<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 September 30, 1996

                         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 September 30, 1996, 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
                Third Quarter and Nine Months ended September 30,
                                   (Unaudited)

                                  ($ millions)

<TABLE>
<CAPTION>
                                                          Third Quarter                   Nine Months
                                                      ----------------------        ----------------------
                                                       1996           1995           1996            1995
                                                      -------        -------        -------        -------
<S>                                                <C>            <C>            <C>            <C>    
REVENUES:

Net earned premiums (note 2)                          $    13        $   203        $   126        $   826
Insurance net investment income                            34             36            115            169
Insurance realized capital gains (losses)                --             --               10           (207)
Securities broker-dealer operations                        91            122            330            338
                                                      -------        -------        -------        -------

       Total revenues                                     138            361            581          1,126
                                                      -------        -------        -------        -------

OPERATING EXPENSES:

Losses and loss adjustment expenses (note 2)               68            237            259          1,083
Policy acquisition and other insurance expenses            32             86            113            290
Securities broker-dealer operations                        89            111            309            315
Corporate interest expense                                 13             11             37             34
Other expenses                                           --                1           --               24
                                                      -------        -------        -------        -------

       Total expenses                                     202            446            718          1,746
                                                      -------        -------        -------        -------

       Loss before income taxes                           (64)           (85)          (137)          (620)

Income tax expense                                       --               (2)            (2)            (5)
                                                      -------        -------        -------        -------

       NET LOSS                                       $   (64)       $   (87)       $  (139)       $  (625)
                                                      =======        =======        =======        =======
</TABLE>


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


See notes to consolidated financial statements.

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

                                  ($ millions)

<TABLE>
<CAPTION>
                                                       September 30,  December 31,
                                                           1996           1995
                                                          -------        -------
                                                        (Unaudited)
<S>                                                    <C>            <C>    
   ASSETS
Insurance investments at fair value:
Portfolio swap receivable (note 5)                        $ 1,391        $ 2,130
Fixed maturities available for sale
   (cost $31 and $33)                                          31             33
Equity securities (cost $18 and $24) (note 5)                  23             24
Short-term investments                                          2              2
                                                          -------        -------

     Total insurance investments                            1,447          2,189

Cash                                                          105             34
Premiums receivable                                           320            384
Funds held by affiliate                                       260            265
Reinsurance receivables                                     2,179          2,383
Prepaid reinsurance premiums                                    1             24
Securities broker-dealer investments                          401            539
Receivable from brokers, dealers and customers              2,060          1,896
Other assets                                                  206            289
                                                          -------        -------

     Total assets                                         $ 6,979        $ 8,003
                                                          =======        =======

   LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Liabilities:
Unpaid losses and loss adjustment expenses                $ 4,957        $ 5,814
Unearned premiums                                              14            141
Payables to brokers, dealers and customers                  1,871          1,621
Securities of broker-dealer sold under
   agreements to repurchase                                  --              131
Debt of securities broker-dealer                              240            304
Corporate debt (note 4)                                       550            517
Other liabilities                                             558            552
                                                          -------        -------

     Total liabilities                                      8,190          9,080
                                                          -------        -------

Litigation and contingencies (note 6)

Stockholders' deficiency: (note 3)
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                                                    (1,991)        (1,852)
Unrealized gains on insurance investments (note 5)              5           --
Unrealized currency translation adjustments                    (2)            (2)
                                                          -------        -------

     Total stockholders' deficiency                        (1,211)        (1,077)
                                                          -------        -------

     Total liabilities and stockholders' deficiency       $ 6,979        $ 8,003
                                                          =======        =======
</TABLE>


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

                                        2
<PAGE>   4
                               HOME HOLDINGS INC.
                      Consolidated Statements of Cash Flows
                         Nine Months ended September 30,
                                   (Unaudited)

                                  ($ millions)
<TABLE>
<CAPTION>
                                                     1996           1995
                                                    -------        -------
<S>                                               <C>            <C>     
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                            $  (139)       $  (625)
Adjustments to reconcile net loss to net cash
   used for operating activities:
Insurance realized capital (gains) losses               (10)           207
Unpaid losses and loss adjustment expenses             (857)          (307)
Premiums and reinsurance receivables                    291            438
Funds held by affiliate                                   5           (249)
Unearned premiums                                      (127)          (489)
Broker-dealer investments and receivables,
   net of payables                                      158           (244)
Other                                                    30            169
                                                    -------        -------

            Net cash used for operating
                activities                             (649)        (1,100)
                                                    -------        -------

CASH FLOWS FROM INVESTING ACTIVITIES:
Portfolio swap receivable                               739            817
Sales of fixed maturities                                 1              6
Sales of equity securities                               16              4
Other                                                    (5)            (6)
                                                    -------        -------

            Net cash provided by investing
                activities                              751            821
                                                    -------        -------

CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in debt of broker-dealer                       (64)           118
Increase in corporate debt                               33            222
Decrease in corporate debt                             --             (170)
Stock repurchase                                       --              (92)
Issuance of preferred stock                            --               98
Other                                                  --               (9)
                                                    -------        -------

            Net cash provided by financing
                activities                              (31)           167
                                                    -------        -------

            Net increase (decrease) in cash              71           (112)

Cash at beginning of period                              34            144
                                                    -------        -------

            CASH AT END OF PERIOD                   $   105        $    32
                                                    =======        =======

SUPPLEMENTAL DISCLOSURES OF CASH FLOW:

Corporate interest paid                             $    12        $    14
Broker-dealer interest paid                         $    60        $    56
Income taxes paid                                   $     2        $     7
</TABLE>


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

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



1.     ACCOUNTING POLICIES

           Home Holdings Inc. (the "Company") follows the accounting policies
       set forth in the 1995 Annual Report on Form 10-K ("Annual Report") filed
       with the Securities and Exchange Commission (the "Commission"). 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.

           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.


2.     PREMIUMS AND LOSSES

           Premium and loss information for the third quarter and nine months
       ended September 30, follows:
<TABLE>
<CAPTION>
                                                 Third Quarter                  Nine Months
                                                 -------------                  -----------
                                            1996             1995           1996             1995
                                           -------          -------        -------          -------
($ millions)
<S>                                     <C>              <C>            <C>              <C>    
Written premiums:
Direct                                     $     3          $   (14)       $    12          $     3
Assumed                                          2               11             28              603
Ceded                                           (1)             (16)           (18)            (193)
                                           -------          -------        -------          -------

           Net                             $     4          $   (19)       $    22          $   413
                                           =======          =======        =======          =======

Earned premiums:
Direct                                     $     8          $   127        $    46          $   660
Assumed                                          6              136            122              435
Ceded                                           (1)             (60)           (42)            (269)
                                           -------          -------        -------          -------

           Net                             $    13          $   203        $   126          $   826
                                           =======          =======        =======          =======

Losses and loss adjustment expenses:
Direct                                     $    20          $   133        $   194          $   801
Assumed                                         38              156            116              301
Ceded                                           10**            (52)           (51)**           (19)*
                                           -------          -------        -------          -------

           Net                             $    68          $   237        $   259          $ 1,083
                                           =======          =======        =======          =======
</TABLE>


*        Includes a decrease to ceded losses and loss adjustment expenses of
         $189 million, related to the commutation and assignment of the stop
         loss treaty.

**       During the third quarter the estimates of ceded reserves to insolvent
         and commuted reinsurers for Asbestos/Pollution Policies were refined,
         resulting in a decrease of $35 million to ceded losses and loss
         adjustment expenses.

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



           In connection with the Recapitalization as defined in note 1 of the
       1995 Annual Report, on December 24, 1994, Zurich Insurance Company's U.S.
       Branch ("Zurich American"), the Company and Trygg-Hansa AB, a corporation
       organized under the laws of Sweden ("Trygg-Hansa") entered into the
       Facultative Reinsurance Facility Agreement (the "Facility Agreement").
       Pursuant to the Facility Agreement, Zurich American agreed to issue
       facultative reinsurance certificates and related cut-through endorsements
       with respect to policies issued by The Home Insurance Company and its
       insurance subsidiaries ("Home Insurance"), if requested by Home Insurance
       and if such risks met Zurich American's underwriting criteria.

           On February 9, 1995, the Facility Agreement was amended to provide
       that existing or prospective insureds of Home Insurance that decline a
       Zurich American reinsurance certificate would be offered a Zurich
       American insurance policy with associated premiums and liabilities being
       assumed by Home Insurance through a 100% quota share reinsurance
       agreement.

           On June 12, 1995, the Facility Agreement was further amended to
       provide for settlements of balances after June 12, 1995 due between Home
       Insurance and Zurich American and to delete a provision for a 1% renewal
       premium payable by Zurich American with respect to direct policies issued
       by Zurich American under the Facility Agreement. The Facility Agreement
       terminated as of June 12, 1995.

           The effect of the Facility Agreement for the third quarter and nine
       months ended September 30, follows:

       ($ millions)
<TABLE>
<CAPTION>
                        Third Quarter           Nine Months
                        -------------           -----------
                       1996       1995         1996           1995
                      -----       -----        -----        -----
<S>                 <C>         <C>          <C>          <C>   
Written premiums:
Direct**              $  --       $   3        $  (6)       $(202)
Assumed                   1          (6)          17          540
Ceded                    --          (1)          (5)         (35)
                      -----       -----        -----        -----
    Net               $   1       $  (4)       $   6        $ 303
                      =====       =====        =====        =====

Earned premiums
Direct**              $  --           1        $  (6)       $(138)
Assumed                   1           8           17          205
Ceded                    --          (6)          (5)         (27)
                      -----       -----        -----        -----
    Net               $   1       $   3        $   6        $  40
                      =====       =====        =====        =====
</TABLE>


**       Negative direct premiums is due to policies cancelled and subsequently
         assumed.

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



       Asbestos/Pollution Losses and Loss Adjustment Expenses

           The 1996 third quarter and nine months incurred loss and loss
       adjustment expenses relating to policies which have been alleged to
       contain asbestos/pollution exposure ("Asbestos/Pollution Policies") were
       $41 million for both periods compared with $17 million and $52 million,
       respectively, for the same periods in 1995. The 1996 nine months incurred
       loss for Asbestos/Pollution Policies reflected $69 million of paid
       losses, partially offset by decreases of $28 million to unpaid losses and
       loss adjustment expenses. The 1996 third quarter incurred loss reflected
       $27 million of paid losses and $14 million of net increases to unpaid
       losses and loss adjustment expenses. This $14 million of net increases to
       unpaid losses and loss adjustment expenses for Asbestos/Pollution
       Policies in the third quarter includes an increase of $35 million due to
       refinement of estimates of ceded reserves to insolvent and commuted
       reinsurers.

           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 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 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

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



       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, Risk Enterprise Management Limited, 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
       legal, actuarial and financial expertise in collaborating with
       policyholders and reinsurers to find alternative resolutions to claims in
       the environmental and mass tort areas. Management believes that these
       organizational changes will increase operational efficiency, while
       assuring that Home Insurance takes a unified and consistent approach to
       these claims. This division is also preparing an inventory of potential
       exposures for Asbestos/Pollution Policies, which Home Insurance will
       utilize 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 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

           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 of the Recapitalization to fund interest payments on the Public
       Indebtedness, the limit will be

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



       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 reinsurer commences 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 1 to the 1995 Annual Report) as such
       debts become payable.

           Based on cash flow forecasts at December 31, 1995 and the present
       value of certain 1996 adjustments to loss reserves, the Company is
       projecting that $1,245 million of coverage limits of the Excess of Loss
       Reinsurance Agreement will be exhausted, and due to these projected
       future recoveries, loss reserves with a net present value of $445 million
       were recorded as of September 30, 1996 as a recoverable from the Excess
       of Loss Reinsurance Agreement, including an additional $30 million during
       1996. The $30 million increase represents the estimated present value of
       cash flows relating to adjustments to Asbestos/Pollution Policies and 
       assumed reinsurance business.

     3.    LIQUIDITY AND STATUTORY SURPLUS

       Dividend Restrictions

           The Company has been notified by the New Hampshire Insurance
       Department (the "New Hampshire Department") that, in light of the
       Recapitalization, Home Insurance cannot pay any dividends without prior
       approval of the New Hampshire Department. If the New Hampshire Department
       rejects future dividend payments, 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. Under the terms of
       the Recapitalization Agreement, Centre Finance Dublin ("Centre Finance"),
       an affiliate of Zurich Insurance Company, agreed to purchase up to $46
       million aggregate principal amount of the Company's 7% Series B Senior
       Working Capital Notes to fund interest payments through December 1996 on
       the Public Indebtedness. Such Series B Senior Working Capital Notes will
       be purchased by Centre Finance on the applicable interest payment dates
       for the Public Indebtedness. As of September 30, 1996 the Company has
       issued $35 million of the Series B Senior Working Capital Notes. See note
       4 for further discussion of the Series B Senior Working Capital Notes.

           Based on the Company's most current cash flow projections, funds on
       hand and funds that can be used from the issuance of Series B Senior
       Working Capital Notes should be sufficient to meet the Company's cash
       flow needs through the end of 1996.

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



       The preparation of cash flow projections, however, requires many
       assumptions and estimates by management, and the actual outcome and
       results can vary materially from such estimates. While there should be
       sufficient funds to meet its cash needs through 1996, there can be no
       assurances that events or circumstances described herein or unforeseen
       will not result in a cash shortfall before December 31, 1996. The Company
       is currently reviewing its cash needs and cash sources for 1997. Without
       dividends from Home Insurance, the Company is unlikely to be able to meet
       its cash needs during 1997.

       Statutory Surplus

           The accounting practices of insurance companies are prescribed or
       permitted by certain regulatory authorities. Certain of these practices
       differ from the generally accepted accounting principles used in
       preparing the consolidated financial statements of the Company.

           Home Insurance's consolidated policyholders' surplus, determined in
       accordance with statutory practices, was $191 million at September 30,
       1996 compared with $230 million at December 31, 1995. The remaining
       amount of coverage in the Excess of Loss Reinsurance Agreement, as
       discussed in note 2, is $55 million on an undiscounted statutory basis.

           In connection with the New Hampshire Department's involvement in
       approving the Recapitalization, it has appointed 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 Risk Enterprise Management
       Limited.

           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 of the Company's Annual Report for further
       discussion. As the Company's statutory surplus levels have continued to
       decline since December 31, 1995, management can give no assurance that
       statutory surplus levels will be sufficient to absorb materially
       deficient estimates of loss reserves, if any. Management continues to
       believe that its provision for loss and loss adjustment expense reserves
       is adequate, and the Company is currently performing its standard
       comprehensive review of reserves in order to further evaluate adequacy of
       its reserve estimates.

           The New Hampshire 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 by the first quarter
       of 1997. Management cannot predict whether reserve estimates to be
       prepared by these consultants, or by the Company, as the result of its
       own reviews, will change either management's or the New Hampshire
       Department's view of oversight or regulatory intervention required for
       Home Insurance.

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



     4.    CORPORATE DEBT
<TABLE>
<CAPTION>
                                                   September 30,   December 31,
                                                       1996            1995
                                                   -------------   ------------
($ millions)
<S>                                                <C>             <C>
7% Senior Notes due in 1998, net of
    unamortized discount of $1 in 1996 and 1995        $ 99          $ 99
77/8% Senior Notes due in 2003, net of
    unamortized discount of $1 in 1996
    and $2 in 1995                                      178           177
77/8% Senior Notes due in 2003, net of 
    unamortized discount of nil in 1996 and 1995          1             1
12% Senior Subordinated Notes, issued at
    original issue discount, $303 million
    principal value due in 2004                         114           105
8% Junior Subordinated Notes, issued at
    original issue discount, $171 million
    principal value due in 2004                          89            84
12% Senior Subordinated Working Capital
    Notes, issued at original issue discount,
    $46 million principal value due in 2004              18            16
7% Series A Senior Working Capital Notes                 16            12
7% Series B Senior Working Capital Notes                 35            23
                                                       ----          ----

    Total Corporate Debt                               $550          $517
                                                       ====          ====
</TABLE>


           Interest on the Series A and Series B Senior Working Capital Notes is
       payable quarterly, and at September 30, 1996, approximately $3 million of
       interest was accrued but not paid by the Company and accordingly is
       overdue. On any overdue payment of principal or interest, 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%. Non-payment of
       interest at the due date additionally constitutes an event of default
       under the terms of the Series A and Series B Senior Working Capital Notes
       which, among other things, would remove Centre Finance's obligation to
       fund additional Series A and Series B Senior Working Capital Notes.
       Centre Finance and its affiliates have waived their rights and privileges
       with respect to a default of an interest payment, except interest rate
       adjustments, through December 31, 1996.

           Principal on the Series A and Series B Senior Working Capital Notes
       of approximately $16 million and $23 million, respectively, was due June
       1996. Pursuant to the Standby Working Capital Credit Agreement, dated as
       of April 26, 1995, the Company, on May 21, 1996, elected to extend the
       due date of such principal until June 1997. Additionally, $12 million of
       Series B Senior Working Capital Notes issued on June 15, 1996, matures on
       June 15, 1997.

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



           Neither Centre Finance nor Zurich Insurance Company have 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 and Zurich
       Insurance Company 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.


     5.    PORTFOLIO SWAP RECEIVABLE AND OTHER INSURANCE INVESTMENTS

           The Portfolio Value Swap Agreements (the "Swap") are 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
       covered by 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 covered by the Swap to a balance
       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%. Centre Reinsurance Dublin bears the market risk and
       will reimburse the Company or be reimbursed by the Company for any
       changes in the fair value of securities underlying the Swap as discussed
       below.

           As of September 30, 1996, the Company has recorded, as a component of
       the Portfolio Swap Receivable, an amount due from Centre Reinsurance
       Dublin of $58 million because of a negative difference from the 7.5%
       target return. The negative difference since January 1, 1996 resulted
       from the net of (i) a $47 million difference in favor of the Company due
       to a decrease in the fair value of investments underlying the Swap and
       (ii) a $11 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 $104 million.

           Securities and cash totaling $210 million were transferred to Centre
       Reinsurance Dublin on January 22, 1996, to settle the 1995 Swap
       liability.

           In the nine months ended September 30, 1996, the Company recognized
       $5 million in unrealized gains on insurance equity investments not
       underlying the Swap.

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



           In the second quarter of 1996, Zurich Investment Management Inc.
       ("ZIM") replaced its affiliate, Centre Investment Services Limited, as
       manager of the Company's cash and invested assets. The fair value of
       securities managed by ZIM and underlying the Portfolio Swap Receivable
       from Centre Reinsurance Dublin as of September 30, 1996 is as follows:

<TABLE>
<CAPTION>
                                               Estimated
                                                Fair
                                                Value
($ millions)
<S>                                           <C>
Fixed Maturities:
U.S. Government and agency                      $  414
Mortgage-backed                                    366
Corporate                                          431
Foreign governments                                 53
Other                                                3
                                                ------
    Total                                        1,267

Short-term investments                              66
                                                ------
    Total Swap investments                       1,333
Receivable from Centre Reinsurance Dublin           58
                                                ------
    Portfolio Swap Receivable                   $1,391
                                                ======
</TABLE>


     6.    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. Gruntal
       Financial Corporation ("Gruntal"), in the ordinary course of its
       business, has been named as a defendant or co-defendant in a number of
       lawsuits, including class actions and arbitration proceedings, some of
       which involve claims for damages of substantial or unspecified amounts.

           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.

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



           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.

           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 seeks certification of both plaintiff
       and defendant classes. The purported plaintiff class consists 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
       seek 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. The Complaint alleges 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 are sought in unspecified amounts
       plus treble damages.

           A settlement between fourteen of the primary defendants, including
       Home Insurance, has been 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. The court gave final approval to the settlement on October
       30, 1996. Final orders of approval will be issued.

           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 arises 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 seeks an injunction and damages nullifying the suspension
       of authority and enforcing the producer's contractual rights to its
       customer accounts and commissions. Compensatory and punitive damages are
       sought. By stipulation of the parties the restraining order was dissolved
       and legal proceedings stayed pending submission of the dispute to an
       arbitration panel. Home Insurance obtained a preliminary injunction
       against Bertholon-Rowland preventing it from issuing

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



       cancellations and non-renewal notices to Home Insurance insureds pending
       the arbitration hearing which was conducted in June and July of 1995. 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

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



       to pay federal income tax and interest assessments for the 1987 tax year
       for which Home Insurance is severally 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. On
       October 21, the mediator suspended the mediation while the parties or the
       Court attempt to resolve the conditions subject to which a further escrow
       payment of $3.2 million requested by the Court through the mediator, 
       may be made by Home Insurance.

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


       Subsequently, the Landlord moved for summary judgment for past due  
       rent. This motion is returnable November 18. Home Insurance is opposing
       the Landlord's motion and is moving to amend and supplement its complaint
       (i) to add a claim for constructive eviction from approximately 23% of
       its premises, where its environmental expert has identified 
       "significantly damaged" asbestos containing materials ("ACM"); (ii) to
       join the bondholders as a class of defendants in this action; and (iii)
       to increase the amount of damages sought by Home Insurance for the
       Landlord's refusal to obtain tax relief to more than $20 million. Home
       Insurance is also moving to consolidate the foreclosure action brought by
       the Trustee against the Landlord with Home Insurance's action. 
       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.

           Home Insurance is involved in a dispute with the National Council 
       on Compensation Insurance ("NCCI"). The NCCI is a licensed rating or 
       advisory organization for the workers' compensation line of insurance 
       in a majority of states. One function it performs is to administer 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 September
       30, 1996, is carrying undiscounted loss reserves of approximately $270 
       million allocated to the Pool. Home Insurance has had several 
       discussions with the NCCI over the past year concerning the extent of 
       its obligation and the possibility of a commutation. Home Insurance has 
       refused to pay the NCCI's two most recent quarterly invoices totalling 
       approximately $22 million and requested an audit of the Pool's 
       calculations and of the NCCI's administration of the Pool. The NCCI has 
       refused to permit the requested audit but has offered to allow Home 
       Insurance, at its expense, to meet with the Pool's auditors. The NCCI 
       has also asked Home Insurance to put the aforementioned invoiced but 
       unpaid amount in escrow. 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 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

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



       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 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

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



       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.

           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

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



       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 and it is not yet able to reasonably estimate any costs
       that it may ultimately incur. Management does not believe that such costs
       will have a material adverse effect on the financial position of the
       Company.

                                       19
<PAGE>   21
                               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.


     CONSOLIDATED

       Consolidated revenues were $138 million and $581 million in the third
     quarter and nine months ended September 30, 1996, respectively, compared
     with $361 million and $1,126 million, respectively, in the same periods of
     1995. The net loss was $64 million and $139 million in the third quarter
     and nine months ended September 30, 1996, respectively, as compared to $87
     million and $625 million, respectively, during the same periods in 1995.
     The 1995 nine months net loss reflected losses of $418 million related to
     transactions in connection with the Recapitalization, including (i) a loss
     of $189 million due to the commutation and assignment of the Stop Loss
     Treaty, (ii) net realized capital losses of $208 million, pertaining to
     previously recorded unrealized losses covered under the Portfolio Swap
     Agreement and (iii) transaction expenses of $21 million.


     HOME INSURANCE

     Insurance revenues and pre-tax loss were as follows:

<TABLE>
<CAPTION>
                                              Third Quarter            Nine Months
                                              -------------            -----------
                                           1996         1995         1996         1995
                                           -----        -----        -----        -----
     ($ millions)
<S>                                     <C>          <C>          <C>          <C>  
Net earned premiums                        $  13        $ 203        $ 126        $ 826
Net investment income                         34           36          115          169
Realized capital gains (losses)             --           --             10         (207)
                                           -----        -----        -----        -----

    Insurance revenues                     $  47        $ 239        $ 251        $ 788
                                           =====        =====        =====        =====

Underwriting loss                          $(117)       $(120)       $(276)       $(547)
Excess of Loss Reinsurance Agreement          30         --             30         --
Net investment income                         34           36          115          169
Realized capital gains (losses)             --           --             10         (207)
                                           -----        -----        -----        -----

    Insurance pre-tax loss                 $ (53)       $ (84)       $(121)       $(585)
                                           =====        =====        =====        =====
</TABLE>


                                       20
<PAGE>   22
                               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. Prior to the Closing of the Recapitalization, the Company had
     attempted to mitigate the effect of the downgrades by the rating agencies
     by entering into a Facility Agreement which allowed Home Insurance's
     clients to have access to the security of Zurich American, a Company that
     is A+ rated by A.M. Best. The Facility Agreement terminated June 12, 1995.

     Net earned premiums and underwriting results by product were as follows:

<TABLE>
<CAPTION>
     Net Earned Premiums
     -------------------
                                   Third Quarter         Nine Months
                                   -------------         -----------
                                  1996       1995       1996       1995
                                  ----       ----       ----       ----
     ($ millions)
<S>                             <C>        <C>        <C>        <C> 
Commercial casualty               $  9       $ 98       $ 77       $450
Commercial property                  1         13         10         41
                                  ----       ----       ----       ----

  Commercial accounts group         10        111         87        491

Professional liability               1         37         14        145
Other specialty lines                1         45         15        160
                                  ----       ----       ----       ----
  Specialty lines group              2         82         29        305

Run-off operations                   1         10         10         30
                                  ----       ----       ----       ----

  Total                           $ 13       $203       $126       $826
                                  ====       ====       ====       ====
</TABLE>


<TABLE>
<CAPTION>
     Underwriting Loss
     -----------------
                                          Third Quarter             Nine Months
                                          -------------             -----------
                                        1996         1995         1996         1995
                                        -----        -----        -----        -----
     ($ millions)
<S>                                    <C>        <C>            <C>          <C> 
Commercial casualty                     $ (42)       $ (66)       $(122)       $(144)
Commercial property                        (2)          (3)         (44)         (45)
                                        -----        -----        -----        -----

  Commercial accounts group               (44)         (69)        (166)        (189)

Professional liability                     (6)         (28)         (24)         (73)
Other specialty lines                      (3)           1          (11)         (13)
                                        -----        -----        -----        -----
  Specialty lines group                    (9)         (27)         (35)         (86)
                                        -----        -----        -----        -----

Run-off operations                        (64)         (24)         (75)         (83)
                                        -----        -----        -----        -----

  Total before the commutation
      and assignment of the
      stop loss treaty                   (117)        (120)        (276)        (358)

Commutation and assignment of the
  stop loss treaty                       --           --           --           (189)
                                        -----        -----        -----        -----

  Total                                 $(117)       $(120)       $(276)       $(547)
                                        =====        =====        =====        =====
</TABLE>


                                       21
<PAGE>   23
                               HOME HOLDINGS INC.



       Underwriting losses were $117 million and $276 million in the third
     quarter and nine months of 1996, respectively, compared with $120 million
     and $547 million in the same periods of 1995. The 1996 underwriting losses
     were primarily due to lower earned premiums and expenses incurred in
     managing the run-off of Home Insurance's operations. Also, the 1996 third
     quarter loss includes $60 million of net adjustments relating to loss
     reserves for Pollution/Asbestos Policies and assumed reinsurance business,
     as reflected in the discussion of run-off operations below. The 1995 nine
     months results include a loss of $189 million due to the commutation and
     assignment of the Stop Loss Treaty, in connection with the
     Recapitalization.

       The commercial accounts group underwriting loss was $44 million and $166
     million, respectively, in the third quarter and nine months of 1996,
     compared with $69 million and $189 million, respectively, in the same
     periods of 1995. The 1996 underwriting losses includes commercial casualty
     losses of $42 million and $122 million in the third quarter and nine
     months, respectively, compared to $66 million and $144 million,
     respectively, in the same periods of 1995. Commercial property losses of $2
     million and $44 million in the third quarter and nine months, respectively,
     were also included in the 1996 underwriting loss compared with $3 million
     and $45 million for the same 1995 periods. The 1996 commercial accounts
     group losses were primarily due to lower earned premiums and expenses
     incurred in managing the run-off of its operations. The 1995 result
     reflected unfavorable loss experience and providing for higher loss ratios
     for 1995 business.

       The specialty lines group losses were $9 million and $35 million in the
     third quarter and nine months of 1996, respectively, compared with $27
     million and $86 million, respectively, in the same periods of 1995. The
     1996 specialty lines group losses were primarily due to lower earned
     premiums and expenses incurred in managing the run-off of its operations.
     The 1995 underwriting losses were primarily due to professional liability's
     unfavorable loss experience and providing for higher loss ratios for 1995
     business.

       The run-off operations losses were $64 million and $75 million in the
     third quarter and nine months of 1996, respectively, compared with $24
     million and $83 million, respectively, in the same periods of 1995.
     Underwriting losses from Asbestos/Pollution Policies for the third quarter
     and nine months of 1996 were $41 million for both periods compared to $17
     million and $52 million, respectively, in the same 1995 periods. During the
     third quarter, the estimates of ceded reserves to insolvent and commuted
     reinsurers for Asbestos/Pollution Policies were refined, resulting in an
     increase of $35 million to net asbestos and pollution loss reserves.
     Additionally, loss reserves relating to assumed reinsurance business were
     increased $25 million, based on a reallocation of exposures by accident
     year.

     Excess of Loss Reinsurance Agreement

       Home Insurance recorded an additional $30 million recoverable from the
     Excess of Loss Reinsurance Agreement during the 1996 third quarter. The
     increase represents the estimated present value of cash flows relating to
     the $60 million of adjustments to Asbestos/Pollution Policies and assumed
     reinsurance business, as discussed above. As of

                                       22
<PAGE>   24
                               HOME HOLDINGS INC.



     September 30, 1996, loss reserves with a net present value of $445 million
     were recorded as a recoverable from the Excess of Loss Reinsurance
     Agreement. See Financial Condition for additional information on the Excess
     of Loss Reinsurance Agreement.

     Investments

       As of September 30, 1996, the Company has recorded, as a component of the
     Portfolio Swap Receivable, an amount due from Centre Reinsurance Dublin of
     $58 million because of a negative difference from the 7.5% target return.
     The negative difference since January 1, 1996 resulted from the net of (i)
     a $47 million difference in favor of the Company due to a decrease in the
     fair value of investments underlying the Swap and (ii) a $11 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 $104 million.

       In the nine months ended September 30, 1996, the Company recorded $5
     million in unrealized gains on insurance equity investments not underlying
     the Swap.


     GRUNTAL

       An analysis of broker-dealer results for the third quarter ended
     September 27, is set forth in the following table:

<TABLE>
<CAPTION>
                                            Third Quarter         Nine Months
                                            -------------         -----------
                                          1996       1995       1996       1995
                                          ----       ----       ----       ----
($ millions)
<S>                                       <C>        <C>        <C>        <C> 
Commissions                               $ 18       $ 24       $ 69       $ 65
Principal transactions                      25         54        117        148
Underwriting and investment banking          9          8         27         22
Interest                                    31         29         91         84
Other                                        8          7         26         19
                                          ----       ----       ----       ----

  Total revenues                            91        122        330        338

Total expenses                              89        111        309        315
                                          ----       ----       ----       ----

  Income before income taxes              $  2       $ 11       $ 21       $ 23
                                          ====       ====       ====       ====
</TABLE>


       Total broker-dealer revenues decreased by $31 million and $8 million from
     the third quarter and nine months of 1996 to $91 million and $330 million
     in 1996, respectively. The decreases were primarily due to lower principal
     transaction revenues.

                                       23
<PAGE>   25
                               HOME HOLDINGS INC.



       Principal transaction revenues decreased $29 million and $31 million for
     the third quarter and nine months ended September 30, 1996 to $25 million
     and $117 million, respectively. The decrease was primarily due to the
     exiting of proprietary equity trading units and decreases of over the
     counter sales.

       The decrease in Gruntal's expenses for the third quarter and nine months
     of 1996, in comparison to the 1995 periods of $22 million and $6 million,
     respectively, can be attributed to decreased compensation directly related
     to compensable revenues.


     OTHER

       Corporate interest expense was $13 million and $37 million in the third
     quarter and nine months ended September 30, 1996, respectively, compared
     with $11 million and $34 million, respectively, in the same periods of
     1995.

       Other expenses were nil in the third quarter and nine months of 1996,
     compared to $1 million and $24 million, respectively, in the same periods
     of 1995. The 1995 expenses were primarily comprised of transaction expenses
     related to the Recapitalization.

       Income tax expense of nil and $2 million, respectively in the third
     quarter and nine months of 1996 compared with expense of $2 million and $5
     million, respectively, in the same periods of 1995. Taxes in 1996 and 1995
     were comprised of state and foreign taxes. The Company was unable to
     recognize a federal income tax benefit against its 1996 or 1995 pre-tax
     losses because there was no available taxable income in the carryback
     period.

                                       24
<PAGE>   26
                               HOME HOLDINGS INC.



     FINANCIAL CONDITION

     Consolidated

       Following the closing of the Recapitalization, 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 New
     Hampshire Department that, in light of the Recapitalization, Home Insurance
     cannot pay any dividends without prior approval of the New Hampshire
     Department.

       If the New Hampshire Department rejects future dividend payments, 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. Under the terms of the Recapitalization Agreement, Centre
     Finance agreed to purchase up to $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 as
     described in note 1 of the 1995 Annual Report. Such Series B Senior Working
     Capital Notes will be purchased by Centre Finance on the applicable
     interest payment dates for the Public Indebtedness. As of September 30,
     1996 the Company has issued $35 million of the Series B Senior Working
     Capital Notes.

       To fund additional cash requirements incurred in connection with the
     Equity Repurchase Transaction, the Recapitalization and other extraordinary
     needs, Centre Finance and Zurich Centre Investments Limited ("ZCI")
     purchased $15 million principal amount of the Company's 12% Senior
     Subordinated Working Capital Notes due and $12 million principal amount of
     the Company's 7% Series A Senior Working Capital Notes, pursuant to the
     Standby Working Capital Credit Agreement, dated as of April 26, 1995, by
     and between the Company and Zurich Home Investments Limited, ("ZHI"). The
     Company, ZHI and Trygg- Hansa agreed that the Company may issue and ZHI may
     purchase, additional Series A Senior Working Capital Notes having an
     aggregate principal amount of $4 million, and during 1996 the Company has
     issued $3.8 million of these notes.

       Interest on the Series A and Series B Senior Working Capital Notes is
     payable quarterly, and, at September 30, 1996, approximately $3 million of
     interest was accrued but not paid by the Company and accordingly is
     overdue. On any overdue payment of principal or interest, 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%. Non-payment of interest at
     the due date additionally constitutes an Event of Default under the terms
     of the Series A and Series B Senior Working Capital Notes which, among
     other things, would remove Centre Finance's obligation to fund additional
     Series A and Series B Senior Working Capital Notes. Centre Finance and its
     affiliates have waived their rights and privileges with respect to a
     default of an interest payment, except interest rate adjustments, through
     December 31, 1996.

                                       25
<PAGE>   27
                               HOME HOLDINGS INC.



       Principal on the Series A and Series B Senior Working Capital Notes of
     approximately $16 million and $23 million, respectively was due June 1996.
     Pursuant to the Standby Working Capital Credit Agreement, dated as of April
     26, 1995, the Company, on May 21, 1996, elected to extend the due date
     until June 1997. Additionally, $12 million of Series B Senior Working
     Capital Notes issued on June 15, 1996, matures on June 15, 1997.

       Neither Centre Finance nor Zurich Insurance Company have 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 and Zurich Insurance Company 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. Since Home
     Insurance is subject to regulatory restrictions on the amount of dividends
     that can be paid as described above, its assets are not necessarily
     available to the Company on a current basis. The Company did not receive
     common stock dividends from Home Insurance in 1996 or 1995.

       Based on the Company's most current cash flow projections, funds on hand
     and funds that can be used from the issuance of Series B Senior Working
     Capital Notes should be sufficient to meet the Company's cash flow needs
     through the end of 1996. The preparation of cash flow projections, however,
     requires many assumptions and estimates by management, and the actual
     outcome and results can vary materially from such estimates. While there
     should be sufficient funds to meet its cash needs through 1996, there can
     be no assurances that events or circumstances described herein or
     unforeseen will not result in a cash shortfall before December 31, 1996.
     The Company is currently reviewing its cash needs and cash sources for
     1997. Without dividends from Home Insurance, the Company is unlikely to be
     able to meet its cash needs during 1997.

       At September 30, 1996 and December 31, 1995, the Company's outstanding
     corporate debt was $550 million and $517 million, respectively.

       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 of the
     Recapitalization 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 reinsurer commences 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

                                       26
<PAGE>   28
                               HOME HOLDINGS INC.



     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 1 to the 1995 Annual Report) as such debts become
     payable.

       Based on cash flow forecasts at December 31, 1995 and the present value
     of certain 1996 adjustments to loss reserves, the Company is projecting
     that $1,245 million of coverage limits of the Excess of Loss Reinsurance
     Agreement will be exhausted, and due to these projected future recoveries,
     loss reserves with a net present value of $445 million were recorded as of
     September 30, 1996 as a recoverable from the Excess of Loss Reinsurance
     Agreement, including an additional $30 million during 1996. The $30 million
     increase represents the estimated present value of cash flows relating to
     adjustments to Asbestos/Pollution Policies and assumed reinsurance
     business.

       Beginning June 1996, as discussed in note 6, 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 $7.4 million covering base
     rent for the months of June and July of 1996 and a June tax payment.

     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 sales of assets. At September 30,
     1996, the Portfolio Swap Receivable of $1,391 million was available to
     provide for any foreseeable immediate cash requirements.

       Cash used for insurance operating activities was $807 million for the
     nine months ended September 30, 1996 compared with $856 million in the 1995
     period. The cash used for operating activities in 1996 was due primarily to
     lower premiums collections resulting from the run-off of operations, and
     1995 was impacted by low premium collections and payments for the Excess of
     Loss Reinsurance Agreement. Cash used for operating activities was funded
     primarily from sales of fixed maturities, underlying the Swap.

       Home Insurance's statutory surplus at September 30, 1996 was $191 million
     compared with $230 million at December 31, 1995. The remaining amount of
     coverage in the Excess of Loss Reinsurance Agreement is $55 million on an
     undiscounted statutory basis.

       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 of the Company's Annual Report for further
     discussion. As the Company's statutory surplus levels have continued to
     decline since December 31, 1995, management can give no assurance

                                       27
<PAGE>   29
                               HOME HOLDINGS INC.



     that statutory surplus levels will be sufficient to absorb materially
     deficient estimates of loss and loss adjustment expense reserves, if any.
     Management continues to believe that its provision for loss reserves is
     adequate, and the Company is currently performing its standard
     comprehensive review of reserves in order to further evaluate adequacy of
     its reserve estimates.

       The New Hampshire 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 by the first quarter of
     1997. Management cannot predict whether reserve estimates to be prepared by
     these consultants, or by the Company as the result of its own reviews, will
     change either management's or the New Hampshire Department's view of
     oversight or regulatory intervention required for Home Insurance.

     Sterling Forest Corporation ("Sterling Forest")

       On May 15, 1996 an agreement in principle was announced for the sale of a
     substantial part of Sterling Forest lands for public parkland. A letter of
     intent between Sterling Forest, as seller, and Trust for Public Land and
     Open Space Institute, as purchaser, was later signed and contract
     preparation is underway. Under the terms of the agreement, more than 15,000
     acres will be acquired as parkland, at a total acquisition cost of $55
     million, and Sterling Forest will continue to own approximately 2,220 acres
     of land and existing improvements, for future development. There is no
     accounting recognition of the sale in the financial statements until the
     transaction is consummated, however, no material impact on net income is
     anticipated upon consummation.

     Securities Broker-Dealer

       Certain minimum amounts of capital must be maintained by Gruntal's
     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 September 30, 1996, Gruntal & Co.'s net capital
     as defined by the Commission and other regulatory authorities was $126
     million, which was $106 million in excess of the aggregate minimum
     required.

                                       28
<PAGE>   30
                               HOME HOLDINGS INC.



     PART II.       OTHER INFORMATION


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

                    None

     ITEM 6.        EXHIBITS AND REPORTS ON FORM 8-K

                    None.


                                       29
<PAGE>   31
                                   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
                                     -----------------------------------------
November 14, 1996                        Richard H. Hershman
                                                Treasurer
                                 (Principal Financial and Accounting Officer
                                 through the Services Agreement with
                                 Risk Enterprise Management Limited)

                                       30