<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549
                             -----------------------

                                  FORM 10-KT/A
(Mark One)
                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended _____________________________

                                       OR

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

                  For the transition period from FEBRUARY 1, 1998  to
                  DECEMBER 31, 1998              ----------------
                  -----------------

                       Commission file number 0330-080104
                                              -----------

                       GRANITE DEVELOPMENT PARTNERS, L.P.
                       ----------------------------------
             (Exact name of registrant as specified in its charter)

         Delaware                                             34-1754061
---------------------------------------------  ---------------------------------
(State or other jurisdiction of incorporation  (IRS Employer Identification No.)
or organization)

1250 Terminal Tower           50 Public Square          Cleveland, Ohio   44113
-------------------------------------------------------------------------------
(Address of principal executive offices)

Registrant's telephone number, including area code   216-416-6060
                                                   ---------------------
Securities registered pursuant to Section 12(b) of the Act:
                                                       None

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    YES  X    NO
                                         ---       ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KT/A or any amendment to
this form 10-KT/A. ( )

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None


<PAGE>   2




                                TABLE OF CONTENTS




PART I.                                                                  PAGE
-------                                                                  ----

Item     1.       Business                                                   3
         2.       Properties                                                 4
         3.       Legal Proceedings                                          5
         4.       Submission of Matters to a Vote of Security Holders        5


PART II
-------

Item     5.       Market for Registrant's Common Equity
                        and Related Stockholder Matters ......................5
         6.       Selected Financial Data ....................................6
         7.       Management's Discussion and Analysis of Financial Condition
                        and Results of Operations ............................7
         7A.      Quantitative and Qualitative Disclosure About Marketing
                        Risk ................................................16
         8.       Financial Statements and Supplementary Data ...............17
         9.       Changes in and Disagreements with Accountants on
                        Accounting And Financial Disclosure .................51

PART III.
---------

Item     10.      Directors and Executive Officers of the
                        General Partner of the Registrant ...................51
         11.      Executive Compensation ....................................52
         12.      Security Ownership of Certain Beneficial Owners and
                        Management ..........................................52
         13.      Certain Relationships and Related Transactions ............52


PART IV
-------

Item     14.      Exhibits, Financial Statement Schedules and Reports on
                        form 8-K ............................................53








<PAGE>   3






                                     PART I
                                     ------


Item 1.   Business
------------------

         Granite Development Partners, L.P. ("Partnership"), a Delaware limited
partnership, was formed on November 15, 1993 for the purpose of investing in,
acquiring, owning, developing, selling and otherwise disposing of undeveloped
and developed land acquired by the Partnership (the "Partnership Properties").
The Partnership also may act as a joint venture partner with respect to the
acquisition, ownership, development, sale or disposition of certain properties
(also the "Partnership Properties"). The Partnership will terminate on December
31, 2013 or upon disposition of assets or certain other events. Effective
December 16, 1998, the Partnership has decided to change its fiscal year end
from January 31 to December 31.

         The majority of the acquisition and development expenses of the
Partnership occurred in the first two years of operation. In order to offset
this large outflow of cash and allow the Partnership to make interest payments
on the senior notes, a number of mature properties have been included in the
Partnership Properties portfolio. The Partnership expects sales of all its
properties to be complete by the year 2003, at which time the Partnership is
expected to dissolve and terminate.

         Silver Canyon, a Nevada limited partnership originally owned 55% by the
Partnership and 45% by Silver Canyon Corporation ("SCC"), is owner and developer
of an approximately 1,300 acre master planned community located outside Las
Vegas, Nevada. On January 30, 1996, the Partnership sold 21 2/3% interest in
Silver Canyon (the "Partnership Interest") to American Nevada Seven Hills
Limited Partnership ("ANC"), a Nevada limited partnership and subsidiary of
American Nevada Corporation, a Nevada corporation, for $2,990,000. In addition,
SCC sold 11 2/3% of its partnership interest in Silver Canyon (the "SCC
Interest") to ANC for $1,610,000. After giving effect to the transfer of the
Partnership Interest and the SCC Interest, the Partnership, SCC and ANC each own
an equal 33 1/3% interest in Silver Canyon.

INVESTMENT OBJECTIVES AND POLICIES

         The principal investment objectives of the Partnership are the
preservation of Limited Partners' capital and appreciation of such capital
through sales of land at increased values. There is no assurance that these
investment objectives will be achieved. The Partnership has invested in
undeveloped land or in partnerships or joint ventures that hold interests in
such land on an all-cash basis and intends to realize appreciation of such land
upon resale. The Partnership Properties, the majority of which will be developed
as residential tracts, have been acquired and developed with the proceeds from
the sale of the senior notes and the warrants exercisable for Partnership Units
and the proceeds from the sale of Partnership Properties allocated to such
acquisition and development in the future. The Partnership Properties acquired
are in various stages of development ranging from fully developed and ready for
sale to third parties, to projects with sales not expected to be completed for
another three or four years. Larger projects, such as Silver Canyon, are not
expected to fully mature for another four to five years. The Partnership expects
sales of all Partnership Properties to be completed by the year 2003, at which
time the Partnership will dissolve and terminate.



                                        3

<PAGE>   4

         The Partnership will develop each of the properties it acquires at a
rate which will approximate the absorption rate in the relevant real estate
market. Once development is completed, the properties will be marketed and sold.
Upon completion of the sale of all of the Partnership Properties, all proceeds
will be returned to the senior note holders and the Partnership will be
dissolved and terminated.

FORMATION OF THE PARTNERSHIP

         All of the Partnership Properties will be acquired, owned, developed
and sold by the Partnership or a joint venture in which the Partnership or a
wholly-owned subsidiary of the Partnership is a joint venture partner. The
formation of the Partnership was designed to facilitate development of
Partnership Properties under the control of a single entity, the Partnership,
with greater access to the public and private capital markets and to enhance the
potential for future growth.

COMPETITION

         Competition in this segment is dominated by price, location and
availability of properties.

Item 2. Properties
------------------

         The following properties remain in the Partnership property portfolio
as of December 31, 1998:

NAME                          DESCRIPTION
----                          -----------

Day Drive                     Located in Parma, Ohio. Approximately nine (9)
                              acres commercially zoned property remain.

Drake Estates                 Located in Strongsville, Ohio. One acre zoned
                              general business remain.

Cambridge Park                Located in North Royalton, Ohio. Consists of
                              thirty-six (36) one-half acre single family lots
                              of which seven lots remain.

North Olmsted Industrial      Located in North Olmsted, Ohio. Approximately 3.5
    Park                      acres improved industrial property.

Royal Valley                  Located in North Royalton, Ohio. Consists of three
                              (3) one-quarter acre lots within a 237 acre
                              planned residential community.

Solon Estates                 Located in Solon,  Ohio. Consists of 250 acres
(Thornbury)                   zoned for one (1) acre  single  family lots
                              and cluster homesites.

Silver Canyon                 Located in Henderson, Nevada. A 1,293 acre master
                              planned residential community currently under
                              development. Consists of 3,400 lots of which 2,317
                              lots are sold.

Eaton Estates                 Located in Sagamore Hills, Ohio. Consists of a 593
                              acre property zoned for a planned unit development
                              and 43 acres of land zoned for single family lots.
                              Seven single family lots and a 208 apartment site
                              remains.

SSK Parcels                   Located in Twinsburg, Ohio. Consists of 133 acres
                              of unimproved land being developed into a 174 lot
                              single family development of which 48 lots remain
                              unsold.

Music Street                  Located in Newbury Township, Geauga County, Ohio.
                              Consists of thirty (30) three (3) acre lots of
                              which seven lots remain.

Fairfax Meadows               Located in Medina, Ohio. Consists of 73 acres
                              zoned for 142 single family residential sublots of
                              which 98 lots remain.







                                        4


<PAGE>   5

Item 3. Legal Proceedings
-------------------------

         The Partnership is involved in two separate instances of litigation
claims related to its operations. The Partnership and several affiliates are
defendants in a proceeding arising out of the October 1996 sale of the 194th
Street property located in Miami Beach, Florida. The plaintiff is a third-party
broker seeking a commission on the premise that the plaintiff initiated contact
between the ultimate buyer and the Partnership. In the opinion of management and
legal counsel the maximum damages related to this litigation are approximately
$400,000. At December 31, 1998, the Partnership has recorded an accrual of
$100,000 relating to this litigation. However, the Partnership and other
defendants deny that any commission has been earned by the Plaintiff and legal
counsel of the Partnership have filed a motion for summary judgement and are
awaiting the courts ruling.

         Silver Canyon Partnership, a Nevada Limited Partnership, owned 33.3% by
the Partnership, is the owner and developer of an approximately 1,300 acre
master planned community located in Henderson, Nevada. The property is being
developed in conjunction with a golf course. In August 1997, a class-action
lawsuit was filed by the current homeowners in Seven Hills against the Silver
Canyon Partnership, the golf course developers and the other entities. In
addition, a separate lawsuit was filed by some of the production homebuilding
companies at Seven Hills, against some of the same parties. Both suits seek a
commitment for the right of Seven Hills homeowners to play on the golf course,
as well as damages. Recently, the trial court determined that Seven Hills
homeowners do have a right to play on the golf course, providing they pay a
greens fee of $300 per round. An additional hearing on damages has been
scheduled for October 1999. The owner of the golf course has filed a cross-claim
against the Partnership, Silver Canyon, and the other entities in the damage
claim. It is anticipated that the present owner of the golf course will appeal
the ruling granting play rights to Seven Hills homeowners after the hearing on
damages. The Partnership and Silver Canyon believe they have meritorious
defenses to these claims and intend to continue to defend against them
vigorously. Parties to the lawsuits are currently engaged in discovery
proceedings. Sales efforts are continuing at the Seven Hills development, and
because these events are recent, it is not yet possible to determine the extent
of any impact on the Partnership's or Silver Canyon's financial performance. See
Note N "Subsequent Events" for impact of current status of legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------

         No matters were submitted to a vote of security holders during the
eleven months ended December 31, 1998.

                                     PART II
                                     -------

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
-----------------------------------------------------------------------------

         The securities offered of Granite Development Partners, L.P., were
36,000 warrants, each of which entitled the holder thereof to purchase one unit
of limited partnership interest of the Partnership, at an exercise price of
$111.11 per Partnership Unit and up to 36,000 Partnership Units issuable upon
exercise of the warrants. The warrants were exercisable at any time prior to
December 3, 1996. On December 3, 1996, all 36,000 warrants were exercised. The
securities are not traded on a public market.


                                        5


<PAGE>   6

Item 6.  Selected Financial Data
----------------------------------------------

<TABLE>
<CAPTION>

                              Fiscal            Fiscal              Fiscal           Fiscal            Fiscal
                              1998*             1997**              1996***          1995****          1994*****
                          -----------        -----------        -----------        -----------        -----------
                          (Restated)

<S>                       <C>                <C>                <C>                <C>                <C>
OPERATING RESULTS
Gross Sales               $ 8,417,447        $ 5,709,083        $12,367,374        $ 7,035,769        $ 8,506,100
Net (Loss) Income         $(1,215,059)       $  (357,213)       $   966,815        $  (158,487)       $(3,903,155)

<CAPTION>
                          December 31,       January 31,         January 31,       January 31,        January 31,
                              1998               1998               1997               1996               1995
                          -----------        -----------        -----------        -----------        -----------
<S>                       <C>                <C>                <C>                <C>                <C>
FINANCIAL POSITION
Total assets              $49,641,324        $48,015,304        $50,492,484        $49,013,469        $41,084,314
Land and land
improvements              $ 3,203,853        $ 6,360,771        $ 6,948,665        $12,278,824        $13,415,890
Restricted cash
equivalents               $         -        $   481,287        $ 4,602,891        $ 1,308,453        $ 4,039,263
Investments in and
advances to joint
ventures                  $32,221,489        $29,748,165        $25,866,537        $22,686,561        $16,694,226
Long-term debt,
including mortgage
debt                      $36,776,659        $37,242,514        $36,910,472        $41,110,025        $37,348,370
</TABLE>


      * Fiscal 1998 results are for the eleven months ended December 31, 1998
     ** Fiscal 1997 results are for the year ended January 31, 1998
    *** Fiscal 1996 results are for the year ended January 31, 1997
   **** Fiscal 1995 results are for the year ended January 31, 1996
  ***** Fiscal 1994 results are for the year ended January 31, 1995






                                       6

<PAGE>   7




Item 7. Management's Discussion and Analysis of Financial Condition and Results
-------------------------------------------------------------------------------
        of Operations
        -------------

Results of Operations

         The results of operations discussed below reflect the change in the
Partnership year-end from January 31 to December 31. This change in year-end was
to make consistent the Partnership's tax year with the fiscal year and to make
the Partnership's fiscal year end consistent with its two major joint ventures,
Eaton Estates Partnership and Silver Canyon Partnership. Silver Canyon also
changed its fiscal year-end from January 31 to December 31 concurrently with the
Partnership. The Partnership's results of operations for the eleven months ended
December 31, 1998, and the years ended January 31, 1998, 1997, and 1996 include
the Financial Results, accounted for on the equity basis, of Eaton Estate
Partnership for the fiscal years ended December 31, 1998, 1997, 1996, and 1995,
respectively, and Silver Canyon Partnership for the eleven months ended December
31, 1998 and the fiscal years ended January 31, 1998, 1997 and 1996,
respectively. The results of Eaton Estates, reflects twelve months of
operations, which is consistent with prior periods presented.

         Sales of developed property for the eleven months ended December 31,
1998 totaled $8,417,447 versus $5,709,083 for the year ended January 31, 1998.
The following significant sales occurred in fiscal 1998: 1) 87 lots in The
Ledges development Phases 1 and 2 for $5,088,947; 2) 8 lots in River Oaks for
$960,000; 3) 18 lots in Cambridge Park for $938,000; 4) 20 lots in Fairfax for
$794,000.

         Sales of developed property for the year ended January 31, 1998 totaled
$5,709,083 versus $12,367,374 for the year ended January 31, 1997. The following
significant sales occurred in fiscal 1997: 1) 17 lots in The Ledges development
phase 1A for $952,000; 2) 10 lots in the Ledges phase 2A for $555,000; 3) a 6.11
acre parcel of Drake Estates in Strongsville for $366,792; 4) 7 single family
sublots in Cambridge Park for $348,250; and 5) 6 lots in the Ledges development
for $336,000. The decrease in sales from January 31, 1998 to January 31, 1997
was largely due to the sale of the 194th Street parcel for $7,927,770 in fiscal
1996. This significant transaction represented the last of the North Miami Beach
parcels.

         Sales of developed property for the year ended January 31, 1997 totaled
$12,367,374 versus $7,035,769 for the year ended January 31, 1996. The following
significant sales occurred in fiscal 1996: 1) the 6.3 acre oceanfront portion of
194th Street in Miami Beach, Florida for $7,927,770; 2) the remaining 1.5 acres
of 194th Street for $601,600; 3) two cluster sites in the West Grove development
for a total of $1,552,947; and 4) four single family sublots in the River Oaks
subdivision in Ohio for $460,000. The increase in sales for fiscal 1996 versus
fiscal 1995 is mainly the result of the sale of the 194th Street property
located in Miami Beach, Florida.

         Eaton Estate Partnership, a joint venture of the Partnership accounted
for under the equity method, reported sales of $8,429,232, $7,257,167,
$9,328,118 and $9,224,344 for the eleven months ended December 31, 1998, and the
years ended January 31, 1998, 1997, 1996, respectively. The level of sales
activity is expected to decrease in 1999 as there is a limited amount of land
remaining to be developed and sold.




                                        7


<PAGE>   8


         The Silver Canyon Partnership, a joint venture of the Partnership
accounted for under the equity method, reported sales of $31,791,859 for the
eleven months ended December 31, 1998 versus sales of $23,911,279, $15,028,556
and $2,941,692 for the years ended January 31, 1998, 1997 and 1996,
respectively. The level of sales activity is expected to remain strong in fiscal
1999.

         As of December 31, 1998, the following significant sales were under
contract: five lots of The Ledges subdivision located in Twinsburg, Ohio for
$290,000 and 515 lots within the Silver Canyon development in Henderson, Nevada
for $18,366,221. None of the contracts are guaranteed to close.

         Interest income totaled $1,452,474 for the eleven months ended December
31, 1998 versus $1,150,137 for the year ended January 31, 1998. Interest income
is comprised of interest earned on notes receivable from the sales of developed
property, from funds advanced to the joint ventures and from the investment of
proceeds from sales in short-term commercial paper. Interest income earned on
funds advanced to the Silver Canyon Partnership is being deferred (see footnote
A.) The increase in interest income in fiscal 1998 is mainly attributable to the
recognition of deferred interest income of $1,508,044 related to the funds
advanced to the Silver Canyon Partnership.

         Interest income totaled $1,150,137 for the year ended January 31, 1998
versus $1,165,599 for the year ended January 31, 1997. The decrease in interest
income in fiscal 1997 is mainly attributable to the paydown of notes receivable.

         Interest income totaled $1,165,599 for the year ended January 31, 1997
versus $383,508 for the year ended January 31, 1996. The increase in interest
income in fiscal 1996 is due to the increase in the outstanding balance of
mortgage notes receivable and the recognition of deferred interest income of
$644,104 related to the funds advanced to the Silver Canyon Partnership.

         Other income totaled $359,984 for the eleven months ended December 31,
1998 versus $352,173 for the year ended January 31, 1998. Commissions of
$504,182 and $453,965 were recorded for the eleven months ended December 31,
1998 and for the year ended January 31, 1998, respectively. Other income is
mainly comprised of deferred development fees and management fees related to the
Silver Canyon Partnership. Development fees of $317,962 and $290,685 were
recorded for the eleven months ended December 31, 1998 and for the year ended
January 31, 1998, respectively.

         Other income totaled $352,173 for the year ended January 31, 1998
versus $189,904 for the year ended January 31, 1997. Commissions of $453,965 and
$192,588 were recorded for the years ended January 31, 1998 and 1997,
respectively. The Partnership recognized development fee income of $290,685 and
$126,990 for the years ended January 31, 1998 and 1997, respectively. The
increase in commissions and the recognition of development fees is directly
correlated to the increase in sales activity related to the Silver Canyon
Partnership.

         Other income totaled $189,904 for the year ended January 31, 1997
versus $117,936 for the year ended January 31, 1996. Commissions of $192,588 and
$98,759 were recorded for the years ended January 31, 1997 and 1996,
respectively. The Partnership recognized development fee income of $126,990 and
$40,306 for the years ended January 31, 1997 and 1996, respectively.

                                        8

<PAGE>   9


         Interest expense totaled $3,953,210 for the eleven months ended
December 31, 1998 versus $4,251,226 for the year ended January 31, 1998.
Interest expense is mainly comprised of interest accrued for Senior Notes,
Special Units, operating loans and mortgage notes payable. Interest expensed for
Senior Notes was $3,617,220 for the eleven months ended December 31, 1998 versus
$3,952,950 for the year ended January 31, 1998.

         Interest expense totaled $4,251,226 for the year ended January 31, 1998
versus $4,345,499 for the year ended January 31, 1997. Interest accrued for
Senior Notes was $3,952,950 and $3,898,800 for the years ended January 31, 1998
and January 31, 1997, respectively.

         Interest expense totaled $4,345,499 for the year ended January 31, 1997
versus $4,446,764 for the year ended January 31, 1996. Interest accrued for
Senior Notes was $3,898,800 for both years ended January 31, 1997 and January
31, 1996.

         Partner fees totaled $1,057,112 for the eleven months ended December
31, 1998, versus $746,638 for the year ended January 31, 1998. Partner fees are
comprised of development fees, administrative fees and commissions. Commissions
and development fees were $877,368 and $510,624 for the eleven months ended
December 31, 1998 and for the year ended January 31, 1998, respectively. The
increase in commissions and the recognition of development fees is related to
the increase in sales activity.

         Partner fees totaled $746,638 for the year ended January 31, 1998 and
$1,445,192 for the year ended January 31, 1997. Commissions and development fees
were $510,624 and $1,088,070 for the years ended January 31, 1998 and 1997,
respectively. The decrease in commissions and the recognition of development
fees is directly correlated to the decrease in sales activity.

         Operating and other expenses totaled $426,826 for the eleven months
ended December 31, 1998 versus $177,541 for the year ended January 31, 1998.
Operating and other expenses are mainly comprised of legal fees, other
professional fees, title fees and escrow fees. Other professional fees increased
from $24,794 for the year ended January 31, 1998 to $65,144 for the eleven
months ended December 31, 1998. Marketing research increased from $10,570 for
the year ended January 31, 1998 to $48,422 for the eleven months ended December
31, 1998. Title and escrow fees increased from $54,369 for the year ended
January 31, 1998 to $85,694 for the eleven months ended December 31, 1998 .
During the eleven months ended December 31, 1998, an accrual of $100,000 was
recorded for the probable damages relating to the litigation proceedings for the
194th Street property located in Miami Beach, Florida.

         Operating and other expenses totaled $177,541 for the year ended
January 31, 1998 versus $515,445 for the year ended January 31, 1997. Legal and
professional fees decreased from $277,532 at January 31, 1997 to $95,059 at
January 31, 1998. Title and escrow fees decreased from $139,112 at January 31,
1997 to $54,369 at January 31, 1998.

         Loss from Joint Ventures was $46,957 for the eleven months ended
December 31, 1998 versus income of $1,663,201 for the year ended January 31,
1998. Loss from Joint Ventures consists of loss from Silver Canyon Partnership
and income from Eaton Estate Partnership, both being recorded by the Partnership
under the equity method. The decrease in joint venture income in fiscal 1998 is
mostly due to increases in project costs and, therefore, cost of sales for the
Silver Canyon Partnership.


                                        9
<PAGE>   10

         The Partnership reported a net loss of $1,215,059 for the eleven months
ended December 31, 1998 versus a net loss of $357,213 for the year ended January
31, 1998. The increase in net loss is mainly the result of a loss from joint
ventures of $46,957 for the eleven months ended December 31, 1998 versus an
income from joint ventures of $1,663,201 for the year ended January 31, 1998.
This is partially offset by net sales of $2,479,013 for the eleven months ended
December 31, 1998 versus $2,088,020 for the year ended January 31, 1998 and
interest income of $1,452,474 for the eleven months ended December 31, 1998
versus $1,150,137 for the year ended January 31, 1998.

         For the year ended January 31, 1998, the Partnership reported net loss
of $357,213 versus a net income of $966,815 for the year ended January 31, 1997.
The decrease in net income is the result of a decrease in land sales revenue.

         For the year ended January 31, 1997, the Partnership reported net
income of $966,815 versus net loss of $158,487 for the year ended January 31,
1996. The increase in net income resulted from an increase in land sales
revenues. While revenues from land sales increased from fiscal 1995 to fiscal
1996, the Partnership earned a lower margin on fiscal 1996 sales. Sales of land
and related earnings vary from period to period, depending upon management's
decisions regarding the disposition of undeveloped land parcels. Included in
fiscal 1995 were sales of residential tracts of land where the buyer invested
large development costs instead of the Partnership. Fiscal 1995 revenues from
sales are not indicative of results for subsequent years. The increase in net
income can also be attributed to the increase in interest and other income, and
a decrease in operating expenses.

Financial Condition and Liquidity

         The net cash provided by operating activities was $2,032,572 for the
eleven months ended December 31, 1998 versus cash provided of $3,901,203 for the
year ended January 31, 1998. The decrease is mainly the result of a decrease in
restricted cash equivalents of $481,287 for the eleven months ended December 31,
1998 versus $4,121,604 for the year ended January 31, 1998 which is partially
offset by an increase in unpaid partner fees of $1,057,112 for the eleven months
ended December 31, 1998 versus a decrease of $728,651 for the year ended January
31, 1998.

         The net cash provided by operating activities was $3,901,203 for the
year ended January 31, 1998 versus cash provided of $765,988 for fiscal 1996.
The increase in net cash provided by operating activities is mainly attributable
to a decrease in mortgage notes receivable and a decrease in restricted cash
equivalents.

         The net cash provided by operating activities was $765,988 for the year
ended January 31, 1997 versus cash provided of $1,696,727 for the year ended
January 31, 1996. The decrease in net cash provided by operating activities is
mainly the result of an increase in restricted cash equivalents.

         Net cash used in investing activities was $2,520,281 and $2,218,427 for
the eleven months ended December 31, 1998 and for the year ended January 31,
1998, respectively. The increase in funds used was mainly due to an increase in
funds advanced for development expenditures at the Silver Canyon property,
partially offset by a $750,000 cash distribution from Eaton Estate Partnership.

                                       10
<PAGE>   11

         Net cash used in investing activities was $2,218,427 for the year ended
January 31, 1998 versus $1,173,703 for the year ended January 31, 1997. The
increase in funds used was mainly the result of an increase in funds advanced
for the Silver Canyon property.

         Net cash used in investing activities was $1,173,703 for the year ended
January 31, 1997 versus $3,070,945 for the year ended January 31, 1996. The
decrease in funds used is attributable to the decrease in funds advanced for
development expenditures at the Silver Canyon property offset by the proceeds of
$2,990,000 received in fiscal 1995 from the sale of a portion of the
Partnership's interest in the Silver Canyon Partnership.

         Net cash provided by financing activities was $1,694,158 for the eleven
months ended December 31, 1998 versus net cash used in financing activities of
$1,745,606 for the year ended January 31, 1998. The net cash provided was due to
funds loaned from Sunrise Land Company $2,395,951 which was partially offset by
repayments of mortgage notes payable of $465,855.

         Net cash used in financing activities for the year ended January 31,
1998, was $1,745,606 versus net cash used of $2,940,875 for the year ended
January 31, 1997. The net cash used was mainly attributable to the paydown of
the loan from Sunrise Land Company of $921,768, partially offset by proceeds
from mortgage notes payable of $922,472.

         Net cash used in financing activities was $2,940,875 for the year ended
January 31, 1997 versus net cash provided by financing activities of $4,457,722
for the year ended January 31, 1996. The net cash used during fiscal 1996 was
the result of the repayment of mortgage notes payable of $4,953,515 and the
distribution of $1,914,202 of interest earned on the special units to the
general partner offset by proceeds received of $2,999,880 from the exercise of
the 36,000 warrants by the limited partners.

         The Partnership is involved in two separate instances of litigation
claims related to its operations. The Partnership and several affiliates are
defendants in a proceeding arising out of the October 1996 sale of the 194th
Street property located in Miami Beach, Florida. The plaintiff is a third-party
broker seeking a commission on the premise that the plaintiff initiated contact
between the ultimate buyer and the Partnership. In the opinion of management and
legal counsel the maximum damages related to this litigation are approximately
$400,000. At December 31, 1998, the Partnership has recorded an accrual of
$100,000 relating to this litigation. However, the Partnership and other
defendants deny that any commission has been earned by the Plaintiff and legal
counsel of the Partnership have filed a motion for summary judgement and are
awaiting the courts ruling.

         Silver Canyon Partnership, a Nevada Limited Partnership, owned 33.3% by
the Partnership, is the owner and developer of an approximately 1,300 acre
master planned community located in Henderson, Nevada. The property is being
developed in conjunction with a golf course. In August 1997, a class-action
lawsuit was filed by the current homeowners in Seven Hills against the Silver
Canyon Partnership, the golf course developers and the other entities. In
addition, a separate lawsuit was filed by some of the production homebuilding
companies at Seven Hills, against some of the same parties. Both suits seek a
commitment for the right of Seven Hills homeowners to play on the golf course,
as well as damages. Recently, the trial court determined that Seven Hills
homeowners do have a right to play on the golf course, providing they pay a
greens fee of $300 per round. An additional hearing on damages has been
scheduled for October, 1999. The owner of the golf course has filed a
cross-claim against the Partnership, Silver Canyon, and the other entities in
the damage claim.

                                       11
<PAGE>   12

         It is anticipated that the present owner of the golf course will appeal
the ruling granting play rights to Seven Hills homeowners after the hearing on
damages. The Partnership and Silver Canyon believe they have meritorious
defenses to these claims and intend to continue to defend against them
vigorously. Parties to the lawsuits are currently engaged in discovery
proceedings. Sales efforts are continuing at the Seven Hills development, and
because these events are recent, it is not yet possible to determine the extent
of any impact on the Partnership's or Silver Canyon's financial performance.

         The Partnership intends to finance the acquisition and development of
the majority of the Partnership properties as residential tracts for eventual
resale; however, certain properties have been acquired and developed for
commercial or industrial uses. Pursuant to the Partnership's business plan each
of the targeted Partnership properties have been acquired and will be developed
and marketed for sale. All net proceeds raised from the sales of properties,
after the payment of development and partnership expenses, will be returned to
the senior note holders and partners pursuant to the partnership agreement once
all of the properties have been sold. Management believes that the Partnership
will have adequate funds available throughout fiscal 1999 to fund development
expenditures and to pay the semi-annual interest payments on the senior notes.

         A class action lawsuit that was filed by the current homeowners in the
Seven Hills project against Silver Canyon Partnerships and the golf course
developers, among others, was settled in November 1999. Also in November 1999, a
settlement has been reached in principle with the owner of the golf course that
had filed a cross-claim against the Partnership and Silver Canyon Partnership.

         Still pending is a lawsuit filed by certain production homebuilding
companies at Seven Hills. This litigation is currently in discovery with a trial
scheduled for January 2000. The Partnership and Silver Canyon Partnerships
believe they have meritorious defenses to the remaining claims of the builders
and intend to continue to defend against them vigorously.

         During the second quarter of 1999, information became available to
indicate that additional costs in excess of budget to complete the Seven Hills
project were to be incurred. These excess costs at the Silver Canyon Partnership
reduced the projects gross margin to zero and caused the reversal of $12,704,537
of gross margins recorded through December 31, 1998 and $1,458,836 of gross
margins were reversed on 1999 sales.

         To minimize the impact of the identified costs in excess of budget to
complete the Seven Hills project (See Note M), the partners of Silver Canyon
Partnership have agreed in principle to amend the Silver Canyon Partnership
Agreement. The changes resulting from the amendment are reflected in the Form
10-Q for the quarterly period ended September 30, 1999.

The amendment to the Silver Canyon Partnership Agreement includes the following
provisions:

1. ANC will assign all of its future and past commissions, fees, and
distributions relating to loans, capital calls and interest thereon to the
Partnership. Amounts previously paid will be deemed return of capital.

2. ANC will fund one-half of the settlement amounts for the two lawsuits that
have been settled.


                                       12
<PAGE>   13

3. The Partnership will fund any future settlement for the outstanding lawsuit
but will receive a priority distribution to cover such capital contribution.

4. After the priority distribution in #3, ANC and the Partnership will receive
distributions pari passu until such time that ANC has recovered its entire cash
investment except for $750,000.

5. Thereafter, the Partnership will receive all distributions until it has
recovered its entire capital account. To the extent the Partnership does not
recover its entire capital account, ANC will negotiate in good faith as to
whether ANC should fund one-half of the outstanding lawsuit in #3.

6. After the Partnership has recovered its entire capital account, ANC and the
Partnership will share all remaining distributions pari passu.


         The following table summarizes the impact of the amendment to Silver
Canyon Partnership as of September 30, 1999:

Land inventory adjustment                                            $ 5,054,279
Fees and commissions adjustment                                        6,110,701
                                                                     -----------
Total adjustments                                                    $11,164,980
                                                                     ===========

         The following table summarizes the impact of the amendment to the
Silver Canyon Partnership Agreement as it relates directly to the Partnership as
of September 30, 1999:

Forgiveness of capitalized income recognized                          $3,800,771
Forgiveness of commission income                                       1,455,981
Forgiveness of administration fee income                                 220,000
                                                                      ----------
                                                                      $5,476,752
                                                                      ==========

         Also, as a result of the Silver Canyon Partnership excess costs and
their impact on the Partnership, FC-Granite, Inc. and Sunrise have forgiven
certain unpaid expenses as of June 30, 1999 and will not charge the Partnership
in the future. The following table summarizes the forgiven expenses:

Administrative fees to FC-Granite                                       $ 77,123
Real estate commissions to FC-Granite                                     59,295
Development fees to Sunrise                                               67,765
Interest to Sunrise                                                       84,476
                                                                        --------
                                                                        $288,659
                                                                        ========

Year 2000

BACKGROUND

         The Partnership has undertaken a program to prepare the financial and
operating computer systems and ancillary embedded applications for the Year
2000. All necessary modifications are expected to occur in a timely manner at a
cost which is not expected to be material to the Partnership's operating
results. During 1997, the Partnership completed the final phases of the
replacement of older mainframe systems. All major systems were replaced with
newly purchased Year 2000 compliant software or software with definitive plans
for upgrades to Year 2000 code.

                                       13


<PAGE>   14

II.      PLAN

         The Partnership's plan concentrates on testing the compliant systems
and identifying other systems, such as embedded systems, that are not part of
the new software. The specific steps of the plan include:

-        Capturing an inventory of all systems including:
         -        The new Year 2000 compliant software.
         -        Computer related hardware and peripherals.
         -        Internal systems that may have been developed utilizing the
                  compliant code.
         -        Embedded or operational systems, including our telephone,
                  heating and air conditioning systems, fire alarm systems,
                  security systems, and elevator systems.
-        Obtaining compliance letters from all vendors in the inventory;
-        Testing systems for compliance;
-        Upgrading or replacing software and operational or embedded systems as
         needed;
-        Contacting our major business partners (suppliers, contractors,
         utilities, financial institutions, etc.) to insure that they have an
         active Year 2000 compliance program.

III.     STATUS

         The Partnership has completed a software inventory and obtained
compliance letters from most vendors and considers its software assessment
complete. The Partnership is completing the inventory of embedded systems and is
contacting its vendors to determine their Year 2000 readiness. This phase of the
assessment, originally planned for completion in the 3rd quarter 1998, will now
be completed in the 1st quarter 1999. The responses have not always been
definitive and reliance, in some cases, must be made on the MD&A discussions in
the quarterly and yearly filings of certain vendors and partners where
appropriate.

         The Partnership has also promptly responded to requests for its own
Year 2000 readiness and will update those responses quarterly by providing a
copy of the most current SEC MD&A discussion related to the Year 2000.

         The Partnership is actively testing its systems for Year 2000
compliance. Software has been acquired to review systems, which have been
written in Year 2000 compliant code, but may be generating non-compliant dates
or logic. Testing has discovered some Year 2000 issues, which have been
corrected. Specifically, certain data communications equipment was not compliant
and has been replaced. The project cost accounting software, originally
documented by the vendor as compliant, is not compliant. The Partnership
escalated the upgrade to the next version and that software is now compliant.
The general ledger system had generated some historical data with dates that
might not be compliant and these were corrected. Finally, The Partnership
discovered a possible issue with one of the automated software scheduling
systems, which will be upgraded. The Partnership expects to complete the testing
phase by the end of the 2nd quarter 1999 and does not foresee any major
difficulties in becoming Year 2000 compliant.

IV.      COSTS
         At the end of 1997 the Partnership completed the migration of the
general ledger and reporting system from the older mainframe environment. The
intent of this conversion was to move from the mainframe to newer technology and
improve our reporting systems. As a by-product, Year 2000 compliant software or
software with planned upgrades to be compliant was


                                       14

<PAGE>   15

installed. We avoided the costly process of converting our internally developed
systems into Year 2000 code. Through testing, it has been determined that some
hardware will need replacing. Regardless of the Year 2000 issue, this hardware
would have been upgraded in a normal replacement cycle. Most all of the required
software upgrades, are part of our normal operating expenses and have not
generated additional expense specifically for Year 2000 compliance. The
Partnership does not foresee any major additional costs and does not feel that
the costs incurred will have a material impact on operations.

V. RISKS/CONTINGENCY PLANS

         Since the major hardware, software and embedded systems are or will be
compliant, the Partnership does not foresee any major risks. The Partnership has
identified concerns in each area and the contingency plan to respond to each
concern. Related to hardware, the most likely worst case scenario would be if a
specific computer or server would not be compatible. In that case, the
Partnership would use other hardware, provided by our business
continuity/disaster recovery program, that is compliant and available and
regenerate data from the backup systems. Related to software, the most likely
worst case scenario would be if the automated scheduling routines would not
properly schedule beyond the Year 2000. Each of these automated scheduling
systems has a manual function, which has been tested, and the Partnership is
confidant that the scheduling software can be reset to perform properly in the
Year 2000 and beyond. Related to the embedded systems, the Partnership's primary
concern is that these systems, despite testing, would not function properly as
we move into the Year 2000. All of these systems have manual reset functions and
Year 2000 date issues can be corrected. Additionally there will be appropriate
personnel and outside contractors if necessary, on site starting the evening of
December 31, 1999 and the ensuing weekend to reset the functions if necessary.

VI. SUMMARY

         Similar to other companies, the Partnership is highly dependent upon
systems in the public sector, such as utilities, mail, and transportation
systems. Failures in those systems, upon which we have no control, could
materially affect our operations. The Partnership has well defined emergency
plans in place, and these would be activated if necessary.

         The Year 2000 plan is aimed at identifying and correcting all issues
upon which the Partnership has direct control or indirect control through it's
vendors and business partners.

         The Partnership feels that the successful completion of the Year 2000
program will minimize the effect on operations.

Information Relating to Forward-Looking Statements

         This Annual Report, together with other statements and information
publicly disseminated by the Partnership, contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
reflect management's current views with respect to financial results related to
future events and are based on assumptions and expectations which may not be
realized and are inherently subject to risks and uncertainties, many of which
cannot be predicted with accuracy and some of which might not even be
anticipated. Future events and actual results, financial or otherwise, may
differ from the results discussed in the

                                       15
<PAGE>   16

forward-looking statements. Risks and other factors that might cause
differences, some of which could be material, include, but are not limited to,
the effect of economic and market conditions on a nation-wide basis as well as
regionally in areas where the Partnership has a geographic concentration of
land; failure to consummate financing arrangements; development risks, including
lack of satisfactory financing, construction and cost overruns; the level and
volatility of interest rates; the rate of revenue increases versus expenses
increases; as well as other risks listed from time to time in the Partnership's
reports filed with the Securities and Exchange Commission. The Partnership has
no obligation to revise or update any forward-looking statements as a result of
future events or new information. Readers are cautioned not to place undue
reliance on such forward looking statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
-------------------------------------------------------------------

The Partnership's primary market risk exposure is interest rate risk. At
December 31, 1998, the Partnership had $776,659 of variable rate debt.

Management has and will continue to manage interest rate risk by maintaining a
conservative ratio of fixed rate, long-term debt to total debt to ensure that
variable rate exposure is kept at an acceptable level.

The table below provides information about the Partnership's financial
instruments that are sensitive to changes in interest rates. For debt
obligation's the table presents principal cash flows and related weighted
average interest rates by expected maturity dates.


<TABLE>
<CAPTION>
                                                 EXPECTED MATURITY DATE
                               ---------------------------------------------------------------------
                                                                                                                        Fair Market
                               -----------   -----------    -----------    -----------    -----------    -----------
                                   1999          2000          2001            2002           2003          Total          Value
                               -----------   -----------    -----------    -----------    -----------    -----------    -----------

<S>                            <C>           <C>            <C>                <C>        <C>            <C>            <C>
FIXED:
Senior notes                   $       -     $       -      $       -          $   -      $36,000,000    $36,000,000    $36,000,000

Weighted average interest
rate                               10.83%        10.83%         10.83%         10.83%           10.83%         10.83%           -
                               -----------   -----------    -----------    -----------    -----------    -----------    -----------
                               $       -     $       -      $       -          $   -      $36,000,000    $36,000,000    $36,000,000

VARIABLE:
 Variable rate  mortgage debt  $   260,000   $   140,000    $   376,659        $   -      $       -      $   776,659    $   776,659

                               -----------   -----------    -----------    -----------    -----------    -----------    -----------
  Total variable  rate debt    $   260,000   $   140,000    $   376,659        $   -      $       -      $   776,659    $   776,659

                               $   260,000   $   140,000    $   376,659        $   -      $36,000,000    $36,776,659    $36,776,659
                               ===========   ===========    ===========    ===========    ===========    ===========    ===========
</TABLE>










                                       16

<PAGE>   17

Item 8.  Financial Statements and Supplementary Data
-------  -------------------------------------------

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners of
Granite Development Partners, L.P.

In our opinion, the accompanying balance sheets and the related statements of
operations, changes in partners' deficit and cash flows after the restatement
described in Note M, present fairly, in all material respects, the financial
position of Granite Development Partners, L.P. (A Delaware Limited Partnership)
(the "Partnership") as of December 31, 1998, January 31, 1998, and January 31,
1997, and the results of its operations and its cash flows for the eleven months
ended December 31, 1998, and for each of the years ended January 31, 1998, 1997,
and 1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion of these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.




                                             /S/ PricewaterhouseCoopers LLP
                                             ------------------------------
                                             PricewaterhouseCoopers LLP













Cleveland, Ohio
March 31, 1999 (except for Note M and Note N, as to which the date is December
9, 1999.)







                                       17

<PAGE>   18
                       GRANITE DEVELOPMENT PARTNERS, L.P.
                        (A Delaware Limited Partnership)
                                 BALANCE SHEETS


<TABLE>
<CAPTION>
                                                            December 31,       January 31,        January 31,
                                                            -----------        -----------        -----------
                                                               1998               1998                1997
                                                            -----------        -----------        -----------
                                                             (Restated)

<S>                                                         <C>                <C>                <C>
ASSETS
------

LAND                                                        $ 1,772,580        $ 3,081,890        $ 4,472,219
LAND IMPROVEMENTS                                             1,431,273          3,278,881          2,476,446
                                                            -----------        -----------        -----------
                                                              3,203,853          6,360,771          6,948,665

RESTRICTED CASH EQUIVALENTS                                           -            481,287          4,602,891

MORTGAGE NOTES RECEIVABLE                                     2,955,344          3,149,565          6,323,446

INVESTMENTS IN AND ADVANCES TO
JOINT VENTURES                                               32,221,489         29,748,165         25,866,537

OTHER ASSETS
Mortgage procurement costs, net of accumulated
amortization of  $2,280,601 at December 31, 1998,
$1,906,317 at January 31, 1998 and $1,446,575 at
January 31, 1997                                                      -            374,284            826,126

Organization costs, net of accumulated amortization
of  $748,117 at December 31, 1998, $668,805
at January 31, 1998 and $449,697 at January 31, 1997                  -             79,312            298,420


Cash                                                          1,430,607            224,158            286,988

Interest receivable                                           9,629,531          7,397,262          5,207,019

Other                                                            25,500             80,500             55,000

Commission receivable                                                 -                  -             17,392

Administrative fee receivable                                   175,000            120,000             60,000
                                                            -----------        -----------        -----------
                                                             11,260,638          8,275,516          6,750,945
                                                            -----------        -----------        -----------

                                                            $49,641,324        $48,015,304        $50,492,484
                                                            ===========        ===========        ===========
</TABLE>

See notes to financial statements











                                       18
<PAGE>   19

                       GRANITE DEVELOPMENT PARTNERS, L.P.
                        (A Delaware Limited Partnership)
                           BALANCE SHEETS (continued)

<TABLE>
<CAPTION>
                                  December 31,         January 31,          January 31,
                                  ------------         ------------         ------------
                                      1998                 1998                 1997
                                  ------------         ------------         ------------
                                   (Restated)

<S>                               <C>                  <C>                  <C>
LIABILITIES
PARTNERS' SPECIAL UNITS
& PARTNERS' DEFICIT
-------------------

SENIOR NOTES PAYABLE              $ 36,000,000         $ 36,000,000         $ 36,000,000
MORTGAGE NOTES PAYABLE                 776,659            1,242,514              910,472
LOAN PAYABLE - SUNRISE               2,395,951                    -              921,768
LOAN PAYABLE - EATON                   878,462            1,114,400                    -
OTHER LIABILITIES
Accounts payable                       962,805              463,373               48,632
Accrued fees, partners               1,264,257              207,145              935,796
Accrued interest                       924,057              975,845            1,009,139
Accrued real estate taxes               99,953              143,899              134,913
Deposits                                 3,579              819,077            3,199,100
Deferred income                      6,379,262            5,877,653            4,656,074
                                  ------------         ------------         ------------
                                     9,633,913            8,486,992            9,983,654
PARTNERS' EQUITY (DEFICIT)

Partners' special units              9,000,000            9,000,000            9,000,000
Partners' deficit                   (9,043,661)          (7,828,602)          (6,323,410)
                                  ------------         ------------         ------------
                                       (43,661)           1,171,398            2,676,590
                                  ------------         ------------         ------------

                                  $ 49,641,324         $ 48,015,304         $ 50,492,484
                                  ============         ============         ============
</TABLE>



See notes to financial statements.






                                       19
<PAGE>   20

                       GRANITE DEVELOPMENT PARTNERS, L.P.
                        (A Delaware Limited Partnership)
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                         For the 11 months       For the year         For the year         For the year
                                                ended                ended                ended                ended
                                            December 31,          January 31,          January 31,          January 31,
                                                1998                 1998                 1997                 1996
                                            ------------         ------------         ------------         ------------
                                             (Restated)

<S>                                         <C>                  <C>                  <C>                  <C>
REVENUES
Sales of developed property                 $  8,417,447         $  5,709,083         $ 12,367,374         $  7,035,769
Cost of sales                                 (5,938,434)          (3,621,063)          (7,736,755)          (2,992,237)
                                            ------------         ------------         ------------         ------------
                                               2,479,013            2,088,020            4,630,619            4,043,532

Interest                                       1,452,474            1,150,137            1,165,599              383,508
Commission                                       504,182              453,965              192,588               98,759
Other                                            359,984              352,173              189,904              117,936
                                            ------------         ------------         ------------         ------------
                                               4,795,653            4,044,295            6,178,710            4,643,735
                                            ------------         ------------         ------------         ------------

EXPENSES
Interest                                       3,953,210            4,251,226            4,345,499            4,446,764
Fees, partners                                 1,057,112              746,638            1,445,192            1,696,385
Real estate taxes                                 73,012              210,453              276,309              393,695
Operating and other                              426,826              177,541              515,445              572,913
Amortization                                     453,595              678,851              635,723              613,855
                                            ------------         ------------         ------------         ------------
                                               5,963,755            6,064,709            7,218,168            7,723,612
                                            ------------         ------------         ------------         ------------
                                              (1,168,102)          (2,020,414)          (1,039,458)          (3,079,877)

Gain on sale of partnership interest                   -                    -                    -            2,144,190
(Loss) Income from joint ventures                (46,957)           1,663,201            2,006,273              777,200
                                            ------------         ------------         ------------         ------------

NET (LOSS) INCOME                           $ (1,215,059)        $   (357,213)        $    966,815         $   (158,487)
                                            ============         ============         ============         ============
</TABLE>







See notes to financial statements.


                                       20
<PAGE>   21
                       GRANITE DEVELOPMENT PARTNERS, L.P.
                        (A Delaware Limited Partnership)
                    STATEMENT OF CHANGES IN PARTNERS' DEFICIT

<TABLE>
<CAPTION>
                                          Sunrise           FC-Granite            Limited
                                         Land Co.              Inc.               Partners              Total
                                      ------------         ------------         ------------         ------------


<S>                                   <C>                  <C>                  <C>                  <C>
Balance at January 31, 1995           $    (38,932)        $ (9,178,564)        $          -         $ (9,217,496)

Net loss                                    (1,585)            (156,902)                   -             (158,487)
                                      ------------         ------------         ------------         ------------

Balance at January 31, 1996                (40,517)          (9,335,466)                   -           (9,375,983)

Capital contribution -
exercise of warrants                             -                    -            3,999,960            3,999,960

Withdrawal of original
limited partner                             40,517              (40,517)                   -                    -

Distribution of interest
 on special units                                -           (1,914,202)                   -           (1,914,202)

Net income                                       -              966,815                    -              966,815
                                      ------------         ------------         ------------         ------------

Balance at January 31,1997                       -          (10,323,370)           3,999,960           (6,323,410)

Distribution of interest
 on special units                                -           (1,147,979)                   -           (1,147,979)

Net loss                                         -              (89,304)            (267,909)            (357,213)
                                      ------------         ------------         ------------         ------------

Balance at January 31, 1998                      -          (11,560,653)           3,732,051           (7,828,602)

Net loss for the eleven months
(Restated)                                       -             (303,765)            (911,294)          (1,215,059)
                                      ------------         ------------         ------------         ------------

Balance at December 31, 1998
(Restated)                            $          -         $(11,864,418)        $  2,820,757         $ (9,043,661)
                                      ============         ============         ============         ============
</TABLE>







See notes to financial statements.














                                       21
<PAGE>   22

                       GRANITE DEVELOPMENT PARTNERS, L.P.
                        (A Delaware Limited Partnership)
                             STATEMENTS OF CASH FLOW

<TABLE>
<CAPTION>
                                                         For the 11 months      For the year       For the year        For the year
                                                                ended              ended                ended             ended
                                                            December 31,        January 31,         January 31,         January 31,
                                                                1998                1998                1997               1996
                                                            -----------         -----------         -----------         -----------
                                                             (Restated)
<S>                                                         <C>                 <C>                 <C>                 <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net (loss) income                                           $(1,215,059)        $  (357,213)        $   966,815         $  (158,487)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
   Amortization                                                 453,595             678,851             635,723             613,855
   Loss (income) from joint ventures                             46,957          (1,663,201)         (2,006,273)           (777,200)
   Gain on sale of partnership interest                               -                   -                   -          (2,144,190)
Changes in operating assets and liabilities:
   Decrease in land and land improvements                     3,156,919             587,894           5,330,159           1,137,066
   Decrease (increase) in restricted cash equivalents           481,287           4,121,604          (3,294,438)          2,730,810
   Decrease (increase) in mortgage notes receivable             194,221           3,173,881          (1,910,357)         (1,746,626)
   Increase in organization costs                                     -                   -                   -             (50,586)
   Increase in interest receivable                           (2,232,269)         (2,190,243)         (2,259,325)         (1,985,517)
   Decrease (increase) in other assets                           55,000             (25,500)            (55,000)                  -
   Decrease in development fee receivable                             -                   -                   -             402,133
   Decrease (increase) in commission receivable                       -              17,392             (17,392)                  -
   (Increase) decrease in administrative fee receivable         (55,000)            (60,000)            (60,000)             81,250
   Increase (decrease) in accounts payable                      499,432             414,741             (85,303)             33,754
   Increase (decrease) in accrued fees, partners              1,057,112            (728,651)            762,576                   -
   (Decrease) increase in accrued interest                      (51,788)            (33,294)             38,023              65,576
   (Decrease) increase in accrued real estate taxes             (43,946)              8,986            (146,972)            208,318
   (Decrease) increase in deposits                             (815,498)         (1,265,623)          1,580,586           1,116,514
   Increase in deferred income                                  501,609           1,221,579           1,287,166           2,170,057
                                                            -----------         -----------         -----------         -----------

   Net cash provided by operating activities                  2,032,572           3,901,203             765,988           1,696,727
                                                            -----------         -----------         -----------         -----------

CASH FLOW FROM INVESTING ACTIVITIES
   Proceeds from sale of partnership interest                         -                   -                   -           2,990,000
   Distribution from affiliates                                 750,000             642,600              93,530                   -
   Investments in and advances to affiliates                 (3,270,281)         (2,861,027)         (1,267,233)         (6,060,945)
                                                            -----------         -----------         -----------         -----------

   Net cash used in investing activities                     (2,520,281)         (2,218,427)         (1,173,703)         (3,070,945)
                                                            -----------         -----------         -----------         -----------

CASH FLOW FROM FINANCING ACTIVITIES
   Proceeds from exercise of warrants                                 -                   -           2,999,880                   -
   Proceeds from loan payable - Sunrise                       2,395,951                   -             190,000             731,768
   Repayment of loan payable - Sunrise                                -            (921,768)                  -                   -
   Proceeds from loan payable - Eaton                         2,580,890                   -                   -                   -
   Repayment of loan payable - Eaton                         (2,816,828)                  -                   -                   -
   Distribution of interest on special units                          -          (1,147,980)         (1,914,202)                  -
   Proceeds from mortgage notes payable                               -             922,472             753,962           4,480,000
   Repayment of mortgage notes payable                         (465,855)           (590,430)         (4,953,515)           (718,345)
   Increase in mortgage procurement cost                              -              (7,900)            (17,000)            (35,701)
                                                            -----------         -----------         -----------         -----------

   Net cash provided by (used in) financing activities        1,694,158          (1,745,606)         (2,940,875)          4,457,722
                                                            -----------         -----------         -----------         -----------

INCREASE (DECREASE) IN CASH                                   1,206,449             (62,830)         (3,348,590)          3,083,504
CASH AT BEGINNING OF THE PERIOD                                 224,158             286,988           3,635,578             552,074
                                                            -----------         -----------         -----------         -----------
CASH AT END OF THE PERIOD                                   $ 1,430,607         $   224,158         $   286,988         $ 3,635,578
                                                            ===========         ===========         ===========         ===========
</TABLE>

See notes to financial statements.






                                       22
<PAGE>   23
                       GRANITE DEVELOPMENT PARTNERS, L.P.
                        (A Delaware Limited Partnership)
                       STATEMENTS OF CASH FLOW (continued)

<TABLE>
<CAPTION>
                                                     For the 11 months     For the year    For the year      For the year
                                                           ended              ended            ended             ended
                                                        December 31,       January 31,      January 31,       January 31,
                                                            1998              1998              1997              1996
                                                         ----------        ----------        ----------        ----------
                                                         (Restated)

<S>                                                     <C>               <C>               <C>               <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest                                                $4,004,998        $4,284,520        $4,307,476        $4,381,188
Real estate taxes                                       $  116,958        $  201,467        $  423,281        $  185,377

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Exercise of warrants                                    $        -        $        -        $1,000,080        $        -
</TABLE>





                                       23
<PAGE>   24

                       GRANITE DEVELOPMENT PARTNERS, L.P.
                        (A Delaware Limited Partnership)
                        NOTES TO THE FINANCIAL STATEMENTS

NOTE A  -         ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization
------------
Granite Development Partners, L.P., a Delaware Limited Partnership ("the
Partnership"), was formed on November 15, 1993 to acquire, develop, market and
sell partnership properties, located principally in Ohio and Nevada, and may
include acting as a joint venture partner with respect to certain properties.
The Partnership will terminate on December 31, 2013 or earlier upon disposition
of assets. Effective December 16, 1998, the Partnership has decided to change
its fiscal year end from January 31 to December 31 (See Note K).

The results of operations discussed below reflect the change in the Partnership
year-end from January 31 to December 31. This change in year-end was to make
consistent the Partnership's tax year with the fiscal year and to make the
Partnership's fiscal year end consistent with its two major joint ventures,
Eaton Estates Partnership and Silver Canyon Partnership. Silver Canyon also
changed it's fiscal year-end from January 31 to December 31 concurrently with
the Partnership. The Partnership's results of operations for the eleven months
ended December 31, 1998, and the years ended January 31, 1998, 1997, and 1996
include the Financial Results, accounted for on the equity basis, of Eaton
Estate Partnership for the fiscal years ended December 31, 1998, 1997, 1996, and
1995, respectively, and Silver Canyon Partnership for the eleven months ended
December 31, 1998 and the fiscal years ended January 31, 1998, 1997 and 1996,
respectively. The restated Eaton Estates, reflects twelve months of operations,
which is consistent with prior periods presented.

The sole general partners is FC-Granite, Inc., an Ohio corporation
("FC-Granite"). FC-Granite has made an initial capital contribution of $300.
FC-Granite is a wholly-owned subsidiary of Sunrise Land Company ("Sunrise"), the
land division subsidiary of Forest City Enterprises, Inc. ("Forest City").
Sunrise made an initial capital contribution of $100 and acted as the original
limited partner until the outstanding warrants to acquire limited partnership
interests were exercised on December 3, 1996. When the first warrant was
exercised, Sunrise withdrew as the original limited partner. FC-Granite owns a
25% interest and the limited partners own a 75% interest in the Partnership.

On December 3, 1996, FC-Granite exercised 9,000 warrants to purchase limited
partnership units, representing a 25% ownership of the limited partnership
units.

FC-Granite contributed properties with assigned values of $7,234,482 and
$2,765,518 of cash related to properties originally intended to be contributed
by FC-Granite but were sold prior to the formation of the Partnership in
exchange for $10,000,000 special units valued at $1,111.11 per special unit. The
historical cost basis of the contributed properties was $4,097,400. Until the
senior notes payable are paid in full, $9,000,000 of the special units bear
interest at 10.83% and will be paid pari-passu with interest on the senior notes
payable and have accordingly been treated as partners' special units and the
remaining $1,000,000 has been reflected as a capital contribution. The
difference of $3,137,082 between the partners' special units of $10,000,000



                                       24
<PAGE>   25

                       GRANITE DEVELOPMENT PARTNERS, L.P.
                        (A Delaware Limited Partnership)
                  NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

and the historical cost basis of the contributed properties of $4,097,400 and
contributed cash of $2,765,518 is reflected as a reduction of partners' equity
for FC-Granite. The properties have been presented at their historical cost
basis because of the affiliated ownership and common management of Sunrise,
FC-Granite and the Partnership.

Sunrise has withdrawn from the Partnership upon the exercising of the warrants
in fiscal 1996. With this change in the Partnership structure, all profits will
be allocated to FC-Granite, the general partner, until all prior year losses
initially allocated to FC-Granite are recovered. As of December 31, 1998,
$3,731,856 in losses allocated to FC-Granite under the old Partnership's
structure have not been recovered. Once FC-Granite recoups the full allocation
of losses from prior years as noted above, profits and losses of the Partnership
will be allocated in accordance with the Partnership agreement. The agreement
states that FC-Granite owns a 25% interest and the limited partners own a 75%
interest in the Partnership.

Land Sales
----------
The Partnership follows the provisions of Statement of Financial Accounting
Standards No. 66, "Accounting for Sales of Real Estate", for reporting the
disposition of properties.

Land and Land Improvements
--------------------------
Land and land improvements are recorded at cost. Upon sales, costs will be
reported in cost of sales using the specific identification method. Land held
for sale is recorded at the lower of carrying amount or fair value less cost to
sell.

Restricted Cash Equivalents
---------------------------
In accordance with the partnership agreement, the net proceeds of the senior
notes payable and warrants will be restricted to fund the development of
partnership properties and joint ventures. The Partnership considers short-term
commercial paper with maturities of three months or less as cash equivalents.

Investments In Joint Ventures
-----------------------------
The Partnership has invested in two joint ventures which have been accounted for
under the equity method. These investments are recorded initially at cost and
subsequently adjusted for net equity in income (loss) and cash contributions and
distributions.

The advances to the ventures represent loans which are to be repaid within the
next three years.

Mortgage Procurement Costs
--------------------------
Mortgage procurement costs are being amortized over the life of the debt.





                                       25
<PAGE>   26

                       GRANITE DEVELOPMENT PARTNERS, L.P.
                        (A Delaware Limited Partnership)
                  NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
                   POLICIES (continued)

Organization Costs
------------------
Costs incurred in connection with the organization of the Partnership are
deferred and amortized over five years using the straight-line method.

Income Taxes
------------
No provision or benefit for income taxes is included in the financial
statements. Income taxes, if any, are the responsibility of the individual
partners.

Estimates
---------
The Partnership is required to make estimates and assumptions when preparing its
financial statements and accompanying notes in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.

Deferred Income
---------------
Deferred income consists of fees and interest due from the joint ventures
accounted for under the equity method. The deferred income will be recognized as
the fees and interest capitalized on the joint ventures is recognized as cost of
sales by the joint ventures.

Fair Value of Financial Instruments
-----------------------------------
The Partnership's financial instruments consists principally of cash, restricted
cash, mortgage notes receivable, accounts receivable, accounts payable and
accrued expenses in which the fair value of these financial instruments
approximates the carrying value. The Partnership determined the estimated fair
value of its debt by aggregating the various types (i.e. fixed rate versus
variable rate debt) and discounting future cash payments at interest rates that
the Partnership believes approximates the current market. There was no material
difference in the carrying amount and the estimated fair value of the
Partnership's total debt.

Reclassifications
-----------------
Certain amounts in the year ended January 31, 1998 have been reclassified to
conform to the current year's presentation.

Change in Fiscal Year End
-------------------------
On December 16, 1998, the Partnership announced a change in fiscal year end. The
change is effective with the Partnership's fourth fiscal quarter of 1998 which,
under the old fiscal calendar, would have ended on January 31, 1999. Under the
new fiscal calendar, the fourth fiscal quarter of 1998 ended on December 31,
1998. The change was made to be consistent with the existing tax year end of
December 31.

Business Segment Information
----------------------------
In June 1997, the FASB issued Statement of Financial Accounting Standard
("SFAS") No. 131- Disclosure about Segments of an Enterprise and Related
Information. SFAS 131 establishes




                                       26
<PAGE>   27

                       GRANITE DEVELOPMENT PARTNERS, L.P.
                        (A Delaware Limited Partnership)
                  NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
                   POLICIES (continued)

standards for disclosure about operating segments in annual financial statements
and selected information in interim financial reports. It also establishes
standards for related disclosures about the products and services, geographic
areas and major customers. The sole business of the Partnership is to acquire,
develop, market and sell Partnership properties. The Partnership evaluates
operating results and allocates resources on a property-by-property basis. The
Partnership does not distinguish or group its operations on a geographic basis.
Accordingly, the Partnership believes it has a single reportable segment for
SFAS 131 purposes. Further, all operations are within the United States.
Therefore, no additional disclosure relating to the adoption of SFAS 131 is
considered necessary.

NOTE B - SENIOR NOTES PAYABLE

The Partnership has issued unsecured senior notes payable ("Senior Notes")
limited to the aggregate principal amount of $36,000,000. The Senior Notes bear
interest at a fixed annual rate of 10.83%, payable semi-annually, and include a
negative pledge covenant relating to the assets and operations of the
Partnership, allowing only a collateralized working capital line not to exceed
$5,000,000 and subordinated indebtedness of $5,000,000. Commencing May 15, 1995
and until such time as the principal of the Senior Notes and interest thereon is
repaid in full, 100% of the cash flow of the Partnership, as defined, shall be
applied to repay the Senior Notes. The Senior Notes will mature on November 15,
2003, but are subject to earlier redemption.

Additionally, the Partnership may defer two interest payments if minimum working
capital, as defined, falls below $5,000,000. During the period interest payments
are deferred, interest shall accrue at 12.83% and shall remain at that level
until all deferred interest and interest thereon has been paid.

NOTE C - WARRANTS

In connection with the issuance of the Senior Notes, the Partnership sold
pro-rata to the purchasers of the Senior Notes 36,000 warrants at $27.78 to
purchase limited partnership units. Each warrant represented the right to
purchase one limited partnership unit at an exercise price of $83.33. On
December 3, 1996, all 36,000 warrants were exercised.

NOTE D - PARTNERS' SPECIAL UNITS

Until the senior notes payable are paid in full, $9,000,000 of the partners'
special units bear interest at 10.83% and will be paid pari-passu with interest
on the Senior Notes. Interest incurred on the partners' special units for the
eleven months ended December 31, 1998, and for the years ended January 31, 1998
and 1997, totaled $904,305, $974,700 and $985,530, respectively. Interest
incurred from November 15, 1993 (inception) through January 31, 1996, totaled
$2,136,218. During the years ended January 31, 1998, 1997 and 1995,
respectively, $1,147,980,


                                       27
<PAGE>   28

                       GRANITE DEVELOPMENT PARTNERS, L.P.
                        (A Delaware Limited Partnership)
                  NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE D - PARTNERS' SPECIAL UNITS (continued)

$1,914,202 and $963,870 of the interest earned was distributed to FC-Granite,
the holder of the partners' special units. As of the eleven months ended
December 31, 1998, $988,237 of the interest earned on the special units is
undistributed and will be distributed pari-passu with the interest on the Senior
Notes when funds are available.

NOTE E - MORTGAGE NOTES PAYABLE

The Partnership has outstanding mortgage notes payable aggregating $776,659,
$1,242,514 and $910,472 at December 31, 1998 and January 31, 1998 and 1997,
respectively. The proceeds of these mortgage loans was used to purchase certain
properties. Amounts borrowed of $656,659 and $120,000 at December 31, 1998, bear
interest at a rate of 8.25% and 8% per annum, respectively. Amounts borrowed of
$831,659, $322,080, and $88,775 at January 31, 1998, bear interest at a rate of
9%, 8.5%, and 8% per annum, respectively. Amounts borrowed of $597,510 at
January 31, 1997, bear interest at a rate of 8% per annum. The notes payable are
collateralized by mortgages on the properties. Principal and interest are
generally payable one year after the date of the notes payable.

Aggregate annual principal payments for the next three years are: 1999 -
$260,000; 2000 - $140,000; 2001 - $376,659.

During the year ended January 31, 1998, the Partnership entered into a
construction loan agreement collateralized by a first mortgage lien in an amount
not to exceed $1,400,000. The principal amount outstanding bears interest at a
rate one-half of one percent (1/2%) in excess of the prime rate (7.75% at
December 31, 1998) and matures on November 21, 2000. As of December 31, 1998,
the outstanding balance related to this loan was $656,659. The loan was
established for the funding of the Thornbury development.

During the year ended January 31, 1997, the Partnership entered into a
construction loan agreement collateralized by a promissory note in an amount not
to exceed $1,600,000. The note bears interest at the prime rate and matured on
August 1, 1998. Outstanding balances were $-0- and $88,775 at December 31, 1998
and January 31, 1998, respectively. The loan was retired in the fourth quarter
of 1998. The loan was established for the funding of the Fairfax Meadows
development.

NOTE F - TRANSACTIONS WITH AFFILIATES

See Note N "Subsequent Events" for the impact of the Silver Canyon Partnership
Agreement Amendment to transactions with affiliates.

FC-Granite and Sunrise are reimbursed for all direct costs of operations of the
Partnership's affairs and development activities.



                                       28
<PAGE>   29


                       GRANITE DEVELOPMENT PARTNERS, L.P.
                        (A Delaware Limited Partnership)
                  NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE F - TRANSACTIONS WITH AFFILIATES (continued)

FC-Granite is paid a monthly administrative fee as compensation for its services
in administering the business of the partnership which is equal to one-sixth of
1% of the book value of the partnership properties, as defined.
Total administrative fees accrued for the eleven months ended

December 31, 1998 and for the years ended January 31, 1998, 1997 and 1996 were
$179,744, $236,014, $357,122, and $853,097, respectively. The Partnership paid
administrative fees of $431,513, $212,664 and $853,097 during the years ended
January 31, 1998, 1997 and 1996, respectively.

Pursuant to a management agreement, Sunrise is paid a semi-annual development
fee equal to 4% of gross sales of the Partnership and the joint venture, Eaton
Estate, as compensation for its services in managing the development of the
partnership properties. Total development fees accrued for the eleven months
ended December 31, 1998 and for the years ended January 31, 1998, 1997 and 1996
were $467,929, $272,333, $580,304, and $449,754 respectively. The Partnership
paid development fees of $556,792, $250,641 and $449,754, respectively, during
the years ended January 31, 1998, 1997 and 1996, respectively.

In addition, real estate commissions equal to 3.5% of gross sales, payable to
FC-Granite accrued for the eleven months ended December 31, 1998, and for the
years ended January 31, 1998, 1997 and 1996, were $409,439, $238,291, $507,766
and $393,534, respectively. Real estate commissions paid during the years ended
January 31, 1998, 1997 and 1996, were $487,194, $219,311 and $393,534,
respectively.

Pursuant to the Amended and Restated Silver Canyon Partnership agreement, the
Partnership is to receive a monthly administrative fee in the amount of $5,000.
Total fees of $55,000 were accrued for the eleven months ended December 31, 1998
and total fees of $60,000 were accrued for each of the years ended January 31,
1998 and 1997.

In addition, the Partnership is to receive a commission equal to 1.67% of gross
sales, as defined in the Amended and Restated Silver Canyon Partnership
agreement, as compensation for its services in conducting marketing and sales
duties and authorization of sales contracts. Commissions of $504,182, $453,965,
$192,588, and $98,759 were earned during the eleven months ended December 31,
1998, and for the years ended January 31, 1998, 1997 and 1996, respectively.


The Partnership has advanced $26,665,660 at December 31, 1998, $23,395,379 at
January 31, 1998 and $20,710,431 at January 31, 1997 to the Silver Canyon
Partnership (see Note H).

Interest earned on the advances were $2,327,615, $2,422,265, $2,058,260 and
$1,883,707 for the eleven months ended December 31, 1998, and for the years
ended January 31, 1998, 1997 and 1996 respectively, and was recorded as deferred
income. During the eleven months ended December 31, 1998, and for the years
ended January 31, 1998, 1997 and 1996, $1,508,044, $750,624, $644,104, and
$87,084 of the deferred income has been recognized as interest income.

                                       29
<PAGE>   30

                       GRANITE DEVELOPMENT PARTNERS, L.P.
                        (A Delaware Limited Partnership)
                  NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE F - TRANSACTIONS WITH AFFILIATES (continued)

FC-Granite purchased $9,000,000 of the Senior Notes and 9,000 of the warrants.
As of January 31, 1995, FC-Granite sold $9,000,000 of the Senior Notes to other
investors. During the year ended January 31, 1997, FC-Granite exercised the
9,000 warrants.

During the eleven months ended December 31, 1998, Sunrise loaned the Partnership
$2,395,951 to fund additional development expenditures at the Silver Canyon
project. Total interest of $154,054 at a fixed rate of 10% has been accrued
during the eleven months ended December 31, 1998.

During the eleven months ended December 31, 1998, Eaton Estate Partnership
loaned the Partnership $2,580,890 to fund additional development expenditures at
the Silver Canyon project. Total interest of $143,830 at a fixed rate of 10% has
been accrued during the eleven months ended December 31, 1998.

Included in restricted cash equivalents and deposits at January 31, 1998 and
1997 is $481,287 and $3,124,950, respectively, which represents sales proceeds
invested on behalf of Eaton Estate Partnership in short-term commercial paper.
The funds, together with interest earned, were returned to the Eaton Estate
Partnership during the eleven months ended December 31, 1998.

NOTE G - GAIN ON SALE OF PARTNERSHIP INTEREST

Silver Canyon, a Nevada limited partnership, was originally owned 55% by the
Partnership and 45% by Silver Canyon Corporation ("SCC"). On January 30, 1996,
the Partnership sold 21 2/3% interest in Silver Canyon (the "Partnership
Interest") to American Nevada Seven Hills Limited Partnership, a Nevada limited
partnership and subsidiary of American Nevada Corporation, a Nevada corporation
("ANC"), for $2,990,000. The Partnership recorded a gain of $2,144,190 on the
sale of the Partnership Interest during the year ended January 31, 1996.

NOTE H - INVESTMENTS IN AND ADVANCES TO JOINT VENTURES

See Note N "Subsequent Events" for the impact of the Silver Canyon Partnership
Agreement Amendment to the advances to joint ventures.

Through January 30, 1996, the Partnership had a 55% interest in Silver Canyon
Partnership. On January 30, 1996, the Partnership sold 21 2/3% of its
Partnership interest in the Silver Canyon Partnership to ANC. Prior to the sale,
the Partnership's investment in Silver Canyon Partnership at January 31, 1996
and 1995, was $2,147,055 and $1,808,461, respectively. Subsequent to the sale,
the Partnership's investment in Silver Canyon Partnership at January 31, 1996
was $1,301,245. Pursuant to the Amended and Restated Partnership Agreement,
subsequent to the sale the Partnership has a 33 1/3% interest in Silver Canyon
Partnership. The Partnership's investment in Silver Canyon Partnership at
December 31, 1998 and January 31, 1998 and 1997 was $3,298,726, $4,003,748 and
$2,929,217, respectively.


                                       30
<PAGE>   31

                       GRANITE DEVELOPMENT PARTNERS, L.P.
                        (A Delaware Limited Partnership)
                  NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE H - INVESTMENTS IN AND ADVANCES TO JOINT VENTURES (continued)

In addition, the Partnership has a 30% interest in Eaton Estate Partnership. The
Partnership's investment in Eaton Estate Partnership at December 31, 1998, and
January 31, 1998 and 1997, was $2,454,662, $2,546,597 and $2,332,049,
respectively. The Partnership has also received a distribution of $750,000 from
Eaton Estates.

The Partnership has also advanced $26,665,660 at December 31, 1998, $23,395,379
at January 31, 1998 and $20,710,431 at January 31, 1997 to the Silver Canyon
Partnership. Pursuant to the Amended and Restated Partnership Agreement for the
Silver Canyon Partnership, the Partnership's original obligation to make loans
to Silver Canyon Partnership was capped at $19,443,198. The agreement also
provides that the Partnership is to provide up to two-thirds of $9,000,000 as
additional loans as funds are required. Funds advanced to Silver Canyon
Partnership as of January 31, 1996, bear interest at ten percent (10%) and funds
advanced subsequent to January 31, 1996 bear interest at the rate of prime plus
1 3/4% (7.75% at December 31, 1998). Shown below is summarized financial
information relative to the joint ventures, Silver Canyon Partnership and Eaton
Estate Partnership.

<TABLE>
<CAPTION>
                                         December 31, 1998   January 31, 1998   January 31, 1997
                                         -----------------   ----------------   ----------------
                                            (Restated)

Balance Sheet
-------------
<S>                                          <C>                <C>                <C>
Assets,  primarily undeveloped land          $69,534,371        $65,400,486        $63,987,341
Liabilities, primarily long-term debt         56,054,962         49,499,560         49,202,632
                                             -----------        -----------        -----------
Partners' equity                              13,479,409         15,900,926         14,784,709
Less:  Outside partners' equity                7,726,021          9,350,581          9,523,443
                                             -----------        -----------        -----------
Investment in Joint Ventures                 $ 5,753,388        $ 6,550,345        $ 5,261,266
                                             ===========        ===========        ===========

Operating Results
-----------------
Revenues                                       4,927,808          7,848,137          7,094,772
Expenses                                       4,849,325          4,232,777          3,238,009
                                             -----------        -----------        -----------
Net Income                                   $    78,483        $ 3,615,360        $ 3,856,763
                                             ===========        ===========        ===========
</TABLE>


For the eleven months ended December 31, 1998, the Silver Canyon Partnership
generated loss of $2,115,068 of which $705,022 has been recorded by the
Partnership under the equity method. For the comparable eleven months ended
December 31, 1997, the Silver Canyon Partnership generated income of $1,731,560
of which $1,125,514 had been recorded by the Partnership. For the year ended
January 31, 1998, the Silver Canyon Partnership generated income of $1,653,124,
of which $1,074,531 has been recorded by the Partnership under the equity
method. For the year ended January 31, 1997, the Silver Canyon Partnership
generated income of $2,595,760, of which $1,627,972 has been recorded by the
Partnership under the equity method.

For the year ended December 31, 1998, the Eaton Estate Partnership generated
income of $2,193,551 of which $658,065 has been recorded by the Partnership
under the equity method. For the year ended January 31, 1998, the Eaton Estate
Partnership generated income of $1,962,236 primarily from the proceeds from
sales of developed property offset by real estate





                                       31
<PAGE>   32

                       GRANITE DEVELOPMENT PARTNERS, L.P.
                        (A Delaware Limited Partnership)
                  NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE H - INVESTMENTS IN AND ADVANCES TO JOINT VENTURES (continued)

taxes, commissions, interest and other miscellaneous expenses, of which
$588,671, has been recorded by the Partnership under the equity method. For the
year ended January 31, 1997, the Eaton Estate Partnership generated income of
$1,261,003 of which $378,301 has been recorded by the Partnership under the
equity method.

NOTE I - PARTICIPATION IN CASH FLOWS

Once the senior notes payable and partners' special units have been paid in full
and the capital accounts of the general and limited partners have been repaid,
FC-Granite will receive distributions of 25% of available cash, as defined. No
amounts are due under the terms of this participation.

NOTE J - LITIGATION

The Partnership is involved in two separate instances of litigation claims
related to its operations. The Partnership and several affiliates are defendants
in a proceeding arising out of the October 1996 sale of the 194th Street
property located in Miami Beach, Florida. The plaintiff is a third-party broker
seeking a commission on the premise that the plaintiff initiated contact between
the ultimate buyer and the Partnership. In the opinion of management and legal
counsel the maximum damages related to this litigation are approximately
$400,000. At December 31, 1998, the Partnership has recorded an accrual of
$100,000 relating to this litigation. However, the Partnership and other
defendants deny that any commission has been earned by the Plaintiff and legal
counsel of the Partnership have filed a motion for summary judgement and are
awaiting the courts ruling.

The Partnership owns a 33.3% interest in the Silver Canyon Partnership ("Silver
Canyon"). Silver Canyon is developing the Seven Hills project, located in
Henderson, Nevada, in conjunction with a golf course. In August 1997, a
class-action lawsuit was filed by the current homeowners in Seven Hills against
Silver Canyon, the golf course developers and other entities. In addition, a
separate lawsuit was filed by some of the production homebuilding companies at
Seven Hills, against some of the same parties. Both suits seek a commitment for
the right of Seven Hills homeowners to play on the golf course, as well as
damages. Recently, the trial court determined that Seven Hills homeowners do
have a right to play on the golf course, providing they pay a greens fee of $300
per round. An additional hearing on damages has been scheduled for October,
1999. The owner of the golf course has filed a cross-claim against the
Partnership, Silver Canyon, and the other entities in the damage claim. It is
anticipated that the present owner of the golf course will appeal the ruling
granting play rights to Seven Hills homeowners after the hearing on damages. The
Partnership and Silver Canyon believe they have meritorious defenses to these
claims and intend to continue to defend against them vigorously. Parties to the
lawsuits are currently engaged in discovery proceedings. Sales efforts are
continuing at the Seven Hills development, and because these events are recent,
it is not yet possible to determine the extent of any impact on the
Partnership's or Silver Canyon's financial performance. See Note N, "Subsequent
Events" for current status of legal proceedings.


                                       32
<PAGE>   33

                       GRANITE DEVELOPMENT PARTNERS, L.P.
                        (A Delaware Limited Partnership)
                  NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE K - CHANGE IN YEAR END

In December 1998, the Partnership announced a change is fiscal year end. The
change is effective with the Partnership's fourth fiscal quarter of 1998 which,
under the old fiscal calendar, would have ended on January 31, 1999. Under the
new fiscal calendar, the fourth fiscal quarter of 1998 ended on December 31,
1998. The change was made to be consistent with the existing tax year end of
December 31.

The following table presents certain financial information for the eleven months
ended December 31, 1998 and 1997, respectively:

<TABLE>
<CAPTION>
                                                       Eleven months ended
                                                           December 31,
                                               ---------------------------------
                                                   1998                 1997
                                               -----------          -----------
                                               (Restated)           (Unaudited)

<S>                                            <C>                  <C>
REVENUES
         Operating income                      $ 4,795,653          $ 3,694,333

EXPENSES
         Interest                                3,953,210            3,823,488
         Fees, partners                          1,057,112              539,733
         Real estate taxes                          73,012              197,712
         Operating and other                       426,826              158,037
         Amortization                              453,595              627,151
                                               -----------          -----------

                  Subtotal                       5,963,755            5,346,121
                                               -----------          -----------

(LOSS) INCOME FROM JOINT VENTURES                  (46,957)             981,250
                                               -----------          -----------

NET LOSS                                       $(1,215,059)         $  (670,538)
                                               ===========          ===========
</TABLE>













                                       33
<PAGE>   34

                       GRANITE DEVELOPMENT PARTNERS, L.P.
                        (A Delaware Limited Partnership)
                  NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE L  -  RESTATEMENT OF THIRD QUARTER (Unaudited)

The third quarter ended October 31, 1998 has been restated to reflect the
correction of the computation of cost of sales in the Silver Canyon Partnership.
This error was identified during the fourth quarter of 1998.

The restatement relates to the allocation of certain net development costs to
land sales. These adjustments to cost of sales had the affect of reducing cost
of sales and increasing net income for the third quarter of 1998 by $668,850.

The following table summarizes the impact to the amounts previously reported:

<TABLE>
<CAPTION>
                                                           (UNAUDITED)
                        ------------------------------------------------------------------------------------
                         For the three                                 For the nine
                          months ended         For the three           months ended           For the nine
                        October 31, 1998        months ended         October 31, 1998         months ended
                         as previously        October 31, 1998        as previously         October 31, 1998
                            reported            as restated              reported             as restated
                        ----------------      ----------------       ----------------       ----------------
<S>                       <C>                   <C>                   <C>                   <C>
Total Partners'
  Equity                  $(1,242,592)          $  (573,742)          $(1,670,703)          $(1,001,853)

Income from
  Joint Ventures          $   (36,759)          $   632,091           $  (120,064)          $   548,786
Net Income                $(1,242,592)          $  (573,742)          $(2,842,101)          $(2,173,251)
</TABLE>

NOTE M -  RESTATEMENT OF THE ELEVEN MONTHS ENDED DECEMBER 31, 1998

The eleven months ended December 31, 1998 has been restated to reflect the
correction of the computation of cost of sales in the Silver Canyon Partnership.
Certain costs became known to operating personnel during the fourth quarter of
1998 but were not included in the original computation of cost of sales. This
error was identified during the third quarter of 1999.

The restatement results from the quantification of costs in excess of those
budgeted to complete the project. These adjustments to cost of sales had the
effect of increasing loss from joint ventures and decreasing net income for the
eleven months ended December 31, 1998 by $1,440,942.

The following table summarizes the impact to the amounts previously reported:

<TABLE>
<CAPTION>
                                 --------------------------------- ---------------------------
                                             For the                     For the
                                       eleven months ended         eleven months ended
                                       December 31, 1998 as         December 31, 1998
                                      previously   reported            as restated
                                 --------------------------------- ---------------------------

<S>                                            <C>                        <C>
Total Partners' Equity                         $ 1,397,281                $   (43,661)
Income (Loss) from Joint Ventures              $ 1,393,985                $   (46,957)
Net income (loss)                              $   225,883                $(1,215,059)

</TABLE>

                                       34
<PAGE>   35

                       GRANITE DEVELOPMENT PARTNERS, L.P.
                        (A Delaware Limited Partnership)
                  NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE N  -  SUBSEQUENT EVENTS

A class action lawsuit that was filed by the current homeowners in the Seven
Hills project against Silver Canyon Partnerships and the golf course developers,
among others, was settled in November 1999. Also in November 1999, a settlement
has been reached in principle with the owner of the golf course that had filed a
cross-claim against the Partnership and Silver Canyon Partnership.

Still pending is a lawsuit filed by certain production homebuilding companies at
Seven Hills. This litigation is currently in discovery with a trial scheduled
for January 2000. The Partnership and Silver Canyon Partnerships believe they
have meritorious defenses to the remaining claims of the builders and intend to
continue to defend against them vigorously.

During the second quarter of 1999, information became available to indicate that
additional costs in excess of budget to complete the Seven Hills project were to
be incurred. These excess costs at the Silver Canyon Partnership reduced the
projects gross margin to zero and caused the reversal of $12,704,537 of gross
margins recorded through December 31, 1998 and $1,458,836 of gross margins were
reversed on 1999 sales.

To minimize the impact of the identified costs in excess of budget to complete
the Seven Hills project (See Note M), the partners of Silver Canyon Partnership
have agreed in principle to amend the Silver Canyon Partnership Agreement. The
changes resulting from the amendment are reflected in the Form 10-Q for the
quarterly period ended September 30, 1999.

The amendment to the Silver Canyon Partnership Agreement includes the following
provisions:

1. ANC will assign all of its future and past commissions, fees, and
distributions relating to loans, capital calls and interest thereon to the
Partnership. Amounts previously paid will be deemed return of capital.

2. ANC will fund one-half of the settlement amounts for the two lawsuits that
have been settled.

3. The Partnership will fund any future settlement for the outstanding lawsuit
but will receive a priority distribution to cover such capital contribution.

4. After the priority distribution in #3, ANC and the Partnership will receive
distributions pari passu until such time that ANC has recovered its entire cash
investment except for $750,000.

5. Thereafter, the Partnership will receive all distributions until it has
recovered its entire capital account. To the extent the Partnership does not
recover its entire capital account, ANC will negotiate in good faith as to
whether ANC should fund one-half of the outstanding lawsuit in #3.

7. After the Partnership has recovered its entire capital account, ANC and the
Partnership will share all remaining distributions pari passu.


                                       35
<PAGE>   36


                       GRANITE DEVELOPMENT PARTNERS, L.P.
                        (A Delaware Limited Partnership)
                  NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE N  -  SUBSEQUENT EVENTS (continued)

The following table summarizes the impact of the amendment to the Silver Canyon
Partnership as of September 30, 1999:

   Land inventory adjustment                                         $ 5,054,279
   Fees and commissions adjustment                                     6,110,701
                                                                     -----------
   Total adjustments                                                 $11,164,980
                                                                     ===========

The following table summarizes the impact of the amendment to the Silver Canyon
Partnership Agreement as it relates directly to the Partnership as of September
30, 1999:

   Forgiveness of capitalized income recognized                       $3,800,771
   Forgiveness of commission income                                    1,455,981
   Forgiveness of administration fee income                              220,000
                                                                      ----------
                                                                      $5,476,752
                                                                      ==========

Also, as a result of the Silver Canyon Partnership excess costs and their impact
on the Partnership, FC-Granite, Inc. and Sunrise have forgiven certain unpaid
expenses as of June 30, 1999 and will not charge the Partnership in the future.
The following table summarizes the forgiven expenses:

   Administrative fees to FC-Granite                                    $ 77,123
   Real estate commissions to FC-Granite                                  59,295
   Development fees to Sunrise                                            67,765
   Interest to Sunrise                                                    84,476
                                                                        --------
                                                                        $288,659
                                                                        ========

















                                       36

<PAGE>   37


REPORT OF INDEPENDENT ACCOUNTS

To the Partners of
Silver Canyon Partnership

In our opinion, the accompanying balance sheets and the related statements of
operations, changes in partners' equity and cash flows after the restatement
described in Note H, present fairly, in all material respects, the financial
position of Silver Canyon Partnership (A Nevada General Partnership) (the
"Partnership") as of December 31, 1998, January 31, 1998, and January 31, 1997,
and the results of its operations and its cash flows for the eleven month period
ended December 31, 1998, and for each of the years ended January 31, 1998, 1997,
and 1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.








                                                  /S/ PricewaterhouseCoopers LLP
                                                  ------------------------------
                                                      PricewaterhouseCoopers LLP












Cleveland, Ohio
March 31, 1999 (except for Note H and Note I, as to which
the date is December 9, 1999.)





                                       37
<PAGE>   38

                                               SILVER CANYON PARTNERSHIP
                                             (A Nevada General Partnership)
                                                     BALANCE SHEETS

<TABLE>
<CAPTION>
                                                             December 31,         January 31,          January 31,
                                                             -----------          -----------          -----------
                                                                 1998                 1998                1997
                                                             -----------          -----------          -----------
                                                              (Restated)

<S>                                                          <C>                  <C>                  <C>
ASSETS
------

LAND                                                         $14,230,638          $18,354,050          $21,202,006
LAND IMPROVEMENTS                                             41,257,376           32,650,268           30,007,910
                                                             -----------          -----------          -----------
                                                              55,488,014           51,004,318           51,209,916

RESTRICTED CASH                                                  157,111            1,465,311              189,666

MORTGAGE NOTES RECEIVABLE                                        963,032              963,032              963,032

OTHER ASSETS
   Mortgage procurement costs, net of accumulated
     amortization of  $442,793 at December 31, 1998,
     $387,328 at January 31, 1998 and $220,931 at
     January 31, 1997                                                  -               55,465              221,862
   Organization costs, net of accumulated amortization
     amortization of  $144,577 at December 31, 1998,
     $110,366 at January 31, 1998 and $73,312
     January 31, 1997                                             49,159               93,817              152,850
   Fixed assets, net of accumulated depreciation
     of $10,973 at December 31, 1998, $8,738
     at January 31, 1998 and $6,096 at January 31, 1997            3,362                5,597                8,239
   Cash                                                          974,322            1,604,418              302,081
   Accounts receivable                                         3,208,392                    -                    -
   Funds in escrow                                               583,218            1,002,007            1,311,087
   Other assets                                                        -              143,756              137,689
                                                             -----------          -----------          -----------
                                                               4,818,453            2,905,060            2,133,808
                                                             -----------          -----------          -----------

                                                             $61,426,610          $56,337,721          $54,496,422
                                                             ===========          ===========          ===========
</TABLE>




See notes to financial statements.








                                       38
<PAGE>   39
                            SILVER CANYON PARTNERSHIP
                         (A Nevada General Partnership)
                           BALANCE SHEETS (continued)

<TABLE>
<CAPTION>
                                          December 31,          January 31,          January 31,
                                          ------------         ------------         ------------
                                              1998                 1998                 1997
                                          ------------         ------------         ------------
                                           (Restated)

<S>                                       <C>                  <C>                  <C>
LIABILITIES AND
PARTNERS' EQUITY
----------------

LOAN PAYABLE - GMAC                       $    350,972         $  5,751,820         $ 14,672,880
LOAN PAYABLE - GRANITE                      26,665,660           23,395,379           20,710,431
LOAN PAYABLE - ANC                           5,476,514            3,427,393            2,140,336
OTHER LIABILITIES
   Accounts payable, trade                   5,331,990            3,767,765            3,290,935
   Accounts payable, management fee            205,000              150,000              326,667
   Accrued interest payable                 10,254,842            7,559,778            5,099,891
   Accrued development fees, partners        2,557,055            1,484,805              666,013
   Accrued commissions                               -                    -               78,109
   Accrued expenses                                  -                    -              107,960
   Accrued salaries                            132,946              132,946              211,551
   Accrued real estate taxes                     4,123                    -               33,063
   Deposits                                  4,180,866            1,936,125              430,000
   Deferred income                             400,000              750,000              400,000
                                          ------------         ------------         ------------
                                            23,066,822           15,781,419           10,644,189

ADVANCE TO PARTNER                            (580,000)            (580,000)            (580,000)
PARTNERS' EQUITY                             6,446,642            8,561,710            6,908,586
                                          ------------         ------------         ------------
                                             5,866,642            7,981,710            6,328,586
                                          ------------         ------------         ------------

                                          $ 61,426,610         $ 56,337,721         $ 54,496,422
                                          ============         ============         ============
</TABLE>



See notes to financial statements.










                                       39
<PAGE>   40


                            SILVER CANYON PARTNERSHIP
                         (A Nevada General Partnership)
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                   For the 11 months      For the year         For the year        For the year
                                          ended              ended                 ended               ended
                                     December 31,          January 31,          January 31,         January 31,
                                          1998                1998                 1997                1996
                                     ------------         ------------         ------------         ------------
                                      (Restated)

<S>                                  <C>                  <C>                  <C>                  <C>
REVENUES
   Sales of developed property       $ 31,791,859         $ 23,911,279         $ 15,028,556         $  2,941,692
   Grading revenue                              -                    -              210,426               87,637
   Cost of sales                      (29,847,232)         (18,957,867)         (10,693,499)          (1,768,314)
                                     ------------         ------------         ------------         ------------
                                        1,944,627            4,953,412            4,545,483            1,261,015

   Other                                  (46,778)             194,290              180,373              132,033
                                     ------------         ------------         ------------         ------------
                                        1,897,849            5,147,702            4,725,856            1,393,048
                                     ------------         ------------         ------------         ------------
EXPENSES
   Interest expense                             -                    -                    -                  221
   Fees, partners                         110,000              120,000              120,000               75,000
   Commissions                          2,909,047            2,546,330            1,054,765              126,976
   Salaries and benefits                        -                    -               78,605               35,893
   Legal and professional                 410,404               72,126              132,131               95,842
   Travel and entertainment                36,303               53,679               56,398              106,703
   Operating and other                    455,252              496,351              502,164              231,215
   Depreciation and amortization           91,911              206,092              186,033              105,573
                                     ------------         ------------         ------------         ------------
                                        4,012,917            3,494,578            2,130,096              777,423
                                     ------------         ------------         ------------         ------------

NET (LOSS) INCOME                    $ (2,115,068)        $  1,653,124         $  2,595,760         $    615,625
                                     ============         ============         ============         ============
</TABLE>










See notes to financial statements.


                                       40
<PAGE>   41

                                          SILVER CANYON PARTNERSHIP
                                       (A Nevada General Partnership)
                                 STATEMENT OF CHANGES IN PARTNERS' EQUITY

<TABLE>
<CAPTION>
                                                               Granite
                                                               Silver
                                           Silver           Development          American
                                           Canyon            Partners,            Nevada
                                        Corporation             L.P.            Corporation            Total
                                        -----------         -----------         -----------         -----------

<S>                                     <C>                 <C>                 <C>                 <C>
Balance at January 31, 1995             $ 1,888,740         $ 1,808,461         $         -         $ 3,697,201

Net income                                  277,031             338,594                   -             615,625
                                        -----------         -----------         -----------         -----------

   Subtotal                               2,165,771           2,147,055                   -           4,312,826

   Purchase of partnership
   interest by ANC                         (561,496)           (845,810)          1,407,306                   -
                                        -----------         -----------         -----------         -----------

   Subtotal                               1,604,275           1,301,245           1,407,306           4,312,826

Advance to Partner                         (580,000)                  -                   -            (580,000)
                                        -----------         -----------         -----------         -----------

Balance at January 31, 1996               1,024,275           1,301,245           1,407,306           3,732,826

Net income                                  905,397           1,627,972              62,391           2,595,760
                                        -----------         -----------         -----------         -----------

Balance at January 31, 1997               1,929,672           2,929,217           1,469,697           6,328,586

Net income                                  578,593           1,074,531                   -           1,653,124
                                        -----------         -----------         -----------         -----------

Balance at January 31, 1998               2,508,265           4,003,748           1,469,697           7,981,710

Net income for the eleven months
   (Restated)                              (705,023)           (705,022)           (705,023)         (2,115,068)
                                        -----------         -----------         -----------         -----------

Balance at December 31, 1998
   (Restated)                           $ 1,803,242         $ 3,298,726         $   764,674         $ 5,866,642
                                        ===========         ===========         ===========         ===========
</TABLE>





See notes to financial statements.




                                       41
<PAGE>   42

                           SILVER CANYON PARTNERSHIP
                         (A Nevada General Partnership)
                            STATEMENTS OF CASH FLOW

<TABLE>
<CAPTION>
                                                             For the 11 months  For the year      For the year      For the year
                                                                   ended            ended             ended           ended
                                                               December 31,      January 31,       January 31,      January 31,
                                                                   1998              1998              1997            1996
                                                               ------------      ------------      ------------     ------------
                                                                (Restated)
<S>                                                            <C>               <C>               <C>              <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss)                                              ($ 2,115,068)     $  1,653,124      $  2,595,760     $    615,625
Adjustments to reconcile net income to
  net cash provided by (used in) operating activities:
  Depreciation and amortization                                      91,911           206,092           186,033          105,573
  Write off of organization costs                                    10,447            21,980            28,988                -
Changes in operating assets and liabilities:
  (Increase) decrease in land and land improvements              (4,483,696)          205,598          (143,831)     (15,537,736)
  Decrease (increase) in mortgage notes receivable                        -                 -           574,749       (1,537,781)
  Decrease (increase) in restricted cash                          1,308,200        (1,275,645)           30,269         (219,935)
  Increase in accounts receivable                                (3,208,392)                -                 -                -
  Increase in organization costs                                          -                 -                 -          (64,623)
  Decrease in accounts receivable                                         -                 -                 -           43,048
  Decrease (increase) in funds in escrow                            418,789           309,080          (641,087)        (670,000)
  Decrease (increase) in other assets                               143,756            (6,067)          (89,305)         (46,198)
  Increase (decrease) in accounts payable - trade                 1,564,225           476,830         1,842,905       (2,442,159)
  Increase (decrease) in accounts payable - management fee           55,000          (176,667)          326,667          (81,250)
  Increase in accrued interest                                    2,695,064         2,459,887         2,165,975        2,033,293
  Increase (decrease) in accrued developments fees, partners      1,072,250           818,792           666,013         (402,133)
  (Decrease) increase in accrued commissions                              -           (78,109)           78,109                -
  (Decrease) increase in accrued expenses                                 -          (107,960)          107,960                -
  (Decrease) increase in accrued salaries                                 -           (78,605)           78,605          132,946
  Increase (decrease) in accrued real estate taxes                    4,123           (33,063)          (36,161)         (87,188)
  Increase (decrease) in deposits                                 2,244,741         1,506,125          (175,000)         605,000
  (Decrease) increase in deferred income                           (350,000)          350,000           400,000                -
                                                               ------------      ------------      ------------     ------------

  Net cash provided by (used in) operating activities              (548,650)        6,251,392         7,996,649      (17,553,518)
                                                               ------------      ------------      ------------     ------------

CASH FLOW FROM FINANCING ACTIVITIES:
  Repayment of mortgage loans payable                                     -                 -                 -      (10,071,290)
  Repayment of notes payable                                              -                 -                 -       (3,191,074)
  Proceeds from loan payable - GMAC                              13,400,345        13,020,447        12,849,355       24,185,691
  Repayment of loan payable - GMAC                              (18,801,193)      (21,941,507)      (22,362,166)               -
  Proceeds from loan payable - GRANITE                            3,270,281         2,684,948         1,267,233        6,058,962
  Proceeds from loan payable - ANC                                2,049,121         1,287,057           490,336        1,650,000
  Increase in mortgage procurement costs                                  -                 -          (112,793)        (330,000)
  Advance to partner                                                      -                 -                 -         (580,000)
                                                               ------------      ------------      ------------     ------------

  NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES               (81,446)       (4,949,055)       (7,868,035)      17,722,289
INCREASE IN CASH                                                   (630,096)        1,302,337           128,614          168,771
CASH AT BEGINNING OF THE PERIOD                                   1,604,418           302,081           173,467            4,696
                                                               ------------      ------------      ------------     ------------
CASH AT END OF THE PERIOD                                      $    974,322      $  1,604,418      $    302,081     $    173,467
                                                               ============      ============      ============     ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
  Cash paid during the period for:
  Interest                                                     $    666,318      $  1,460,278      $  2,345,627     $  1,778,518
  Real estate taxes                                            $    343,680      $    178,847      $    166,876     $    248,445
</TABLE>

See notes to financial statements.





                                       42
<PAGE>   43

                            SILVER CANYON PARTNERSHIP
                         (A Nevada General Partnership)
                        NOTES TO THE FINANCIAL STATEMENTS

NOTE A -  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization
------------
Silver Canyon Partnership ("the Partnership"), was formed on January 7, 1994 to
acquire, own, plan, develop, operate, improve, ease, manage, sell, finance and
refinance and otherwise deal with Partnership properties located in Henderson,
Nevada. The Partnership will terminate on December 31, 2013 or earlier upon
disposition of assets.

The original partners include Granite Silver Development Partners, L.P., a
Delaware Limited Partnership ("Granite"), and Silver Canyon Corporation, a
Nevada Corporation ("SCC"). SCC made an initial capital contribution of land
with an assigned value agreed upon by the partners of $4,500,000. As of January
31, 1995, Granite made a total initial cash capital contribution of $2,250,000.
The cash from Granite's contribution was distributed to SCC. Through January 30,
1996, Granite owned a 55% interest and SCC owned a 45% interest in the
Partnership. On January 30, 1996, Granite sold to American Nevada Corporation
("ANC") a 21 2/3% partnership interest in the Partnership. SCC sold to ANC a 11
2/3% partnership interest in the Partnership. Upon the execution of the Amended
and Restated Partnership Agreement, ANC acquired interests in the Partnership
representing in the aggregate a 33 1/3% interest.

Profits, losses and distributions are allocated to the partners as provided in
the Amended and Restated Partnership Agreement.

Land Sales
----------
The Partnership follows the provisions of Statement of Financial Accounting
Standards No. 66, "Accounting for Sales of Real Estate", for reporting the
disposition of properties.

Land and Land Improvements
--------------------------
Land and land improvements are recorded at cost. Upon sale, costs will be
reported in cost of sales on the basis of the relative sales value of each
parcel. Land held for sale is recorded at the lower of carrying amount or fair
value less cost to sell.

Restricted Cash
---------------
Pursuant to the loan agreement with General Motors Acceptance Corporation -
Residential Funding Corporation ("GMAC"), a restricted cash account was
established to pay qualified project expenditures as determined by GMAC.

Mortgage Procurement Costs
--------------------------
Mortgage procurement costs are being amortized over the life of the debt.






                                       43

<PAGE>   44


                            SILVER CANYON PARTNERSHIP
                         (A Nevada General Partnership)
                  NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE A -  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
          POLICIES (continued)

Organization Costs
------------------
Costs incurred in connection with the organization of the Partnership are
deferred and amortized over five years using the straight-line method.

Fixed Assets
------------
Fixed assets are recorded at cost. Depreciation is provided on a straight-line
basis over the estimated useful lives of owned assets.

Income Taxes
------------
No provision or benefit for income taxes is included in the financial
statements. Income taxes, if any, are the responsibility of the individual
partners.

Estimates
---------
The Partnership is required to make estimates and assumptions when preparing its
financial statements and accompanying notes in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.

Deferred Income
---------------
Deferred income consists of revenue from sales recorded on an option basis. The
deferred income related to sales recorded on an option basis will be recognized
when the last option pertaining to the sale of a parcel is exercised.

Fair Value of Financial Instruments
-----------------------------------
The Partnership's financial instruments consists principally of cash, restricted
cash, mortgage notes receivable, accounts receivable, accounts payable and
accrued expenses in which the fair value of these financial instruments
approximate the carrying value. The Partnership determined the estimated fair
value of its debt by aggregating the various types (i.e. fixed rate versus
variable rate debt) and discounting future cash payments at interest rates that
the Partnership believes approximates the current market. There was no material
difference in the carrying amount and the estimated fair value of the
Partnership's total debt.

Change in Fiscal Year End
-------------------------
In December 1998, the Partnership announced a change is fiscal year end. The
change is effective with the Partnership's fourth fiscal quarter of 1998 which,
under the old fiscal calendar, would have ended on January 31, 1999. Under the
new fiscal calendar, the fourth fiscal quarter of 1998 ended on December 31,
1998. The change was made to be consistent with the existing tax year end of
December 31.






                                       44
<PAGE>   45


                            SILVER CANYON PARTNERSHIP
                         (A Nevada General Partnership)
                  NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE B -  LOAN PAYABLE - GMAC

The Partnership entered into a loan agreement with GMAC, to fund development
expenditures of the property. GMAC has agreed, in accordance with the loan
agreement, to make loans to the Partnership in an aggregate amount not to exceed
$30,000,000. The loan bears interest at one and three-fourths percent above the
prime rate (7.75% at December 31, 1998). Interest on the outstanding principal
balance is due and payable monthly in arrears. The loan was due on June 7, 1998.

The loan was extended to September 15, 1998. The Partnership has an agreement
with Residential Funding Corporation to postpone the final payment of the
balance due until new financing is secured. The outstanding balance due as of
December 31, 1998 was $350,972. In January, 1999, the Partnership obtained new
financing from Ohio Savings Bank of Cleveland, Ohio (OSB). OSB has agreed, in
accordance with the loan agreement, to make loans to the Partnership in an
aggregate amount not to exceed $12,000,000. The loan bears interest at 1% above
prime rate (7.75% at December 31, 1998). Effective January 28, 1999, the
Partnership refinanced the loan. (See Note F).

NOTE C -  TRANSACTIONS WITH AFFILIATES

See Note I, "Subsequent Events" for the impact of the Partnership Amendment on
transactions with affiliates.

Granite, SCC, and ANC are reimbursed for all direct costs of operations of the
Partnership's affairs and development activities.

Pursuant to the Amended and Restated Silver Canyon Partnership Agreement,
Granite is to receive a monthly administrative fee in the amount of $5,000 per
month. Total fees of $55,000 were accrued for the eleven months ended December
31, 1998 and total fees of $60,000 were accrued for each of the years ended
January 31, 1998 and January 31, 1997.

Granite was paid a monthly administrative fee of $6,250 as compensation for its
services in administering the business of the Partnership through January 31,
1996. Total administrative fees incurred and paid for the year ended January 31,
1996 were $75,000.

Pursuant to the Amended and Restated Silver Canyon Partnership agreement, SCC is
to receive a monthly fee of $5,000 per month for the coordination of the
construction and operation of the golf course. Total fees of $55,000 were
accrued for the eleven months ended December 31, 1998 and total fees of $60,000
were accrued for each of the years ended January 31, 1998 and January 31, 1997.

Pursuant to the Amended and Restated Partnership Agreement, as of January 31,
1996, American Nevada Corporation ("ANC") will be paid a fee equal to 4% of all
project costs, as defined, incurred on behalf of the Partnership, as
compensation for its services in managing the development of the Partnership
Properties. Total development fees incurred for the eleven months ended December
31, 1998, and the years ended January 31, 1998 and January 31, 1997 were
$2,382,055, $1,364,805, and $606,013 respectively.

                                       45


<PAGE>   46


                            SILVER CANYON PARTNERSHIP
                         (A Nevada General Partnership)
                  NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE C -  TRANSACTIONS WITH AFFILIATES (continued)

Development fees incurred are capitalized to land held for development and
written off through cost of sales as sales of developed properties occur.

In addition, ANC shall be paid a fee equal to 4.5% of gross production sales and
6.5% of gross estate sales as compensation for its services in conducting
marketing and sales duties and authorization of sales contracts. Total fees
earned and paid to ANC for the eleven months ended December 31, 1998, and the
years January 31, 1998 and January 31, 1997 were $1,531,546, $1,317,755 and
$695,337, respectively. Also, in consideration of substantial pre-marketing
activities undertaken by SCC and other marketing activities performed by
Granite, each is to be paid a marketing fee of one percent of gross sales. For
the eleven months ended December 31, 1998, marketing fees earned by and paid to
SCC and Granite were $353,890 and $504,182, respectively. For the year ended
January 31, 1998, marketing fees earned by and paid to SCC and Granite were
$361,541 and $453,965, respectively. For the year ended January 31, 1997,
marketing fees earned and paid to SCC and Granite were $166,840 and $192,588,
respectively.

Granite has advanced $26,665,660 at December 31, 1998, $23,395,379 at January
31, 1998 and $20,710,431 at January 31, 1997 to the Partnership. Pursuant to the
Amended and Restated Partnership Agreement for the Silver Canyon Partnership,
Granite's original obligation to make loans to Silver Canyon Partnership was
capped at the current level of funding at January 31, 1996. The agreement also
provides that Granite is to provide up to two-thirds of $9,000,000 as additional
loans as funds are required. Pursuant to the agreement, Granite loaned the
Partnership an additional $3,270,280, $2,684,948 and $1,267,233 during the
eleven months ended December 31, 1998, and the years ended January 31, 1998 and
1997, respectively. Funds advanced to Silver Canyon Partnership as of January
31, 1996, bear interest at ten percent (10%) and funds advanced subsequent to
January 31, 1996 bear interest at the rate of prime plus 1 3/4% (7.75% at
December 31, 1998). In accordance with the Amended and Restated Partnership
Agreement, the loans have no maturity date and will be repaid through the
distribution of cash flow. Total interest incurred on the loans amounted to
$2,327,615, $2,239,532, $2,058,260, and $1,883,707 for the eleven months ended
December 31, 1998 and the years ended January 31, 1998, 1997, and 1996,
respectively.

On September 28, 1998, Silver Canyon Partnership issued a Capital Call to its
three partners in the amount of $552,095 each. One of the partners, Silver
Canyon Corporation, failed to pay its Capital Call of $552,095 and was therefore
in default. Pursuant to the terms of the Partnership Agreement, each of the
other two partners, Granite Silver Development Partner, L.P. ("Granite") and
American Nevada Seven Hills Limited Partnership ("ANC") elected to make
"Shortfall Loans", each in the amount of $276,047 to the partnership. Such loans
bear interest at the rate of 25% per annum and are payable from all
distributions, fees or compensation which may otherwise be due to the defaulting
partner.






                                       46
<PAGE>   47


                            SILVER CANYON PARTNERSHIP
                         (A Nevada General Partnership)
                  NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE C -  TRANSACTIONS WITH AFFILIATES (continued)

Pursuant to the Amended and Restated Partnership Agreement, the Partnership
advanced to SCC $580,000 on January 31, 1996. The advance is non-interest
bearing and will be repaid from future cash flow distributions.
Accordingly, the advance has been reflected as a reduction of the partners'
equity.

In addition, pursuant to the Amended and Restated Partnership Agreement, ANC
loaned to the Partnership $1,650,000 as of January 31, 1996. The loan bears
interest at one and three-fourths percent above the prime rate and will be
repaid through the distribution of cash flow. The agreement also provides that
ANC is to provide up to one-third of $9,000,000 as additional loans as funds are
required. Pursuant to the agreement, ANC loaned the Partnership an additional
$2,049,121, $1,287,057 and $490,336 during the years ended December 31, 1998
and, January 31, 1998 and 1997, respectively.

NOTE D -  CAPITALIZED INTEREST AND REAL ESTATE TAXES

See Note I, "Subsequent Events" for the impact of the Partnership Amendment to
capitalized interest.

Interest expense and real estate tax expense allocated to land held for
development is capitalized. For the eleven months ended December 31, 1998, and
for the years ended January 31, 1998 and 1997, total interest charges were
$3,397,733, $3,920,165 and $4,511,602 of which $3,397,733, $3,920,165 and
$4,511,60 were capitalized respectively. For the eleven months ended December
31, 1998 and for the years ended January 31, 1998 and 1997, total real estate
taxes were $347,803, $145,784 and $104,601, respectively, of which $347,803, was
capitalized at December 31, 1998, $145,784 was capitalized at January 31, 1998
and $104,601 was capitalized at January 31, 1997.

NOTE E -  LITIGATION

See Note I, "Subsequent Events" for current status of legal proceedings.

In August 1997, a class-action lawsuit was filed by the current homeowners in
Seven Hills against the Partnership, the golf course developers and other
entities. In addition, a separate lawsuit was filed by some of the production
homebuilding companies at Seven Hills, against some of the same parties. Both
suits seek a commitment for the right of Seven Hills homeowners to play on the
golf course, as well as damages. Recently, the trial court determined that Seven
Hills homeowners do have a right to play on the golf course, providing they pay
a greens fee of $300 per round. An additional hearing on damages has been
scheduled for October, 1999. The owner of the golf course has filed a
cross-claim against the Partnership, Silver Canyon, and the other entities in
the damage claim. It is anticipated that the present owner of the golf course
will appeal the ruling granting play rights to Seven Hills homeowners. The
Partnership and Silver Canyon believe they have meritorious defenses to these
claims and intend to continue to defend against them vigorously. Parties to the
lawsuits are currently engaged in discovery proceedings. Sales efforts



                                       47
<PAGE>   48

                            SILVER CANYON PARTNERSHIP
                         (A Nevada General Partnership)
                  NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE E -  LITIGATION (continued)

are continuing at the Seven Hills development, and because these events are
recent, it is not yet possible to determine the extent of any impact on the
Partnership's or Silver Canyon's financial performance.

NOTE F - CHANGE IN YEAR END

In December 1998, the Partnership announced a change is fiscal year end. The
change is effective with the Partnership's fourth fiscal quarter of 1998 which,
under the old fiscal calendar, would have ended on January 31, 1999. Under the
new fiscal calendar, the fourth fiscal quarter of 1998 ended on December 31,
1998. The change was made to be consistent with the existing tax year end of
December 31.

The following table presents certain financial information for the eleven months
ended December 31, 1998 and 1997, respectively:

<TABLE>
<CAPTION>
                                                     Eleven  months ended
                                                         December 31,
                                              -----------         -----------
                                                  1998                1997
                                              -----------         -----------
                                               (Restated)          (Unaudited)
<S>                                           <C>                 <C>
REVENUES
         Operating income                     $ 1,897,849         $ 4,952,437

EXPENSES
         Fees, partners                           110,000             110,000
         Commissions                            2,909,047           2,381,683
         Legal and professional                   410,404              33,406
         Travel and entertainment                  36,303              50,636
         Operating and other                      455,252             456,277
         Depreciation and amortization             91,911             188,875
                                              -----------         -----------

                  Subtotal                      4,012,917           3,220,877
                                              -----------         -----------

NET INCOME                                    $(2,115,068)        $ 1,731,560
                                              ===========         ===========
</TABLE>


NOTE G - ACCOUNTS RECEIVABLE

On December 31, 1998, two land sales took place which resulted in an increase in
accounts receivable. Net proceeds from one of the land sales were remitted to
GMAC, resulting in an overpayment to GMAC of $2,208,392. The funds were returned
to the Partnership on January 15, 1999. The other transaction involves a
$1,000,000 land sale receivable which is due to the Partnership by July, 1999.




                                       48
<PAGE>   49

                            SILVER CANYON PARTNERSHIP
                         (A Nevada General Partnership)
                  NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE H - RESTATEMENT OF THE ELEVEN MONTHS ENDED DECEMBER 31, 1998

The eleven months ended December 31, 1998 has been restated to reflect the
correction of the computation of cost of sales in the Partnership. Certain costs
became known to operating personnel during the fourth quarter of 1998 but were
not included in the original computation of cost of sales. This error was
identified during the third quarter of 1999.

The restatement results from the identification of costs in excess of those
budgeted to complete the project. These adjustments to cost of sales had the
effect of increasing cost of sales and decreasing net income for the eleven
months ended December 31, 1998 by $3,247,252.

The following table summarizes the impact to the amounts previously reported:


                  -------------------------------  -----------------------------
                              For the                         For the
                        eleven months ended             eleven months ended
                       December 31, 1998 as              December 31, 1998
                       previously reported                 as restated
                  -------------------------------  -----------------------------

Cost of Sales                $ 26,599,980                  $ 29,847,232
Operating income             $  5,145,101                  $  1,897,849
Net income (loss)            $  1,132,184                  $ (2,115,068)























                                       49
<PAGE>   50

                            SILVER CANYON PARTNERSHIP
                         (A Nevada General Partnership)
                  NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE I - SUBSEQUENT EVENTS

On January 28, 1999, the Partnership entered into a Development Loan agreement
with Ohio Savings Bank of Cleveland. The loan, which is to be in the form of a
revolving line of credit, is not to exceed the maximum principal amount of
twelve million dollars and the maximum loan proceeds disbursed during the term
of the loan shall not exceed $35,858,758. Amounts borrowed bear interest at a
rate of one percent above the prime rate. The loan will mature on January 28,
2001. The loan agreement contains two debt service coverage ratios, which
requires the Partnership to maintain a certain level of net worth, as defined.
Had the loan agreement been outstanding at December 31, 1998, the Partnership
would have been in compliance with the covenants. Subsequently, additional
excess costs were quantified in the third quarter of 1999 and Ohio Savings Bank
has waived the net worth requirement for the quarter ended September 30, 1999.
On December 6, 1999, the Partnership reached an agreement with the bank to fund
the November draw request. This agreement required the borrower to provide to
the bank, at the earlier of borrower's next draw or within thirty days, the
amended Silver Canyon Partnership Agreement, certain cash flow projections and
the resolution of the net worth covenant violation in a manner and amount
satisfactory to the bank. This development loan replaces the GMAC loan which was
paid off in full on January 6, 1999.

A class action lawsuit that was filed by the current homeowners in the Seven
Hills project against the Partnership and the golf course developers, among
others, was settled in November 1999. Also in November 1999, a settlement has
been reached in principle with the owner of the golf course that had filed a
cross-claim against Granite and the Partnership.

Still pending is a lawsuit filed by certain production homebuilding companies at
Seven Hills. This litigation is currently in discovery with a trial scheduled
for January 2000. Granite and the Partnership believe they have meritorious
defenses to the remaining claims of the builders and intend to continue to
defend against them vigorously.

During the second quarter of 1999, information became available to indicate that
additional costs in excess of budget to complete the Seven Hills project were to
be incurred. These excesses reduced the projects gross margin to zero and caused
the reversal of $12,704,537 of gross margins recorded through December 31, 1998
and $1,556,806 of gross margins were reversed on 1999 sales.

To minimize the impact of the identified costs in excess of budget to complete
the Seven Hills project (See Note H), the partners of Silver Canyon Partnership
have agreed in principle to amend the Silver Canyon Partnership Agreement. The
changes resulting from the amendment are reflected in the Form 10-Q for the
quarterly period ended September 30, 1999.

The amendment to the Silver Canyon Partnership Agreement includes the following
provisions:

1. ANC will assign all of its future and past commissions, fees, and
distributions relating to loans, capital calls and interest thereon to Granite.
Amounts previously paid will be deemed return of capital.

2. ANC will fund one-half of the settlement amounts for the two lawsuits that
have been settled.




                                       50
<PAGE>   51

3. Granite will fund any future settlement for the outstanding lawsuit but will
receive a priority distribution to cover such capital contribution.

4. After the priority distribution in #3, ANC and Granite will receive
distributions pari passu until such time that ANC has recovered its entire cash
investment except for $750,000.

5. Thereafter, Granite will receive all distributions until it has recovered its
entire capital account. To the extent Granite does not recover its entire
capital account, ANC will negotiate in good faith as to whether ANC should fund
one-half of the outstanding lawsuit in #3.

6. After Granite has recovered its entire capital account, ANC and Granite will
share all remaining distributions pari passu.

The following table summarizes the impact of the amendment as of September 30,
1999:

      Land inventory adjustment                $  5,054,279
      Fees and commissions adjustment             6,110,701
                                               ------------
      Total adjustments                        $ 11,164,980
                                               ============


Item 9. Changes in and Disagreements with Accountants on Accounting and
-----------------------------------------------------------------------
        Financial Disclosure
        --------------------

          None


                                    PART III
                                    --------

Item 10. Directors and Executive Officers of the General Partner of the
-----------------------------------------------------------------------
         Registrant
         ----------

         The following table sets forth the names of the officers and directors
of the General Partner:

              NAME                                 OFFICE
              ----                                 ------

              Robert F. Monchein                 President
              Samuel H. Miller                   Vice President, Director
              Thomas G. Smith                    Secretary
              Nathan Shafran                     Treasurer
              Albert B. Ratner                   Director
              Charles A. Ratner                  Director

         ROBERT F. MONCHEIN, age 54, is the President of the General Partner and
Sunrise. Mr. Monchein joined Forest City in 1979 and assumed the office of
President of Sunrise in 1983.

         SAMUEL H. MILLER, age 77, is the Vice President of the General Partner
and Sunrise. Mr. Miller is also a director of the General Partner and Sunrise.
Mr. Miller joined Forest City in 1945 and assumed the office of Vice President
of Sunrise in 1986.




                                       51
<PAGE>   52

         THOMAS G. SMITH, age 58, is the Secretary of the General Partner. Mr.
Smith joined Forest City in 1985 as Senior Vice President and Chief Financial
Officer.

         NATHAN SHAFRAN, age 85, is the Treasurer of the General Partner. Mr.
Shafran joined Forest City in 1939 and is currently Vice Chairman of the Board
of Directors.

         ALBERT B. RATNER, age 71, is a Director of the General Partner and
Sunrise. Mr. Ratner joined Forest City in 1951 and has served as Chief Executive
Officer and Vice Chairman of the Board since 1993. Mr. Ratner is also a director
of American Greetings Corporation.

         CHARLES A. RATNER, age 57, is a Director of the General Partner. Mr.
Ratner joined Forest City in 1966 and has served as its President and Chief
Operating Officer since 1993.

Item 11. Executive Compensation
-------------------------------

         The officers and directors of the General Partner are neither employed
by nor compensated by the Partnership. All compensation paid to affiliates of
the General Partner are defined in a management agreement between the
Partnership and Sunrise Land Company, an affiliate of the General Partner.

Item 12. Security Ownership of Certain Beneficial Owners and Management
-----------------------------------------------------------------------

                  None

Item 13. Certain Relationship and Related Transactions
------------------------------------------------------

         There are certain family relationship among the executive officers of
Forest City, Sunrise and the General Partner. Charles A. Ratner is the brother
of James A. Ratner and Ronald A. Ratner, and the cousin of Albert B. Ratner.

                                     PART IV
                                     -------

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

(a)     (1)       The following financial statements of Granite Development
                  Partners, L.P. and the report of the independent accountants
                  are included in Part II, Item 8:

                  Report of Independent Accountants

                  Financial Statements:

                           Balance Sheets - December 31, 1998, January 31, 1998
                           and 1997.
                           Statements of Operations for the eleven months ended
                           December 31, 1998, and for the years ended January
                           31, 1998, 1997, and 1996. Statements of Changes in
                           Partners' Deficit for the eleven months ended
                           December 31, 1998 and for the years ended January 31,
                           1998, 1997, and 1996. Statements of Cash Flows for
                           the eleven months ended December 31, 1998 and for the
                           years ended January 31, 1998, 1997, and 1996. Notes
                           to the Financial Statements

                                       52
<PAGE>   53

(a)     (2)      The following financial statements of Silver Canyon Partnership
                 and the report of the independent accountants are included:

                 Report of Independent Accountants

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

                  Financial Statements:

                           Balance Sheets - December 31, 1998 and January 31,
                           1998 and 1997.
                           Statements of Operations for the eleven months ended
                           December 31, 1998 and for the years ended January 31,
                           1998, 1997, and 1996. Statements of Changes in
                           Partners' Equity for the eleven months ended December
                           31, 1998 and for the years ended January 31, 1998,
                           1997, and 1996. Statements of Cash Flows for the
                           eleven months ended December 31, 1998 and for the
                           years ended January 31, 1998, 1997, and 1996. Notes
                           to Financial Statements.

(a)     (3)       The following financial statement schedules are included in
                  Part IV, Item 14(d):

                  Schedule III - Real Estate and Accumulated Depreciation

                  Schedules other than those listed above are omitted for the
                  reason that they are not required or are not applicable, or
                  the required information is shown in the financial statements
                  or notes thereto.

(a)     (4)       Exhibits:

                  No.  3.1          Summary of the Partnership Agreement of
                                    Limited Partnership adopted November 15,
                                    1993 was filed with the Registration
                                    Statement on Form S-11 filed with the
                                    Commission on November 4, 1994 and is hereby
                                    incorporated by reference.

                  No.  4.1          The Prospectus for the S-11 offering of
                                    36,000 warrants and partnership units and
                                    the Prospectus for the S-4 Offer to Exchange
                                    Senior Notes was filed with the Commission
                                    on November 4, 1994 and is hereby
                                    incorporated by reference.

                  No.  5.1          The Prospectus for the Post-Effective
                                    Amendment No. 1 to the Registration
                                    Statement on Form S-11 was filed with the
                                    Commission on September 6, 1996 and is
                                    hereby incorporated by reference.

(b)      Reports on Form 8-K

                  A current report on Form 8-K dated December 16, 1998, was
                  filed to report the company's change is fiscal year-end.



                                       53
<PAGE>   54

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                            GRANITE DEVELOPMENT PARTNERS, L.P.
                                            ----------------------------------
                                            (Registrant)

DATE: December 15, 1999                     /s/ Robert F. Monchein
      -----------------                     -------------------------------
                                            Robert F. Monchein
                                            President
                                            FC-Granite, Inc.,
                                            the general partner of
                                            Granite Development
                                            Partners, L.P.

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

<TABLE>

<S>                                <C>                                <C>
Principal Executive Officer:       President, FC-Granite, Inc.,       Date:  December 15, 1999
/s/ Robert F. Monchein             the general partner of Granite            ------------------
---------------------------        Development Partners, L.P.
Robert F. Monchein

Principal Financial and            Controller, FC-Granite, Inc.,      Date:  December 15, 1999
Accounting Officer:                the general partner of Granite            -----------------
/s/ Mark A. Ternes                 Development Partners, L.P.
----------------------------
Mark A. Ternes


/s/ Samuel H. Miller               Vice President, Director           Date:  December 15, 1999
----------------------------                                                 -----------------
Samuel H. Miller

/s/ Thomas G. Smith                Secretary                          Date:  December 15, 1999
----------------------------                                                 -----------------
Thomas G. Smith

/s/ Nathan Shafran                 Treasurer                          Date:  December 15, 1999
----------------------------                                                 -----------------
Nathan Shafran

/s/                                Director                           Date:  December 15, 1999
----------------------------                                                 -----------------
Albert B. Ratner

/s/                                Director                           Date:  December 15, 1999
----------------------------                                                 -----------------
Charles A. Ratner
</TABLE>