.  Mr.  Paffendorf has been president of Vanguard since 1979 and chairman of
Vanguard since 1972.  Vanguard is a real estate holding company.  Mr. Paffendorf
is an  attorney  and a member of the  Florida  and Ohio Bars and holds a Masters
degree in Tax Law (LL.M.).

         LARRY L. LAIRD has been  President and Chief  Operating  Officer of the
Registrant since 1994 and a Director of the Registrant since 1993. Mr. Laird has
been involved in the development and management of retirement  communities since
1965.  Mr.  Laird's  experience  encompasses  the  development  of 42 retirement
facilities and the management of 51 retirement  facilities in 25 states.  He has
served as an industry leader and spokesman; an interstate lobbyist for stringent
legislation with regard to lifecare facilities; a founder,  director and officer
of both state and national industry  associations;  and has lectured in numerous
industry-related  forums. Mr. Laird received a B.A. from Central College, Pella,
Iowa and did graduate  work at the  University  of Iowa in Iowa City.  Mr. Laird
continues to serve as executive director of Friendship Village,  Waterloo, Iowa,
a lifecare  facility.  From October 1986 until October 1992, Mr. Laird served as
president of Forum  Lifecare,  Inc., a  wholly-owned  subsidiary of Forum Group,
Inc., and as a vice


                                      -32-
<PAGE>

president of Forum Group,  Inc. From October 1992 until July 1996, Mr. Laird was
also president of Laird Lifecare Ltd., a developer of senior living  facilities.
Prior  to 1986 he was a  co-founder  and  executive  vice  president  and  chief
operating officer of Life Care Services Corporation in Des Moines, Iowa.

         PAUL D'ANDREA has been Vice  President--Finance of the Registrant since
May 1994. From 1991 to 1994, Mr. D'Andrea was vice  president/controller  of ODA
Environetics International, Inc., a company engaged in architectural design, and
from  1975  through  1991 was  vice  president/treasurer  of Apco  Merchandising
Corporation,  a jewelry manufacturer and retailer.  Mr. D'Andrea received a B.S.
in accounting from New York University.

         THERESA A. GOVIER has been Vice President--Administration and Secretary
of the  Registrant  since 1991.  Ms.  Govier has also been  employed by Vanguard
since 1977 as  executive  assistant  to the  president  and director of employee
benefits. Ms. Govier attended Nassau Community College from 1988 to 1992.

         CRAIG M.  SHIELDS has been Vice  President  and General  Counsel of the
Registrant since 1992. From 1992 through 1995 Mr. Shields was of counsel/partner
of the law firm of Quinn & Suhr, LLP, White Plains,  New York. From 1983 through
1991 he was founder/partner of the law firm of Collier,  Cohen,  Shields & Bock,
New York,  New York.  He was educated at Fordham  University  School of Law, New
York, New York, LL.B, and Lafayette College, Easton, Pennsylvania, B.A.

         ALAN  GUTTMAN  has been  Treasurer  of the  Registrant  since  1991 and
treasurer of Vanguard since 1985. Prior to joining  Vanguard,  he was controller
of Brittan Corporation, a real estate property owner and management company. Mr.
Guttman has a B.A. degree in accounting from the City University of New York.

         JAMES E. EDEN has been a Director  of the  Registrant  since June 1996.
Mr. Eden has been president of James E. Eden & Associates and Eden & Associates,
Inc. since 1992,  consulting businesses active in both the senior living and the
long-term  care  industries.  Since 1992, Mr. Eden has also been chairman of the
board and chief executive  officer of Oakwood Living Centers,  Inc., a long-term
care  company  which  operates  geriatric  and  rehabilitative  nursing beds and
centers  throughout  New England and Virginia.  From 1988 to 1992,  Mr. Eden was
employed by Marriott  Corporation,  first as vice president and general manager,
senior living  services  division,  which acquired and/or  developed  Marriott's
senior living  facilities  and later as executive vice  president,  where he was
responsible for trade association and governmental relations for senior markets.
Mr. Eden is a director of Omega Healthcare  Investors,  Inc. and Just Like Home,
Inc., public companies serving the senior living industry.

         BENJAMIN  FRANK has been a Director of the  Registrant  since 1991. Mr.
Frank is an attorney and real estate developer.  He holds a J.D. degree from New
York  University  School of Law and a B.Sc.  degree in Business  Management from
Boston  University.  Prior  to  1988  he was an  executive  with  Allied  Stores
Corporation ("Allied") for 16 years. His last position with Allied


                                      -33-
<PAGE>

was that of senior vice president with overall  responsibility  for real estate,
legal and governmental affairs.

         FRANCIS S. GABRESKI has been a Director of the  Registrant  since 1992.
Mr.  Gabreski  is  retired.  Mr.  Gabreski  has  a  B.S.  degree  from  Columbia
University.  Upon  retirement from the Air Force in 1962, he accepted a position
as Assistant to the president of Grumman  Aerospace  Corporation,  a position he
held until 1978 when he was named president of the Long Island Railroad.

         ROBERT S. HOSHINO, JR. has been a Director of the Registrant since June
1996.  Mr.  Hoshino  has  been  assistant   general  counsel,   EBASCO  Services
Incorporated,   New  York,  New  York,  an  international   company  engaged  in
engineering,  construction and environmental  services,  since 1981. Mr. Hoshino
holds a J.D. degree from Columbia  University School of Law, a B.A. from Colgate
University  and  continued  his  education  at the Wharton  School of  Business,
University of Pennsylvania, in its Advanced Management Program.

         STANFORD J.  SHUSTER has been a Director of the  Registrant  since June
1996. Mr. Shuster is president  (since 1987) and chief executive  officer (since
1993) of Rosewood Estate USA, Inc. a development and management firm of assisted
living  facilities  based in St.  Paul,  Minnesota.  Mr.  Shuster also serves as
president  (since  1973)  and chief  executive  officer  (since  1987) of Arthur
Shuster,  Inc.  ("ASI").  ASI is the nation's  largest firm  specializing in the
interior  design and contract  furnishings  of long-term care and senior housing
facilities. In addition, he is a founding member, executive committee member and
current  secretary-treasurer  of  the  National  Association  of  Senior  Living
Industries (NASLI). Mr. Shuster has been a member of the American Association of
Homes and Services for the Aging  (AAHSA)  since 1978 and a frequent  speaker at
many national  conventions  and seminars  regarding the provision of services to
the aging.

BOARD OF DIRECTORS COMPENSATION

         Outside  Directors are to be compensated at the rate of $6,000 per year
plus $1,000 for each meeting attended.  In addition,  each non-employee Director
is eligible to participate in the  Registrant's  1996 Outside  Directors'  Stock
Option Plan.  All of the officers of the  Registrant  and all of its  Directors,
other than Messrs.  Laird, Hoshino, Eden and Shuster, are officers and directors
of Vanguard.  The  Registrant  also has an Audit  Committee  composed of Messrs.
Eden, Frank and Hoshino. Audit Committee members will be compensated at the rate
of $1,000 per meeting, when such meeting is not held in conjunction with a Board
of  Directors  meeting  and  $500  per  meeting  when  such  meeting  is held in
conjunction with a Board of Directors meeting.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

         Section  16(a) of the  Securities  Exchange  Act of 1934,  as  amended,
requires the  Registrant's  officers and Directors and persons who own more than
five percent of a registered class of the  Registrant's  equity  securities,  to
file  reports  of  ownership  and  changes  in  ownership  with the  Commission.
Officers, directors and greater than five percent stockholders are required


                                      -34-
<PAGE>

by the  Commission's  regulations to furnish the  Registrant  with copies of all
Section 16(a) forms they file.


                                                     Number of Transactions Not
                          Number of Late Reports     Reported on a Timely Basis
                          ----------------------     --------------------------
Carl G. Paffendorf                   6                           11
Larry L. Laird                       5                           5
Craig M. Shields                     1                           1
Paul D'Andrea                        2                           2
Theresa A. Govier                    2                           2
Alan Guttman                         2                           2
Benjamin Frank                       3                           3
Francis S. Gabreski                  3                           3
James E. Eden                        1                           1
Robert S. Hoshino                    1                           1
Stanford J. Shuster                  1                           1
Vanguard                            10                           10


Item 11.  EXECUTIVE COMPENSATION

         The  following  table  sets  forth the total  compensation  for Carl G.
Paffendorf,  the  Registrant's  Chief Executive  Officer during the fiscal years
ended March 31, 1996,  1995 and 1994.  No executive  officer's  salary and bonus
exceeded $100,000 for services rendered to the Registrant during such years.


                           SUMMARY COMPENSATION TABLE

                                           Fiscal Year
                                              Ended         Annual Compensation
                                            March 31,             Salary
NAME AND PRINCIPAL POSITION             ---------------     -------------------
---------------------------
Carl G. Paffendorf.....................        1996                       --(1)
  Chief Executive Officer                      1995                       --(1)
                                               1994                       --(1)


(1)      Mr.  Paffendorf  was paid  $75,600 by  Vanguard  during the fiscal year
         ended March 31, 1994,  $75,600 by Vanguard during the fiscal year ended
         March 31,  1995 and  $75,600 by  Vanguard  during the fiscal year ended
         March 31, 1996. The Registrant  estimates that Mr.  Paffendorf  devoted
         40% of his time  during the fiscal  year  ended  March 31,  1994 to the
         Registrant, 50% of his time during the fiscal year ended March 31, 1995
         to the  Registrant  and 60% of his time  during the  fiscal  year ended
         March 31,  1996 to the  Registrant.  The  Registrant  paid to  Vanguard
         administrative  fees of  $50,000  per year in each of the three  fiscal
         years ended March 31, 1996.

         The following  table sets forth  certain  information  regarding  stock
option grants made to the Chief  Executive  Officer during the fiscal year ended
March 31, 1996.


                                      -35-
<PAGE>

                        OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                            Individual Grants
                              ----------------------------------------------------------------------------
                                                  % of Total Options
                                                      Granted to            Exercise or
                                 Options             Employees in            Base Price        Expiration
NAME                            Granted(#)           Fiscal Year               ($/sh)             Date
----                          ------------     ---------------------      --------------     -------------
<S>                               <C>                         <C>                  <C>          <C>
Carl G. Paffendorf.........       1,800                       3.3%                 $6.10        01/01/01
                                  4,200                       7.8%                 $3.67        03/22/01
</TABLE>

         The   following   table  sets  forth  certain   information   regarding
unexercised  stock options held by the Chief  Executive  Officer as of March 31,
1996. No options were exercised by the Chief Executive Officer during the fiscal
year ended March 31, 1996.


                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR-END OPTION VALUES

                                              Number of Unexercised
                                            Options at March 31, 1996
NAME                                        Exercisable/Unexercisable
----                                   ----------------------------------
Carl G. Paffendorf.................               4,800/18,000


LONG-TERM INCENTIVE AND PENSION PLANS

         The Registrant does not have any long-term incentive or defined benefit
pension plans.

EMPLOYMENT AGREEMENTS

         Effective  April 1, 1996,  Mr.  Paffendorf  entered  into a  three-year
employment  agreement  with the  Registrant,  pursuant to which he serves as its
Chief Executive  Officer.  Mr.  Paffendorf's  annual cash compensation under the
employment  agreement  is  $100,000  during  the  first  year of the  employment
agreement.  Mr.  Paffendorf has agreed not to compete with the Registrant during
the term of his  employment and for a period of three years  thereafter,  and he
will not,  without the Registrant's  written  consent,  solicit the residents of
facilities  owned or managed by the Registrant or any management  contract owned
or being  negotiated by the  Registrant or its  subsidiaries  for a period of 24
months following the end of the term of his employment agreement.  The agreement
automatically   renews  for  successive   one-year  terms  unless  either  party
terminates  the  agreement at least 45 days prior to the end of the initial term
or any  subsequent  term. The Registrant may terminate the agreement for "cause"
(a breach of the terms and  conditions of the  agreement,  dishonesty,  habitual
drunkenness or committing an act of moral turpitude) upon 30 days' prior written
notice to Mr. Paffendorf.


                                      -36-
<PAGE>

         Mr.  Laird  entered  into a  two-year  employment  agreement  with  the
Registrant as of April 1, 1996,  pursuant to which he serves as the Registrant's
President and Chief Operating Officer.  Mr. Laird's annual base salary under the
employment agreement is $100,000. In December 1995, Mr. Laird received a $25,000
cash  bonus  and will  receive  9,000  shares of Common  Stock  pursuant  to the
Registrant's  December 29,1995 letter agreement with Mr. Laird that survived Mr.
Laird's April 1, 1996  employment  agreement.  Mr. Laird  received an additional
bonus on June 30,1996 of $25,000 cash and 3,000 shares of Common  Stock.  If Mr.
Laird is employed by the  Registrant on March 31, 1998, Mr. Laird will receive a
bonus of $25,000 cash and 3,000 shares of Common Stock.  If Mr. Laird dies prior
to March  31,1998,  while  employed by the  Registrant,  Mr. Laird's estate will
receive the full bonus due on March 31, 1998.

         Mr. Laird has agreed not to compete with the Registrant during the term
of his  employment and for a period of three years  thereafter  within a 15-mile
radius of any facility  owned by the  Registrant,  and, upon his  termination he
will not,  without the Registrant's  written  consent,  solicit the residents of
facilities owned or managed by the Registrant,  any management contract owned or
being  negotiated by the  Registrant or any  employees of the  Registrant  for a
period of 24 months  following the end of the term of his employment  agreement.
The agreement  automatically  renews for successive one-year terms unless either
party  terminates the agreement at least 45 days prior to the end of the initial
term or any  subsequent  term.  The  Registrant  may terminate the agreement for
"cause"  (a  breach of the terms  and  conditions  of the  agreement,dishonesty,
habitual  drunkenness  or  committing an act of moral  turpitude)  upon 30 days'
prior written notice to Mr. Laird.  In the event that Mr. Laird's  employment is
terminated,  the Registrant  ceases to be manager of Cottage Grove Place and Mr.
Laird becomes its manager,  the Registrant will receive  one-half of the Cottage
Grove  Place  management  fee.  In the  event  that Mr.  Laird's  employment  is
terminated, the Registrant ceases to be the developer of Cottage Grove Place and
Mr.  Laird  becomes  its  developer,  the  Registrant  will  receive  90% of the
development fee.

STOCK OPTION PLANS

         1991 INCENTIVE STOCK OPTION PLAN. Under the Registrant's 1991 Incentive
Stock Option Plan (the  "Incentive  Plan"),  300,000  shares of Common Stock are
reserved for issuance upon the exercise of stock options. As of the date of this
Prospectus,  options to purchase an aggregate of 126,480  shares of Common Stock
are  outstanding  under the Incentive  Plan. The Incentive Plan is designed as a
means to attract,  retain and  motivate  key  employees.  The Stock  Option Plan
Committee administers and interprets the Plan.

         The Incentive Plan provides for the granting of incentive stock options
(as defined in Section 422 of the Code). Options are granted under the Incentive
Plan on such terms and at such  prices as  determined  by the Stock  Option Plan
Committee,  except that the per share  exercise  price of options cannot be less
than the fair market value of the Common Stock on the date of grant. Each option
is exercisable  after the period or periods  specified in the option  agreement,
but no option may be exercisable after the expiration of ten years from the date
of grant.  Options granted under the Incentive Plan are not  transferable  other
than by will or by the laws of descent and


                                      -37-
<PAGE>

distribution or pursuant to a qualified  domestic  relations order as defined by
the Code or the Employee Retirement Income Security Act.

         1996  OUTSIDE  DIRECTORS'  STOCK  OPTION PLAN.  The  Registrant's  1996
Outside  Directors' Stock Option Plan (the  "Directors'  Plan") provides for the
grant of options to purchase  Common  Stock of the  Registrant  to  non-employee
directors of the  Registrant.  The Directors'  Plan authorizes the issuance of a
maximum of 90,000  shares of Common  Stock.  As of the date of this  Prospectus,
options to purchase an aggregate of 9,000 shares of Common Stock are outstanding
under the Directors' Plan.

         The Directors' Plan is  administered  by the Board of Directors.  Under
the Directors' Plan each non-employee  director elected after April 1, 1996 will
receive  options for 3,000 shares of Common Stock upon  election.  To the extent
that shares of Common Stock remain  available for the grant of options under the
Directors'  Plan,  each  year  on  April  1,  commencing  April  1,  1997,  each
non-employee  director  will be granted an option to  purchase  1,800  shares of
Common  Stock.  The exercise  price per share for all options  granted under the
Directors' Plan will be equal to the fair market value of the Common Stock as of
the date  preceding  the date of grant.  All options  vest in three equal annual
installments  beginning  on the first  anniversary  of the date of  grant.  Each
option will be for a ten-year term, subject to earlier  termination in the event
of death or permanent disability.

BOARD  OF  DIRECTORS  INTERLOCKS  AND  INSIDER   PARTICIPATION  IN  COMPENSATION
DECISIONS

         Carl  G.  Paffendorf,   the  Registrant's   Chief  Executive   Officer,
participated in the decisions of the Registrant's Board of Directors  concerning
executive office compensation.  However, Mr. Paffendorf abstained from decisions
concerning his own compensation.

         Mr. Paffendorf is Chairman and Chief Executive Officer of Vanguard.

BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION

         The goal of the  Board of  Directors  is to  establish  a  motivational
compensation  plan for executives that will enable the Registrant to attract and
retain those individuals deemed most qualified to improve and enhance its future
performance. As part of its periodic review of executive compensation, the Board
of Directors considers such factors as level of responsibility, the Registrant's
general  growth,  improved  financial  condition,  compensation of executives at
comparable companies and other relevant factors. The Board of Directors strongly
believes that by providing those persons who have substantial responsibility for
the  management  and growth of the  Registrant  with an  opportunity to increase
their  ownership of Registrant  stock,  the best interests of  stockholders  and
executives will be closely aligned.  Therefore,  the Board of directors included
executives as eligible employees under the Registrant's  Incentive Plan, whereby
executives  are  eligible to receive  stock  options that give them the right to
purchase  shares of Common Stock of the  Registrant  at specified  prices in the
future.


                                      -38-
<PAGE>

         The Board of Directors believes executive  compensation  should be tied
to benefits directly accruing to stockholders from positioning the Registrant to
grow  through  acquisitions,  increases  in  stockholders'  equity and  improved
operating results.  As indicated in the discussion above, the Board of Directors
believes  that the  Registrant's  executive  compensation  should  be first  and
foremost  based  on  financial  performance  and  returns  to  stockholder.  The
compensation levels of the Registrant's officers are based on these two factors.

         The  Board  of  Directors  will  continue  to  monitor  the  level  and
effectiveness of executive compensation.

PERFORMANCE GRAPH

         There has not been a public  market for the  Registrant's  Common Stock
for the past five years. Consequently,  no performance graph is being filed with
this report.


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

         The  following  table  sets forth  certain  information  regarding  the
beneficial  ownership of the Registrant's  Common Stock as of August 31, 1996 by
(i) each person who is known by the  Registrant  to be the  beneficial  owner of
more than 5% of the  Registrant's  Common  Stock,  (ii) each  director  and each
executive  officer  named  in the  Summary  Compensation  Table  and  (iii)  all
directors and executive  officers as a group.  Except as otherwise  noted,  each
person maintains a business address at c/o United Vanguard Homes,  Inc., 4 Cedar
Swamp Road, Glen Cove, New York 11542,  and has sole voting and investment power
over the shares shown as beneficially owned.


                                      -39-
<PAGE>

                                                                  Percent of
                                                                  Outstanding
                                           Shares Beneficially      Common
                                                  Owned              Stock
                                           -------------------    -----------
                                         
Vanguard Ventures, Inc.................    1,635,969(1)              73.0%  
                                                                            
Carl G. Paffendorf.....................    1,700,010(2)              75.6   
                                                                            
Larry L. Laird.........................    22,680(3)                  1.0   
                                                                            
Benjamin Frank.........................    13,402(4)                   *    
                                                                            
Francis S. Gabreski....................    29,326(5)                  1.3   
                                                                            
Robert S. Hoshino, Jr..................    17,817                      *    
                                                                            
James E. Eden..........................    --                         --    
                                                                            
Stanford  J. Shuster...................    --                         --    
                                                                            
Directors and Executive Officers,                                           
as a Group (11 Persons)................    1,794,275(6)              78.3%  

-------------------
*        less than 1%.

(1)      As of June 30, 1996,  Vanguard had pledged  1,340,573  shares of Common
         Stock owned by Vanguard as security for its guaranty in connection with
         construction loans to Harvest Village.  See "Certain  Relationships and
         Related Transactions."
(2)      Mr. Paffendorf is an officer,  director and controlling  stockholder of
         Vanguard.  Consequently,  Mr.  Paffendorf  may  be  deemed  to  be  the
         beneficial  owner of all  shares of  Common  Stock  owned by  Vanguard.
         Includes 7,200 shares of Common Stock issuable upon exercise of options
         exercisable within 60 days of August 31, 1996.
(3)      Includes 4,680 shares of Common Stock issuable upon exercise of options
         exercisable within 60 days of August 31, 1996.
(4)      Includes 6,480 shares of Common Stock issuable upon exercise of options
         exercisable within 60 days of August 31, 1996.
(5)      Includes  20,326  shares of Common  Stock  issuable  upon  exercise  of
         options and convertible securities exercisable within 60 days of August
         31, 1996.
(6)      Includes  49,726  shares of Common  Stock  issuable  upon  exercise  of
         options and convertible securities exercisable within 60 days of August
         31, 1996.


                                      -40-
<PAGE>

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

DUE FROM AFFILIATES

         The  Registrant is owed by Vanguard and its  affiliates  cash advances,
unpaid management fees, interest and other revenues.  These amounts consisted of
the following as of the dates indicated below:

<TABLE>
<CAPTION>
                                                     March 31,           March 31,          March 31,            June 30,
                                                       1994                1995               1996                 1996
                                                  --------------     --------------      --------------     ----------------
<S>                                                  <C>                 <C>                <C>                  <C>       
Due from Vanguard..............................      $1,708,684          $2,829,998         $2,452,137           $2,379,165
Due from Whittier Tower Corp.
(Vanguard subsidiary)..........................       1,078,634           1,576,150          2,406,266            2,441,068
Due from Vanguard Affiliated
 Limited Partnerships (Vanguard is
 General Partner)..............................         951,201           1,107,467          1,235,661            1,242,523
Management fees and cash
 advances due from not-for-profit
 entities......................................         913,873           1,422,746          1,088,208              723,605
                                                     ----------          ----------         ----------           ----------
                                                     $4,652,392          $6,936,361         $7,182,272           $6,786,361
</TABLE>

         The aggregate of $6,786,361  due from  affiliates at June 30, 1996 will
be  reduced  by  $6,094,000  effective  March 31,  1996 in  connection  with the
acquisition of Harvest  Village.  The balance due from affiliates of $723,605 is
not  secured,  however,  a portion of such  amount will be secured by the escrow
agreement to be entered into among  Vanguard,  the Registrant and American Stock
Transfer and Trust Registrant as escrow agent. In addition, the Registrant has a
note receivable  collateralized by a third mortgage in the amount of $6,863,340,
$7,481,953 and  $7,481,953 at March 31, 1995,  March 31, 1996 and June 30, 1996,
respectively. The note is due from Gateway.

         On February 28, 1994,  through a series of transfers  and  assignments,
the debt due to the  Registrant  from  affiliates  was  reduced  by  $6,711,253.
Vanguard  owned  certain  receivables  from  Gateway  which it  assigned  to the
Registrant in partial settlement of Vanguard's obligation to the Registrant. The
assignments  were made by  Vanguard  and  Harvest  Partners  in the  amounts  of
$6,258,875 ("GCI Note") and $452,378.

HARVEST VILLAGE

         Under an agreement  dated June 20, 1992, the Registrant  purchased (for
$275,000)  a  five-year  option  from  Vanguard  to acquire a 50 percent  equity
interest in Harvest  Village for a purchase price of $2 million upon exercise of
the  option,  subject to the  construction  loan and other  indebtedness  on the
property. The Registrant's 1992 option to acquire Harvest Village was terminated
in connection  with the  acquisition  of Harvest  Village.  At that time Harvest
Village  was owned 95  percent  by  Vanguard  Homes of N.J.,  Inc.  ("VHNJ"),  a
Vanguard  subsidiary,  and 5 percent by Rimco Associates,  Inc., an unaffiliated
corporation and the general contractor of


                                      -41-
<PAGE>

Harvest  Village.  On January 10, 1995,  Rimco  assigned one half of its general
partnership interest in Harvest Partners to VHNJ and on January 2, 1996 assigned
the  balance  of  its  partnership  interest  in  Harvest  Partners  to  Phoenix
Resources,  Inc.,  a  Vanguard  subsidiary.  In the event of the sale of Harvest
Village, VHNJ agreed to use its best efforts to have the GCI Note assumed by the
buyer. In consideration  for the assignment of Rimco's  partnership  interest in
Harvest  Village,  these  subsidiaries  of Vanguard have agreed that if, as, and
when and to the extent that GCI Note is paid,  then they each will pay Rimco the
sum of $275,000 on September  10, 2005,  with  interest at the rate of 9 percent
per annum,  compounded  annually.  In  consideration  of  Rimco's  unconditional
consent  to the  assignment  of  the  GCI  Note  to the  Registrant,  and  other
consideration,  the Registrant  agreed that if, as and when the GCI Note is paid
that the  Registrant  will fund  Phoenix  Resources,  Inc.  and VHNJ out of said
proceeds  with sums  sufficient  for them to pay Rimco  sums due it. On July 12,
1996, the Registrant's  obligation to fund Phoenix Resources,  Inc. and VHNJ out
of the proceeds of the GCI Note was terminated.

         In fiscal 1996, the Registrant  agreed to purchase Harvest Village from
Harvest Partners. The purchase is contingent upon certain events,  including the
consummation of a proposed $25 million public  offering and the  satisfaction of
the  Harvest  Village  construction  loans  (or  purchase  by  Vanguard  or  its
designee).  The purchase price is $17.4 million,  consisting of (i)  $13,500,000
cash (which may include the assumption of a first mortgage of $12,500,000), (ii)
the  cancellation  of  $6,094,000 of  indebtedness  due to the  Registrant  from
Vanguard and (iii) the  assignment to Vanguard of the $7.5 million GCI Note. The
intercompany  debt  and  assignment  of the GCI Note  have  been  valued  by the
parties, based upon an appraisal, at $3.9 million.

         In  connection  with the  restructuring  of the  construction  loan for
Harvest Village, the construction lenders required Vanguard to make a $7 million
loan guaranty. This guaranty,  currently $6,350,000, is secured by a subordinate
mortgage on Olds Manor in the amount of $1.4 million and a subordinate  mortgage
on  The  Whittier  in  the  amount  of $1  million.  The  Whittier  mortgage  is
cross-collateralized  with  subordinate  mortgages  on Hillside  Terrace and The
Whitcomb.  As of June 30, 1996 the guaranty was also secured by 1,340,573 shares
of the Registrant's stock owned by Vanguard. The guaranty and security interests
will be  terminated  upon the  completion  of the  Offerings and the purchase of
Harvest Village by the Registrant which will result in the repayment of the debt
and a full release from the current mortgages.

GUARANTEES

         Vanguard has guaranteed to the Registrant the payment of the management
fees and other  sums  aggregating  $2,406,266  at March 31,  1996 from  Whittier
Towers,  Inc., a Vanguard subsidiary which owns The Whittier,  and $630,337 from
two  partnerships  of which Vanguard is general  partner,  Lake Fredrica,  Ltd.,
which then owned a 360-unit  apartment  complex in  Orlando,  Florida and Colony
Court  Associates,  Ltd.,  which  owns a 104-unit  apartment  complex in Stuart,
Florida.  All  indebtedness  with respect to such  guarantees  was  cancelled in
connection  with the  acquisition  of  Harvest  Village.  In  fiscal  1997,  the
Registrant assigned to Vanguard the management  agreements for Lake Fredrica and
Colony Court, and Lake Fredrica was sold.


                                      -42-
<PAGE>

         The Registrant, Mr. Carl G. Paffendorf,  Chief Executive Officer of the
Registrant, and Vanguard have guaranteed certain bank debt as follows:

<TABLE>
<CAPTION>
                                                                                                 Amount As of
          Guarantor                       Maker(s)                    Lender/Obligee           August 31, 1996
--------------------------      --------------------------     ------------------------     ----------------------
<S>                             <C>                            <C>                               <C>       
The Registrant                  CBF Building Registrant        Apple Savings Bank                $  112,000
The Registrant,                 Camelot Retirement             State Bank of Long                   450,000
Vanguard, Phoenix               Homes, Inc.                    Island
Lifecare Corp. and Carl
G. Paffendorf
Vanguard and Carl G.            The Registrant                 State Bank of Long                   450,000
Paffendorf                                                     Island
Vanguard                        Hillside Terrace, Inc.         Great-West Life                    2,245,526
Vanguard                        Whitcomb Tower Corp.           Great-West Life                    2,095,659
Vanguard                        The Registrant                 Cedar Rapids CGP, L.C.            $  451,056
</TABLE>

         As of March 31,  1996,  Vanguard's  $6,350,000  guaranty of the Harvest
Village  construction  loan was secured by  subordinate  mortgages on Olds Manor
($1,400,000) and other collateral, discussed above under "Harvest Village." Carl
G.  Paffendorf has guaranteed  $1.00 of the Harvest Village  construction  loan.
This $1.00  guarantee  increases to  $6,350,000  if Harvest  Partners  files for
bankruptcy. This guarantee reduces to $300,000 if certain events occur. Upon the
acquisition  of  Harvest  Village  by the  Registrant,  Mr.  Paffendorf's  $1.00
guarantee will be cancelled.

         The  Great-West  Life  mortgage  on The  Whittier,  which  is  owned by
Vanguard, was $4,087,500 at June 30, 1996. A default under The Whittier mortgage
is a default under the Hillside Terrace and Whitcomb mortgages.

         Under an  agreement,  dated  September  15, 1995 among the  Registrant,
Vanguard, Heritage Corporation of Iowa ("Heritage"), an unaffiliated corporation
and owner of certain real property ("Lot 3") adjacent to the Cottage Grove Place
retirement  facility in Cedar Rapids,  Iowa, and Cottage Grove Place ("CGP"), an
unaffiliated 501(c)(3)  corporation,  Heritage granted CGP a five-year option to
purchase Lot 3 for approximately  $450,000 plus certain expenses. The Registrant
agreed to advance  sums during the term of the option to pay real  estate  taxes
and other  expenses  relating  to Lot 3 and agreed that it would  exercise  such
option if CGP did not.  Vanguard has guaranteed  the foregoing  agreement of the
Registrant.

         Subsequently,  under an agreement  dated November 20, 1995, as amended,
CGP assigned its option  rights to Cedar Rapids CGP,  L.C.  ("L.C."),  a limited
liability company affiliated with CGP but unaffiliated with the Registrant,  and
L.C.  acquired  Lot 3 from  Heritage;  L.C.  granted CGP a  five-year  option to
purchase Lot 3 for  approximately  $450,000 plus certain interest and taxes. The
option expires September 19, 2000. The Registrant  continued its agreement which
requires it to pay real estate taxes and other  expenses and exercise its option
if CGP does not  exercise  its option.  Vanguard  continues  to  guarantee  this
agreement of the Registrant.


                                      -43-
<PAGE>

OTHER

         The Registrant  leases its offices in Glen Cove, New York, 5,600 square
feet, from CBF Building Company, a limited  partnership in which Vanguard is the
general  partner.  The  Registrant  has sublet  550 square  feet of its space to
Vanguard on the same terms as the Registrant's lease with CBF.

         In fiscal 1996,  certain  officers/directors  of the Registrant and its
parent   company  were  officers  and  directors  of  Phoenix   Lifecare   Corp.
("Phoenix"), a 501(c)(3) organization which provides home healthcare services to
residents of The Whittier and The Whitcomb. As of the date of this Prospectus no
director, officer, employee or agent of the Registrant, Vanguard or any of their
respective  affiliates  is a  director  of Phoenix  or will,  in the  aggregate,
constitute a majority of the officers of Phoenix.

         Phoenix provides  healthcare  services to residents of The Whitcomb and
The Whittier who request such services.  The  Registrant  earns a management fee
from Phoenix for management services rendered. The amount of such fee represents
fair market value  determined at arms-length  and does not take into account the
volume or value of referrals between Phoenix and The Whittier. At June 30, 1996,
the  amounts  due from  Phoenix,  $369,950,  have  been  fully  reserved  and no
management fees have been recognized during fiscal 1995 and 1996.

         In fiscal 1996, the Registrant assigned its option to acquire 3.2 acres
of  land  in  Hollywood,   Florida  to  Presidential  Care  Corp.,  a  501(c)(3)
organization  of which Phoenix is the sole member,  in return for  agreements to
develop and manage an assisted living facility on such property,  plus an option
to acquire the facility.  The option is  exercisable  from January 1, 2000 until
December  31, 2005 at appraised  fair market  value,  provided  that in no event
shall the  purchase  price be less  than the sum of  outstanding  principal  and
interest,  together  with  any  prepayment  penalties  of any  mortgages  on the
property. Loans from the Registrant to Phoenix and Presidential Care Corp. as of
March 31, 1996  aggregated  $871,459,  of which $545,979 was paid  subsequent to
March 31, 1996.

         In fiscal 1996, in  consideration  of the issuance of 120,000 shares of
Common Stock to be issued by the Registrant to Vanguard,  Vanguard  released its
right to receive up to 1,200,000 shares of Common Stock at the rate of one share
upon each $5.73  received by the  Registrant in payment or sale of the GCI Note.
Effective  March  31,  1995,  Vanguard  contributed   1,200,000  shares  to  the
Registrant for cancellation.

         The Registrant  entered into agreements with Camelot  Retirement Homes,
Inc.,  then a  wholly-owned  subsidiary  of  Vanguard  for the  development  and
management of Camelot Village at Huntington,  a proposed  132-unit senior living
facility to be located in  Huntington,  New York.  On July 12, 1996,  all of the
outstanding  shares of the Common Stock of Camelot  Retirement Homes, Inc., were
transferred to Phoenix.  The  Registrant has an option,  exercisable at any time
during the seven-year  period after  construction  of the facility,  to purchase
Camelot  Village at Huntington at a purchase  price equal to the appraised  fair
market value, provided that in no event


                                      -44-
<PAGE>

shall the  purchase  price be less  than the sum of  outstanding  principal  and
interest,  together  with any  prepayment  penalties of any mortgage  notes.  As
discussed above under "Guarantees," the Registrant,  Vanguard,  Phoenix and Carl
G. Paffendorf have guaranteed a $450,000 bank loan to Camelot  Retirement Homes,
Inc.,  the  proceeds  of which were used as part of the  purchase  price for the
Huntington, New York property.

         The Registrant has an option,  exercisable  until December 31, 2001, to
purchase The Whittier from Whittier Towers,  Inc., a wholly-owned  subsidiary of
Vanguard,  at a purchase  price equal to the lesser of the appraised fair market
value,  or the then amount of its  mortgage  debt less accrued  management  fees
payable.

         During the year ended  December  31,  1994,  Carl G.  Paffendorf  and a
partnership  controlled by his spouse purchased  $100,000 of the Registrant's 7%
Notes,  and  10,000  warrants  to  purchase  Common  Stock on the same terms and
conditions offered to the other investors in a private placement.  The notes and
warrants were converted and exercised in fiscal 1997.

         The  Registrant  has adopted a policy  whereby all future  transactions
between the Registrant and its officers,  Directors,  principal  stockholders or
affiliates, will be approved by a majority of the Board of Directors,  including
all of the independent and  disinterested  members of the Board of Directors or,
if  required by law, a majority of  disinterested  stockholders,  and will be on
terms no less favorable to the Registrant than could be obtained in arm's length
transactions from unaffiliated third parties. In addition,  the Notes offered in
the Notes Offering will contain certain restrictions on the Registrant involving
transactions with affiliates.

         Vanguard  and each of its  subsidiaries  have agreed to  indemnify  the
Registrant from any liabilities it may incur,  including  interest and penalties
arising from, among other things,  (i) any unpaid taxes,  assessments or similar
changes  attributable  to the  operations  of  Vanguard,  its  subsidiaries  and
predecessors  of the  Registrant  prior to the effective  date of the Offerings,
(ii) any  disallowance  of any  operating  loss  carry-forward  recorded  by the
Registrant  in its income tax returns for each year prior to and  including  the
fiscal  year ended  March 31, 1996 and (iii) the  cancellation  of  indebtedness
income  from the  satisfaction  of a  subordinate  mortgage  held by  Gateway on
Harvest  Village,  which is to be  acquired  by the  Registrant  from a Vanguard
affiliate.

MANAGEMENT AGREEMENT

         Under an agreement  dated as of April 1, 1991,  Whittier Towers Inc., a
Vanguard  subsidiary,   agreed  to  pay  to  the  Registrant's  subsidiary,  UVH
Management Corp. ("UVHMC"), a management fee of 5% plus a 1% data processing fee
for a total of 6% of gross revenue  collected or received from  operation of the
facility.  The term of the agreement was for a period of 60 months commencing on
April 1, 1991. UVHMC earned  management fees of $151,474,  $142,857 and $165,190
for the fiscal years ended March 31, 1996, 1995 and 1994, respectively.

         Under an agreement dated April 1, 1996,  Whittier Towers Inc. agreed to
pay to  UVHMC  a  management  fee of 5% of the  gross  operating  income  of The
Whittier. The term of the


                                      -45-
<PAGE>

agreement is 60 months and will continue on a month-to-month  basis  thereafter.
The  agreement  may be  terminated  by either party upon 30 days' prior  written
notice to the other party.

ESCROW AGREEMENT

         In connection with the Offerings, Vanguard, the Registrant and American
Stock Transfer and Trust Registrant as escrow agent anticipate  entering into an
escrow  agreement  pursuant to which 540,684 shares of Common Stock  (assuming a
public  offering  price of $8.50 per  share)  held by  Vanguard  will be held in
escrow  to  secure  for  the  benefit  of  the  Registrant  certain  outstanding
obligations of Vanguard and others  aggregating  $4,596,000.  Subject to certain
conditions  and  formulas  contained  in the escrow  agreement,  shares  will be
released to Vanguard as the obligations are repaid. In the event the obligations
are not repaid  within  three years of the date of the escrow  agreement  shares
with a value aggregating such unpaid indebtedness will be cancelled.


                                      -46-
<PAGE>

                                     PART IV

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

         (a)      (1), (2) FINANCIAL STATEMENTS.  See Page F-1


                  (3)  EXHIBITS

<TABLE>
<CAPTION>
      EXHIBIT NUMBER               DESCRIPTION OF EXHIBIT
---------------------------------------------------------------------------------------------

<S>                    <C>
           *1.1        Form of Underwriting Agreement.

           *1.2        Form of Agency Agreement relating to the Notes.

         ***3.1        Form of Restated Certificate of Incorporation of Registrant.

           *3.2        Form of Certificate of Amendment to the Certificate of Incorporation
                       of Registrant.

           *3.3        Bylaws of Registrant.

           *4.1        Form of Common Stock  Purchase  Warrant  Agreement
                       between  Registrant and Continental Stock Transfer
                       & Trust Registrant, including form of Common Stock
                       Purchase Warrant.

           *4.2        Form of Representatives' Warrant Agreement, including form of
                       Representatives' Warrant.

           *4.3        Form of Indenture between Registrant and American Stock Transfer
                       and Trust Company, as Trustee, relating to the Notes.

           *4.4        Form of [   ]% Convertible Senior Secured Notes (included in Exhibit
                       4.4).

          **4.5        Form of Placement Agent's Warrant Agreement, including form of
                       Placement Agent's Warrant.

           *4.6        Form of 7% Convertible Promissory Note.

            4.7        Form of Common Stock Certificate.

          *10.1        Employment Agreement of Larry L. Laird with Registrant dated as of
                       April 1, 1996.

          *10.2        Letter Agreement between Larry L. Laird and Registrant dated
                       September 3, 1996.

          *10.3        Amended and Restated Employment  Agreement between
                       Carl  Paffendorf and Registrant  dated as of April
                       1, 1996.
</TABLE>


                                      -47-
<PAGE>

<TABLE>
<CAPTION>
      EXHIBIT NUMBER               DESCRIPTION OF EXHIBIT
---------------------------------------------------------------------------------------------

<S>                    <C>
          *10.4        Letter Agreement between Carl G. Paffendorf and Registrant dated
                       July 24, 1996.

          *10.5        Amended and Restated 1991 Incentive Stock Option Plan.

          *10.6        1996 Outside Directors' Stock Option Plan.

          *10.7        Whittier Management Agreement between Whittier Towers, Inc. and
                       UVH Management Corp. (f/k/a Vanguard Realty and Management
                       Company, Inc.) dated as of April 1, 1996.

      *****10.8        Management Agreement between Cottage Grove Place, Inc. and
                       Vanguard Realty and Management Company, Inc. dated June 7, 1995.


      *****10.9        Management Agreement between Phoenix Lifecare Corp. and
                       Vanguard Realty and Management Company, Inc. dated March 24,
                       1995.

           10.10       Amended and Restated Camelot Village Management Agreement
                       (Huntington, NY) between Camelot Retirement Homes, Inc. and
                       Vanguard Realty and Management Company, Inc. dated as of
                       September 30, 1996.

          *10.11       Camelot Village Management Agreement (Stroudsburg, PA) between
                       Camelot Village at Stroudsburg LLC and UVH Management Corp.
                       dated as of July 12, 1996.

       ****10.12       Development Agreement between UVH Development Corp. and
                       Cottage Grove Place, Inc. dated October 13, 1993.

      *****10.13       Development Agreement between UVH Development Corp. and
                       Cottage Grove Place, Inc. dated June 7, 1995.

      *****10.14       Development Agreement between Phoenix Lifecare Corp. and UVH
                       Development Corp. dated March 24, 1995.

          *10.15       Camelot Village Development Agreement (Huntington, NY) between
                       Camelot Retirement Homes, Inc. and UVH Development Corp. dated
                       January 26, 1996.

          *10.16       Camelot     Village     Development      Agreement
                       (Stroudsburg,   PA)  between  Camelot  Village  at
                       Stroudsburg,   LLC  and   Registrant   (D/B/A  UVH
                       Development) dated as of July 12, 1996.

      *****10.17       Option Agreement dated June 23, 1995 between Phoenix Lifecare
                       Corp. and Registrant.
</TABLE>


                                      -48-
<PAGE>

<TABLE>
<CAPTION>
      EXHIBIT NUMBER               DESCRIPTION OF EXHIBIT
---------------------------------------------------------------------------------------------

<S>                    <C>
          *10.18       Option and Agreement to Purchase Real Estate-Lot 3 among Heritage
                       Corporation of Iowa, Cottage Grove Place and Registrant dated
                       September 15, 1995.

          *10.19       Agreement between Cedar Grove Place, Cedar Rapids CGP, L.C.,
                       Registrant and Vanguard Ventures, Inc. dated November 20, 1995.

          *10.20       Amendment to November 20, 1995 Agreement among Cottage Grove
                       Place, Cedar Rapids CGP, L.C., Registrant and Vanguard Ventures,
                       Inc. dated as of March 12, 1996.

          *10.21       Camelot Village Option Agreement (Huntington, NY) between
                       Camelot Retirement Homes, Inc. and Registrant dated March 29,
                       1996.

           10.22       Amended and Restated Option Agreement between Whittier Towers,
                       Inc. and Registrant dated October 23, 1996.

          *10.23       [Intentionally Omitted]

          *10.24       Camelot Village Option Agreement (Stroudsburg, PA) between
                       Camelot Village at Stroudsburg, LLC and Registrant dated July 24,
                       1996.

          *10.25       Harvest Village Purchase Agreement by and among Harvest Village
                       Partners, L.P., Registrant and Vanguard Ventures, Inc. dated April 19,
                       1996.

          *10.26       Amendment No. 1 to the Harvest Village Purchase Agreement among
                       Harvest Village Partners, L.P., Registrant and Vanguard Ventures,
                       Inc. dated June 20, 1996.

          *10.27       Amendment No. 2 to the Harvest Village Purchase Agreement among
                       Harvest Village Partners, L.P., Registrant and Vanguard Ventures,
                       Inc. dated July 6, 1996.

          *10.28       Amendment No. 3 to the Harvest Village Purchase Agreement among
                       Harvest Village Partners, L.P., Registrant and Vanguard Ventures,
                       Inc. dated July 8, 1996.

          *10.29       Form of Harvest Village Return of Capital Residency Agreement.

          *10.30       Form of Harvest Village Traditional Residency Agreement.

          *10.31       Mortgage given to Old Kent Bank and Trust Registrant by Olds
                       Manor, Inc. dated June 30, 1989.

          *10.32       Mortgage given to the Olds Manor Mortgage Trust by Olds Manor,
                       Inc. dated May 31, 1993.
</TABLE>


                                      -49-
<PAGE>

<TABLE>
<CAPTION>
      EXHIBIT NUMBER               DESCRIPTION OF EXHIBIT
---------------------------------------------------------------------------------------------

<S>                    <C>
          *10.33       Mortgage given to Citibank N.A. and Lloyd's Bank Plc by Olds
                       Manor, Inc. dated October 18, 1989.

          *10.34       Mortgage given to Whitcomb Mortgage Trust by Whitcomb Tower
                       Corporation dated March 30, 1992.

          *10.35       First Amendment to Mortgage between Whitcomb Tower Corporation
                       and The Whitcomb Mortgage Trust c/o Carl Paffendorf, Trustee,
                       dated January 31, 1995.

          *10.36       Consolidation Agreement among Whittier Towers, Inc., Whitcomb
                       Tower Corp., Vanguard Ventures, Inc., Citibank N.A. and Lloyd's
                       Bank Plc dated December 14, 1990.

          *10.37       Restated Consolidation Agreement and Guarantee among Whittier
                       Towers Inc., Vanguard Homes of Michigan, Inc. (n/k/a Gateway
                       Communities, Inc.), Vanguard Ventures, Inc. and The Great-West
                       Life Assurance Company dated December 7, 1988.

          *10.38       First Amendment to Loan Documents between Great-West Life and
                       Annuity Insurance Company, Whittier Towers, Inc., Whitcomb Tower
                       Corp., Hillside Terrace, Inc., Olds Manor, Inc. and Vanguard
                       Ventures, Inc. dated August 31, 1995.

          *10.39       Letter Agreement between Great-West Life and Annuity Insurance
                       Company and Carl Paffendorf dated April 1, 1996.

          *10.40       Guarantee Agreement of Vanguard Ventures, Inc. to Vanguard Realty
                       and Management Company, Inc. dated December 30, 1994.

          *10.41       Guarantee Agreement of Vanguard Ventures, Inc. to Vanguard Realty
                       and Management Company, Inc. dated March 12, 1996.

          *10.42       Form of Escrow Agreement among Registrant, Vanguard Ventures,
                       Inc. and American Stock Transfer and Trust Company.

           11.         Statement of Computation of Per Share Earnings.

     ******16.         Letter from Farber, Blicht & Eyerman, LLP dated May 23, 1996.

          *21.         Subsidiaries of Registrant.

           24.         Powers of Attorney appear on page 52 of this Report.

           27.         Financial Data Schedule.
</TABLE>

-----------------
*        Filed as an Exhibit to  Amendment  No. 5 to  Registrant's  Registration
         Statement on Form SB-2 (No. 33-80812).


                                      -50-
<PAGE>

**       Filed as an Exhibit to  Amendment  No. 1 to  Registrant's  Registration
         Statement on Form SB-2 (No. 333-09037).

***      Filed as an Exhibit to Registrant's Form 8-K filed on April 16, 1993.

****     Filed as an Exhibit to Amendment No. 1 to Registrant's Annual Report on
         Form 10-K for the year ended March 31, 1994, SEC File No. 0-5097.

*****    Filed as an Exhibit to Registrant's  Form 10-K for the year ended March
         31, 1995, SEC File No. 0-5097.

******   Filed as an Exhibit to Registrant's Form 8-K filed on May 23, 1996.


   (b)  REPORTS ON FORM 8-K

         The  Registrant  filed no reports on Form 8-K during the quarter  ended
March 31, 1996.


                                      -51-
<PAGE>

                               POWERS OF ATTORNEY

         United  Vanguard  Homes,  Inc.  and each of the  undersigned  do hereby
appoint Paul D'Andrea,  Larry L. Laird and Carl G. Paffendorf,  and each of them
severally,  its or his true and lawful  attorneys to execute on behalf of United
Vanguard  Homes,  Inc. and the undersigned any and all amendments to this Report
and to file same with all exhibits  thereto and other  documents  in  connection
therewith,  with the Securities and Exchange Commission.  Each of such attorneys
shall have the power to act hereunder with or without the other.

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its  behalf by the  undersigned  thereunto  duly  authorized  on the 31st day of
October, 1996.

                                        UNITED VANGUARD HOMES, INC.
                                        (Registrant)

                                        By: /S/ CARL G. PAFFENDORF
                                        ----------------------------------------
                                            Name:  Carl G. Paffendorf
                                            Title: Chairman of the Board and
                                                   Chief Executive Officer


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

         Signatures                        Title                    Date
         ----------                        -----                    ----

/S/ PAUL D'ANDREA                   Vice President - Finance    October 31, 1996
------------------------------      (Principal Financial
Paul D'Andrea                       Officer and Principal
                                    Accounting Officer)

/S/ BENJAMIN FRANK                  Director                    October 31, 1996
------------------------------
Benjamin Frank

/S/ FRANCIS S. GABRESKI             Director                    October 31, 1996
------------------------------
Francis S. Gabreski

/S/ LARRY L. LAIRD                  President, Chief            October 31, 1996
------------------------------      Operating Officer and
Larry L. Laird                      Director


                                      -52-
<PAGE>

/S/ CARL G. PAFFENDORF              Chairman of the Board
------------------------------      and Chief Executive         October 31, 1996
Carl G. Paffendorf                  Officer

/S/ ROBERT S. HOSHINO, JR.          Director
------------------------------
Robert S. Hoshino, Jr.                                          October 31, 1996

/S/ JAMES E. EDEN                   Director
------------------------------
James E. Eden                                                   October 31, 1996

/S/ STANFORD J. SHUSTER             Director
------------------------------
Stanford J. Shuster                                             October 31, 1996


                                      -53-
<PAGE>
                                 C O N T E N T S


                                                                      PAGE
                                                                      ----
Reports of Independent Certified Public Accountants

      Grant Thornton LLP                                              F-2

      Farber, Blicht & Eyerman, LLP                                   F-3


Financial Statements

      Consolidated Balance Sheets                                     F-4

      Consolidated Statements of Operations                           F-6

      Consolidated Statement of Stockholders' Deficiency              F-7

      Consolidated Statements of Cash Flows                           F-8

      Notes to Consolidated Financial Statements                      F-9 - F-32


Schedule II - Valuation and Qualifying Accounts                       F-33
<PAGE>
                         REPORT OF INDEPENDENT CERTIFIED
                               PUBLIC ACCOUNTANTS


Board of Directors
     UNITED VANGUARD HOMES, INC.

We have audited the accompanying  consolidated  balance sheet of United Vanguard
Homes,  Inc. and Subsidiaries as of March 31, 1996 and the related  consolidated
statements of operations,  stockholders' deficiency, and cash flows for the year
then ended.  These financial  statements are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial position of United Vanguard
Homes, Inc. and Subsidiaries as of March 31, 1996, and the consolidated  results
of their operations and their  consolidated  cash flows for the year then ended,
in conformity with generally accepted accounting principles.

We have also audited Schedule II of United Vanguard Homes, Inc. and Subsidiaries
as of and for the year ended  March 31,  1996.  In our  opinion,  this  schedule
presents fairly, in all material respects,  information required to be set forth
therein.


GRANT THORNTON LLP

/s/ GRANT THORNTON LLP

Melville, New York
July 15, 1996, except for Note A, as to which the
     date is September 17, 1996


                                      F-2
<PAGE>
                         REPORT OF INDEPENDENT CERTIFIED
                               PUBLIC ACCOUNTANTS


To the Board of Directors
     UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES


We have audited the  accompanying  balance sheet of United Vanguard Homes,  Inc.
and Subsidiaries as of March 31, 1995 and the related  statements of operations,
shareholders'  equity  and cash  flows for each of the two  years in the  period
ended March 31, 1995. These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of United Vanguard Homes, Inc. and
Subsidiaries as of March 31, 1995 and the results of their  operations and their
cash  flows for each of the two years in the period  ended  March 31,  1995,  in
conformity with generally accepted accounting principles.

We have also audited Schedule II of United Vanguard Homes, Inc. and Subsidiaries
for each of the two years in the period  ended March 31,  1995.  In our opinion,
this  schedule  presents  fairly,  in all  material  respects,  the  information
required to be set forth therein.


/S/ FARBER, BLICHT & EYERMAN, LLP

FARBER, BLICHT & EYERMAN, LLP

Plainview, New York
February 29, 1996, except for Notes A-7 and L,
the latest of which is dated June 25, 1996


                                      F-3
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

                                    March 31,


                  ASSETS                                    1995         1996
                                                         ----------   ----------
CURRENT ASSETS
     Cash                                                $  249,561   $  210,245
     Accounts receivable, less allowance for doubtful
         accounts of $40,000 in 1995 and 1996               330,247      413,539
     Development fees and advances                        1,990,053      270,864
     Due from affiliates, net                                  --        658,717
     Prepaid expenses and other                             189,908      274,654
                                                         ----------   ----------

               Total current assets                       2,759,769    1,828,019



PROPERTY AND EQUIPMENT, NET                               2,637,788    2,361,698



OTHER ASSETS
     Development fees                                          --        575,017
     Restricted assets                                      149,600      176,352
     Deferred income taxes                                  400,000      981,000
     Other assets                                           154,225      165,453
                                                         ----------   ----------

                                                            703,825    1,897,822
                                                         ----------   ----------

                                                         $6,101,382   $6,087,539
                                                         ==========   ==========



THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.


                                      F-4
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

                                    March 31,


       LIABILITIES AND STOCKHOLDERS' DEFICIENCY          1995           1996
                                                      -----------   -----------

CURRENT LIABILITIES
     Current portion of long-term debt                $ 2,116,631   $   626,043
     Accounts payable                                     274,708       242,470
     Accrued expenses                                     884,145       617,043
     Income taxes payable                                 131,750       442,371
     Deferred revenue                                     177,221          --
                                                      -----------   -----------

               Total current liabilities                3,584,455     1,927,927


RESIDENT SECURITY DEPOSITS                                301,974       314,705


LONG-TERM DEBT, less current portion                    6,975,645     7,172,982


COMMITMENTS AND CONTINGENCIES


STOCKHOLDERS' DEFICIENCY
     Preferred stock $.001 par value; 1,000,000 shares
         authorized; none issued and outstanding
     Common stock  $.01 par value;  authorized,
         14,000,000  shares;  issued and outstanding,
         1,698,833 shares and 1,827,833 shares in
         1995 and 1996, respectively                       16,988        18,278
     Additional paid-in capital                         4,800,245     5,619,905
     Accumulated deficit                               (9,577,925)   (8,966,258)
                                                      -----------   -----------

                                                       (4,760,692)   (3,328,075)
                                                      -----------   -----------

                                                      $ 6,101,382   $ 6,087,539
                                                      ===========   ===========


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.


                                      F-5
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                              Year ended March 31,


<TABLE>
<CAPTION>
                                                  1994          1995          1996
                                               -----------   -----------   -----------
<S>                                            <C>           <C>           <C>        
Operating revenues
     Resident services                         $ 4,765,251   $ 4,887,231   $ 4,966,058
     Health care services                        2,464,380     2,491,261     2,555,138
     Development fees                              149,925       700,000     1,003,955
                                               -----------   -----------   -----------

                                                 7,379,556     8,078,492     8,525,151

Operating expenses
     Residence operating expenses                5,371,327     5,594,826     5,912,624
     General and administrative                    606,182       503,164       414,703
     Depreciation and amortization                 549,389       565,067       378,215
     Provision for loss on advances to
        affiliates                                 828,663     1,650,772       296,093
                                               -----------   -----------   -----------

                                                 7,355,561     8,313,829     7,001,635
                                               -----------   -----------   -----------

            Income from operations                  23,995      (235,337)    1,523,516

Other income (expense)
     Interest expense, net                        (750,328)     (623,224)     (600,871)
     Other income                                  144,610       231,910       109,022
                                               -----------   -----------   -----------

                                                  (605,718)     (391,314)     (491,849)


            Income (loss) before income taxes     (581,723)     (626,651)    1,031,667

Income taxes                                          --            --         420,000
                                               -----------   -----------   -----------

            NET INCOME (LOSS)                  $  (581,723)  $  (626,651)  $   611,667
                                               ===========   ===========   ===========

Earnings per share                             $      (.24)  $      (.27)  $       .51
                                               ===========   ===========   ===========

Common shares and equivalents outstanding        2,443,974     2,355,077     1,199,146
                                               ===========   ===========   ===========
</TABLE>


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.


                                      F-6
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

               CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY

                    Years ended March 31, 1994, 1995 and 1996

<TABLE>
<CAPTION>
                                                             Additional
                                                               paid-in       Accumulated
                                     Shares       Amount       Capital         Deficit         Total
                                   ----------    ---------    -----------    -----------    -----------

<S>                                <C>           <C>          <C>            <C>            <C>         
Balance, April 1, 1993              2,861,997    $  28,620    $ 4,434,663    $(8,369,551)   $(3,906,268)

Shares issued in connection
   with Olds Manor Trust               36,720          367         41,937                        42,304
Other shares issued                       116            1            645                           646
Net loss                                                                        (581,723)      (581,723)
                                   ----------    ---------    -----------    -----------    -----------

Balance, March 31, 1994             2,898,833       28,988      4,477,245     (8,951,274)    (4,445,041)

Shares contributed by parent and
   simultaneously retired          (1,200,000)     (12,000)        12,000
Contribution from parent                                          311,000                       311,000
Net loss                                                                        (626,651)      (626,651)
                                   ----------    ---------    -----------    -----------    -----------

Balance, March 31, 1995             1,698,833       16,988      4,800,245     (9,577,925)    (4,760,692)

Reissuance to parent                  120,000        1,200         (1,200)
Shares issued as compensation           9,000           90         49,860                        49,950
Contribution from parent                                          771,000                       771,000
Net income                                                                       611,667        611,667
                                   ----------    ---------    -----------    -----------    -----------

BALANCE, MARCH 31, 1996             1,827,833    $  18,278    $ 5,619,905    $(8,966,258)   $(3,328,075)
                                   ==========    =========    ===========    ===========    ===========
</TABLE>


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.


                                      F-7
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                              Year ended March 31,

<TABLE>
<CAPTION>
                                                               1994           1995           1996
                                                            -----------    -----------    -----------
<S>                                                         <C>            <C>            <C>        
Cash flows from operating activities
     Net income (loss)                                      $  (581,723)   $  (626,651)   $   611,667
     Adjustments to reconcile net income to net cash
         (used in) provided by operating activities
              Depreciation and amortization                     549,389        565,067        378,215
              Common stock issued for services                     --                          49,950
              Deferred income taxes                                --         (400,000)      (581,000)
              Changes in operating assets and liabilities
                  Accounts receivable, advances and other
                      receivables                              (831,368)        48,168        977,180
                  Prepaid expenses and other                       --         (104,471)       (84,746)
                  Development fees                                 --       (1,343,614)      (575,017)
                  Other assets                                  232,559       (143,804)       (34,232)
                  Accounts payable                               66,620       (120,445)       (32,238)
                  Accrued expenses                             (291,001)        15,355       (267,102)
                  Income taxes payable                          (32,074)       (26,700)       310,621
                  Resident security deposits                      9,882         (8,513)        12,731
                  Deferred revenue                               44,654        135,943       (177,221)
                                                            -----------    -----------    -----------
            Net cash (used in) provided by operating
               activities                                      (833,062)    (2,009,665)       588,808
                                                            -----------    -----------    -----------
Cash flows used in investing activities
     Purchases of property and equipment                       (213,733)      (169,565)       (79,121)
                                                            -----------    -----------    -----------
Cash flows from financing activities
     Proceeds from borrowings on mortgages and
         notes payable                                        1,790,000      1,441,000        249,880
     Principal repayments of mortgages and notes payable       (133,037)      (124,620)    (1,543,131)
     Decrease (increase) in restricted cash financing          (464,257)       464,257        (26,752)
     Increase in additional paid-in capital                        --          311,000        771,000
     Proceeds from issuance of common stock                         646           --
                                                            -----------    -----------    -----------
            Net cash provided by (used in) financing
                 activities                                   1,193,352      2,091,637       (549,003)
                                                            -----------    -----------    -----------
            NET INCREASE (DECREASE) IN CASH                     146,557        (87,593)       (39,316)
Cash at beginning of year                                       190,597        337,154        249,561
                                                            -----------    -----------    -----------
Cash at end of year                                         $   337,154    $   249,561    $   210,245
                                                            ===========    ===========    ===========
Supplemental disclosures of cash flow information:
     Cash paid during the year for
         Interest                                           $   709,000    $   751,000    $   619,000
                                                            ===========    ===========    ===========
         Income taxes                                       $      --      $    41,000    $    57,000
                                                            ===========    ===========    ===========
</TABLE>


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.


                                      F-8
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          March 31, 1994, 1995 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      1.    BUSINESS

            United  Vanguard Homes,  Inc.  ("UVH") (the "Company") is a Delaware
            corporation  which was originally formed in New York in 1964 as Coap
            Systems Inc. ("Coap") and is a majority-owned subsidiary of Vanguard
            Ventures,  Inc.  ("VVI").  UVH owns and operates  three  residential
            retirement  centers in the State of Michigan,  which provide  living
            and extended care services for residents on a month-to-month  basis.
            The  facilities  are  known  as Olds  Manor,  Hillside  Terrace  and
            Whitcomb Tower. In addition, UVH, through a wholly-owned subsidiary,
            provides management and other services for companies affiliated with
            VVI and partnerships which are located in Michigan and Florida (Note
            C). During the year ended March 31, 1994,  UVH  commenced  providing
            services,  through a subsidiary,  to develop residential  retirement
            centers.

      2.    PRINCIPLES OF CONSOLIDATION

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

      3.    RESTRICTED ASSETS

            Restricted  assets  include cash of $99,600 that  collateralizes  an
            insurance bond required by Michigan State law for resident  security
            deposits.  In  addition,  restricted  use  cash  accounts  totalling
            approximately  $50,000  and  $76,000  at March  31,  1995 and  1996,
            respectively,  have been segregated pursuant to the terms of certain
            mortgage  indebtedness,  which requires the net operating  income of
            the Company's residential retirement centers, as defined, to be used
            to fund capital improvements and the related mortgage indebtedness.

      4.    PROPERTY AND EQUIPMENT

            Property  and  equipment   are  stated  at  cost  less   accumulated
            depreciation.  Depreciation  is  computed  using  the  straight-line
            method over the  estimated  useful lives of the related  assets,  as
            follows:

              Buildings and improvements            10 to 30 years
              Equipment                             12-1/2 years
              Vehicles                              3 years
              Furniture and office equipment        5 to 7 years


                                      F-9
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996


NOTE A (CONTINUED)

      5.    DEBT

            The  fair  value of the  Company's  debt is  estimated  based on the
            quoted  market  prices  for the  same or  similar  issues  or on the
            current rates offered to the Company for debt of the same  remaining
            maturities.  The carrying  amounts of the Company's  borrowings  are
            estimated to approximate fair value.

      6.    INCOME TAXES

            The  Company is  included  in the  consolidated  Federal  income tax
            return of VVI. It is the policy of VVI to allocate  income  taxes to
            the  Company  pro  rata on a  separate  return  basis,  charging  or
            crediting  the Company  with its  proportionate  share of expense or
            reduction in taxes.

            Deferred  income  taxes are  recognized  for  temporary  differences
            between  financial  statement  and  income  tax bases of assets  and
            liabilities and loss carryforwards for which income tax benefits are
            expected to be realized in future years.  A valuation  allowance has
            been  established  to reduce the deferred tax assets,  as it is more
            likely than not, that a portion of such deferred tax assets will not
            be realized.  The effect on deferred  taxes of a change in tax rates
            is  recognized  in income in the period that  includes the enactment
            date.

      7.    PER SHARE INFORMATION

            In June 1996,  the Company  approved a  1-for-1.6667  reverse  stock
            split and,  accordingly,  all share and per share  amounts have been
            retroactively restated.

            Earnings  (loss) per common  share are  calculated  by dividing  net
            income  (loss)  applicable  to common stock by the weighted  average
            number of common shares outstanding during the year and common stock
            equivalents.  On a fully-diluted  basis,  both net income (loss) and
            shares outstanding are adjusted to assume the conversion of mortgage
            indebtedness  from the date of issuance.  Fully-diluted  amounts are
            not presented as the effect would be immaterial or antidilutive.


                                      F-10
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996


NOTE A (CONTINUED)

             In connection with the Company's proposed public offering,  540,684
             shares owned by VVI, will be placed in escrow.  Upon the payment by
             VVI or its affiliates of amounts guaranteed by the Company, 493,748
             of such shares will be released  and upon the payment by VVI or the
             affiliate of certain amounts due to the Company, 46,936 shares will
             be released. In the event such amounts are not repaid by VVI or its
             affiliates,  the  shares  held in escrow  will be  returned  to the
             Company.  As the  conditions  for the release of the shares are not
             currently being met, such shares  (540,684) have been excluded from
             earnings  per  share for all  periods  presented.  No  compensation
             expense will be  recognized  upon the release of all such shares as
             the release is dependent upon the performance of the affiliates. To
             the  extent  the  actual   number  of  shares   excluded  from  the
             calculation  of earnings per share differs upon the release of such
             shares, earnings per share will be retroactively restated.

      8.    REVENUE RECOGNITION

            Revenues from services provided to residents, including, among other
            things,   room  and   board  and   health   care,   are   recognized
            contemporaneously  with the providing of said services and are shown
            in  the  accompanying   consolidated  financial  statements  net  of
            charitable and Supplemental Security Income discounts.

            Charitable  discounts result from the reduction of occupancy charges
            for qualified  residents to an amount equal to their ability to pay.
            Supplemental  Security  Income  ("SSI")  discounts  result  from the
            reduction of occupancy  charges for  qualified  residents to the net
            amount paid by the SSI program.  The discount amount is equal to the
            difference between the standard apartment rental fee (including meal
            and  housekeeping  charges)  and the amount  that is paid by the SSI
            program.

            Management  fee  revenues  are  recognized  monthly,  based  upon  a
            contractual rate of compensation.

            Fee income to which the Company is entitled in  connection  with the
            development  of  residential  retirement  centers it does not own is
            recognized  on  the  percentage-of-completion   basis.  The  Company
            accrues in full, as soon as determinable, any losses that arise from
            contracts for project development.


                                      F-11
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996


NOTE A (CONTINUED)

      9.    RECLASSIFICATIONS

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

     10.    USE OF ESTIMATES

            In preparing  financial  statements  in  conformity  with  generally
            accepted  accounting  principles,  management  is  required  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,  as well as the  reported
            amounts of revenues and expenses during the reporting period. Actual
            results could differ from those estimates.

     11.    ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

            Statement  of  Financial  Accounting  Standards  No.  121 ("SFAS No.
            121"),  "Accounting for the Impairment of Long-Lived  Assets and for
            Long-lived  Assets to Be Disposed Of," is required to be implemented
            in fiscal 1997.  SFAS No. 121 requires  that  long-lived  assets and
            certain  identifiable  intangibles  held and used by the  entity  be
            reviewed for impairment  whenever events or changes in circumstances
            indicate   that  the  carrying   amount  of  an  asset  may  not  be
            recoverable.  The adoption of SFAS No. 121 is not expected to have a
            material  impact on the Company's  financial  position or results of
            its operations.

            Statement  of  Financial  Accounting  Standards  No.  123 ("SFAS No.
            123"), "Accounting for Stock-Based  Compensation," is required to be
            adopted in 1997 and allows for a choice of the method of  accounting
            used for stock-based  compensation.  Entities may use the "intrinsic
            value" method  currently based on APB No. 25 or the new "fair value"
            method  contained in SFAS No. 123. The Company intends to adopt SFAS
            No.  123  in  1997  by   continuing   to  account  for   stock-based
            compensation  under APB No. 25. As required by SFAS No. 123, the pro
            forma  effects  on  net  income  and  earnings  per  share  will  be
            determined  as if the fair value based  method had been  applied and
            disclosed in the notes to the financial statements.


                                      F-12
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996


NOTE B - PROPERTY AND EQUIPMENT

      Property and equipment at March 31 consist of the following:

                                                           1995          1996
                                                        ----------    ----------

Land                                                    $  632,408    $  632,408
Buildings and improvements                               4,349,747     4,405,417
Equipment                                                  827,518       850,969
                                                        ----------    ----------

                                                         5,809,673     5,888,794
Less accumulated depreciation and amortization           3,171,885     3,527,096
                                                        ----------    ----------

Property and equipment, net                             $2,637,788    $2,361,698
                                                        ==========    ==========


NOTE C - RELATED PARTY TRANSACTIONS

      1.    DUE FROM AFFILIATES, NET

            Amounts  due  from  affiliates  consist  of  cash  advances,  unpaid
            management  fees,  interest income and other revenue items.  Most of
            the  affiliated  companies  have been  operating at a loss and their
            respective ability to repay the cash advances and earned fees due to
            the Company is  uncertain.  Accordingly,  a reserve for such amounts
            has been provided for by the Company,  reducing  revenues,  fees and
            interest  income  and  providing  for  losses  on cash  advances  to
            affiliates.  In the event such  advances or fees are remitted by the
            affiliates,  the  reserve is reduced  and  income is  recorded.  The
            amounts due from affiliates at March 31 consisted of the following:

                                                            1995         1996
                                                         ----------   ----------

Due from VVI                                             $2,830,001   $2,452,137
Due from VVI affiliated companies                         1,576,150    2,406,266
Due from VVI affiliated limited partnerships (VVI is
     general partner)                                     1,107,467    1,235,661
Management fees and cash advances due from affiliated
     not-for-profit companies                               356,548    1,088,208
                                                         ----------   ----------

                                                          5,870,166    7,182,272
Less reserve for losses                                   5,870,166    6,523,555
                                                         ----------   ----------

Due from affiliates, net                                 $     --     $  658,717
                                                         ==========   ==========


                                      F-13
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996


NOTE C (CONTINUED)

            At March  31,  1996,  the  unreserved  amounts  due from  affiliates
            represent  development  fees and advances of $143,200 and  $515,517,
            respectively,  from  Presidential  Care  Corp.  ("Presidential"),  a
            Florida not-for-profit  corporation affiliated with VVI. The Company
            entered  into a  development  agreement  on March 24,  1995 to plan,
            design,  develop and construct an assisted living retirement home in
            Hollywood,  Florida,  and  to  arrange  for  permanent  and  interim
            financing.  The development  agreement  provides for compensation to
            the Company for locating the land, zoning application work and other
            services of 7 1/2% of the overall project cost (as defined), payable
            upon   commencement   of   construction.   The  Company   recognizes
            development  fees  on  a  percentage-of-completion   basis  and  has
            recognized  $43,200 in fiscal 1996. The initial  $100,000 fee earned
            in  fiscal  1995 had not been  recognized  in  fiscal  1995,  as the
            underlying  project was in the initial  stages.  During fiscal 1996,
            the Company reassessed the collectibility of such fee and a recovery
            of  $100,000  was  recognized.  The  advances  of  $515,517,  net of
            repayments during 1996 of $359,000, primarily relate to the purchase
            of land.  Subsequent  to March 31,  1996,  $350,000  was  collected.
            Presidential  received interim  financing of approximately  $500,000
            through  a  private  placement  and  is  awaiting  approval  on  its
            construction  financing.  Management  believes  all amounts due from
            Presidential  will be  collected  currently  upon  the  securing  of
            construction financing.

            Phoenix Lifecare Corp.  ("Phoenix"),  a  not-for-profit  corporation
            affiliated  to  the  Company,   provides  health  care  services  to
            residents  of the Whitcomb  Tower and the Whittier (an  affiliate of
            VVI) on behalf of the Company.  The Company  earns a management  fee
            from Phoenix for services rendered.  The amounts due from Phoenix of
            $256,649 and $355,942 at March 31, 1995 and 1996, respectively, have
            been fully  reserved  and no  management  fees have been  recognized
            during fiscal 1994, 1995 and 1996.

            During  fiscal  1996,  the  Company   advanced  $73,449  to  Camelot
            Retirement Homes, Inc.  ("Camelot"),  a corporation  affiliated with
            the Company.  The Company has entered into a  development  agreement
            with Camelot and has  obtained an option to purchase the  underlying
            property.  In  addition,  the  Company  has  guaranteed  $450,000 of
            mortgage indebtedness relating to the property.  The above-mentioned
            advance has been fully reserved.


                                      F-14
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996


NOTE C (CONTINUED)

      2.    RECEIVABLES FROM GATEWAY

            a.    NOTE RECEIVABLE

                  The Company has a note receivable,  including accrued interest
                  at 9% per annum,  collateralized  by a third  mortgage  in the
                  amount of  $6,863,341  and  $7,481,953  at March 31,  1995 and
                  1996, respectively.  The note is due from Gateway Communities,
                  Inc. ("Gateway"), a not-for-profit company formerly affiliated
                  to the Company and the lessee and operator of Harvest Village,
                  a  continuing  care  retirement  community,  that the  Company
                  intends  to  acquire  from an entity  indirectly  owned by VVI
                  (Note  L).  This note and  accrued  interest  have been  fully
                  reserved by the Company, as Gateway has historically  suffered
                  losses and does not have the  financial  resources to pay this
                  obligation.  The Company  acquired  the note  receivable  from
                  Gateway   through  a  series  of  assignments   from  VVI  and
                  affiliates.

            b.    OTHER RECEIVABLES

                  Other receivables  consist of prior years' management fees and
                  cash advances to Gateway  aggregating  $1,076,197 at March 31,
                  1995 and 1996, which have been fully reserved.


NOTE D - DEVELOPMENT FEES AND ADVANCES

       During 1994, the Company began developing a residential retirement center
       in the  State of Iowa  known as  Cottage  Grove  Place,  an  unaffiliated
       entity.  Pursuant to the development agreement,  the Company is obligated
       to plan,  design,  develop and construct the property,  arrange financing
       and supervise occupancy development for a total fee of $2,270,000. During
       the years ended 1994,  1995 and 1996,  the Company  recognized  $149,265,
       $700,000 and $1,003,955 (net of financing  discount of $144,500 in 1996),
       respectively,  of  such  development  fee.  The  initial  installment  of
       $750,000 was paid upon the bond  closing,  which  provided  Cottage Grove
       Place with its  construction  financing in 1995. An  additional  $385,005
       will  be  paid  in  monthly  installments  during  construction  provided
       construction is on time and on budget, and the remaining  $1,135,000 will
       be paid upon the later of: (i) 90%  occupancy  achieved by the project or
       (ii) the payment in full of the short-term  bonds of Cottage Grove Place,
       which mature on or before July 1, 2001, and the  satisfaction of the Debt
       Service  Coverage  Ratio and the Reserve Ratio (as defined)  after giving
       effect to the repayment of such short-term bonds. While the Company has


                                      F-15
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996


NOTE D (CONTINUED)

      earned and recognized a majority of the development  fee, the terms of the
      agreement  defer payment.  A portion of the fee has been discounted at 10%
      to give effect to the estimated payment during the first quarter of fiscal
      1999. In addition, the Company advanced certain amounts in connection with
      developing the project,  which are currently reimbursable by Cottage Grove
      Place.

      The  components of fees and advances  receivable  from Cottage Grove Place
      are as follows:

                                                            1995         1996
                                                         ----------   ----------

Advances                                                 $1,240,788   $   39,861
Development fees, net                                       749,265      806,020
                                                         ----------   ----------

                                                          1,990,053      845,881
Less long-term portion, net                                    --        575,017
                                                         ----------   ----------

                                                         $1,990,053   $  270,864
                                                         ==========   ==========


NOTE E - MORTGAGES AND NOTES PAYABLE

<TABLE>
<CAPTION>
                                                                                  1995           1996
                                                                               ----------     ----------
<S>                                                                            <C>            <C>       
1.    MORTGAGES PAYABLE

      Mortgages,  guaranteed by VVI,  bearing interest at 7.5% payable
           in monthly interest only  installments  through April 1996;
           monthly  installments  of principal and interest of $30,429
           are payable beginning June 1996; maturity - April 30, 1997;
           restricted use cash accounts
           have been pledged as additional collateral (Note A)                 $4,353,238     $4,351,862
      Convertible mortgages with interest at prime, plus 3%
           (11.25%  at March  31,  1996),  payable  in  interest  only
           installments  quarterly,  maturity dates are March 1999 and
           August 2000,  net of original issue discount of $59,356 and
           $75,922, respectively. Convertible into 264,074 shares
           of UVH common stock subject to adjustment, as defined.               1,804,078      1,820,643
</TABLE>


                                      F-16
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996



NOTE E (CONTINUED)

<TABLE>
<CAPTION>
                                                                                  1995           1996
                                                                               ----------     ----------
<S>                                                                            <C>            <C>       
      Mortgage with  interest  at prime  plus 1%  (9.25%  at March 31,
           1996) payable in monthly installments of
           $6,400; including interest balance due August 2001.                 $  290,124     $  252,433
                                                                               ----------     ----------

                                                                                6,447,440      6,424,938
                                                                               ----------     ----------

2.    NOTES PAYABLE

      Note payable bearing interest at 8.25% payable monthly.
           The note is pursuant to a line of credit of $500,000
           which expires October 3, 1996                                          356,000        356,000
      Convertible 7% promissory notes, interest payable quarterly,
           compounded annually, maturity no later than July 15, 2001;
           convertible into 105,999 shares of the Company's common
           stock at $7.50 per share.  Notes include warrants for issuance
           of 47,690 shares of common stock at $3.33 per share.                   795,000        795,000
      Equipment notes payable, with interest ranging from 8.25%
           to 12% payable in monthly installments of principal
           and interest of $21,620 until July 1999                                 35,503        199,754
      Promissory note payable, with interest at prime plus 1%
           (9.25% at March 31, 1996) payable in monthly principal
           installments of $2,917, plus interest until December 1996.              58,333         23,333
      Convertible 9% promissory notes (Cottage Grove issue) were
           paid off in their  entirety by December 31, 1995;  interest
           was  payable  quarterly,  compounded  annually;  notes were
           convertible at holder's option into shares of the Company's
           common stock at $8.33 per share; the principal of the notes
           was paid and an  additional  16% per annum in interest  was
           paid. Notes were convertible into 168,000 share of UHV
           common stock                                                         1,400,000              

                                                                                2,644,836      1,374,087
                                                                               ----------     ----------

                                                                                9,092,276      7,799,025
           Less current portion                                                 2,116,631        626,043
                                                                               ----------     ----------

                                                                               $6,975,645     $7,172,982
                                                                               ==========     ==========
</TABLE>


                                      F-17
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996


NOTE E (CONTINUED)

      The aggregate maturities of mortgages and notes payable are as follows:

          Fiscal year ending March 31,
                       1997                    $  626,043
                       1998                     4,409,983
                       1999                     1,229,492
                       2000                        56,735
                       2001                     1,476,772
                                               ----------

                                               $7,799,025
                                               ==========


NOTE F - INCOME TAXES

      The  consolidated  provision for income taxes consists of the following at
March 31:

                                    1994             1995              1996
                                  ---------       -----------       -----------
Current
      Federal                     $ 455,000       $   311,000       $   771,000
      State and local                90,000            89,000           230,000
                                  ---------       -----------       -----------

                                    545,000           400,000         1,001,000
                                  ---------       -----------       -----------

Deferred
      Federal                      (455,000)         (311,000)         (449,000)
      State and local               (90,000)          (89,000)         (132,000)
                                  ---------       -----------       -----------

                                   (545,000)         (400,000)         (581,000)
                                  ---------       -----------       -----------

                                  $    --         $      --         $   420,000
                                  =========       ===========       ===========


                                      F-18
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996


NOTE F (CONTINUED)

      The  Company  files its Federal  consolidated  tax return with its parent,
      VVI. During fiscal 1996, VVI incurred tax losses which were used to offset
      the Company's taxable income.  The resulting tax benefits  associated with
      the  utilization  of VVI's  losses of $311,000 and $771,000 in fiscal 1995
      and 1996,  respectively,  have been recorded as a contribution  of capital
      from VVI.  As a result of the  Company's  issuance  of  additional  common
      shares pursuant to the conversion of debt (Note I) and the proposed public
      offering,  the Company may be unable to file its  consolidated  tax return
      with its parent, VVI.

      The Company's  effective  income tax rate differs from the statutory  U.S.
      Federal income tax rate as a result of the following:

                                         1994           1995            1996
                                       ---------    -----------     -----------

Statutory Federal tax rate                 34.00%         34.00%          34.00%
State income taxes, net of Federal
     income tax benefit                     5.94           5.94            6.23
Other                                                      --               .48
Losses for which no future tax benefit
     has been recorded                    (39.94)        (39.94)           --
                                       ---------    -----------     -----------


Effective tax rate                           .00%           .00%          40.71%
                                       =========    ===========     ===========

      Temporary  differences  which  give rise to  deferred  tax  assets  are as
follows:

                                                            1995         1996
                                                         ----------   ----------

Net operating loss carryover                             $1,119,000   $  838,000
Due from affiliate                                        4,759,000    5,274,000
Fixed assets                                                893,000      902,000
Other                                                          --         57,000
                                                         ----------   ----------

                                                          6,771,000    7,071,000
Valuation allowance                                       6,371,000    6,090,000
                                                         ----------   ----------

                                                         $  400,000   $  981,000
                                                         ==========   ==========


                                      F-19
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996


NOTE F (CONTINUED)

      The Company has net operating  loss  carryforwards  for Federal income tax
      purposes  as of  March  31,  1996 of  approximately  $2,464,000.  Such net
      operating loss carryforwards are subject to several statutory  limitations
      which limit their current and future  utilization,  and,  accordingly,  no
      benefit from such  utilization  has been  provided  for. The net operating
      loss carryforwards  expire during fiscal 1997 through 2005,  $2,083,000 of
      which expire in fiscal 1998.  The proposed  public  offering or subsequent
      equity  transactions  may trigger an ownership change which could serve to
      limit the use of some or all of the net operating loss carryforwards.


NOTE G - COMMITMENTS AND CONTINGENCIES

      1.    OPERATING LEASES

            Aggregate  rental expense under operating  leases was  approximately
            $51,700,  $29,100 and  $35,000  for the years ended March 31,  1994,
            1995 and 1996,  respectively.  UVH rents its  administrative  office
            facilities from CBF Building  Company,  an affiliate of VVI, under a
            lease expiring December 31, 2002, at an annual rental as follows:

                  Fiscal year ending March 31,
                           1997                           $ 35,163
                           1998                             36,921
                           1999                             38,767
                           2000                             40,705
                           2001                             42,740
                           Thereafter                       79,781
                                                          --------
                                                  
                                                          $274,077
                                                          ========
                                           
      2.    PURCHASE COMMITMENT

            The  Company  may be  required  to  purchase a parcel of land at the
            Cottage Grove Place retirement  facility in Cedar Rapids,  Iowa, for
            $450,000  plus  interest  and taxes if Cottage  Grove Place fails to
            exercise its option to the property.


                                      F-20
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996


NOTE G (CONTINUED)

      3.    COLLATERAL

            Under an amended and restated loan agreement of an affiliate of VVI,
            the  lenders  hold a second  mortgage  on the Olds Manor  retirement
            center (net book value of $286,000) in the amount of $1,400,000  and
            a consolidated  mortgage in the amount of $1,000,000 on the Whitcomb
            Tower  and  Hillside   Terrace   (net  book  value  of   $1,716,000)
            collateralizing VVI's $6,350,000 guarantee of a construction loan in
            connection with Harvest Village  Partners L.P., an affiliate of VVI.
            In  addition,  VVI has  pledged  1,340,573  shares of the  Company's
            common  stock  owned  by  VVI  as  additional   collateral  for  the
            guarantee.

      4.    GUARANTEES

            The Company  guaranteed  a bank loan to CBF  Building  Company.  The
            balance outstanding on this loan is $122,832 at March 31, 1996.

            The Company  guaranteed  a bank loan to an  affiliate  of VVI with a
            balance of $450,000 at March 31, 1996 (Note C).

            The Company is a co-borrower on a line of credit given to VVI in the
            original  amount of $300,000.  The balance  outstanding at March 31,
            1995 and 1996 was approximately $283,000 and $192,000, respectively.

      5.    SELF-INSURANCE

            Effective April 1, 1992, the Company began to partially  self-insure
            for  health  and  medical  liability  costs for up to a  maximum  of
            $300,000 in claims.  The Company has  insurance  coverage for claims
            above the aforementioned  limit. The self-insurance  claim liability
            is determined on a nondiscounted  basis based on claims filed and an
            estimate of claims incurred but not yet reported. The amount of said
            liability accrued at March 31, 1996 was $192,244.


                                      F-21
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996


NOTE G (CONTINUED)

      6.    CONCENTRATIONS OF CREDIT RISK AND REVENUES

            Financial  instruments  which  potentially  subject  the  Company to
            concentrations of credit risk are primarily cash and receivables.

            The  Company   maintains   its  cash  in  highly   rated   financial
            institutions  and limits the  amount of credit  exposure  to any one
            institution.  The Company has no bank deposits  exceeding  federally
            insured limits.

            A  concentration  of credit risk exists with respect to  development
            fees and advances and amounts due from affiliates.

      7.    EMPLOYMENT AGREEMENTS

            Effective  April 1, 1996,  the  Company  entered  into a  three-year
            employment  agreement with the Company's  Chief  Executive  Officer,
            pursuant to which annual cash  compensation  under the  agreement is
            $100,000 during the first year of employment.

            In  addition,  as of April 1,  1996,  the  Company  entered  into an
            employment   agreement  with  the  Company's   President  and  Chief
            Operating  Officer pursuant to which an annual base salary under the
            employment  agreement is $100,000.  In December  1995, the President
            received a $25,000 cash bonus and the Company  agreed to issue 9,000
            shares of the  Company's  common  stock  valued at $5.55 per  share.
            Additional  bonuses of  $25,000  and 3,000  shares of the  Company's
            common  stock are  payable  on June 30,  1996 and  March  31,  1998,
            subject to continued employment.

      8.    POSSIBILITY OF CROSS DEFAULT

            An  affiliate  of VVI was  indebted  under a first  mortgage  in the
            principal  amount of  $4,087,500.  The mortgage  securing  this loan
            provides  that a default  under such loan is a default under each of
            the  Company's   Hillside  Terrace  and  Whitcomb  Tower  Mortgages.
            Therefore,  a potential VVI default on this  affiliate's  loan could
            result in the foreclosure of Hillside Terrace and Whitcomb Tower.


                                      F-22
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996


NOTE G (CONTINUED)

      9.    GOVERNMENT REGULATION

            Health care and senior living  facilities are areas of extensive and
            frequent   regulatory   change.   Changes   in  the   laws   or  new
            interpretations  of existing laws can have a  significant  effect on
            methods of doing  business,  costs of doing  business and amounts of
            reimbursement from governmental and other payors. The Company at all
            times attempts to comply with all  applicable  fraud and abuse laws;
            however,  there can be no assurance that  administrative or judicial
            interpretation  of  existing  laws or  regulations  will  not have a
            material  adverse  effect on the  Company's  operations or financial
            condition.

            Olds Manor and Hillside  Terrace have  received  deficiency  reports
            from the State of  Michigan.  Both  facilities  are taking  steps to
            correct these deficiencies.  If those deficiencies are not corrected
            within  a   prescribed   period  of  time  the  State  may  commence
            administrative  proceedings,  which  could be a lengthy  and  costly
            process and could result in the loss of their  license as a home for
            the aged.

NOTE H - ACCRUED EXPENSES

      Accrued expenses consist of the following at March 31:

                                                            1995         1996
                                                         ----------   ----------

            Interest                                     $  278,036   $   95,551
            Real estate taxes                               277,957        1,814
            Payroll and related taxes                       163,667      220,234
            Insurance                                       161,770      192,244
            Professional fees                                  --        107,200
            Other                                             2,715         --
                                                         ----------   ----------

                                                         $  884,145   $  617,043
                                                         ==========   ==========


NOTE I - STOCKHOLDERS' EQUITY

      1.    COMMON STOCK

            On March 31, 1995, VVI contributed 1,200,000 shares of the Company's
            common stock to the Company,  which the Company then  simultaneously
            retired. As consideration for such contribution, VVI was entitled to
            be issued one share of common  stock for each $5.73  received by the
            Company  in  payment  of  amounts  due from  Gateway.  In 1996,  VVI
            received 120,000 shares as consideration


                                      F-23
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996


NOTE I (CONTINUED)

            for  relinquishing the right to receive such shares upon collection.
            As the amounts due from  Gateway had been fully  reserved for by the
            Company (Note C), the net  contribution of shares by the Company has
            been accounted for in a manner similar to a recapitalization.

            In March 1996,  the  expiration  date on  outstanding  warrants  was
            extended  from  March 31,  1996 to April 30,  1996 and the  exercise
            price was  adjusted  from $6.66 to $3.33 per share.  In April  1996,
            62,121 shares were issued in  connection  with the exercise of these
            warrants.

            In March 1996, the Company offered the  convertible  mortgageholders
            and  noteholders  the option to convert,  through April 30, 1996, to
            common  shares at a price of $3.75  instead of prices  ranging  from
            $6.67  through  $7.22.  In April 1996,  347,996  common  shares were
            issued in  connection  with the  offer.  As a result  of the  offer,
            167,887 additional shares were issued upon conversion, the estimated
            fair value of which  ($156,466) has been recorded as debt conversion
            expense in April 1996.  Had the conversion of this debt and exercise
            of warrants taken place at the beginning of 1996, earnings per share
            would have been $.40 as compared to historical earnings per share of
            $.51.

      2.    INCENTIVE STOCK OPTION PLAN

            The Company has reserved 300,000 shares of common stock for issue to
            key employees and/or  directors under the Company's  Incentive Stock
            Option Plan (the "1991 Plan"), as amended. A summary of the activity
            within the 1991 Plan is as follows:

                                 Option price
                                   per share        Granted          Available
                                  -----------     -----------       -----------
Balance, April 1, 1993            $1.33                66,600           233,400
Granted                           $5.55 to $6.10       45,000           (45,000)
                                                  -----------       -----------

Balance, March 31, 1994           $1.33 to $6.10      111,600           188,400

Terminated                        $1.33 to $6.10      (35,400)           35,400
                                                  -----------       -----------

Balance, March 31, 1995           $1.33 to $6.10       76,200           223,800

Terminated                        $1.33                (2,700)            2,700
Granted                           $1.33 to $6.10       53,880           (53,880)
                                                  -----------       -----------

BALANCE, MARCH 31, 1996           $1.33 TO $6.10      127,380           172,620
                                                  ===========       ===========


                                      F-24
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996


NOTE I (CONTINUED)

            Under the plan,  option exercise prices must be at least 100% of the
            estimated  fair market  value of the common stock at the time of the
            grant.  Exercise  periods  are for ten  years,  but  terminate  at a
            stipulated  period of time after an employee's  death or termination
            of employment  for causes other than  disability or  retirement.  No
            options have been exercised since inception of the plan. The options
            become exercisable at the rate of 20% per year. Accordingly, options
            for an aggregate of 35,220 shares are exercisable at March 31, 1996.

            In June 1996, the Company adopted the 1996 Outside  Directors' Stock
            Option Plan (the "Directors' Plan"), which provides for the granting
            of options to purchase  common  stock of the Company to  nonemployee
            directors  of  the  Company.  The  Directors'  Plan  authorizes  the
            issuance of a maximum of 90,000 shares of common stock.

            The Directors' Plan is administered by the Board of Directors. Under
            the Directors' Plan, each  nonemployee  director elected after April
            1, 1996 will  receive  options for 3,000 shares of common stock upon
            election. To the extent that shares of common stock remain available
            for the grant of options  under the  Directors'  Plan,  each year on
            April 1, commencing April 1, 1997, each nonemployee director will be
            granted an option to  purchase  1,800  shares of common  stock.  The
            exercise  price  per  share  for  all  options   granted  under  the
            Directors' Plan will be equal to the fair market value of the common
            stock as of the date  preceding the date of grant.  All options vest
            in  three  equal   annual   installments   beginning  on  the  first
            anniversary of the date of grant. Each option will be for a ten-year
            term,  subject  to  earlier  termination  in the  event  of death or
            permanent disability.


NOTE J - BUSINESS SEGMENTS

      The Company owns and operates its three residential  retirement centers in
      Michigan to provide  living and extended care services to the elderly.  In
      addition to a room, the Company provides  significant  personal  services,
      including,  among other  things,  meal  preparation  and health care.  The
      Company's  management  provides the requisite  day-to-day  supervision and
      administration services to various affiliates and nonaffiliated companies.
      Losses and recoveries have been classified as a separate business segment.


                                      F-25
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996


NOTE J (CONTINUED)

      Intersegment revenues are not significant.  Operating profit is defined as
      sales and other income directly  related to a segment's  operations,  less
      operating expenses.

      The following summaries set forth certain financial information classified
      as described above:

                                    1994             1995              1996
                                  ---------       -----------       -----------
Revenues
     Resident centers             $7,229,631      $ 7,378,492       $ 7,521,196
     Management and development
         companies                  149,925           700,000         1,003,955
                                  ---------       -----------       -----------

                                  $7,379,556      $ 8,078,492       $ 8,525,151
                                  =========       ===========       ===========

Operating profits
     Resident centers             $ 727,733       $ 1,275,106       $ 1,268,361
     Management and development
         companies                  124,925           140,329           551,248
     (Loss) recovery on advances
         to affiliates             (828,663)       (1,650,772)         (296,093)
                                  ---------       -----------       -----------

Income from operations            $  23,995       $  (235,337)      $ 1,523,516
                                  =========       ===========       ===========

      Corporate  assets are principally  cash, and corporate  office  equipment,
furnishings and related assets.

                                                            1995         1996
                                                         ----------   ----------

Identifiable assets are as follows:
Retirement centers                                       $3,915,156   $3,656,272
Management and development companies                      2,079,448    2,250,917
Corporate                                                   106,778      180,350
                                                         ----------   ----------

                                                         $6,101,382   $6,087,539
                                                         ==========   ==========


                                      F-26
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996


NOTE K - PRIOR PERIOD ADJUSTMENTS

      The Company restated its previously  issued  financial  statements for the
      fiscal years ended March 31, 1994 and 1995 to reflect  adjustments related
      to the receivables due the Company from related parties and the associated
      income reported  during those years and in prior periods.  The adjustments
      were  necessary  as it had  been  determined  that,  in  part,  an  entity
      previously  treated as an unrelated and  unaffiliated  organization can be
      construed  as a  related  party.  Additionally,  transactions  with  other
      related  entities  should have been treated as special  purpose  entities.
      Accordingly,  advances  made  to said  entities  and  previously  recorded
      management  fees  and  interest  income  earned  on the  receivables  were
      erroneously accounted for.

      The results of these  adjustments  reduced  the  previously  reported  net
      assets by $8,429,983 at March 31, 1993.  Therefore,  the retained earnings
      as  originally  reported  in the amount of $60,432  have been  adjusted so
      that,  as  restated,  the  Company  reflected  an  accumulated  deficit of
      $8,369,551.  The  adjustments  had the  following  changes  on  previously
      reported results of 1994 operations and financial position:

          Net income (loss)
               As previously reported, March 31, 1994            $   2,108,503
               As restated, March 31, 1994                            (581,723)
                                                             
          Net income (loss) per common share                 
               As previously reported, March 31, 1994                    $ .86
               As restated, March 31, 1994                                (.24)
                                                             
          Retained earnings (deficit)                        
               As previously reported, March 31, 1993            $      60,432
               As restated, March 31, 1993                          (8,369,551)


                                      F-27
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996


NOTE L - PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

      On April 19, 1996,  the Company  entered into an agreement to purchase the
      Harvest Village  facility,  a 360-unit  senior living facility  located in
      Atco,  New  Jersey.  The  purchase  is  contingent  upon  certain  events,
      including the consummation of a proposed firm commitment  public offering.
      The purchase price is $17,400,000,  consisting of: (i) $13,500,000 in cash
      (which sum may include the assumption of a first mortgage of $12,500,000),
      (ii) the  assignment  to  seller  of a  promissory  note in the  amount of
      $7,481,953 as of March 31, 1996 due to the Company from Gateway, and (iii)
      the  cancellation  of $6,094,000 due from VVI and an affiliate of VVI. The
      intercompany  debt and  assignment of the Gateway note have been valued by
      the parties, based upon an appraisal, at $3.9 million.

      Had the  contemplated  acquisition  taken  place at March  31,  1996,  the
      balance sheet would have been as follows:

<TABLE>
<CAPTION>
                                                               Harvest
                                           UVH                 Village           Pro forma adjustments
                                       historical as      historical as of      assuming acquisition and
                                       of March 31,          December 31,          the offerings as of        Pro forma
            ASSETS                         1996                 1995                  March 31, 1996           Amounts
                                       -----------           -----------               -----------           -----------
<S>                                    <C>                   <C>                    <C>                      <C>        
Current assets
                                                                          (A)       $          (60)
   Cash                                $   210,245           $        60  (E)           24,664,000           $11,374,245
                                                                          (D)          (13,500,000)

   Accounts receivable, net                413,539               920,615  (A)             (920,615)              413,539
   Development fees and advances           270,864                                                               270,864
   Due from affiliates, net                658,717                                                               658,717
   Prepaid expenses and other              274,654                                                               274,654
                                       -----------           -----------               -----------           -----------

         Total current assets            1,828,019               920,675                10,243,325            12,992,019

Property and equipment, net              2,361,698            17,399,200                                      19,760,898

Other assets
   Development fees                        575,017                                                               575,017
   Restricted assets                       176,352                                                               176,352
   Deferred income taxes                   981,000                                                               981,000

                                                                          (E)            1,338,000
   Other assets                            165,453               583,862  (A)             (583,862)            1,503,453
                                       -----------           -----------               -----------           -----------

                                       $ 6,087,539           $18,903,737               $10,997,463           $35,988,739
                                       ===========           ===========               ===========           ===========
</TABLE>


                                      F-28
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996



NOTE L (CONTINUED)

<TABLE>
<CAPTION>
                                                                    Harvest
                                                   UVH               Village         Pro forma adjustments
                                              historical as     historical as of    assuming acquisition and
                 LIABILITIES AND              of March 31,        December 31,         the offerings as of       Pro forma
               STOCKHOLDERS' EQUITY               1996                1995                March 31, 1996          amounts
                                               -----------        ------------            ------------          -----------
<S>                                         <C>                   <C>                     <C>                 <C>          
Current liabilities
   Current portion of long-term debt        $      626,043        $ 40,768,092   (B)      $(40,768,092)       $     626,043
   Accounts payable                                242,470                                                          242,470
   Accrued expenses                                617,043           1,362,557   (B)        (1,362,557)             617,043
   Income taxes payable                            442,371                                                          442,371
                                               -----------        ------------            ------------          -----------

         Total current liabilities               1,927,927          42,130,649             (42,130,649)           1,927,927

Resident security deposits                         314,705                                                          314,705

Long-term debt, less current portion             7,172,982                       (E)        12,500,000           19,672,982

Stockholders' deficiency
Common stock                                        18,278                       (E)            18,000               36,278
Additional paid-in capital                       5,619,905                       (E)        13,484,000           19,103,905
Accumulated deficit                             (8,966,258)        (23,226,912)  (C)        27,126,112           (5,067,058)
                                               -----------        ------------            ------------          -----------

                                                (3,328,075)        (23,226,912)             40,628,112           14,073,125
                                               -----------        ------------            ------------          -----------

                                               $ 6,087,539        $ 18,903,737            $ 10,997,463          $35,988,739
                                               ===========        ============            ============          ===========
</TABLE>


                                      F-29
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996


NOTE L (CONTINUED)

      The pro forma results of  operations  for the year ended March 31, 1996 of
      the Company,  assuming the  acquisition  had taken place on April 1, 1995,
      would have been as follows:

<TABLE>
<CAPTION>
                                                                              Harvest
                                                             UVH              Village
                                                         historical         historical
                                                          for  the            for  the        Pro forma adjustments
                                                         year ended          year ended     assuming acquisition and
                                                          March 31,         December 31,       the offerings as of     Pro forma
                                                            1996                1995              April 1, 1995         amounts
                                                         -----------        -----------            ------------     ------------
<S>                                                      <C>                <C>                   <C>               <C>         
Operating revenues
   Residents' services                                   $ 4,966,058                                                $  4,966,058
   Health care services                                    2,555,138                                                   2,555,138
   Development fees                                        1,003,955                                                   1,003,955
   Rental income                                                            $ 1,689,372  (A)      $    860,628         2,550,000
                                                         -----------        -----------            ------------     ------------
                                                                                             
                                                           8,525,151          1,689,372                860,628        11,075,151
                                                         -----------        -----------            ------------     ------------
                                                                                             
Operating expenses                                                                           
   Residence operating expenses                            5,912,624                                                   5,912,624
   General and administrative                                414,703            162,056  (E)          (158,856)          417,903
   Depreciation and amortization                             378,215          1,115,881  (B)          (419,881)        1,074,215
   Provision for loss on advances to                                                         
      affiliates                                             296,093                                                     296,093
                                                         -----------        -----------            ------------     ------------
                                                                                             
                                                           7,001,635          1,277,937               (578,737)        7,700,835
                                                         -----------        -----------            ------------     ------------
                                                                                             
         Income from operations                            1,523,516            411,435              1,439,365         3,374,316
                                                                                             
Other income (expense)                                                                       
   Interest expense, net                                    (600,871)        (3,894,837) (C)         2,698,537        (1,797,171)
   Other income                                              109,022                                                     109,022
                                                         -----------        -----------            ------------     ------------
                                                                                             
         Income (loss) before income taxes                 1,031,667         (3,483,402)             4,137,902         1,686,167
                                                                                             
Income taxes                                                 420,000                    (D)            255,000           675,000
                                                         -----------        -----------            ------------     ------------
                                                                                             
         NET INCOME (LOSS)                               $   611,667        $(3,483,402)          $  3,882,902      $  1,011,167
                                                         ===========        ===========            ============     ============
                                                                                             
Earnings per share                                       $       .51                                                $        .34
                                                         ===========                                                ============
                                                                                             
Common shares and equivalents                                                                
   outstanding                                             1,199,146                                                   2,999,146
                                                         ===========                                                ============
</TABLE>


      The  pro  forma  adjustments  below  were  prepared  from  data  currently
      available and in some cases are based on estimates or  approximations.  It
      is possible  that the actual  amounts to be recorded may have an impact on
      the  results of  operations  and the  balance  sheet  different  from that
      reflected in the


                                      F-30
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996


NOTE L (CONTINUED)

      accompanying   unaudited  pro  forma  condensed   consolidated   financial
      statements. It is therefore possible that the entries presented below will
      not be the amounts actually recorded at the closing date.  Deferred income
      taxes have not been considered in the pro forma balance sheet because they
      are not  expected to be material  at the time of the  consummation  of the
      acquisitions.

      The  following  pro forma  adjustments  have been  recorded  assuming  the
      purchase of Harvest Village and the Offerings have been  consummated as of
      the  prospective  balance sheet date and as of the beginning of the period
      for each respective pro forma statement of operations.

      BALANCE SHEET

      (A) To reflect assets of Harvest Village not acquired by the Company.

      (B) To reflect liabilities assumed or satisfied by VVI and not required by
      the Company.

      (C) To eliminate the historical deficit of Harvest Village and reflect the
      cancellation  of  intercompany  debt  valued at $3.9  million  (subject to
      founders' cost limitations) as purchase consideration.

      (D) To reflect cash consideration paid for Harvest Village.

      (E) To record the  proceeds  of the  issuance of  1,800,000  shares of the
      Company's  common stock,  1,800,000  warrants to purchase common stock and
      the  issuance  of  convertible  notes  aggregating  $12,500,000,   net  of
      underwriting discounts and expenses.

      STATEMENT OF OPERATIONS

      (A) To adjust rental income to amounts payable by Gateway  pursuant to the
      lease agreement  assumes Gateway is financially able to pay rental amounts
      currently.

      (B) To  adjust  depreciation  and  amortization  expense  to  reflect  the
      elimination  of  capitalized  costs not  acquired,  depreciation  is being
      provided using an estimated life of 25 years and the straight-line method.


                                      F-31
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996


NOTE L (CONTINUED)

      (C)  To  adjust   interest   expense  to  reflect   the   elimination   of
      preacquisition  Harvest  Village debt and to provide for interest  expense
      related to the proposed convertible debt offering.

      (D) To adjust income tax expense.

      (E) To eliminate general and administrative expenses not to be incurred by
      the Company.

      The  following   unaudited  statement  is  a  pro  forma  estimate  for  a
      twelve-month  period of taxable income and funds available from operations
      of the  Company.  The pro  forma  estimate  is based  upon the  historical
      operating  results of the  Company for the twelve  months  ended March 31,
      1996 and Harvest  Village for the twelve  months ended  December 31, 1995,
      adjusted for the Company's proposed public offering and the acquisition of
      Harvest  Village.  This  statement does not purport to, nor is it intended
      to, forecast actual operating results for any future period.

This statement should be read in conjunction  with (i) the historical  financial
statements and notes thereto of the Company and Harvest Village  Partners,  L.P.
and (ii) the pro forma financial statements of the Company.

                                                                  (in thousands)

Estimate of taxable net operating income
     Historical pretax earnings of the Company, exclusive of
          depreciation and amortization (1)                           $ 1,410
     Historical loss of Harvest Village, exclusive of
          depreciation and amortization (2)                            (2,368)
                                                                       ------ 

                                                                         (958)
Pro forma adjustments relating to the acquisition of
     Harvest Village and the proposed public offering
Additional rental income (3)                                              861
Reduction of interest expense (4)                                       2,758
                                                                        -----

                                                                        2,661
                                                                        -----


                                      F-32
<PAGE>
                  United Vanguard Homes, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          March 31, 1994, 1995 and 1996


NOTE L (CONTINUED)

                                                                  (in thousands)

     Tax basis depreciation and amortization (5)
          The Company                                                 $  (378)
          Harvest Village                                                (435)
                                                                        ----- 

Pro forma estimated taxable net operating income                      $ 1,848
                                                                      =======
Estimate of pro forma operating funds available
     Pro forma estimated taxable net operating income                 $ 1,848
     Add
          Tax basis depreciation and amortization                         750
     Less
          Estimated provision for income taxes (6)                       (740)
          Rental income not received (7)                                 (378)
                                                                         ---- 

Estimate of pro forma operating funds available (8)                   $ 1,480
                                                                      =======

(1)  Derived from the historical results of operations of the Company.
(2)  Derived from the historical results of operations of Harvest Village.
(3)  To adjust rental income to amounts payable by Gateway pursuant to the lease
     agreement.
(4)  To adjust  interest  expense to reflect the  elimination of  preacquisition
     Harvest  Village  debt and to provide for interest  expense  related to the
     proposed convertible debt offering.
(5)  Tax basis depreciation  expense for the Company is not materially different
     than for financial reporting  purposes.  Tax basis depreciation for Harvest
     Village is based upon the purchase  price,  depreciated on a  straight-line
     method over a 40-year life.
(6)  To provide for estimated  income tax expense  using a combined  Federal and
     local rate of 40%.
(7)  To reduce funds  available from  operations for rents not anticipated to be
     received until subsequent periods.
(8)  Operating  funds  available do not represent  cash generated from operating
     activities in accordance with generally accepted accounting  principles and
     are not necessarily indicative of cash available to fund cash needs.


                                      F-33
<PAGE>

                  United Vanguard Homes, Inc. and Subsidiaries

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                                              Charged to
                                        Balance at        Charged to             other                           Balance at
                                         beginning         costs and          accounts -         Deductions -      end of
            Description                  of period         expenses          describe (a)          describe        period
            -----------                  ---------         --------          ------------          --------        ------
<S>                                      <C>                <C>                 <C>                  <C>         <C>
Allowance for doubtful accounts
     Year ended March 31, 1996           $    40,550                                                 $(550)      $       40,000
                                         ===========                                                  ====       ==============

     Year ended March 31, 1995           $    25,750        $    14,800                                          $       40,550
                                         ===========        ===========                                          ==============

     Year ended March 31, 1994           $    10,950        $    14,800                                          $       25,750
                                         ===========        ===========                                          ==============



Reserve for losses of affiliates
     Year ended March 31, 1996           $13,809,704        $   296,093         $   975,908                      $   15,081,705
                                          ==========        ===========         ===========                      ==============

     Year ended March 31, 1995           $11,079,653        $ 1,650,772         $ 1,079,279                      $   13,809,704
                                          ==========        ===========         ===========                      ==============

     Year ended March 31, 1994           $ 8,666,595        $   828,663         $ 1,584,395                      $   11,079,653
                                         ===========        ===========         ===========                      ==============
</TABLE>


(a)   Fees and interest charged to affiliates not recognized.


                                      F-34