<PAGE>   1
                                    FORM 10-Q


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                 Quarterly Report Pursuant to Section 13 of the
                         Securities Exchange Act of 1934

                  For the quarterly period ended March 31, 1997

                         Commission file number 0-19347


                               HOME HOLDINGS INC.

             (Exact name of registrant as specified in its charter)


         Delaware                                              13-3584978

(State of incorporation)                                    (I.R.S. Employer
                                                            Identification No.)


                  59 Maiden Lane, New York, New York              10038-4548

                 (Address of principal executive offices)         (Zip Code)


Registrant's telephone number, including area code (212) 530-6600


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days.


YES      X           NO
      ------            ------

At March 31, 1997, there were 14,114,500 shares of registrant's Series A Common
Stock, par value $.01 per share, outstanding.
<PAGE>   2
PART I.       FINANCIAL INFORMATION

ITEM 1.       FINANCIAL STATEMENTS


                               HOME HOLDINGS INC.
                        Consolidated Statements of Income
                             Quarter ended March 31,
                                   (Unaudited)

                                  ($ millions)

<TABLE>
<CAPTION>
                                                          1997        1996
                                                          ----        -----

<S>                                                       <C>         <C>
REVENUES:

Net earned premiums (note 3)                              $  3        $  80
Insurance net investment income                             27           43
Insurance realized capital gains                             2           --
Securities broker-dealer operations                         --          117
                                                          ----        -----

       Total revenues                                       32          240
                                                          ----        -----

OPERATING EXPENSES:

Losses and loss adjustment expenses (note 3)                 1          105
Policy acquisition and other insurance expenses             19           47
Corporate interest expense                                  13           12
Securities broker-dealer operations                         --          110
                                                          ----        -----
       Total expenses                                       33          274
                                                          ----        -----
                                                            (1)         (34)

Equity in loss of securities broker-dealer                  (8)          --
                                                          ----        -----

       Loss before income taxes                             (9)         (34)

Income tax benefit (expense)                                 1           (1)
                                                          ----        -----

       NET LOSS                                           $ (8)       $ (35)
                                                          ====        =====
</TABLE>


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

See accompanying notes to consolidated financial statements.


                                        1
<PAGE>   3
                               HOME HOLDINGS INC.
                           Consolidated Balance Sheets

                                  ($ millions)

<TABLE>
<CAPTION>
                                                          March 31,    December 31,
   ASSETS                                                   1997           1996
                                                          -------        -------
                                                        (Unaudited)
<S>                                                     <C>              <C>
Insurance investments at fair value:
Portfolio swap receivable (note 6)                        $ 1,068        $ 1,243
Fixed maturities available for sale
   (cost $28 and $26)                                          30             28
Equity securities (cost $16 and $17)                           23             21
                                                          -------        -------

     Total insurance investments                            1,121          1,292

Cash                                                           19             36
Premiums receivable                                           276            290
Funds held by affiliate                                       235            248
Reinsurance receivables                                     2,720          2,765
Securities broker-dealer investments                           --            392
Receivables from brokers, dealers and customers                --          2,258
Investment in securities broker-dealer (note 7)               156             --
Other assets                                                  162            312
                                                          -------        -------

     Total assets                                         $ 4,689        $ 7,593
                                                          =======        =======

   LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Liabilities:
Unpaid losses and loss adjustment expenses                $ 5,405        $ 5,687
Payables to brokers, dealers and customers                     --          2,060
Debt of securities broker-dealer                               --            246
Corporate debt (note 5)                                       573            567
Other liabilities                                             256            572
                                                          -------        -------

     Total liabilities                                      6,234          9,132
                                                          -------        -------

Litigation and contingencies (note 8)

Stockholders' deficiency: (note 4)
Series A preferred stock, $.01 par value; 170
   shares authorized, issued and outstanding                   --             --
Series A common stock, $.01 par value;
   40,000,000 shares authorized;
   14,114,500 shares outstanding                               --             --
Series B convertible stock, $.01 par value;
   15,000,000 shares authorized;
   11,425,177 shares outstanding                                              --
Paid-in capital                                               777            777
Deficit                                                    (2,328)        (2,320)
Unrealized gains on insurance investments (note 6)              9              6
Unrealized currency translation adjustments                    (3)            (2)
                                                          -------        -------

     Total stockholders' deficiency                        (1,545)        (1,539)
                                                          -------        -------

     Total liabilities and stockholders' deficiency       $ 4,689        $ 7,593
                                                          =======        =======
</TABLE>

                                                                         
-------
See accompanying notes to consolidated financial statements.

                                        2
<PAGE>   4
                               HOME HOLDINGS INC.
                      Consolidated Statements of Cash Flows
                             Quarter ended March 31,
                                   (Unaudited)

                                  ($ millions)
<TABLE>
<CAPTION>
                                                     1997         1996
                                                     ----         ----

<S>                                                 <C>          <C>  
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                            $  (8)       $ (35)
Adjustments to reconcile net loss to net cash
   used for operating activities:
Insurance realized capital gains                       (2)          --
Unpaid losses and loss adjustment expenses           (282)        (227)
Premiums and reinsurance receivables                   60           87
Funds held by affiliate                                13          (17)
Unearned premiums                                      (2)         (91)
Broker-dealer investments and receivables,
   net of payables                                     --         (141)
Other                                                  22           20
                                                    -----        -----
            Net cash used for operating
                activities                           (199)        (404)
                                                    -----        -----

CASH FLOWS FROM INVESTING ACTIVITIES:
Portfolio swap receivable                             175          260
Purchase of fixed maturities                           (2)          --
Sales of equity securities                              3            3
Other                                                  --           (5)
                                                    -----        -----
            Net cash provided by investing
                activities                            176          258
                                                    -----        -----

CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in corporate debt                              6            9
Increase of debt of broker-dealer                      --          130
Other                                                  --           --
                                                    -----        -----
            Net cash provided by financing
                activities                              6          139
                                                    -----        -----

            Net increase (decrease) in cash           (17)          (7)

Cash at beginning of period                            36           34
                                                    -----        -----

CASH AT END OF PERIOD                               $  19        $  27
                                                    =====        =====

SUPPLEMENTAL DISCLOSURES OF CASH FLOW:
Broker-dealer interest paid                            --           19
</TABLE>

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

See accompanying notes to consolidated financial statements.


                                        3
<PAGE>   5
                               HOME HOLDINGS INC.
                   Notes to Consolidated Financial Statements



1.     GENERAL

       Home Holdings Inc., a Delaware corporation (the "Company"), is a holding
     company for its wholly-owned subsidiaries, The Home Insurance Company, a
     New Hampshire corporation, and its insurance subsidiaries ("Home
     Insurance"). Home Insurance generally ceased writing new or renewal
     insurance on June 12, 1995 in connection with a recapitalization agreement
     (the "Recapitalization Agreement" or the "Recapitalization") as defined in
     note 1b to the 1996 Annual Report on Form 10-K ("Annual Report") filed with
     the Securities and Exchange Commission (the "Commission"). Home Insurance
     also owns Gruntal Financial Corp. ("Gruntal"), a holding company for a
     securities brokerage business, and Sterling Forest Corporation ("Sterling
     Forest"), a property development business. See note 7 for discussion of the
     restructuring of Gruntal.

     Order of Supervision

       On March 3, 1997, Home Insurance was placed under formal supervision by
     the New Hampshire Insurance Department (the "Department"). The Department
     states in its Order of Supervision (the "Order") that this action was taken
     in response to Home Insurance's Risk-Based Capital ("RBC") report filed
     with the Department which indicates that a mandatory control level event
     has occurred within the meaning of New Hampshire Revised Statutes of
     Annotated 404-F:6 (a "Mandatory Control Level Event"). The Order
     establishes that the Department will oversee and supervise Home Insurance
     for the purpose of continuing and intensifying an economic, actuarial and
     accounting review of the books, records and business affairs of Home
     Insurance so as to determine what future actions may be appropriate. The
     Order provides that Home Insurance may not take certain actions without the
     prior approval of the Department, including, but not limited to:

         i)  Make any single claim payment in excess of $1 million except under
             conditions specified therein.
         ii) Make any payment to creditors or other persons in excess of
             $500,000, except as set forth in clause (i) above.
         iii)Make any single payment to cedents or reinsurers (a) in excess of
             $250,000 or (b) out of the ordinary course of business, or any
             commutation of any amount with any cedents or reinsurers.
         iv) Release any obligation or collateral in excess of $500,000.
         v)  Materially change the terms of any contracts or enter into any new
             contracts in excess of $500,000.
         vi) Engage in any transactions with the Company, Risk Enterprise
             Management Limited ("REM"), Zurich Home Investments Limited
             ("ZHI"), Zurich Insurance Company ("Zurich") or Trygg-Hansa AB
             ("Trygg-Hansa") or any subsidiaries, other affiliates or agents of
             such entities.


                                        4
<PAGE>   6
                               HOME HOLDINGS INC.
                   Notes to Consolidated Financial Statements



       In addition, without limiting the general authority of the Department as
     set forth above, the Department shall have the final authority to approve,
     disapprove or control (including the power to direct) the following:

       i)  The initiation, settlement or withdrawal of any action, dispute,
           arbitration, litigation, or proceeding of any kind involving Home
           Insurance other than in the ordinary course of business.

       ii) The location and material terms of all banking, investment, trust,
           deposit and custodial accounts for assets of Home Insurance,
           including but not limited to reserves.


     2.    ACCOUNTING POLICIES

       The Company follows the accounting policies set forth in the 1996 Annual
     Report. Users of financial information produced for interim periods are
     encouraged to refer to the footnotes contained in the Annual Report when
     reviewing interim financial results, and to note 1 of such Annual Report
     for discussion of the Company's recapitalization and related terms
     mentioned herein.

       As a result of a reorganization, which closed on March 28, 1997, between
     Gruntal and The 1880 Group LLC (the "Reorganization Agreement"), as
     described in note 7, Home Insurance will report its investment in its
     securities broker-dealer under the equity method of accounting in 1997. The
     1997 consolidated statement of income reflects the equity in the income of
     the securities broker-dealer as if the transaction was effective January 1,
     1997.

       The accompanying interim consolidated financial statements are unaudited.
     These financial statements reflect all adjustments, consisting of normal
     recurring adjustments, necessary for a fair presentation of financial
     position and results of operations. Results of interim periods are not
     necessarily indicative of results for the full year.


                                        5
<PAGE>   7
                               HOME HOLDINGS INC.
                   Notes to Consolidated Financial Statements



     3.PREMIUMS AND LOSSES

       Premium and loss information for the quarter ended March 31, follows:

<TABLE>
<CAPTION>
                                                                    1997             1996
                                                                    ----             ----
       ($ millions)

<S>                                                            <C>              <C> 
       Earned premiums:
       Direct                                                  $       5        $      28
       Assumed                                                         -               86
       Ceded                                                          (2)             (34)
                                                               ---------        ---------

                  Net                                          $       3        $      80
                                                               =========        =========

       Losses and loss adjustment expenses:
       Direct                                                  $      22        $     139
       Assumed                                                         5               37
       Ceded                                                         (26)             (71)
                                                               ---------        ---------

                  Net                                          $       1        $     105
                                                               =========        =========
</TABLE>


     Asbestos/Pollution Losses and Loss Adjustment Expenses

       The 1997 and 1996 first quarter incurred loss and loss adjustment
     expenses relating to policies which have been alleged to contain
     asbestos/pollution exposure ("Asbestos/Pollution Policies") were nil. The
     1997 first quarter result for Asbestos/Pollution Policies reflected $10
     million of paid losses, partially offset by decreases of $10 million to
     unpaid losses and loss adjustment expenses. The 1996 first quarter result
     reflected $26 million of paid losses offset by a $26 million decrease to
     unpaid losses and loss adjustment expenses.

       Estimation of loss reserves for Asbestos/Pollution Policies is one of the
     most difficult aspects of establishing reserves, especially in view of
     changes in the legal and tort environment which affect the development of
     loss reserves. There is a high degree of uncertainty with respect to future
     exposure from these types of claims because significant issues exist as to
     the liabilities of the insureds, the extent to which insurance coverage
     exists, diverging legal interpretations and judgments state by state
     relating to, among other things, when the loss occurred and what policies
     provide coverage; what claims are covered; whether there is an insurer
     obligation to defend; how policy limits are determined; how policy
     exclusions are applied and interpreted; and whether clean-up costs
     represent insured property damage, and other matters. Home Insurance is
     engaged in litigation over the interpretation of policy coverage and other
     liability issues. If the courts expand the intent of the policies and the
     scope of coverage, as they sometimes have in the past, additional
     liabilities may emerge. Conversely, proposals for regulatory reform may
     serve to reduce or


                                        6
<PAGE>   8
                               HOME HOLDINGS INC.
                   Notes to Consolidated Financial Statements



     limit future liabilities. Among other complications, there are
     uncertainties regarding the number and identity of insureds with potential
     exposure, lack of historical data and long reporting delays. Management
     believes these issues are not likely to be resolved in the near future.
     Given these uncertainties, management believes that it is virtually
     impossible to determine ultimate losses in this area and no meaningful
     range for adequate reserves for such ultimate losses can be established at
     this time.

       With respect to claims involving exposures to asbestos and certain other
     toxic torts, the development of the legal insurance coverage issues is more
     advanced and the insurance companies have had a longer history in defending
     and settling such claims. As a result, Home Insurance establishes specific
     case reserves for these asbestos and toxic tort claims at such time as Home
     Insurance is able to estimate the probable ultimate cost to Home Insurance
     over reasonably foreseeable future periods of time. Pollution claims,
     however, continue to present the range of issues presented above.
     Policyholders generally do not make available sufficient information from
     which the reasonable costs of clean-up or remediation, even if covered by a
     Home Insurance policy, might be estimated. Moreover, successful defense by
     Home Insurance on coverage issues might eliminate all coverage for a
     particular claim or group of claims. Accordingly, the development of a
     factual basis from which a claim can be evaluated with respect to exposure
     and coverage can take months to years from receipt of an initial claim.
     Thus, reserves with respect to specific pollution cases typically are set,
     if at all, only after substantial factual discovery is completed in the
     action.

       In 1995, REM, in its capacity as manager of Home Insurance's operations,
     established a single Environmental and Mass Tort Division, which includes a
     new team to merge financial, legal and environmental engineering expertise
     in negotiation with policyholders and reinsurers to find alternative
     resolutions to claims in the environmental and mass tort areas. Management
     believes that these organizational changes increase operational efficiency,
     while assuring that Home Insurance takes a unified and consistent approach
     to these claims. This division has also prepared an inventory of potential
     exposures for Asbestos/Pollution Policies, which Home Insurance has
     utilized to evaluate its use of industry benchmarks to establish reserves.

       Losses for such claims are likely to be reflected in future years and,
     due to the uncertainties discussed above, the ultimate losses may vary
     materially from current reserves and could have a materially adverse effect
     on the Company's financial condition and results of operations.

       The process of estimating reserve requirements is necessarily imperfect
     and involves an evaluation of a large number of variables discussed above.
     Therefore, there can be no assurance that the ultimate liability will not
     exceed amounts reserved. However, on the basis of (i) current legal
     interpretations, and political, economic and social conditions, (ii) Home
     Insurance's internal procedures, which analyze Home Insurance's experience
     with similar cases and historical trends, such as reserving patterns, loss
     payments, pending levels of unpaid claims and product mix, and (iii)
     management's judgments of the relevant


                                        7
<PAGE>   9
                               HOME HOLDINGS INC.
                   Notes to Consolidated Financial Statements



     factors regarding reserve requirements for claims relating to Asbestos/
     Pollution Policies, management believes that adequate provision has been
     made for Home Insurance's loss reserves.

     Excess of Loss Reinsurance Agreement and Stop Loss Treaty

       In connection with the recapitalization agreement, Home Insurance and
     Centre Reinsurance Dublin entered into the Excess of Loss Reinsurance
     Agreement, dated as of June 12, 1995. Home Insurance is provided with an
     aggregate limit of $1.3 billion subject to certain adjustments, attaching
     at the point that Home Insurance has no remaining cash or assets readily
     convertible into cash to pay any of its obligations. Among such
     adjustments, in the event that Home Insurance pays any dividends to the
     Company prior to the third anniversary of the Closing to fund interest
     payments on the Public Indebtedness, the limit will be increased by the
     amount of such dividends plus interest thereon at the rate of 7.5% per
     annum, compounded, from the date such dividends were paid to the date the
     reinsurers commence making payments under the Excess of Loss Reinsurance
     Agreement. See the 1996 Annual Report - note 4 to the consolidated
     financial statements for discussion of dividend restrictions. Also, up to
     $290 million of additional coverage provided by the Excess of Loss
     Reinsurance Agreement is linked to certain factors including dividend
     payments from Home Insurance to the Company funding principal payments on
     the Public Indebtedness as such debts become payable. The Excess of Loss
     Reinsurance Agreement became effective on June 12, 1995 upon (i) the
     payment by Home Insurance to Centre Reinsurance Dublin of $63 million and
     (ii) the transfer by Home Insurance of $166 million to Centre Reinsurance
     Dublin, representing the respective amounts received by Home Insurance from
     Zurich International (Bermuda) Ltd. and Centre Reinsurance Limited as a
     reinsurance commutation (exclusive of refunds of security costs). In 1996
     an additional $43 million was transferred to Centre Reinsurance Dublin,
     representing the amount received by Home Insurance from THI as a
     reinsurance commutation.

       Based on cash flow forecasts at December 31, 1996, the Company is
     projecting that the coverage limits of the Excess of Loss Reinsurance
     Agreement will be exhausted. Due to these projected future recoveries, loss
     reserves with a net present value of $787 million were recorded as of March
     31, 1997 and December 31, 1996 as a recoverable from the Excess of Loss
     Reinsurance Agreement.


                                        8
<PAGE>   10
                               HOME HOLDINGS INC.
                   Notes to Consolidated Financial Statements



     4.    LIQUIDITY AND STATUTORY SURPLUS

     Dividend Restrictions and Liquidity

       The Company has not received common stock dividends from Home Insurance
     in 1997 and 1996.

       The Company was notified in 1995 by the Department that, in light of the
     Recapitalization, Home Insurance cannot pay any dividends without prior
     approval of the Department. If the Department rejects future dividends
     filings, the Company will be forced to raise cash through capital
     infusions, the issuance of additional debt, or the sale of assets in order
     to meet its current obligations; however there are no assurances that such
     sources will be available. Based on the Company's most current cash flow
     projections, without dividends from Home Insurance, the Company is not
     likely to meet its cash flow needs during 1997. Under the terms of the
     Recapitalization Agreement, Centre Finance Dublin ("Centre Finance") has
     purchased approximately $46 million aggregate principal amount of the
     Company's 7% Series B Senior Working Capital Notes to fund interest
     payments occurring through December 1996 on the Public Indebtedness.

     Statutory Surplus

       The accounting practices of insurance companies are prescribed or
     permitted by certain regulatory authorities. Certain of these practices
     differ from generally accepted accounting principles ("GAAP") used in
     preparing the consolidated financial statements of the Company. The
     Department gave Home Insurance permission to include in the 1996 Statutory
     Annual Statement a non-tabular discount which results from discounting all
     loss reserves, and allocated and unallocated loss adjustment expense
     reserves at 7%. Home Insurance has sufficient assets that will earn 7% to
     meet the expected stream of loss and loss adjustment expense payments. Home
     Insurance calculated that the non-tabular discount is $444 million and $469
     million at March 31, 1997 and December 31, 1996. The non-tabular discount
     is not included in the Company's consolidated financial statements prepared
     under GAAP. Home Insurance's consolidated policyholders' surplus determined
     in accordance with statutory practices, and after reflecting the benefit of
     non-tabular discount, was $30 million at March 31, 1997 compared with $55
     million at December 31, 1996.

       On March 3, 1997, Home Insurance was placed under formal supervision by
     the Department. The Department states in its Order that this action was
     taken in response to Home Insurance's RBC report filed with the Department,
     as discussed below, which indicates that a Mandatory Control Level Event
     has occurred. The Order establishes that the Department will oversee and
     supervise Home Insurance for the purpose of continuing and intensifying an
     economic, actuarial and accounting review of the books, records and
     business affairs of Home Insurance so as to determine what future actions
     may be appropriate. The Order also provides that Home Insurance may not
     take certain actions without the prior approval of the Department,
     including, among other matters, payment of


                                        9
<PAGE>   11
                               HOME HOLDINGS INC.
                   Notes to Consolidated Financial Statements



     claims and other obligations within certain dollar limits, and changes in
     the terms and conditions of certain existing contracts and entering into of
     certain new contracts.

       In connection with the Department's involvement in approving the
     Recapitalization, it had appointed in 1995, a representative to act as an
     on-site monitor for the Company's operations, with certain rights of access
     and cooperation from the Company and REM.

       The Company's loss reserves are determined through a process of
     estimation which is necessarily imperfect, and ultimate losses may exceed
     such estimates. See note 3 for further discussion. As the Company's
     statutory surplus levels have continued to decline since December 31, 1994,
     management can give no assurance that statutory surplus levels will be
     sufficient to absorb materially deficient estimates of loss and loss
     adjustment expenses reserves, if any. Management continues to believe that
     its provision for loss reserves is adequate.

       The Department also continues to direct a consulting actuarial firm to
     perform a review of Home Insurance's loss reserves, and has retained a
     second actuarial firm to perform a peer review of the findings. Such
     reviews are expected to be completed during the second quarter of 1997.
     Management cannot predict whether reserve estimates to be prepared by these
     consultants will change the Department's view of the level of regulatory
     intervention required for Home Insurance.


                                       10
<PAGE>   12
                               HOME HOLDINGS INC.
                   Notes to Consolidated Financial Statements



     5.    CORPORATE DEBT
<TABLE>
<CAPTION>

                                                                         March 31,          December 31,
                                                                           1997                 1996
       ($ millions)                                                    -----------          ----------

<S>                                                                    <C>                  <C>  
       7% Senior Notes due in 1998, net of
           unamortized discount of nil in 1997 and 1996                $       100          $      100
       7 7/8% Senior Notes due in 2003, net of
           unamortized discount of $2 million in 1997
           and 1996                                                            177                 177
       7 7/8% Senior Notes due in 2003, net of
           unamortized discount of nil in 1997 and 1996                          1                   1
       12% Senior Subordinated Notes, issued at
           original issue discount, $303 million
           principal value due in 2004                                         121                 118
       8% Junior Subordinated Notes, issued at
           original issue discount, $171 million
           principal value due in 2004                                          93                  91
       12% Senior Subordinated Working Capital
           Notes, issued at original issue discount,
           $46 million principal value due in 2004                              19                  18
       7% Series A Senior Working Capital Notes                                 16                  16
       7% Series B Senior Working Capital Notes                                 46                  46
                                                                       -----------          ----------

           Total Corporate Debt                                        $       573          $      567
                                                                       ===========          ==========
</TABLE>


       During 1995 and 1996, the Company issued to Centre Finance approximately
     $46 million aggregate principal amount on the Company's 7% Series B Senior
     Working Capital Notes to fund interest payments occurring through December
     1996 on the Public Indebtedness. The principal on these notes is due on the
     successive one year anniversaries of the Closing date; however, the date
     can be extended for annual periods at the option of either Centre Finance
     or the Company until December 15, 2003. The Company elected in 1996 to
     extend the due date until June of 1997.

       In addition, effective December 31, 1996, each of the Series A and Series
     B Senior Working Capital Notes, was amended to change the timing of the
     payment of interest. Prior to such amendment, interest was payable
     quarterly. However, according to the amended terms, interest shall not be
     due or payable until seven business days following the receipt by the
     Company of written demand from holders of these notes, or when the
     principal of the Series A and Series B Senior Working Capital Notes becomes
     due and payable. If interest is not paid within seven business days of such
     written demand, all interest accrued shall be deemed overdue and shall
     immediately become due and payable. If interest becomes overdue, the
     interest rate is adjusted upwards to the greater of (i) the rate of
     interest on the


                                       11
<PAGE>   13
                               HOME HOLDINGS INC.
                   Notes to Consolidated Financial Statements



     notes, plus 3% or (ii) the prime rate plus 3%. As of March 31, 1997,
     approximately $5 million of interest has been accrued but not paid on the
     Series A and Series B Senior Working Capital Notes. As a result of the
     amended terms, the interest is not overdue.

       Neither Centre Finance nor Zurich nor Trygg-Hansa has any obligations
     pursuant to the Recapitalization or otherwise to provide any capital or
     other financial support to the Company or its subsidiaries other than the
     limited amounts specifically provided for pursuant to the Recapitalization
     and related agreements. Centre Finance, Zurich and Trygg-Hansa have
     informed the Company that they do not intend to provide any financial
     support beyond such limited amounts as may be required pursuant to the
     Recapitalization.


     6.    PORTFOLIO SWAP RECEIVABLE AND OTHER INSURANCE INVESTMENTS

       The Portfolio Value Swap Agreement (the "Swap") is designed to transfer
     control and market risk of the portfolio to Centre Reinsurance Dublin. The
     Company has accounted for the Swap as if the investments underlying the
     Swap were sold to Centre Reinsurance Dublin. The Company, however,
     continues to retain legal ownership. As a result, the Company has
     reclassified its investments underlying the Swap to a Portfolio Swap
     Receivable from Centre Reinsurance Dublin ("Portfolio Swap Receivable"),
     valued at the fair value of the portfolio investments on the effective date
     (January 1, 1995) less withdrawals made to fund operations plus the total
     return of 7.5%. Subsequent changes to fair value of securities have not and
     will not be recognized, as Centre Reinsurance Dublin bears the market risk.

       As of March 31, 1997, the Company has recorded, as a component of the
     Portfolio Swap Receivable, an amount due from Centre Reinsurance Dublin of
     $15 million because of a negative difference from the 7.5% target return.
     The negative difference since January 1, 1997 resulted from the net of (i)
     a $13 million difference in favor of the Company due to a decrease in the
     fair value of investments underlying the Swap and (ii) a $2 million
     difference in favor of the Company for investment income representing an
     upward adjustment to reach the 7.5% target yield. Actual investment income
     before such adjustments was $25 million.

       The Company received $48 million from Centre Reinsurance Dublin on
     January 21, 1997, to settle the 1996 Swap receivable. Securities and cash
     totaling $210 million were transferred to Centre Reinsurance Dublin on
     January 22, 1996, to settle the 1995 Swap liability.


                                       12
<PAGE>   14
                               HOME HOLDINGS INC.
                   Notes to Consolidated Financial Statements



       The fair value of securities managed by Zurich Investment Management Inc.
     ("ZIM") and underlying the Portfolio Swap Receivable from Centre
     Reinsurance Dublin as of March 31, 1997 is as follows:

<TABLE>
<CAPTION>
                                                                       Estimated
                                                                            Fair
                                                                           Value
       ($ millions)

<S>                                                                   <C>
       Fixed Maturities:
       U.S. Government and agency                                     $      541
       Mortgage-backed securities                                            214
       Corporate securities                                                  191
       Foreign governments                                                    36
       Other                                                                   2
                                                                      ----------
           Total                                                             984

       Equity securities                                                       1
       Short-term investments                                                 68
                                                                      ----------
           Total Swap investments                                          1,053
       Receivable from Centre Reinsurance Dublin                              15
                                                                      ----------
           Portfolio Swap Receivable                                  $    1,068
                                                                      ==========
</TABLE>


     7.    SECURITIES BROKER-DEALER

       On February 24, 1997, Gruntal, and The 1880 Group LLC, a limited
     liability company organized under the laws of Delaware, ("The 1880 Group"),
     entered into the Reorganization Agreement. The Gruntal reorganization was
     consummated on March 28, 1997. The reorganization resulted in Gruntal
     transferring its securities broker-dealer operating companies, Gruntal &
     Co. and The GMS Group, to a newly formed limited liability company, Gruntal
     Financial, LLC ("Gruntal Financial"). In connection with the
     reorganization, Gruntal changed its name to Home Financial Corp. ("Home
     Financial") on April 1, 1997. Home Insurance is the sole owner of Home
     Financial.

       The Reorganization involved the issuance of several classes of securities
     to Home Financial and The 1880 Group, including preferred securities, in an
     aggregate nominal amount of $235 million as follows: (i) Gruntal Financial
     issued to Home Financial securities called Preferred A Interests in a
     nominal amount of $155.5 million and securities called Preferred B
     Interests in a nominal amount of $70 million; and (ii) Gruntal Financial
     issued to The 1880 Group securities called Preferred C Interests in an
     nominal amount of $9 million. As a result of the Reorganization, Home
     Financial owns 40% of the common interest of Gruntal Financial and The 1880
     Group owns 60% of the common interest of Gruntal Financial. In connection
     with the issuance of certain preferred securities to Home Financial,


                                       13
<PAGE>   15
                               HOME HOLDINGS INC.
                   Notes to Consolidated Financial Statements



     Home Insurance and Centre Reinsurance Dublin entered into a swap agreement
     intended to ensure that Home Insurance's investment in Gruntal Financial
     yields at least $155.5 million plus a 7.5% per annum rate of return
     thereon, subject to certain modifications with respect to certain
     distributions and sales proceeds of the common and preferred interests of
     Gruntal Financial. Expenses incurred by Gruntal in connection with the
     transaction were $9 million. There was no gain or loss to Home Insurance
     from the Reorganization after the impact to Gruntal of the transaction
     expenses.

       In connection with the Reorganization, the members of The 1880 Group
     entered into management services agreements with The 1880 Group which, in
     turn, will provide such services to Gruntal Financial.

     Summarized financial information of Gruntal Financial for the first quarter
     ended March 31 is set forth in the following tables:

<TABLE>
<CAPTION>
                                                                  1997               1996
                                                                  ----               ----
     ($ millions)

<S>                                                             <C>              <C>  
     Summarized Income Statement

     Commissions                                                $     23         $      25
     Principal transactions                                           32                45
     Underwriting and investment banking                               8                 9
     Interest                                                         32                29
     Other                                                             8                 9
                                                                --------         ---------

       Total revenues                                                103               117

     Total expenses                                                 (111)             (110)
                                                                --------         ---------

       Income before income taxes                               $     (8)        $       7
                                                                ========         =========
</TABLE>




     Summarized Balance Sheet
<TABLE>
<CAPTION>
                                                                                  March 31
                                                                                    1997
                                                                                  --------                        
<S>                                                                               <C>     
     Cash                                                                         $      6
     Investments                                                                       427
     Receivables from brokers, dealers and customers                                 2,332
     Total assets                                                                    2,818
     Payables to brokers, dealers and customers                                      2,030
     Debt                                                                              337
     Total liabilities                                                               2,662
     Stockholders' equity                                                              156
</TABLE>




                                       14
<PAGE>   16
                               HOME HOLDINGS INC.
                   Notes to Consolidated Financial Statements



     8.  LITIGATION AND CONTINGENCIES

       Home Insurance, in common with the insurance industry, is subject to
     litigation, including claims for punitive damages and for extra-contractual
     damages, in the normal course of its business.

       In the ordinary course of its business, Home Insurance is involved in
     insurance litigation, including claims litigation involving the defense of
     policyholders arising from suits brought by third parties, litigation or
     arbitration to recover sums due from reinsurers, actions brought by
     policyholders alleging the improper failure to settle or defend suits, and
     actions to recover premiums due from insureds, including premiums due under
     retrospectively-rated insurance policies and premium balances due from
     agents or brokers. In addition, Home Insurance is involved in non-insurance
     litigation arising out of investments and employment-related matters.

       While the aggregate dollar amounts involved in these legal proceedings
     cannot be determined with certainty, if the Company or its subsidiaries
     were required to pay the amounts at issue, such payment or payments could
     have a material adverse effect on the Company's financial condition or
     results of operations. However, in the opinion of management, the ultimate
     aggregate liability in these actions is not expected to exceed the amounts
     currently reserved in an amount which would have a material adverse effect
     on the Company's financial condition or results of operations. There are no
     assurances that the outcome of these matters will not vary materially from
     management's estimates.

       Pursuant to the Order, the Department has the final authority to approve,
     disapprove or otherwise control (including the power to direct) the
     initiation, settlement or withdrawal of any action, dispute, arbitration,
     litigation or proceeding of any kind involving Home Insurance other than in
     the ordinary course of business. In addition, pursuant to the Order, Home
     Insurance is prohibited from making certain payments, as specified in the
     Order, without the prior approval of the Department.

       A petition was filed on December 13, 1993, in the District Court of
     Dallas County, Texas, joining Home Insurance as a defendant in a previously
     filed action. The action sought certification of both plaintiff and
     defendant classes. The purported plaintiff class consisted of all Texas
     insureds who were charged premiums above state-approved rates for casualty
     coverage through the use of retrospectively-rated policies for a period
     beginning prior to May 15, 1987, through April 1, 1992. Plaintiffs sought
     to certify a defendant class of all insurers doing business in Texas who
     charged the alleged excessive rates, plus certain brokers and the National
     Council on Compensation Insurance ("NCCI"). The Complaint alleged that
     defendants entered into a conspiracy to devise various methods of charging
     and collecting the allegedly excessive rates and, in doing so, breached
     their contracts with plaintiffs, breached their fiduciary duty and violated
     the Texas Insurance Code and the Deceptive Trade Practices Act.
     Compensatory and punitive damages were sought in unspecified amounts plus
     treble damages.

         
                                       15
<PAGE>   17
                               HOME HOLDINGS INC.
                   Notes to Consolidated Financial Statements



       A settlement between fourteen of the primary defendants, including Home
     Insurance, was reached. Home Insurance has contributed approximately $8
     million, which had been accrued as of December 31, 1995, under a trust
     agreement pending final court approval. On July 5, 1996 the Texas District
     Court gave preliminary approval to the settlement. The defendants submitted
     to a verification process of their damage calculations. Final orders of
     approval were issued by the court on November 1, 1996. The settlement is
     being implemented through refunds to insureds.

       On January 13, 1997 Home Insurance was served with suit papers issued
     from the Chancery Court of Davidson County, Tennessee in a purported class
     action. The allegations of the complaint are similar to those in the Texas
     litigation case that was recently settled.

       Plaintiffs allege that from 1987 until the present, the defendants,
     individually, and in conspiracy with each other, used rates of premium and
     policy forms for workers compensation retro policies other than those filed
     with, and approved by, the Tennessee Commissioner of Insurance.
     Specifically, the companies are alleged to have illegally passed through
     residual market changes to their insureds during the class period. The NCCI
     is alleged to be the conduit for sharing of information and the
     instrumentality for making the illegal filings.

       The principal causes of action are for breach of contract, fraud,
     misrepresentation, conspiracy, unjust enrichment, and violation of the
     Tennessee Consumer Protection and Trade Practices Acts. Compensatory and
     punitive damages are sought in unspecified amounts plus treble damages.

       A nearly identical class action complaint naming the same parties was
     also filed in the Superior Court of Richmond Country, Georgia. It includes
     the same common law causes of action that are asserted in the Tennessee
     complaint, and others that allege violation of various provisions of the
     Georgia statutory code, as well as RICO. Compensatory, punitive, and treble
     damages are sought.

       Both actions have been removed to federal court. Motions to remand the
     actions to state court have been filed.

       With respect to the Tennessee and Georgia actions discussed above, it is
     too early to predict the outcome of these actions and whether or not they
     will have a material adverse impact on the Company's financial condition.

       A complaint and temporary restraining order issued from the New York
     State Supreme Court were served upon Home Insurance by Bertholon-Rowland
     Corp., a large producer of Home Insurance's professional liability business
     in New York and Massachusetts. The action arose out of the producer's
     decision to terminate its business relationship with Home Insurance on six
     months' notice, and Home Insurance's subsequent immediate suspension of the
     producer's authority to act on its behalf. The complaint sought an
     injunction and


                                       16
<PAGE>   18
                               HOME HOLDINGS INC.
                   Notes to Consolidated Financial Statements



     damages nullifying the suspension of authority and enforcing the producer's
     contractual rights to its customer accounts and commissions. Compensatory
     and punitive damages were sought. By stipulation of the parties the
     restraining order was dissolved and legal proceedings stayed pending
     submission of the dispute to an arbitration panel. The final award of the
     arbitration panel dated August 7, 1995 ordered, among other things, that
     Bertholon-Rowland's damages claim against Home Insurance be denied. Home
     Insurance's motion to confirm the arbitration award was submitted to the
     court on October 12, 1995. On November 8, 1995, Bertholon-Rowland obtained
     a court order temporarily restraining alleged violations of its ownership
     rights to policy expirations, and filed a motion for a preliminary
     injunction against Home Insurance and Zurich-American Insurance Group and
     Professional Liability Underwriting Managers Inc. due to the alleged
     violations and seeking other relief as well. Subsequently,
     Bertholon-Rowland filed a motion to amend the temporary restraining order
     based upon alleged continuing violations of its expiration rights. The
     motions are pending before the court. The Company does not believe that the
     outcome of this action will have a material adverse effect on its financial
     condition or results of operations.

       On February 13, 1991, Home Insurance and its subsidiaries were acquired
     from AmBase (the "Acquisition") pursuant to a stock purchase agreement (the
     "Stock Purchase Agreement"). As part of the Stock Purchase Agreement, as
     amended, AmBase provided Home Insurance a tax indemnification for certain
     taxes assessed against AmBase and its consolidated group, which included
     Home Insurance, for all periods ending on or before December 31, 1989. The
     Stock Purchase Agreement, as amended, also provided for a "hold-back" of a
     portion of the purchase consideration by the Company to be used to pay (i)
     liabilities for federal or state income taxes, including interest thereon,
     assessed against AmBase, Home Insurance or any other member of the AmBase
     affiliated group for years ending on or before December 31, 1989, and (ii)
     certain other liabilities, and to the extent not used for these purposes,
     to be paid to AmBase.

       Home Insurance, as a member of the AmBase affiliated group, joined in
     filing consolidated federal income tax returns with AmBase during tax years
     through February 13, 1991, and is severally liable for any federal income
     tax, including interest, ultimately assessed against AmBase for years
     during such period. In the event AmBase federal income tax and interest
     assessments exceed the amount held back pursuant to the Stock Purchase
     Agreement, as amended, and AmBase does not have sufficient financial
     resources to pay the excess amount, Home Insurance would be severally
     liable for such excess amount.

       AmBase federal tax years through 1991 have been examined and settled by
     the Internal Revenue Service, with the exception of a "Fresh Start" issue
     for the 1987 tax year and no additional assessments can be made. Based upon
     public disclosures by AmBase and information provided by AmBase to the
     Company under the terms of the Stock Purchase Agreement, as amended, (i)
     AmBase believes that it has meaningful defenses with respect to the "Fresh
     Start" tax issue that is material to AmBase and (ii) the Company believes
     that if AmBase does not have sufficient financial resources to pay federal
     income tax and interest assessments for the 1987 tax year for which Home
     Insurance is severally


                                       17
<PAGE>   19
                               HOME HOLDINGS INC.
                   Notes to Consolidated Financial Statements



     liable and for the additional AmBase withholding tax issue still open for
     which Home Insurance believes it is not liable, any liability of Home
     Insurance for such amounts in excess of the amount held back pursuant to
     the Stock Purchase Agreement, as amended, would not have a material adverse
     effect on the Company's or Home Insurance's financial condition or results
     of operations. No amounts have been accrued by Home Insurance or the
     Company in excess of the amount held back pursuant to the Stock Purchase
     Agreement, as amended.

       Home Insurance is involved in a dispute with its landlord, Olympia and
     York Maiden Lane Company (the "Landlord"), with respect to its lease of its
     principal offices at 59 Maiden Lane, New York, New York. The Landlord is in
     default of certain bond obligations that are secured by the building and,
     consequently, the Landlord has made an assignment of rents to the trustee
     (the "Trustee") representing the Landlord's bondholders. On June 24, 1996,
     the Landlord's bondholders obtained a judgment of foreclosure and it is
     anticipated that the Landlord's bondholders will complete the foreclosure,
     and gain possession of the building shortly.

       On June 1, 1996, Home Insurance began withholding rent and tax payments
     to the Landlord. Subsequently, the Trustee and the Landlord issued several
     notices to Home Insurance threatening to terminate its lease and/or seek
     possession of the premises. On July 19, 1996, Home Insurance brought an
     action against the Landlord and the Trustee in its capacity as trustee in
     New York State Supreme Court entitled, The Home Insurance Company v.
     Olympia & York Maiden Lane Company, et al., seeking a preliminary
     injunction to prohibit the Landlord from terminating the lease or beginning
     an independent rent action in Landlord-Tenant court. In this action, Home
     Insurance seeks damages from the Landlord for rent overcharges, refusal to
     obtain tax relief which would benefit Home Insurance, failure to maintain
     the building including certain life safety systems, and failure to meet its
     obligations (including statutory and regulatory obligations) with respect
     to The Americans with Disabilities Act and asbestos in the building.

       The Court granted a temporary restraining order on July 19, 1996, in
     favor of Home Insurance. On August 9, 1996 the Court entered a decision and
     interim order, which, as amended through September 12, 1996, appointed a
     mediator and provided that Home Insurance deposit in escrow with a receiver
     approximately $7.4 million representing the June and July rent and June tax
     payment. The order states that the escrow payment "shall not per se
     constitute a secured claim under New Hampshire Revised Statutes Annotated
     402 - C: 3 but may be subject to the provisions of New Hampshire Insurance
     Laws, Chapter 402 - C in the event of proceedings thereunder or similar
     proceedings in this or any other jurisdiction". Home Insurance made this
     escrow payment and the mediation proceeded.

       As a condition for continuing the preliminary injunction, Home Insurance
     increased its deposit in escrow to $10.7 million. The Landlord moved for
     summary judgment for past due rent. Home Insurance moved to amend its
     complaint (i) to add a cause for constructive eviction from approximately
     23% of its premises, where its environmental expert has identified
     "significantly damaged" asbestos containing materials ("ACM"); (ii) to
     increase the


                                       18
<PAGE>   20
                               HOME HOLDINGS INC.
                   Notes to Consolidated Financial Statements



     amount of damages sought by Home Insurance for the Landlord's refusal to
     obtain tax relief to more than $20 million; (iii) to join the bondholders
     as a class action; and (iv) to consolidate the foreclosure action brought
     by the Trustee against the Landlord. On December 30, 1996 the Court granted
     (i) Home's motion to amend with respect to items (i) and (ii), but denied
     Home Insurance's motion with respect to item (iii) pending mediation, and
     also with respect to item (iv) without prejudice to renew before the
     assigned judge. The Court granted the Landlord's motion for partial summary
     judgment on its counterclaims holding Home Insurance liable for rent due
     and owing from June 1, 1996 to November 30, 1996, plus interest from
     September 1, 1996, together with costs and disbursements. The remainder of
     the Landlord's motion was denied without prejudice. The Court stayed entry
     and execution of the Landlord's judgment. In accordance with the Court's
     order, Home Insurance filed its amended and supplemental verified
     complaint. The Landlord and Trustee counterclaimed, and Home Insurance
     replied. On March 4, 1997, the Court directed Home Insurance to deposit
     into escrow, without prejudice, rent for the period September 1, 1996
     through November 30, 1996, which payment was due to be made by April 1,
     1997. Home Insurance has sought an extension of time to make this payment.
     The court has not ruled on this request. On March 27, the landlord moved
     for summary judgement for additional rent, purportedly due and owing for
     entry of the earlier summary judgment, and for other relief. The court has
     not ruled on the landlords motion. Concurrent with the litigation, the
     Company, the Landlord and the Trustee are currently engaged in mediation.
     Management believes that it is too early to predict with certainty the
     ultimate outcome of this dispute. However, an unfavorable outcome could
     have a material adverse impact on the Company's financial condition.

       On or about January 17, 1997, Marine Midland (the trustee in the action
     described above), brought an action entitled Marine Midland Bank v. Zurich
     Insurance Company, et al. in New York State Supreme Court against Zurich
     and certain affiliates, Home Insurance and REM alleging, among other
     things, that the conveyance to Zurich of the right to write renewal
     business on policies of Home Insurance constituted a fraudulent transfer
     under New York State law because Home Insurance purportedly was rendered
     insolvent as a result and did not receive adequate consideration from
     Zurich for this right. Plaintiff in its complaint disregards that the
     transaction, which permitted the conveyance of this right to Zurich, was
     approved by the Department in April 1995. The complaint, which does not
     seek any relief against Home Insurance, demands judgment against Zurich and
     certain of its affiliates for all past and future rent due under the lease
     between Home Insurance and its landlord, not paid by Home Insurance, plus
     interest, or alternatively, for the imposition of a constructive trust upon
     the proceeds obtained by Zurich from the conveyance noted above, which
     according to plaintiff would secure the repayment of Home Insurance's
     purported obligations under its lease, as well as attorneys' fees. The
     complaint also seeks from REM damages in the amount of all rents due and
     owing under the lease plus interest, as well as, a declaration that REM is
     obligated to make all future rent payments. On March 27, 1997, REM and Home
     Insurance moved to dismiss the complaint. Marine Midland Bank served its
     responsive papers on May 9, 1997. Defendants have until June 6, 1997 to
     file their reply. Management believes that it is too early to predict with
     certainty the ultimate outcome of this dispute.


                                       19
<PAGE>   21
                               HOME HOLDINGS INC.
                   Notes to Consolidated Financial Statements



       Home Insurance is involved in a dispute with the NCCI as administrator of
     the National Workers' Compensation Reinsurance Pool ("the Pool"). The Pool
     collects premium and pays losses for various residual market plans around
     the country. The premium is supposed to be distributed to pool members in
     proportion to their market share and held in reserve. The NCCI sends a
     quarterly invoice to each pool member for its share of the losses as
     calculated and paid by the Pool in that quarter.

       Home Insurance is a participant in the Pool, and, as of March 31, 1997,
     Home Insurance is carrying loss reserves, calculated on an undiscounted
     basis, of approximately $251 million allocated to the Pool. On May 6, 1997,
     Home Insurance received notice from the NCCI that the Pool's invoices
     totaling $35,324,555 were due and unpaid and that the Board of Governors of
     the Pool had voted on April 28, 1997 to approve (i) the NCCI's
     determination that Home Insurance's allocable share of outstanding reserve
     obligations to the Pool was $236,237,269 and (ii) the acceleration of such
     amount. On May 7, 1997, Home Insurance received from NCCI a demand that
     Home Insurance obtain a letter of credit to secure this alleged obligation
     to the Pool of $271,561,824.

       Home Insurance disputes the extent of its obligations to the Pool, and
     believes that it has meaningful legal defenses to both the acceleration and
     the demand for security. In addition, Home Insurance has on several
     occasions demanded an audit to determine the actual amount of its
     obligation. To date, however, Home Insurance's demands for an audit have
     been refused. Home Insurance and the NCCI currently are engaged in
     settlement negotiations with respect to these matters. Management believes
     it is too early to predict with certainty the ultimate outcome of this
     matter; however, an unfavorable outcome could have a material adverse
     impact on the Company's financial condition.

       In or about October 1994, Gruntal discovered a defalcation in its back
     office operations area. Gruntal notified the New York Stock Exchange Inc.
     ("NYSE"), the Commission and the United States Attorney's Office for the
     Southern District of New York ("USAO"). Gruntal also undertook an inquiry
     into the circumstances and facts of the defalcation and into related
     matters. Gruntal presently believes that approximately $14 million,
     consisting in substantial part of funds that should have or potentially
     could have been abandoned property under the laws of various states
     ("Abandoned Property"), was embezzled or improperly diverted, including
     approximately $5 million in such funds that was used in substantial part to
     benefit Gruntal. Gruntal has submitted claims to its insurer, Home
     Insurance, under the applicable insurance policy and to date, approximately
     $8.5 million has been advanced to Gruntal by the carrier. Home Insurance's
     net retention on the claim was approximately $1 million, with the balance
     reinsured.

       Based upon information furnished by Gruntal, inquiries were undertaken by
     the NYSE, the Commission and USAO. Gruntal discussed its investigation
     relating to Abandoned Property with the governmental and self-regulatory
     bodies involved. In addition, Gruntal


                                       20
<PAGE>   22
                               HOME HOLDINGS INC.
                   Notes to Consolidated Financial Statements



     advised the NYSE, the Commission, USAO and the National Association of
     Securities Dealers, Inc. ("NASD") that it was conducting a separate review
     relating to the execution and reporting of certain Over-the-Counter ("OTC")
     orders.

       In April 1996, pursuant to a settlement entered into between Gruntal and
     the Commission, and without admitting or denying the allegations therein,
     Gruntal consented to the entry of an administrative order in which the
     Commission found that Gruntal's practices with respect to Abandoned
     Property violated antifraud and broker-dealer reporting and recordkeeping
     provisions of the federal securities laws, and aided and abetted violations
     of the federal securities laws by the Company. The Commission order
     censured Gruntal and required Gruntal to pay $5.5 million in disgorgement
     and prejudgment interest and a monetary fine of $4 million, and reimburse
     any customers determined by an independent consultant acceptable to the
     Commission to have been financially harmed by Gruntal's OTC execution and
     reporting practices. The disgorgement fund will be administered and
     disbursed by a fund administrator pursuant to a report and a plan which
     will be submitted to the Commission and require court approval. Under the
     terms of the settlement, the fund administrator is also required to verify
     Gruntal's representation to the Commission that it has repaid, recredited,
     escheated or segregated and scheduled for escheatment $6.7 million which
     Gruntal has identified as escheatable, or presently believes to be
     escheatable, or has identified as belonging to customers, contra-parties,
     vendors and other third parties. In June 1996, at the direction of the
     Commission and as approved by the order of the United States District Court
     for the Southern District of New York in SEC v. Gruntal & Co.,
     Incorporated, et al., 96 Civ. 2514, James R. Doty, Esq., a partner in the
     law firm of Baker & Botts, LLP and a former General Counsel of the
     Commission, was engaged to serve as Fund Administrator (hereinafter, the
     "Fund Administrator").

       In June 1996, with the approval of the Commission, the NYSE and the NASD,
     Gruntal engaged Irving M. Pollack, Esq., a former Commissioner of the
     Commission, to serve as Independent Consultant (hereinafter the
     "Independent Consultant"), pursuant to the settlement with the Commission,
     and, additionally, pursuant to other settlements with the Commission, NYSE
     and NASD, described below. The Independent Consultant will review Gruntal's
     operating policies and procedures with respect to the operations and OTC
     areas and recommend further changes, if deemed appropriate. In performing
     these reviews, the Fund Administrator and Independent Consultant are
     authorized to rely upon work performed or to be performed by the Quality
     Assurance Task Force established by Gruntal's Chief Executive Officer to
     conduct a diagnostic review of Gruntal's departments and business
     activities, and upon work by other representatives of Gruntal.

       Gruntal also entered into a separate settlement with the Commission in
     April 1996, pursuant to which Gruntal consented, without admitting or
     denying the allegations therein, to the entry of an administrative order in
     which the Commission found that Gruntal violated antifraud and
     recordkeeping provisions of the federal securities laws in connection with
     the execution of certain transactions for investment advisory clients and
     the non-disclosure to advisory clients of the receipt of certain payments
     for order flow. The Commission's order


                                       21
<PAGE>   23
                               HOME HOLDINGS INC.
                   Notes to Consolidated Financial Statements



     censured Gruntal and required Gruntal to pay a monetary fine of $1 million,
     reimburse any clients determined by the Independent Consultant to have been
     financially harmed as a result of the violations, and pay into the United
     States Treasury the amount of payment that the Independent Consultant
     determines Gruntal received for order flow on transactions executed for
     advisory client accounts plus accrued interest thereon. Under the terms of
     the settlement, the Independent Consultant also will review Gruntal's
     policies and procedures with respect to the execution of orders for
     advisory client accounts and the coding, and reporting on client
     confirmations and internal Gruntal records, of transactions executed by
     Gruntal and recommend further changes, if deemed appropriate. In performing
     this review, the Independent Consultant is entitled to rely upon work
     performed or to be performed by Gruntal's Quality Assurance Task Force and
     upon work by other representatives of Gruntal.

       In addition, Gruntal entered into a stipulation with the NYSE staff in
     March 1996 to resolve the NYSE's investigation of Abandoned Property and
     other issues relating to the supervision of pricing and valuation of
     certain collateralized mortgage obligations and certain proprietary trading
     accounts, as well as the accuracy of FOCUS reports previously filed with
     the NYSE and the late filing of certain other required reports with the
     NYSE. Pursuant to the stipulation, which was approved by the NYSE in April
     1996, Gruntal was censured and required to pay a $1 million fine to the
     NYSE. Gruntal also agreed to retain the Independent Consultant to review
     Gruntal's systems and procedures and make recommendations for additional
     systems and procedures, if necessary, reasonably designed to ensure
     Gruntal's compliance with federal securities laws and NYSE rules and to
     prevent the recurrence of the violations described in the stipulation.

       In April 1996, pursuant to a consent between Gruntal and the NASD, and
     without admitting or denying the allegations therein, Gruntal also
     consented, among other things, to findings by the NASD that during 1995
     through the date of the consent, Gruntal violated certain provisions of the
     NASD Bylaws and Rules of Fair Practice by trading ahead of certain customer
     limit orders, failing to report or timely report certain trading
     transactions and failing to enforce written supervisory procedures relating
     to the execution of limit orders. Pursuant to the terms of the consent,
     Gruntal was censured and required to pay a fine of $200,000, up to $100,000
     of which may be waived to the extent of payment by Gruntal to customers
     harmed by certain trading practices, as discussed below. In addition,
     Gruntal agreed to retain the Independent Consultant to review and, if
     appropriate, make recommendations with respect to Gruntal's practices and
     written procedures pertaining to Gruntal's trading, execution and reporting
     practices in Nasdaq securities. Gruntal is also required to pay to each
     customer identified by the Independent Consultant as harmed by practices
     described above the amount by which each customer was harmed plus accrued
     interest.

       The disgorgement amounts and fines described above in connection with the
     Commission, NYSE and NASD regulatory matters were accrued in the December
     1995 financial statements. The Company has made timely payments of the
     disgorgement amounts and fines as required under these settlements.


                                       22
<PAGE>   24
                               HOME HOLDINGS INC.
                   Notes to Consolidated Financial Statements



       As discussed above, the USAO undertook a separate investigation relating
     to the Abandoned Property matter. Based upon the information presently
     available, Gruntal cannot predict whether the USAO will charge Gruntal with
     any criminal violations. Gruntal believes that any decision by the USAO to
     prosecute Gruntal would have a materially adverse impact on Gruntal's
     financial condition. Gruntal has advised the USAO of its views and has also
     communicated a number of factors that in Gruntal's view would support a
     decision not to indict Gruntal, including Gruntal's self-reporting to, and
     cooperation with, governmental, regulatory and self-regulatory bodies,
     remediation of past non-compliance with state abandoned property laws and
     recrediting of customer accounts, adoption of new policies and procedures,
     management and personnel changes, ongoing review of its business practices,
     and willingness to agree to the appointment of an independent monitor with
     authority to review Gruntal's business activities and recommend further
     changes in policies and procedures.

       Gruntal has also brought the Abandoned Property and other matters
     referred to above to the attention of the Commodity Futures Trading
     Commission ("CFTC") and the North American Securities Administrators
     Association, a national association of state securities regulators. These
     matters could result in additional investigations and proceedings by the
     CFTC and state securities regulators, in connection with which such
     authorities may seek to impose additional sanctions against Gruntal.
     Although the ultimate outcome cannot be predicted with certainty,
     management presently believes that any such sanctions would not have a
     materially adverse effect on the consolidated financial condition of
     Gruntal or the Company.

       During the third quarter of 1996, Gruntal discovered that approximately
     2,800 principal transactions involved customers that were employee benefit
     plans or individual retirement arrangements under the Employee Retirement
     Income Security Act of 1974, as amended ("ERISA") or parallel provisions of
     the Internal Revenue Code. In the absence of an available exemption, these
     transactions would be "prohibited transactions" under Section 406 of ERISA
     and Section 4975 of the Code. Gruntal is examining the availability of
     certain exemptions. Management believes it is too early to predict with
     certainty the ultimate outcome of this matter, but management does not
     believe that such costs will have a material adverse effect on the
     financial position of Gruntal or the Company.

       REM's service agreement with the Company provides that REM will receive a
     contingent fee amounting to 15% in excess of its actual costs, accumulating
     with interest, as follows: 100% of the annual amounts for the years 1995
     through 2000 and 33% of the amounts from years 2000 until 2005, payable on
     and after 2005. The fee is payable by Home Insurance contingent upon prior
     approval of the Department. Based on the issuance of the Order, and based
     on projections that the Excess of Loss Reinsurance Agreement will be fully
     exhausted, the payment of such fees is considered remote and therefore has
     not been accrued in the consolidated financial statements. The contingent
     liability as of March 31, 1997 was $41 million.


                                       23
<PAGE>   25
                               HOME HOLDINGS INC.



     ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
             RESULTS OF OPERATIONS


     RESULTS OF OPERATIONS

     The following should be read in conjunction with the consolidated financial
statements.


       Insurance revenues were $32 million in the three months ended March 31,
     1997, compared with $123 million in the same period of 1996. The net loss
     was $8 million in the three months ended March 31, 1997, as compared to $35
     million in the same period in 1996.

     Insurance revenues and pre-tax loss were as follows:

<TABLE>
<CAPTION>
                                                               1997               1996
                                                               ----               ----
     ($ millions)

<S>                                                         <C>              <C>      
     Net earned premiums                                    $      3         $      80
     Net investment income                                        27                43
     Realized capital gains                                        2                 -
                                                            --------         ---------

         Insurance revenues                                 $     32         $     123
                                                            ========         =========

     Underwriting loss                                      $    (17)        $     (72)
     Net investment income                                        27                43
     Realized capital gains                                        2                 -
                                                            --------         ---------

         Insurance pre-tax income (loss)                    $     12         $     (29)
                                                            ========         =========
</TABLE>


                                       24
<PAGE>   26
                               HOME HOLDINGS INC.



     Underwriting Results

         In connection with the Recapitalization which closed on June 12, 1995,
     Home Insurance ceased writing new and renewal business except for limited
     risks that Home Insurance is obligated to continue writing for an interim
     period. All Home Insurance operations are being run-off subsequent to June
     12, 1995.

         Underwriting results by product were as follows:


     Underwriting Loss
<TABLE>
<CAPTION>
                                  1997        1996
                                  ----        ----
     ($ millions)

<S>                               <C>         <C>  
Commercial casualty               $ (8)       $(25)
Commercial property                 (2)        (26)
                                  ----        ----

  Commercial accounts group        (10)        (51)

Professional liability              (3)        (10)
Other specialty lines               (2)         (4)
                                  ----        ----
  Specialty lines group             (5)        (14)
                                  ----        ----

Run-off operations                  (2)         (7)
                                  ----        ----

  Total                           $(17)       $(72)
                                  ====        ====
</TABLE>


       Underwriting losses were $17 million in the three months of 1997,
     compared with $72 million in the same period of 1996. The 1997 underwriting
     losses were primarily due to general expenses incurred managing the run-off
     of Home Insurance's operations. The 1996 underwriting losses were primarily
     due to lower earned premiums and expenses incurred in managing the run-off
     of Home Insurance's operations.

       The commercial accounts group underwriting loss was $10 million in the
     three months of 1997, compared with $51 million, in the same period of
     1996. The 1997 underwriting loss included commercial casualty and property
     losses of $8 million and $2 million, respectively, compared to $25 million
     and $26 million, respectively, in the same period of 1996. The 1997
     commercial accounts group losses were primarily due to general expenses
     incurred in managing the run-off of its operations. The 1996 losses were
     primarily due to lower earned premiums and expenses incurred in managing
     the run-off of its operations.


                                       25
<PAGE>   27
                               HOME HOLDINGS INC.



       The specialty lines group loss was $5 million in the three months of 1997
     compared with $14 million in the same period of 1996. The 1997 specialty
     lines group loss was due to general expenses incurred in managing the
     run-off of its operations. The 1996 loss was primarily due to lower earned
     premiums and expenses incurred in managing the run-off of its operations.

       The run-off operations loss was $2 million in the three months of 1997,
     compared with $7 million in the same period of 1996. Underwriting losses
     from Asbestos/Pollution Policies for the first quarter of 1997 and 1996
     were nil.

     Investments

       As of March 31, 1997, the Company has recorded, as a component of the
     Portfolio Swap Receivable, an amount due from Centre Reinsurance Dublin of
     $15 million because of a negative difference from the 7.5% target return.
     The negative difference since January 1, 1997 resulted from the net of (i)
     a $13 million difference in favor of the Company due to a decrease in the
     fair value of investments underlying the Swap and (ii) a $2 million
     difference in favor of the Company for investment income representing an
     upward adjustment to reach the 7.5% target yield. Actual investment income
     before such adjustments was $25 million.

       In the three months ended March 31, 1997, the Company recorded a $3
     million increase in unrealized gains on insurance equity investments not
     underlying the Swap.

     Other

       Corporate interest expense was $13 million in the three months ended
     March 31, 1997, compared with $12 million in the same period of 1996.

       Equity in the income of the securities broker-dealer was a loss of $8
     million for the three months ended March 31, 1997. The 1997 first quarter
     loss was primarily due to $9 million of transaction expenses relating to
     the restructuring of Gruntal. See note 7 of the consolidated financial
     statements for further discussion.

       Income tax benefit was $1 million in the three months of 1997 compared
     with an expense of $1 million in the same period of 1996. Taxes in 1997 and
     1996 were comprised of state and foreign taxes. The Company was unable to
     recognize a federal income tax benefit against its 1997 or 1996 pre-tax
     losses because there was no available taxable income in the carryback
     period.


                                       26
<PAGE>   28
                               HOME HOLDINGS INC.



     FINANCIAL CONDITION

     Consolidated

       Following the Closing, Home Insurance has generally ceased writing new or
     renewal insurance or reinsurance business, except for limited risks that
     Home Insurance is obligated to continue writing for an interim period. The
     Company has been notified by the Department that, in light of the
     Recapitalization, Home Insurance cannot pay any dividends without prior
     approval of the Department.

       On March 3, 1997, Home Insurance was placed under formal supervision by
     the Department. The Department states in its Order that this action was
     taken in response to Home Insurance's RBC report filed with the Department
     which indicates that a Mandatory Control Level Event has occurred. The
     Order establishes that the Department will oversee and supervise Home
     Insurance for the purpose of continuing and intensifying an economic,
     actuarial and accounting review of the books, records and business affairs
     of Home Insurance so as to determine what future actions may be
     appropriate. The Order also provides that Home Insurance may not take
     certain actions without the prior approval of the Department, including,
     among other matters, payment of claims and other obligations within certain
     dollar limits, and changes in the terms and conditions of certain existing
     contracts and entering into of certain new contracts.

       If the Department rejects future dividends filings, the Company will be
     forced to raise cash through capital infusions, the issuance of additional
     debt, or the sale of assets in order to meet its current obligations;
     however there are no assurances that such sources will be available. Based
     on the Company's most current cash flow projections, without dividends from
     Home Insurance, the Company is unlikely to be able to meet its cash flow
     needs during 1997, which include interest payments on the Public
     Indebtedness of $11.6 million due on June 15, 1997 and December 15, 1997,
     respectively. Under the terms of the Recapitalization Agreement, Centre
     Finance has purchased approximately $46 million aggregate principal amount
     of the Company's 7% Series B Senior Working Capital Notes to fund interest
     payments occurring through December 1996 on the Public Indebtedness.

       To fund additional cash requirements incurred in connection with the
     Equity Repurchase Transaction, as defined in note 1b to the 1996 Annual
     Report, the Recapitalization and other extraordinary needs, Centre Finance
     and ZCI purchased, in 1995 and 1996, $15 million principal amount of the
     Company's 12% Senior Subordinated Working Capital Notes due and $16 million
     principal amount of the Company's 7% Series A Senior Working Capital Notes.

       Effective December 31, 1996, each of the Series A and Series B Senior
     Working Capital Notes, was amended to change the timing of the payment of
     interest. Prior to such amendment, interest was payable quarterly. However,
     according to the amended terms, interest shall not be due or payable until
     seven business days following the receipt by the Company of written demand
     from holders of these notes, or when the principal of the Series


                                       27
<PAGE>   29
                               HOME HOLDINGS INC.



     A and Series B Senior Working Capital Notes becomes due and payable. If
     interest is not paid within seven business days of such written demand, all
     interest accrued shall be deemed overdue and shall immediately become due
     and payable. If interest becomes overdue, the interest rate is adjusted
     upwards to the greater of (i) the rate of interest on the notes, plus 3% or
     (ii) the prime rate plus 3%. As of March 31, 1997, approximately $5 million
     of interest has been accrued but not paid on the Series A and Series B
     Senior Working Capital Notes. As a result of the amended terms, the
     interest is not overdue.

       Neither Centre Finance nor Zurich nor Trygg-Hansa has any obligations
     pursuant to the Recapitalization or otherwise to provide any capital or
     other financial support to the Company or its subsidiaries other than the
     limited amounts specifically provided for pursuant to the Recapitalization
     and related agreements. Centre Finance, Zurich and Trygg-Hansa have
     informed the Company that they do not intend to provide any financial
     support beyond such limited amounts as may be required pursuant to the
     Recapitalization.

       The sources of funds of the Company consist primarily of dividends from
     Home Insurance. Accordingly, the Company's ability to pay its obligations
     depends on the receipt of sufficient funds from Home Insurance. Home
     Insurance is subject to regulatory restrictions on the amount of dividends
     that must be paid as described above. The Company did not receive any
     common stock dividends from Home Insurance in 1997 and 1996. Based on the
     Company's most current cash flow projections, without dividends from Home
     Insurance, the Company is unlikely to be able to meet its cash flow needs
     during 1997.

       At March 31, 1997, the Company's outstanding corporate debt was $573
     million and, at December 31, 1996, was $567 million. As part of the
     Recapitalization, Trygg-Hansa refinanced the sum of $178 million of
     indebtedness outstanding under the Credit Agreement ($170 million) and the
     Interest Deferral Agreement ($8 million). In exchange the Company issued
     $98 million of 12% Senior Subordinated Notes, at original issue discount
     ($303 million principal value) and $80 million of 8% Junior Subordinated
     Notes at original issue discount ($171 million principal value). The
     principal repayments under the Public Indebtedness are $100 million in 1998
     and $180 million in 2003, however the repayment of the 2003 Senior Notes
     have changed as a result of an exchange (see discussion below). The Company
     would need to fund the required principal payments for the Public
     Indebtedness through dividend income from Home Insurance.

       Pursuant to the Bondholder Agreement, in exchange for the consent by each
     Bondholder to the waivers and amendments to the indentures governing the
     Public Indebtedness necessary to consummate the Recapitalization, the
     Company completed an exchange offer on August 25, 1995, in which
     approximately $179 million principal value of the 2003 Senior Notes were
     exchanged for the New Notes, which provide for sinking fund payments (to be
     applied to the mandatory retirement of the New Notes) in installments of
     approximately $36 million each in year 1999 through 2003. All other terms
     and conditions of the New Notes are substantially the same as the 2003
     Senior Notes.



                                       28
<PAGE>   30
                               HOME HOLDINGS INC.



       In March, 1997, Moody's lowered its rating of the Company's debt security
     to Ca from B3, and Standard and Poor's Corporation ("S&P") lowered its
     ratings to CC from B-.

       Home Insurance and Centre Reinsurance Dublin entered into the Excess of
     Loss Reinsurance Agreement, dated as of June 12, 1995. Home Insurance is
     provided with an aggregate limit of $1.3 billion subject to certain
     adjustments, attaching at the point that Home Insurance has no remaining
     cash or assets readily convertible into cash to pay any of its obligations.
     Among such adjustments, in the event that Home Insurance pays any dividends
     to the Company prior to the third anniversary of the Closing to fund
     interest payments on the Public Indebtedness, the limit will be increased
     by the amount of such dividends plus interest thereon at the rate of 7.5%
     per annum, compounded, from the date such dividends were paid to the date
     the reinsurers commenced making payments under the Excess of Loss
     Reinsurance Agreement. Also, up to $290 million of additional coverage
     provided by the Excess of Loss Reinsurance Agreement shall be linked to
     certain factors including dividend payments from Home Insurance to the
     Company funding principal payments on the Public Indebtedness and the New
     Notes, as defined in note 1b to the 1996 Annual Report as such debts become
     payable.

       Based on cash flow forecasts at December 31, 1996, the Company is
     projecting that the coverage limits of the Excess of Loss Reinsurance
     Agreement will be exhausted. Due to these projected future recoveries, loss
     reserves with a net present value of $787 million were recorded as of March
     31, 1997 and December 31, 1996 as a recoverable from the Excess of Loss
     Reinsurance Agreement.

       Beginning June 1996, Home Insurance is withholding rent and tax payments
     to its Landlord. Amounts withheld for rent of approximately $3 million per
     month, are being accrued pending resolution of litigation. Home Insurance
     was required to deposit in escrow with a court appointed receiver
     approximately $10.7 million. See note 8 to the consolidated financial
     statements for further discussion.

       Home Insurance is involved in a dispute with NCCI. Home Insurance is a
     participant in the Pool, and, as of March 31, 1997, Home Insurance is
     carrying loss reserves, calculated on an undiscounted basis, of
     approximately $251 million allocated to the Pool. On May 6, 1997, Home
     Insurance received notice from the NCCI that the Pool's invoices totaling
     $35,324,555 were due and unpaid and that the Board of Governors of the Pool
     had voted on April 28, 1997 to approve (i) the NCCI's determination that
     Home Insurance's allocable share of outstanding reserve obligations to the
     Pool was $236,237,269 and (ii) the acceleration of such amount. On May 7,
     1997, Home Insurance received from NCCI a demand that Home Insurance obtain
     a letter of credit to secure this alleged obligation to the Pool of
     $271,561,824. See note 8 to the consolidated financial statements for
     further discussion.


                                       29
<PAGE>   31
                               HOME HOLDINGS INC.



     Home Insurance

       Following the closing of the Recapitalization, Home Insurance has
     generally ceased accepting business except as required by regulation or
     contractual obligations. As a result, payment of future claims and
     operating expenses would be met by primarily earning investment income,
     collection of premiums receivable and reinsurance receivables, collection
     of the Portfolio Swap Receivable and sale of assets. At March 31, 1997, the
     Portfolio Swap Receivable of $1,068 million was available to provide for
     any foreseeable immediate cash requirements.

       On March 3, 1997, Home Insurance was placed under formal supervision by
     the Department. The Department states in its Order that this action was
     taken in response to Home Insurance's RBC report filed with the Department
     which indicates that a Mandatory Control Level Event has occurred. The
     Order establishes that the Department will oversee and supervise Home
     Insurance for the purpose of continuing and intensifying an economic,
     actuarial and accounting review of the books, records and business affairs
     of Home Insurance so as to determine what future actions may be
     appropriate. The Order also provides that Home Insurance may not take
     certain actions without the prior approval of the Department, including,
     among other matters, payment of claims and other obligations within certain
     dollar limits, and changes in the terms and conditions of certain existing
     contracts and entering into of certain new contracts.

       Cash used for insurance operating activities was $221 million in the
     three months ended March 31, 1997 compared with $263 million in the same
     period in 1996. The net outflows in 1997 and 1996 were primarily due to
     paid losses and lower premium collections, resulting from the run-off of
     operations.

       The Department gave Home Insurance permission to include in the 1996
     Statutory Annual Statement a non-tabular discount which results from
     discounting all loss reserves, and allocated and unallocated loss
     adjustment expense reserves at 7%. Home Insurance has sufficient assets
     that will earn 7% to meet the expected stream of loss and loss adjustment
     expense payments. Home Insurance calculated that the non-tabular discount
     is $444 million and $469 million at March 31, 1997 and December 31, 1996,
     respectively. The non-tabular discount is not included in the Company's
     consolidated financial statements prepared under GAAP. Home Insurance's
     consolidated policyholders' surplus determined in accordance with statutory
     practices, and after reflecting the benefit of non-tabular discount, was
     $30 million and $55 million at March 31, 1997 and December 31, 1996,
     respectively.


                                       30
<PAGE>   32
                               HOME HOLDINGS INC.



       The Company's loss reserves are determined through a process of
     estimation which is necessarily imperfect, and involves an evaluation of a
     large number of variables. Therefore, there can be no assurance that the
     ultimate liability will not exceed amounts reserved. However, on the basis
     of (i) current legal interpretations, and political, economic and social
     conditions, (ii) Home Insurance's internal procedures, which analyze Home
     Insurance's experience with similar cases and historical trends, such as
     reserving patterns, loss payments, pending levels of unpaid claims and
     product mix, and (iii) management's judgments of the relevant factors
     regarding reserve requirements for claims relating to Asbestos/ Pollution
     Policies, management believes that adequate provision has been made for
     Home Insurance's loss reserves. See note 3 to the consolidated financial
     statements for further discussion.

       The Department also continues to direct a consulting actuarial firm to
     perform a review of Home Insurance's loss reserves, and has retained a
     second actuarial firm to perform a peer review of the findings. Such
     reviews are expected to be completed during the second quarter of 1997.
     Management cannot predict whether reserve estimates to be prepared by these
     consultants will change the Department's view of the level of regulatory
     intervention required for Home Insurance.

     Securities Broker-Dealer

       Certain minimum amounts of capital must be maintained by securities
     broker-dealer subsidiaries to satisfy the requirements of the Uniform Net
     Capital Rule (Rule 15c3-1) of the Commission and the capital rules of other
     regulatory authorities. At March 27, 1997, Gruntal & Co.'s net capital, as
     defined by the Commission and other regulatory authorities, was
     approximately $118 million, which was $97 million in excess of the
     aggregate minimum required.

       On February 24, 1997, Gruntal, and The 1880 Group LLC a limited liability
     company organized under the laws of Delaware, ("The 1880 Group"), entered
     into the Reorganization Agreement. The Gruntal reorganization was
     consummated on March 28, 1997. The reorganization resulted in Gruntal
     transferring its securities broker-dealer operating companies, Gruntal &
     Co. and The GMS Group, to a newly formed limited liability company, Gruntal
     Financial, LLC ("Gruntal Financial"). In connection with the reorganization
     Gruntal changed its name to Home Financial Corp. ("Home Financial") on
     April 1, 1997. Home Insurance is the sole owner of Home Financial.

       The Reorganization involved the issuance of several classes of securities
     to Home Financial and The 1880 Group, including preferred securities, in an
     aggregate nominal amount of $235 million as follows: (i) Gruntal Financial
     issued to Home Financial securities called Preferred A Interests in a
     nominal amount of $155.5 million and securities called Preferred B
     Interests in a nominal amount of $70 million; and (ii) Gruntal Financial
     issued to The 1880 Group securities called Preferred C Interests in an
     nominal amount of $9 million. As a result of the Reorganization, Home
     Financial owns 40% of the common interest of Gruntal Financial and The 1880
     Group owns 60% of the common interest of Gruntal


                                       31
<PAGE>   33
                               HOME HOLDINGS INC.



     Financial. In connection with the issuance of certain preferred securities
     to Home Financial, Home Insurance and Centre Reinsurance Dublin entered
     into a swap agreement intended to ensure that Home Insurance's investment
     in Gruntal Financial yields at least $155.5 million plus a 7.5% per annum
     rate of return thereon, subject to certain modifications with respect to
     certain distributions and sales proceeds of the common and preferred
     interests of Gruntal Financial. Expenses incurred by Gruntal in connection
     with the transaction were $9 million. There was no gain or loss to Home
     Insurance from the Reorganization after the impact to Gruntal of the
     transaction expenses.

     Sterling Forest

       On May 15, 1996 Governors Pataki of New York and Whitman of New Jersey,
     and Speaker of the House Gingrich, announced an agreement in principle for
     the purchase and sale of a substantial part of Sterling Forest lands for
     public parkland. In connection therewith, a Purchase and Sale Agreement
     between Sterling Forest and Sterling Lake Associates, as seller, and Trust
     for Public Land and Open Space Institute, as buyer, was signed on February
     18, 1997 (the "Sterling Forest Agreement").

       Under the terms of the Sterling Forest Agreement more than 15,000 acres
     of Sterling Forest land will be acquired as parkland by the state of New
     York under the management of the Palisades Interstate Park Commission, at a
     total purchase price of $55 million. Under the Sterling Forest Agreement
     the buyers have up to two years to raise the funding. The purchase price
     for any lands not yet acquired, however, will increase annually if the
     purchase has not been fully consummated by the first anniversary of the
     agreement. A total of $49 million has been committed, as of May 14, 1997,
     by a combination of federal and state governments, and one not-for-profit
     conservation foundation. Sterling Forest will continue to own approximately
     2,200 acres of land and existing improvement for future sale or
     development.


                                       32
<PAGE>   34
                               HOME HOLDINGS INC.



     PART II.    OTHER INFORMATION


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

                 At the annual meeting of the stockholders of the Company held
                 on May 13, 1997 (The "Annual Meeting"), the following matters
                 were submitted to a vote of security holders:

                        (i)    the election of directors
                        (ii)   amendments to the Restated Certificate of
                               Incorporation of the Company; and
                        (iii)  amendments to the By-Laws of the Company.

                 All of the present directors of the Company, including Mr. Jan
                 Bruneheim, Mr. Steven D. Germain, Mr. Michael Palm and Mr. Zaid
                 O.B. Pedersen, were elected to serve as directors of the
                 Company until their successors are duly elected and qualified.
                 Amendments to the Restated Certificate of Incorporation of the
                 Company and amendments to the By-Laws of the Company were
                 approved.


                 With respect to the election of directors, 12,586,697 shares of
                 Series A Common Stock were voted in favor of the slate of
                 directors nominated for re-elections. There were no votes cast
                 against any of the directors, nor were there any abstentions.

                 With respect to the amendments to the Restated Certificate of
                 Incorporation of the Company, 12,586,697 shares of Series A
                 Common Stock of the Company were voted in favor of the proposed
                 amendments and 11,425,177 shares of Series B Convertible Stock
                 of the Company were voted in favor of the proposed amendments.
                 There were no votes cast against any of the amendments, nor
                 were there any abstentions.

                 With respect to the amendments to the By-Laws of the Company,
                 12,586,697 Shares of Series A Common Stock of the Company were
                 voted in favor of the proposed amendments and 11,425,177 shares
                 of Series B Convertible Stock of the Company were voted in
                 favor of the proposed amendments. There were no votes cast
                 against any of the amendments, nor were there any abstentions.

     ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

                 EXHIBITS

                 3.1    Form of Amended and Restated Certificate of
                        Incorporation of the Company, as approved by the
                        stockholders of the Company on May 13, 1997.

                 3.2    By-Laws of the Company, as approved by the stockholders
                        of the Company on May 13, 1997.

                 10.1   Governance Agreement Termination and Mutual Release
                        dated as of April 15, 1997 by and among Trygg-Hansa AB
                        (formerly Trygg-Hansa SPP Holdings AB), Trygg-Hansa
                        Omsesidig Livforsakring, Trygg-Hansa Holding B.V.,
                        Centre Reinsurance (Bermuda) Limited and Zurich Home
                        Investments Limited (formerly ZCI Investments Limited).

                 10.2   Amendment No. 1 dated as of April 15, 1997 to the
                        Securityholders' Agreement dated as of June 12, 1995 by
                        and among the Company, Zurich Home Investments Limited
                        (formerly ZCI Investments Limited), Centre Reinsurance
                        (Bermuda) Limited, Insurance Partners Advisors, L.P.,
                        Trygg-Hansa AB and Trygg-Hansa Holding B.V.

 


                 Form 8-K

                 Report on Form 8-K was filed by the Company on April 14, 1997.


              
                                       33
<PAGE>   35
                                   SIGNATURES



     Pursuant to the requirements of the Securities Exchange Act of 1934, the
     registrant has duly caused this report to be signed on its behalf by the
     undersigned thereunto duly authorized.



                                     HOME HOLDINGS INC.





                                     By:  /s/ RICHARD H. HERSHMAN
                                          ---------------------------
     May 14, 1997                              Richard H. Hershman
                                                   Treasurer
                                     (Principal Financial and Accounting Officer
                                      through the Services Agreement with
                                      Risk Enterprise Management Limited)



                                       34




<PAGE>   36
                                EXHIBIT INDEX

                 3.1    Form of Amended and Restated Certificate of
                        Incorporation of the Company, as approved by the
                        stockholders of the Company on May 13, 1997.

                 3.2    By-Laws of the Company, as approved by the stockholders
                        of the Company on May 13, 1997.

                 10.1   Governance Agreement Termination and Mutual Release
                        dated as of April 15, 1997 by and among Trygg-Hansa AB
                        (formerly Trygg-Hansa SPP Holdings AB), Trygg-Hansa
                        Omsesidig Livforsakring, Trygg-Hansa Holding B.V.,
                        Centre Reinsurance (Bermuda) Limited and Zurich Home
                        Investments Limited (formerly ZCI Investments Limited).

                 10.2   Amendment No. 1 dated as of April 15, 1997 to the
                        Securityholders' Agreement dated as of June 12, 1995 by
                        and among the Company, Zurich Home Investments Limited
                        (formerly ZCI Investments Limited), Centre Reinsurance
                        (Bermuda) Limited, Insurance Partners Advisors, L.P.,
                        Trygg-Hansa AB and Trygg-Hansa Holding B.V.