<PAGE>
 
                                   FORM 10-K
                      SECURITIES AND EXCHANGE COMMISSION
                           Washington, D. C.  20001
                                             
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES           
     EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 1995                                
                           -------------------------------------------------
                                        OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE 
    SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     
                               --------------------    --------------------
Commission File Number   0-6201                   
                       ---------------------------

                            BRESLER & REINER, INC.
  ---------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)

          Delaware                                     52-0903424           
-------------------------------           ------------------------------------
(State or other Jurisdiction of           (IRS Employer Identification number)
incorporation or organization)                  

     401 M Street, S.W.
     Waterside Mall
     Washington, D. C.                                      20024         
---------------------------------------          ----------------------------
(Address of principal executive Office)                   (Zip Code)

Registrant's telephone number including area code:  (202) 488-8800      
                                                  ----------------------

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

                         Common Stock, $.01 par value
           --------------------------------------------------------
                               (Title of Class)

Indicate by check mark whether 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, and (2) has been subject to such filing requirements 
for at least the past 90 days.  Yes  X 
                                    ---

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 3 of this Form 10-K or any amendment to this 
Form 10-K. [X]

The number of shares outstanding of Registrant's common stock ($.01 par value) 
at March 4, 1996 was 2,839,563 shares, and the aggregate market value of the 
shares held by non-affiliates (based upon $11.25 per share, the average of the 
high bid and low asked prices reported by The National Quotation Bureau) was 
approximately $6,435,000.

Documents Incorporated by Reference:
Part III - Item 10.  Directors and Executive Officers of Registrant
           Item 11.  Executive Compensation
           Item 12.  Security Ownership of Certain Beneficial Owners
                     and Management
           Item 13.  Certain Relationships and Related Transactions

            The information required by this Part will be incorporated by 
reference to a definitive proxy statement which Registrant intends to file with 
the Commission pursuant to Regulation 14A involving the election of directors 
within 120 days after the end of its fiscal year.

            The Exhibit Index is found on page 60.
<PAGE>
 
                                 PART I
                                 ------

ITEM 1.  BUSINESS
         --------

            Registrant has two principal activities, Residential Land 
Development and Construction and Rental Property Ownership and Management. 

RESIDENTIAL LAND DEVELOPMENT AND CONSTRUCTION
---------------------------------------------

            Registrant owns several partially developed residential tracts of 
land within the greater Washington, D.C. area.  On these tracts, it plans to 
develop residential lots for sale and to construct and develop single family 
homes and townhouses as part of residential subdivisions.  Registrant may 
decide to sell certain of its undeveloped land if it determines that it is in 
the best interest of Registrant to do so.

            Registrant also has general and limited partnership interests in 
entities which are operating properties located in the Northern Virginia 
suburbs of Washington, DC and Orlando, Florida.

            While the following information represents Registrant's current 
intentions, the number of units, commencement dates, and other specific details 
of a project may vary, depending on Registrant's ability to secure adequate 
financing on acceptable terms, labor conditions, approval of land use plans, 
and other regulatory requirements, general economic conditions, demand for 
housing and other factors.

            Registrant designs and constructs its homes in accordance with its 
periodic evaluation of the prevailing market for new homes.  Its current plan 
is to continue to build homes that appeal to the entry level homeowner, which 
will give the purchaser the maximum amount of space for the purchase price.  
Registrant generally avoids custom features and offers a limited number of home 
models.  It also generally does not build homes in advance of sales contracts 
other than models and certain units for immediate sales.

      A.    Registrant's Homebuilding Projects
            ----------------------------------

            1.    Skyline Hill's, Prince George's County, Maryland. 
                  ------------------------------------------------
Clearing, grading, sewers and construction of model homes have been completed 
for this 179 single family homes and 43 townhomes project.  As of February 28, 
1996, 20 additional single family homes are planned, of which four single 
family homes are under contract of sale.  As of this same date, three townhomes 
have been sold and settled and one townhome is under contract of sale.

                                      -2-
<PAGE>
 
            2.    Terraco Acres, Prince George's County, Maryland. 
                  -----------------------------------------------
This 134 single family home development has been substantially completed.  As 
of February 28, 1996, three homes remain to be sold.  

            3.    St. Mary's County, Maryland.  This project originally 
                  ---------------------------
consisted of 64 subdivided lots, which range in size from .87 acres to 6.36 
acres and 31 farmsteads, of 15 to 30 acres each, totalling 949 acres.  As of 
February 28, 1996, 11 farmsteads totalling 254 acres remain to be sold.

            4.    Oak Hill Towns, Prince George's County, Maryland. 
                  ------------------------------------------------
The final development plan for 83 townhouses on this 11.1 acre tract has been 
approved and recorded.  Clearing, grading and installation of sewers and 
construction of model homes have been completed.  As of February 28, 1996, 52 
homes have been sold and settled and 12 homes are under contract of sale.

            5.    Yorkshire Knolls, Prince George's County, Maryland.  The 
                  --------------------------------------------------
final development plan for 252 townhouses on this 31.5 acre tract has been 
approved and recorded.  Clearing and grading has been completed and five model 
homes have been completed.  As of February 28, 1996, 44 homes have been sold 
and settled and 11 are under contract of sale.

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


            In the sale of homes by Registrant and entities controlled by it, 
Registrant has utilized furnished model homes at each site.  Sales are made by 
independent real estate brokers to whom a commission is paid.  In its 
production of homes for sale, Registrant competes with numerous builders, which 
range from well-financed and managed regional and national firms to small 
speculative builders.

            When Registrant enters into an agreement of sale for a home, it 
generally receives a deposit of $500 to $2,000 as is customary in its area of 
business.  These deposits may be refundable under certain circumstances, 
including Registrant's inability to complete construction within specified time 
periods, or the purchaser's inability to secure financing.  Registrant 
generally receives the balance of the purchase price in cash upon the closing 
of the sale, but has in the past occasionally taken a note secured by a junior 
mortgage for a portion of the purchase price.

            Although it is the responsibility of the home purchaser to obtain 
financing for his purchase, Registrant seeks to obtain mortgage commitments 
from lending institutions for its customers (subject to verification of 
individual customer credit status)

                                      -3-
<PAGE>
 
for purchases of homes in its developments.  Registrant may also be required to 
pay the lender a discount or points at the closing of each loan, which in the 
case of loans insured by the Federal Housing Administration, or the Veterans 
Administration, cannot be charged to customers.

            There can be no assurances that Registrant will in the future be 
able to secure acceptable permanent mortgage commitments, and the absence of 
such commitments could adversely affect its sale of homes.

            Because of its seasonal nature, home sales generally decline in the 
first quarter of Registrant's fiscal year.

      B.    Joint Ventures with Sequoia Building Corporation of Virginia 
            -------------------------------------------------------------
("Sequoia").
-----------

            Starting in 1984, Registrant entered into a series of joint 
ventures and partnerships with Sequoia as detailed below.

            1.    Manassas; Prince William County, Virginia.  In 1984, 
                  -----------------------------------------
Registrant and Sequoia organized a limited partnership known as Paradise 
Developers ("Paradise") to develop a 418 acre tract of land in Manassas, 
Virginia (the "Tract").  The Tract yielded approximately 243 acres of 
residential land and 100 acres of commercial land after streets, recreation 
facilities, parks and schools.

            Registrant's subsidiary is the sole general partner and managing 
general partner, owning a 50% partnership interest.  Sequoia is a limited 
partner owning a 50% partnership interest.

            Registrant originally owned the Tract and Paradise purchased the 
Tract in two stages from Registrant in December, 1985 and September, 1986.  The 
consideration for this purchase was a subordinated non-recourse mortgage and 
note ("purchase money mortgage") in the original principal amount of 
$11,525,616.  As of December 31, 1995, the balance due Registrant on the 
purchase money mortgage was $1,838,855.  In addition, Registrant was due 
$896,220 in unpaid interest, which will be recognized in income when received.

            All of the residential land and 51 acres of the commercial land was 
sold prior to 1993.  Paradise developed 18 acres of land into three commercial 
projects; the 7800 Building, a bank building and Paradise Sudley North Office 
Park.  31 acres of commercial land remain to be sold or developed.

                  (a)   7800 Building.  Paradise constructed a 15,460 
                        -------------
square foot office building known as the 7800 Building on 1.52 acres of the 
Tract.  

                                      -4-
<PAGE>
 
                  Paradise deeded the property to Registrant's subsidiary in 
December, 1991.  The building is 23% leased.

                  Registrant has entered into two leases for an additional 
7,830 square feet of office space which will increase the occupancy to 73% by 
April, 1996.

                  (b)   Bank Building.  This building of 3,478 rentable 
                        -------------
square feet on two-thirds of an acre is fully occupied by a branch of Nations 
Bank.

                  (c)   Paradise Sudley North Office Buildings.  In March, 
                        --------------------------------------
1987, Registrant, through a subsidiary, and various officers and employees of 
Sequoia, formed Paradise Sudley North Limited Partnership ("Sudley") to develop
a 16.35 acre parcel of the Tract. In December, 1991, these officers assigned
their interests in Sudley to Registrant in return for a release from bank debt
and guarantees. Registrant's subsidiary is the sole general partner of the
Partnership, owning a 55% partnership interest, and Registrant also owns a
43.75% limited partnership interest. A former employee of Sequoia owns the
remaining 1.25% interest.

                  Sudley has developed on this site four office buildings, 
which contain approximately 187,000 square feet of space, known as Buildings A, 
B, C and D.

                  Building A, 22,608 square feet, is 70% leased.

                  Registrant has entered into an additional lease for 5,965 
square feet which will increase occupancy to 96% by April, 1996.

                  Building B, 62,420 square feet, is 57% leased. 

                  Building C, 33,120 square feet, is 62% leased.  

                  Building D, 69,374 square feet, is 100% leased.  In January, 
1988, Sudley contributed the 6.9 acres of land under Building D to a new 
limited partnership, Paradise Sudley North Building D Partnership.  Sudley is a 
50% partner in the new partnership with a right to a return of the value of its 
capital contribution before distributions to other partners.  The other 
partners are non-affiliates.  Sudley is responsible for managing the new 
partnership's day-to-day operations.  

            2.    Fairfax County, Virginia.  On October 22, 1987, a 
                  ------------------------
subsidiary of Registrant and certain officers and directors of Sequoia formed a 
limited partnership known as Frying Pan Road Associates ("Frying Pan"), which 
purchased approximately 17 acres of commercially zoned undeveloped land in 
Fairfax County,

                                      -5-
<PAGE>
 
Virginia, for $7,145,000 and acquired for $1,000,000 an option to purchase an 
additional 40 acres.  Of the purchase price for the land, approximately 
$5,574,100 was paid by Frying Pan's assumption of several mortgages on this 
property, which are recourse to Registrant's subsidiary.  In November, 1989, 
Frying Pan exercised its option to purchase the additional 40 acres of land and 
funded the purchase with an $18 million non-recourse loan at prime from the 
seller.  The lender amended the loan agreement to reduce the interest rate and 
to reduce the outstanding principal amount due under the loan from $18,000,000 
to $15,500,000, which was due on September 30, 1994.  

            Registrant's subsidiary is the sole general partner holding a 50% 
interest.  Sequoia's affiliates are limited partners and own a 50% interest.  
The partnership agreement requires Registrant's subsidiary to advance funds as 
additional capital contributions to Frying Pan for certain acquisition and 
carrying costs.  At November 30, 1994, Registrant had advanced $13,699,527 to 
Frying Pan pursuant to the partnership agreement.

            In December 1994 Frying Pan concluded that the long-term 
development plans for the property were no longer warranted given the continued 
softness in the commercial real estate market and the inability to reach 
agreement with the lenders for continued debt modifications.  As a result, in 
December 1994 Frying Pan gave deeds in lieu of foreclosure to the seller on the 
17 acre parcel.  Frying Pan gave a deed in lieu of foreclosure to the seller of 
the remaining 40 acres.

            On September 30, 1994, Registrant reduced its carrying value of 
this property by $4 million.  At December 31, 1994, Registrant recorded an 
additional reduction in the carrying value in the amount of $12,834,000.  
Concurrently, Registrant recognized a gain of $5,200,000 (before income taxes) 
in debt elimination.

RENTAL PROPERTY OWNERSHIP AND MANAGEMENT
----------------------------------------

            Registrant owns and manages apartment buildings, for itself and 
others.  In the Southwest Washington, DC urban renewal area, as described 
below, Registrant holds a 46% interest in an office building, and owns and 
manages a portion of an enclosed shopping-office center.  It is the policy of 
Registrant to manage and lease these rental properties through its own 
personnel.  Registrant also is a limited partner in certain properties 
described below, which are operated by others.  

          Apartments.  Registrant owns and operates two apartment 
          ----------
complexes, with a total of 294 units in Greenbelt, Maryland, and in the 
southwest Washington, DC urban renewal area.  (See

                                      -6-
<PAGE>
 
"Southwest Washington, DC Urban Renewal Area", below).  Registrant constructed 
these apartment buildings.

            Registrant owned a 178 garden apartment in Camp Springs, Maryland 
known as the "Allentown Apartments".  In June 1992, Registrant ceased making 
principal and interest payments under a non-recourse mortgage note and $480,000 
guaranty agreement covering the property, and offered the lender a deed to the 
property.  During 1992, the Resolution Trust Corporation was appointed receiver 
for the lender and it subsequently sold the loan as part of a package loan 
disposal.  The new holder of the loan had refused the deed offered by 
Registrant, had a receiver appointed which took possession of the property on 
September 22, 1993, and in January 1994 brought suit against Registrant under 
the mortgage and guarantee.  In May 1995 the note holder foreclosed on the 
property, and in August 1995 the Court ratified the foreclosure sale.  This 
transaction resulted in an extraordinary gain before income taxes of 
$2,678,000.

            As of December 31, 1995, approximately 85% of Registrant's 
apartment units were rented.  In renting apartment units Registrant employs 
rental agents and uses model apartments, advertising in local newspapers and 
displays on the site.  Each building or complex has a project manager employed 
by Registrant who supervises rentals and general operations.

            Apartment leases generally provide for a fixed monthly rental over 
a one year term and the tenant normally gives a security deposit.  Registrant 
estimates that the average length of occupancy of an apartment by its tenants 
is approximately 30 months.  Registrant pays for all utilities, except that 
certain tenants pay for their own electricity.  All of Registrant's properties 
are in good condition, and in the opinion of Registrant, are adequately covered 
by fire and other casualty insurance.

            Southwest Washington, D.C. Urban Renewal Area.  Since 1964, 
            ---------------------------------------------
Registrant has been the redeveloper of a portion of the Southwest Washington, 
D.C. Urban Renewal Area (the "Area"), located immediately south of the "mall" 
which extends from the United States Capitol Building to the Washington 
Monument.  Registrant has performed each of its principal business activities, 
as well as building construction for others, in this Area.  

            High Rise Office Buildings.  Located in the Area are two 
            --------------------------
matching 14 story office buildings, which are leased and managed by Registrant.
One building is owned by Trilon Plaza Company ("Trilon") an affiliate; the other
building is owned by Town Center East Investors ("Town Center"), a limited
partnership

                                      -7-
<PAGE>
 
in which Registrant holds a 46% interest, and serves as the general partner.

            Trilon is a limited partnership, in which a substantial majority 
interest is owned by Messrs. Bresler and Reiner, whose wholly owned corporation 
is the general partner (other officers of Registrant hold minor interests) and 
the balance is owned by non-affiliates.  Trilon's principal assets are its 
leasehold interests in the Area and the projects developed thereon.

            GSA Lease.  The United States General Services Administration 
            ---------
("GSA") leases the two high rise buildings, as well as the second and third 
floors of the adjacent shopping-office center and a portion of another smaller 
structure (see "Shopping Center") at an annual rental of approximately $19.5 
million for approximately 905,000 square feet plus 216,000 square feet of 
parking space (the "GSA Lease").  Approximately 282,000 square feet of the 
portion of the shopping center owned by Registrant is included in the lease at 
an annual rental of approximately $5.6 million, as is 56,000 square feet owned 
by S.E.W. Investors, another affiliate, and 172,000 square feet owned by Town 
Center, in which Registrant has a 46% interest.  Registrant acts as managing 
and leasing agent for Trilon, Town Center and S.E.W. Investors for their 
portions of the leased space.  All four owners, including Registrant, are 
jointly and severally liable as landlord to GSA under the Lease.  See 
"Management of Rental Properties".

            The GSA Lease was renewed in June, 1993 for a five year term, which 
commenced as of September, 1992.  

            In November, 1994, GSA elected to extend the lease for a further 
five years to September, 2002.  As required by the lease, the annual rental was 
reduced, retroactive to the September, 1992 commencement date, from $21.8 
million to $19.5 million.  GSA has the option to cancel the lease on certain 
space effective any time during the second five years and on certain other 
space at any time after the eighth year.  

            The lower rental results in a reduction of approximately $1,245,000 
per year in the Registrant's revenues, including management and leasing fees 
and its 46% interest in Town Center.  

            Shopping-Office Center.  An enclosed shopping-office center is 
            ----------------------
located between the two high rise buildings containing approximately 750,000 
square feet of space.  The center includes approximately 1,100 parking spaces 
located in an underground parking garage and adjacent parking areas.

                                      -8-
<PAGE>
 
            Registrant acts as managing and leasing agent for Trilon and for 
S.E.W. Investors, a limited partnership ("S.E.W. Investors") (see "Southeast 
Section" below) for their portions of the shopping-office center, part of which 
is leased to the GSA as described above and the balance is leased to other 
commercial tenants.  See "Management of Rental Properties".

            The planned use of the shopping-office center is limited by the 
renewal plan for the site.  The renewal plan permits occupancy by retail and 
personal service establishments, offices for government agencies, professional 
and other services for the southwest Washington, D.C. area and apartments.  The 
site may not be used for general office buildings.

            Registrant's portion of the shopping-office center, consisting of 
231,023 square feet, is leased by Registrant from the District of Columbia 
Redevelopment Land Agency ("RLA") for a term expiring in 2058.  Under the 
lease, Registrant is responsible for all expenses related to the land, 
including real estate taxes and utilities.  Registrant must obtain the approval 
of RLA before constructing additional improvements on these tracts.

            Southeast Section.  On October 10, 1980, Registrant assigned 
            -----------------
its leasehold interest in a portion ("Southeast Section") of the 
shopping-office center to S.E.W. Investors.  The Southeast Section contains 
approximately 105,000 square feet of rentable space in the three story and 
basement building, of which approximately 49,000 square feet were completed 
prior to 1981.  Tenant occupancy commenced in February, 1982, including 56,000 
square feet leased to the GSA.  S.E.W. Investors was organized by Registrant to 
acquire the Southeast Section.  Registrant is the sole general partner, with a 
1% interest.  Of the limited partnership interests, 62% is held by 
non-affiliates and the remaining 37% is held by certain directors and officers 
of Registrant, including Charles S. Bresler, its Chairman of the Board and 
principal shareholder, and Burton J. Reiner, its President, director and 
principal shareholder.  Registrant manages this building.  See "Management of 
Rental Properties".

            Town Center East Apartment Buildings.  On August 1, 1979, 
            ------------------------------------
Registrant assigned its leasehold interest in two high rise apartment buildings 
in the redevelopment area, with 256 units, known as Town Center East 
Apartments, to Third Street Southwest Investors, a limited partnership.  
Registrant is the sole general partner in this limited partnership, with a 1% 
interest, and acts as management agent for the project.  In this partnership, 
90% of the limited partnership interests are held by unaffiliated persons, and 
the remaining 9% of the limited partnership interests are held by certain 
directors and officers of Registrant, including Charles S. Bresler, Chairman 
and Chief

                                      -9-
<PAGE>
 
Executive Officer of Registrant and Burton J. Reiner, its President.  
Registrant manages these buildings.  See "Management of Rental Properties".


            Low Income Housing.  Registrant has interests in the following 
            ------------------
limited partnerships which are operating low-income housing units:


            1.    Multi-State Projects.  On November 15, 1988, Registrant 
                  --------------------
purchased 99% limited partnership interests in each of seven limited 
partnerships, which collectively have constructed 266 rental apartments.  The 
projects are located in small communities in Maryland (3), Pennsylvania (1), 
Virginia (2) and West Virginia (1).  At March 1, 1996, the projects were 95% 
occupied.  The projects are financed by Farmers Home Administration mortgages 
and enjoy the benefits of low income housing credits against federal income tax 
authorized under Section 42 of the Internal Revenue Code of 1986, as amended, 
(the "Code").  The purchase price for such limited partnership interests is 
approximately $5,168,000 in the aggregate, of which $3,353,055 has been paid to 
date.  It is payable in annual installments over the ten years such tax credit 
is available, commencing in March 1990, and is to be adjusted annually based on 
the annual tax benefits generated.


            2.    Windsor, Connecticut Project.  On April 27, 1989, 
                  ----------------------------
Registrant purchased a 97% limited partnership interest in a Connecticut 
limited partnership.  This partnership converted a former school house into 40 
residential apartments in Windsor, Connecticut, a suburb of Hartford.  The 
partnership received the certificate of occupancy for the apartments and is 
eligible for both Federal historic tax credit and Federal low income housing 
credits against Federal income tax as authorized under Section 42 of the Code.  
The purchase price for the partnership interest, payable in installments over 
the ten (10) years the credits are available, is approximately $1,130,000 of 
which $664,000 was paid as of December 31, 1995.  The purchase price is to be 
adjusted based on the tax benefits generated annually.  The project is 90% 
occupied.


            3.    Orlando, Florida Project.  On July 17, 1989, Registrant 
                  ------------------------
purchased a 90% limited partnership interest in a Florida limited partnership.  
The general partners of the partnership are three individuals and PAC Land 
Development corporation, a Florida real estate development company ("PAC").  
The partnership developed and constructed a 28 acre, 312 unit apartment project 
in Orlando, Florida, of which 63 units are

                                      -10-
<PAGE>
 
eligible for Federal low income housing credits and the balance of 249 units 
are market rate apartments.  The purchase price for the partnership interest 
was $1,600,000.  The purchase price, other than the first installment, is to be 
adjusted based on the tax benefits generated annually, which may result in 
additional payments in the future.  Ninety-two percent of the apartments were 
occupied as of December 31, 1995. 


            4.    St. Mary's County, Maryland Project.  On November 22, 
                  -----------------------------------
1989, Registrant purchased a 79% limited partnership interest in Foxchase 
Village Associates Limited Partnership, which has constructed a 134 unit 
apartment project in St. Mary's County, Maryland.  The project is eligible for 
Federal low income housing credits against Federal income tax authorized under 
Section 42 of the Code over the first ten years after occupancy.  Registrant's 
purchase price for its partnership interest, payable in installments over eight 
years, is approximately $4,278,930 of which $3,929,938 has been paid to date.  
The purchase price is to be adjusted based on the aggregate tax benefits 
generated annually.  Charles S. Bresler, an officer and director of Registrant, 
purchased a 20% limited partnership interest in the partnership for $1,070,825, 
payable on terms similar to Registrant's.  Eighty-four percent of the 
apartments were occupied as of December 31, 1995.


            Condominium Apartment Units.  Registrant owns and rents (as 
            ---------------------------
lessor) 74 condominium units in Georgian Gardens, Glassmanor, Maryland.  This 
is a portion of a 121 unit garden type apartment property which had been 
converted into a condominium by Registrant in 1974.


            Competition.  In each of the areas where Registrant's rental 
            -----------
properties are located, there are buildings which offer similar accommodations 
at approximately the same rentals.  The rents charged by Registrant for its 
properties in the District of Columbia are subject to rent control regulation.


            Management of Rental Properties.  Registrant, through a 
            -------------------------------
subsidiary, has contracts to act as managing agent and, in certain cases, 
leasing agent, for residential and commercial projects of certain partnerships 
in which Registrant is a general partner, and of certain partnerships in which 
Charles S. Bresler and Burton J. Reiner, officers, directors, and principal 
shareholders of Registrant, have substantial interests and other directors and 
officers have minor interests as follows:

                                      -11-
<PAGE>
 
                                                                Contract
      Property Managed              Compensation(1)            Expiration
      ----------------              ---------------            -----------

414 apartment units,
      20 townhouses (5)                   5%             December, 2000 (2) (3)
390,000 square feet of office
      space(5)                            3%(9)          December, 1997  (4)
185,000 square feet of office
      space(6)                            3%(9)          December, 1997  (4)
256 apartment units (7)                   5%             September, 1999 (2) (3)
105,000 square feet of
      shopping-office
      center (8)                          3%(9)          December, 1997  (4)

(1)   As a percentage of gross rent collected.

(2)   These contracts renew automatically for additional five year terms unless 
either party gives notice of termination at the end of the term stated above.

(3)   This contract may be terminated at any time by the Federal Housing 
Commissioner or the mortgagee.

(4)   These contracts may be terminated by the owners on 60 days prior written 
notice, subject to payment of the present value of the leasing fees (see note 9 
below) for the remainder of the contract term. 

(5)   These properties are located in the Southwest Washington, D.C. Urban 
Renewal Area and are managed for Trilon Plaza Company, an affiliate.

(6)   The project is described in "Southwest Washington, D.C. Urban Renewal 
Area" and is managed for Town Center, a partnership in which Registrant has a 
46% interest and is the general partner.

(7)   These buildings are the Town Center East Apartments described in 
"Southwest Washington, D.C. Urban Renewal Area" and are managed for a 
partnership in which Registrant has a 1% interest and is general partner.

(8)   This property is managed for a partnership in which Registrant has a 1% 
interest and is a general partner.  (See "Southwest Washington, D.C. Urban 
Renewal Area - Southeast Section" above.)

(9)   In addition, Registrant earns leasing fees of 5% of gross rents collected 
on the GSA Lease for these properties.

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

                                      -12-
<PAGE>
 
            Operation of Holiday Inn.  Registrant owns and operates a 151 
            -------------------------
room Holiday Inn motel located in Camp Springs, Maryland, suburban Washington, 
D.C., opposite the main entrance to Andrews Air Force Base and an interchange 
of the Capital Beltway.  The motel commenced business in March, 1970.

            Occupancy averaged 60% in 1995.

            Under Registrant's franchise license agreement with Holiday Inns, 
Inc., Registrant pays Holiday Inns a monthly royalty, and additional payments 
for advertising and trading services.  The franchise license agreement expires 
on March 11, 2000.  
 
            Registrant has applied for a new Holiday Inn Express franchise 
which will require substantial renovation of the existing facility.  At this 
date, the cost of renovation has not been determined.

            There are three other motels in the immediate vicinity of 
Registrant's motel in suburban Washington, D.C.  The motel business in 
Washington, D.C. area is highly competitive.

            The Colonnade, Baltimore, Maryland.  The Colonnade is a 
            ----------------------------------
multi-purpose condominium apartment, hotel, office and retail building adjacent 
to the Johns Hopkins University in Baltimore, Maryland.  The building consists 
of 119 condominium apartments owned by others on the fourth through twelfth 
floors; 125 hotel rooms on the first three floors, 252 condominium parking 
spaces (of which the Registrant's affiliate owns 21), a restaurant, a small 
amount of retail and office space and a parking garage.  

            On July 12, 1993, Uptown Hotel Corporation ("Uptown"), a wholly 
owned subsidiary of Registrant, purchased the secured mortgage on the Colonnade 
from the lender for its then outstanding balance of $15,336,290.86.  To finance 
the purchase, Uptown borrowed $13,836,291 from the lender, due in September 
1995 (with the right to extend to 1998 under certain conditions), secured by an 
assignment of the Colonnade mortgage and a guaranty by Registrant.  To secure 
its guarantee, Registrant in May 1992 granted lender a mortgage on the 
apartment property known as "The Commons" in the Southwest Washington, D.C. 
Urban Renewal Area to the extent of $6,000,000, and its Holiday Inn property to 
the extent of $4,000,000.  Registrant's guaranty is further secured by 
mortgages on the Paradise Bank property (see "Paradise Bank at Bull Run" above) 
and 11 convenience stores (see "Convenience Stores" below).  As of December 31, 
1995, the outstanding principal balance of the mortgage was $10,097,089.

                                      -13-
<PAGE>
 
            The mortgage note provided for an extension to March 1, 1998 under 
certain conditions.  The conditions for the extension were met (principally 
certain loan to value ratios), and Registrant was granted the extension to 
March 1, 1998.

            On September 13, 1993 there was a public Trustee Sale of the 
property, at which Uptown purchased the hotel, commercial spaces, six 
condominium units which were sold in 1994 and certain parking spaces for 
$5,158,000.  Unrelated parties purchased three condominium apartment units.  

            Hotel occupancy averaged 69% in 1995.

            Pine Club Phase II Limited Partnership, Orlando, Florida.  
            --------------------------------------------------------
Registrant holds a 64.35% limited partnership interest in Pine Club Phase II, 
Ltd., a Florida limited partnership.  The general partners of this partnership 
are three unaffiliated individuals and PAC, who own with others, in the 
aggregate, a 35.65% partnership interest.

            The partnership has constructed 160 residential apartment units on 
approximately 14 acres of land in Orlando, Orange County, Florida.  This land 
is contiguous to Registrant's low-income housing and market rate housing 
project in Orlando, Florida previously discussed under "Low Income Housing - 
Orlando, Florida Project".  The Project was completed in January, 1991, and is 
91% occupied as of February 28, 1996.

            Convenience Stores.  In June, 1986, Registrant acquired 16 
            ------------------
convenience stores, primarily located in southern and southeastern states, for 
an aggregate consideration of approximately $3,390,000.  Registrant acquired 
title to each store building, but holds leasehold interests in the underlying 
parcels of land.  All of the stores were under lease through February, 2000, on 
a net basis, to Circle K Corporation, a large convenience store chain which 
operates the stores under the name "Circle K."  On May 15, 1990, Circle K and 
certain of its affiliates filed Petitions under Chapter 11 of the Bankruptcy 
Code.  One of Circle K's rights under the Bankruptcy Code was to affirm or 
reject the rental leases on its stores.  At various times, Circle K rejected a 
total of 12 of the sixteen leases owned by Registrant.  As of February 28, 
1996, Registrant has rented four of these stores and has sold five stores.  
Registrant is attempting to relet or sell the other three stores.

            Nursing Home.  Registrant owns a New Jersey nursing home 
            ------------
facility, Lakewood Manor, which it leases to an unaffiliated operating company.

            Lakewood Manor is a 120-bed nursing home facility in Lakewood, New 
Jersey.  The skilled and intermediate care facility

                                      -14-
<PAGE>
 
is located on State Road 88, Ocean County, New Jersey, approximately 60 miles 
south of New York City.  The one-story building of approximately 37,000 square 
feet, with brick exterior, is situated on 11 acres of land.

            Since it acquired the property on December 31, 1984, Registrant has 
leased the nursing home to an unaffiliated operator.  The monthly rent is 
$48,295 for the first five years of a ten year term, with increased rent 
thereafter.  Tenant has several renewal options for up to 20 additional years.  
The lessee pays taxes and other operating expenses, and all structural and 
nonstructural repairs and replacements.  The lessee has a right of first 
refusal in the event Registrant seeks to sell the property.  The lessee may 
assign the lease to another experienced nursing home operator, subject to 
certain conditions.  The facility is now 97% occupied.

            There are several other nursing homes in Lakewood, New Jersey.  The 
Nursing Home business is highly competitive.  Nursing homes operate under state 
licenses and are subject to extensive governmental regulations.  Should 
Lakeview Manor not be in compliance with these regulations, it would be subject 
to termination of its qualification for federal assistance payment or 
termination of its operating license by federal or state regulators.  

EQUIPMENT LEASING AND VENDING
-----------------------------

            Registrant previously engaged in personal property leveraged 
equipment leasing, both directly and through subsidiaries and general 
partnerships.  It also acted as broker in arranging equipment sale and 
leaseback transactions for a fee.

            In December, 1983, Registrant, with others, organized a general 
partnership to engage in equipment leasing known as Builders Leasing Company, 
and agreed to act as its managing partner with a 20% interest.  The initial $2 
million capital of the partnership was contributed by each partner, in 
proportion to his percentage interest, over five years in semiannual 
installments.  In addition to the initial capitalization, the partners 
contributed $1,150,000 to the capital of the partnership in 1988, 1989 and 
1990.  Registrant's capital contribution to date totals $630,000.  Certain 
directors and officers of Registrant also hold an aggregate of 27% of the 
partnership interests, including Charles S. Bresler, Chairman of the Board and 
principal shareholder (20%), and Burton J. Reiner, President, director and 
principal shareholder (5%).

            Builders Leasing Company owns two vessels servicing the oil 
industry.  It also owns transportation barge and petroleum transportation 
vehicles.  The value of the vessels may be

                                      -15-
<PAGE>
 
impacted by fluctuations in the price of oil.  The partners are personally 
liable for debt of Builders Leasing, with a balance at December 31, 1995 of 
about $1,256,000.

            In February 1984 Registrant organized Tech-High Leasing Company, a 
general partnership in which it holds a 50% interest. The other 50% is held by 
a non-affiliated corporation.  Registrant and its partner have each contributed 
$1,100,000.  Tech-High currently owns heavy duty construction and 
transportation equipment with a net book value as of December 31, 1995, of 
approximately $3,572,000.  The partnership debt on these acquisitions as at 
December 31, 1995, was approximately $1,891,000 of which Registrant is 
personally liable for approximately $458,000.

            Registrant is no longer entering into new equipment leases.  The 
current lease portfolio will substantially phase out in 1996.

        Registrant, through a wholly owned subsidiary, has since August, 
1987, conducted a coin operated telephone business, primarily in Florida and 
Maryland.  The telephones are now being serviced by a management company in 
Maryland and by a partnership, of which Registrant's subsidiary is a 50% 
partner, in Florida.


Employment
----------

            On February 23, 1996, Registrant and its subsidiaries employed 
approximately 137 persons.

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


            Registrant borrows money from time to time on general credit and it 
expects to continue such open account borrowing in the future.  It has also 
granted mortgages or deeds of trust on its real estate and security interests 
in its equipment leases and leased equipment.  Registrant's business and 
earnings are dependent in part on its ability to obtain interim construction 
and permanent financing on acceptable terms for its construction and sale of 
single family residences and for its development of rental property.  Certain 
of Registrant's borrowing is tied to the prime interest rate.

            Registrant's business is substantially dependent on general 
economic conditions, and the availability of construction labor and materials 
in the area served.  Registrant's business is materially affected by federal 
housing programs.  To the extent that Registrant's financing of projects is 
insured by the Federal

                                      -16-
<PAGE>
 
Housing Administration ("FHA"), Registrant is subject to FHA construction, 
operation and other requirements, including provisions relating to rentals, 
management agreements, various reserves, employment and leasing practices.  The 
development of unimproved real estate is subject to Registrant's obtaining 
appropriate governmental approvals, and availability of utilities, including 
sewers.


ITEM 2.   PROPERTIES.
          ----------

            Rental properties of Registrant are described under "Rental 
Property Ownership and Management" in Item 1.


ITEM 3.   LEGAL PROCEEDINGS.
          -----------------

            Registrant, S.E.W. Investors, Town Center Management Company (a 
subsidiary of Registrant), Bresler and Reiner Companies (a subsidiary of 
Registrant), and Trilon Plaza Company are defendants in a civil suit case no. 
90-CA10594 filed October 12, 1990 in the Superior Court of the District of 
Columbia by Joanne Bahura, et. al. (the "Plaintiffs").  The Plaintiffs are 19 
individuals who state they are all present or former employees of the 
Environmental Protection Agency, which leases certain office space at a high 
rise office building in Washington, D.C. known as the "Waterside Mall Complex."
Four spouses of such employees are also plaintiffs. See "Management of Rental
Properties," "Southwest Washington, D.C. Urban Renewal Area," "High Rise Office
Buildings," "Shopping-Office Center" and "Southeast Section" in Item 1 above.
The Complaint, as amended (the "Complaint"), alleges that (i) the defendants are
the owners of the Waterside Mall Complex and (ii) certain renovations and
reconstruction to the Waterside Mall Complex were done in such a manner as to
cause the Plaintiffs multiple physiological and physical symptoms.


        The Complaint seeks damages aggregating $40,000,000 under claims of 
negligence, breach of warranty of habitability, breach of contract, strict 
liability, loss of consortium and punitive damages.  The claims of six 
plaintiffs were tried to a jury from October 25 to December 23, 1993, with 
verdicts for plaintiffs totalling $948,000.  No punitive damages were awarded.  
Defendants filed motions for judgment notwithstanding the verdict, which the 
Court granted in November 1995, as to $716,000.  Plaintiffs have filed a notice 
of appeal.  The cases of the other plaintiffs remain to be tried.  Management 
believes the claims are without merit and intends to continue to contest the 
case vigorously.  

                                      -17-
<PAGE>
 
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
          ---------------------------------------------------

          Not Applicable.

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


                       Executive Officers of Registrant
                  (included pursuant to instruction 3 to Item
                           401(b) of Regulation S-K)

                                     Present Positions
                                     and Offices with        Date Elected
Name                    Age          Registrant              to Office   
----                    ---          -----------------       ------------
                        
Charles S. Bresler       68          Chief Executive         June 2, 1970
                                     Officer, Chairman
                                     of the Board and
                                     Director
                        
Burton J. Reiner         67          President and           June 2, 1970
                                     Director
                        
William L. Oshinsky      53          Treasurer and           April 6, 1994
                                     Director                November 15, 1994
                        
Edwin Horowitz           64          Secretary and           June 2, 1970
                                     Director

            In accordance with Article V of the By-Laws of Registrant, each 
officer was elected to serve until his successor is chosen and shall have 
qualified or until his earlier resignation or removal.

            There is no family relationship as defined in the instructions to 
this Item between any of the above officers, except Mr. Oshinsky is the 
brother-in-law of Mr. Reiner.

            Each officer has held the above positions as his principal 
occupation for more than the past five years, except Mr. Oshinsky, who, prior 
to his election as Treasurer, served as an officer of subsidiaries of 
Registrant for more than the past five years.

                                    PART II
                                    -------

ITEM 5.   MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS.                                
          ----------------------------------------------------

          Registrant's Common Stock is traded in the over-the-counter market.  
The following table presents the high and low bid quotations for the periods 
shown, as reported by the National Quotation Bureau, Inc.  No bid quotations 
were reported for the first quarter of 1994.  No dividends were declared or 
paid during the years reported.

                                      -18-
<PAGE>
 
Year Ended December 31, 1995
----------------------------

            Quarter                                 Price
            ----------------------------------------------
            1st                  High               11
                                 Low                10
            ----------------------------------------------
            2nd                  High               11
                                 Low                10
            ----------------------------------------------
            3rd                  High               10
                                 Low                 9
            ----------------------------------------------
            4th                  High               10 1/2
                                 Low                10
            ----------------------------------------------

Year Ended December 31, 1994
----------------------------

            Quarter                                 Price
            ----------------------------------------------
            1st                  High               *
                                 Low                *
            ----------------------------------------------
            2nd                  High               10
                                 Low                10
            ----------------------------------------------
            3rd                  High               11 1/2
                                 Low                10
            ----------------------------------------------
            4th                  High               11
                                 Low                10
            ----------------------------------------------

            ---------------
            *Unpriced.  

            The above quotations represent prices between dealers and do not 
include retail markup, markdown or commissions and do not represent actual 
transactions.

            As of March 4, 1996, there were 168 record holders of Common Stock.

                                      -19-
<PAGE>
 
ITEM 6.  SELECTED FINANCIAL DATA
         -----------------------

              1995         1994          1993*         1992*         1991*
              ----         ----          -----         -----         ----- 

Revenues $ 33,824,000  $ 39,563,000  $ 31,683,000  $ 34,086,000  $ 35,639,000
Net (loss) 
income
before
extra-
ordinary
item and
cumulative
effect of
accounting
change   $  4,404,000  $(4,109,000)  $(8,408,000)  $(1,973,000)       172,000

Net income  
(loss)   $  6,140,000  $ 3,404,000   $(5,133,000)  $(1,973,000)  $  3,383,000
         ============  ============  ============  ============  ============

Earnings
per common
share
before
extra-
ordinary
item and 
cumulative
effect of
accounting
change   $       1.57  $     (1.45)  $     (2.96)  $      (.70)  $       0.06

Earnings
per common
share    $       2.18  $       1.20  $     (1.81)  $      (.70)  $       1.19 
         ============  ============  ============  ============  ============

Total
Assets   $101,395,000  $103,401,000  $152,520,000  $165,196,000  $175,413,000
         ============  ============  ============  ============  ============

Long Term
Obliga-
tions    $ 33,729,000  $ 42,495,000  $ 91,336,000  $ 91,177,000  $ 95,203,000
         ============  ============  ============  ============  ============

Cash divi-
dends per
common
share         (1)           (1)           (1)           (1)           (1)     
         ============  ============  ============  ============  ============

__________________________
(1)   No dividends have been declared or paid.

*  Restated to reflect reclassifications.

                                      -20-
<PAGE>
 
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS              
          -------------------------------------------------

RESULTS OF OPERATIONS
---------------------

      Since January 1993, Registrant restructured, acquired and disposed of 
several principal assets and liabilities, and negotiated a major commercial 
lease renewal with an existing tenant.  

      The transactions, which are discussed below under the appropriate 
captions, are as follows:

      1.    In June 1993 Registrant entered into a new lease with the General 
Services Administration ("GSA") of the Waterside Mall office areas for the five 
year term of September 14, 1992 - September 13, 1997.  In November 1994 the 
lease was extended at a reduced rent, to September 2002.  

      2.    The disposition of Registrant's interest in the assets and 
liabilities of the Country Club joint venture and the termination of 
Registrant's recourse debt liabilities effective February 10, 1994.

      3.    The purchase in 1993 of the outstanding debt on Paradise Sudley 
North buildings B and C.  This debt was 50% recourse and was in dispute with 
the successor in interest to the lender.

      4.    The purchase of the first trust debt on the Colonnade project and 
the subsequent foreclosure of the property, in 1993.

      5.    The purchase of the debt on the 7800 office building in Manassas, 
Virginia in 1993.

      6.    Gain in 1993 equal to approximately 57% of the previously 
written-off reserve for Washington Bancorporation Commercial Paper.

      7.    The take-over by a receiver in 1993 of the 178 unit garden 
apartment project known as Allentown Apartments and subsequent foreclosure and 
ratification of the foreclosure in 1995.

      8.    In December 1994 the Frying Pan partnership returned this land to 
the sellers.

Sales of Homes and Lots
-----------------------

      During 1995, Registrant sold 56 homes and no condominium units and three 
lots totalling $8,117,000 as compared with 65

                                      -21-
<PAGE>
 
homes and 6 condominium units and no lots in 1994 totalling $11,236,000 and 49 
homes and four lots totalling $7,633,000 in 1993.  Continued slow economic 
growth, employment uncertainty and proposed government reduction in the 
Washington, DC metropolitan area affected sales at Registrant's projects, and 
has resulted in increased inventory of homes as purchasers have terminated 
sales agreements.

Rentals-Apartments and Commercial
---------------------------------

      The GSA lease was renewed in 1993, effective September 1992.  As a 
result, the increased rent commencing September 1992 was recognized in 1993.  
The 1994 decreased revenues result from the reporting of twelve months of 
revenues for 1994 while the 1993 results include revenues for fifteen months 
with respect to the GSA lease, due to the August 1993 rent catch up payment.

      The GSA lease provided that the rent was to be reduced, if GSA elected 
before December 31, 1994 to extend the lease for a further five years.  GSA 
exercised the option in November 1994.   The reduction will be about $895,000 
per year in the Registrant's revenues from the lease, plus $350,000 per year in 
leasing and management fees and income from Town Center office building 
discussed below.  GSA has the option to cancel the lease on certain space 
effective any time during the second five years and on certain other space at 
any time after the eighth year.  

      The 1993 results include revenues from Allentown Apartments for the 
period January 1, 1993 through September 30, 1993, when a receiver took 
possession of the property (see, "Notes Payable-Mortgages" below).

Hotel Operation
---------------

      Included in 1995 results is $3,570,000 of income and $3,317,003 of 
expenses relating to the Colonnade.  See "Income (Loss) from Equity 
Investments" below.

Leasing Fees, Affiliates
------------------------

      The 1993, 1994 and 1995 results consist of a 5% real estate leasing fee 
earned by Registrant resulting from the GSA lease.  These fees are recorded as 
earned over the life of the lease, as rent is collected.  The 1994 decrease is 
a result of recording twelve months of leasing fees as opposed to fifteen 
months of fees in 1993, due to the August 1993 rent catch up payment.  See 
"Rentals -- Apartments and Commercial."

                                      -22-
<PAGE>
 
Interest, Other
---------------

      The 1993 increased revenues result primarily from interest received in 
conjunction with Federal income tax refunds and District of Columbia property 
tax refunds.  There were no such revenues in 1994 or 1995.  During 1994, there 
was a reduction in notes receivable, other due to the refinancing of those 
notes, thus reducing Interest, Other.  The 1995 increase resulted from higher 
cash balances.

Gain on Sale of Realty Interests
--------------------------------

      On June 30, 1992, Registrant sold its Philadelphia nursing home to an 
unaffiliated nursing home operator.  The sale price was $4,200,000, of which 
Registrant received $500,000 in cash and a wrap-around mortgage of $3,700,000.  
In May 1994 the nursing home was sold and the outstanding balance of $3,574,500 
was paid off.  A gain of $1,145,000 was recorded in 1994.

Gain on Commercial Paper
------------------------

      In 1990, Registrant held $2.5 million of short term commercial paper of 
Washington Bancorporation ("WBC").  In August, 1990, WBC defaulted on its 
commercial paper and filed for protection under Chapter 11 of the Federal 
Bankruptcy Act.  Registrant recorded in 1990 a $1.25 million reserve for the 
potential loss on commercial paper and ceased accruing interest.  On June 14, 
1993, Registrant received $1,961,168 in settlement of its commercial paper 
claim as part of a global settlement between commercial paper creditors, other 
creditors, director and officer insurance carriers and the FDIC.  As a result, 
Registrant recognized a $711,168 gain in the second quarter of 1993.

Income (Loss) from Equity Investments
-------------------------------------

      The components of this Item are as follows:

  Year Ended December 31               1995          1994            1993
  ----------------------               ----          ----            ----

Colonnade                            $    -0-           -0-      ($13,828,000)
Orlando, Florida Apartments         (  72,000)    ($125,000)     (     61,000)
Town Center Office Building           809,000       936,000         1,149,000
Tech High Leasing Company              84,000     (  25,000)          226,000

Other                               ( 180,000)    (  23,000)     (     18,000) 
                                    ---------     ---------      ------------
                        Total        $641,000      $763,000      ($12,532,000)

      On July 12, 1993, Uptown Hotel Corporation ("Uptown"), a subsidiary of 
Registrant, purchased from the mortgage holder the secured deed of trust note 
on the Colonnade property for the outstanding balance of $15,336,391.  On 
September 13, 1993, as

                                      -23-
<PAGE>
 
the result of a public trustee sale of the property Uptown purchased the hotel, 
commercial space, six condominiums and certain parking spaces.  The trustee 
sale was ultimately ratified on March 10, 1994.

      As a result of these activities, the Registrant in 1993 recorded a loss 
from equity investment of $13,828,000, which is the result of writing down the 
Registrant's investment to fair value and recording the Colonnade operating 
losses for 1993.

      Registrant has a 46% partnership interest in Town Center East Office 
Building at Waterside Mall.  Registrant's share of the earnings from that 
partnership decreased in 1995, due to decreased revenues from the GSA lease 
(see, "Rentals, Apartments and Commercial," above).

Loss on Write Down of Receivables
---------------------------------

      Included in Receivables - Other at December 31, 1994 were amounts due 
                  -------------------
Registrant from a state Department of Public Welfare with respect to a nursing 
home previously owned by Registrant.  At September 30, 1995 Registrant reduced 
this receivable by $545,000 to reflect the amount allowed by the Department of 
Public Welfare.

Provision for Loss on Real Estate
---------------------------------

      In 1994 Registrant wrote off the carrying value of the Fairfax, Virginia 
property, which the Frying Pan partnership returned to the sellers.  This 
resulted in a charge of $16,834,000, and a gain on elimination of debt of 
$5,200,000 (before income tax effect).

      On February 10, 1994, Registrant entered into an agreement with the 
holder of the first and second mortgages relating to the property owned by 
Country Club Associates Partnership whereby Registrant paid $3,500,000, 
including a two year secured note for $1,000,000, for the release of 
Registrant's guaranty of the first trust loan, the second trust note, the land 
exchange liability, any mechanics liens, real estate taxes and unknown recourse 
claims.

      In accordance with generally accepted accounting principles, Registrant 
reduced the carrying value of Country Club as at December 31, 1993, resulting 
in a charge of $9,898,000.  In accordance with generally accepted accounting 
principles, Registrant recorded a $6,398,000 gain on elimination of the Country 
Club debt in the first quarter of 1994 to reflect the February, 1994 
transaction.

                                      -24-
<PAGE>
 
Extraordinary Item-Debt Elimination
-----------------------------------

      A partnership, now 98% owned by Registrant, owns four office buildings in 
Manassas, Virginia, totalling 187,000 square feet on 16.35 acres of land.  
Buildings B and C of that project were subject to the original construction 
loan with a balance outstanding in June, 1993 of $8.12 million, plus accrued 
interest.  In June, 1993, Registrant purchased the loan for $5 million and 
recorded a net gain of $4.9 million due to elimination (defeasance) of debt.  
In September 1993, Registrant purchased the construction loan on the 7800 
Building in Manassas, VA and recorded a net gain of $145,000.

      In January, 1994 the holder of the note on the Country Club Associates 
property foreclosed and obtained possession of the property.  On February 10, 
1994, Registrant entered into an agreement with the holder of the first and 
second mortgages relating to the property owned by Country Club Associates 
Partnership whereby Registrant paid $3,500,000, including a two year secured 
note for $1,000,000, for the release of Registrant's guaranty of the first 
trust loan, the second trust note, the land exchange liability, any mechanics 
liens, real estate taxes and unknown recourse claims.  At that time Registrant 
recorded the disposition of the property.  This transaction resulted in a 
pre-tax extraordinary gain of $6,398,000 in the first quarter of 1994.

      Registrant also recorded pre-tax extraordinary gain of $5,200,000 in 
December 1994 with respect to the disposition of the Fairfax, Virginia 
property.

      In 1992 Registrant tendered a deed to the holder of the loan on Allentown 
Apartments.  In September 1993 the holder refused the deed offered by 
Registrant, had a receiver appointed and took possession of the property.  In 
May 1995 the holder foreclosed on the property.  In August 1995 the Circuit 
Court for Prince George's County, Maryland ratified the foreclosure sale.  This 
transaction resulted in a pre-tax extraordinary gain of $2,678,000 after 
payment of $480,000 guaranteed by Registrant and related expenses.

Balance Sheet:
-------------

Land Held for Development and Notes Payable - Land and Development
------------------------------------------------------------------

      The decrease in these items reflects the write-off of the Country Club 
and Frying Pan properties (see "Provision for Loss on Real Estate" above) and 
the corresponding debt elimination.

                                      -25-
<PAGE>
 
Notes Payable - Mortgages
-------------------------

      Included in the total for Mortgages is a $4,177,134 Deed of Trust Note on 
Allentown Apartments at December 31, 1994.  See "Extraordinary Item - Debt 
Elimination" above.  

Liquidity and Capital Resources
-------------------------------

      Registrant believes that the eight transactions enumerated above have 
alleviated most of its earlier partnership problems.  

      Registrant continues to fund its obligations out of current cash flow.  
The banking and finance communities continue to be adverse to most real estate 
lending, requiring increased coverage on debt and significant owner investment 
in properties.  There is no assurance that Registrant will be able to meet all 
of its needs out of cash  flow or that additional funding will be available to 
Registrant if needed.  

      During the year ended December 31, 1994, Registrant generated cash flow 
from operating activities and investing activities of $7,575,000 and $1,953,000 
respectively.  The cash flow was used in financing activities for the repayment 
of notes payable, including $2,500,000 related to the disposition of the 
Country Club Associates property.  Overall, cash flow from operating, investing 
and financing activities resulted in an increase of $4,538,000 in cash and cash 
equivalents during the year ended December 31, 1994.

      During the year ended December 31, 1995, Registrant generated cash flow 
from operating activities and investing activities of $7,214,000 and $548,000, 
respectively.  The cash flow was used in financing activities for the repayment 
of mortgages and notes payable.  Overall, cash flow from operating, investing 
and financing resulted in an increase of $3,721,000 in cash and cash 
equivalents during the year ended December 31, 1995.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
          -------------------------------------------

            The financial statements are listed under Item 14 in this annual 
report and are included therein.

            No supplementary data are supplied because none are required.

ITEM 9.   DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
          ----------------------------------------------------

            None.

                                      -26-
<PAGE>
 
                                PART III
                                --------

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
          -----------------------------------------------

            The information required by this item will be incorporated by 
reference to a definitive proxy statement involving the election of directors 
which is expected to be filed by the Company pursuant to Regulation 14A within 
120 days after the close of its fiscal year.


ITEM 11.  EXECUTIVE COMPENSATION.
          ----------------------

            The information required by this item will be incorporated by 
reference to a definitive proxy statement involving the election of directors 
which is expected to be filed by the Company pursuant to Regulation 14A within 
120 days after the close of its fiscal year, except for the information 
contained under such definitive proxy statement under the captions "Board 
Compensation Committee Report on Executive Compensation" and "Performance 
Graph."

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND               
          MANAGEMENT.                                        
          ---------------------------------------------------

            The information required by this item will be incorporated by 
reference to a definitive proxy statement involving the election of directors 
which is expected to be filed by the Company pursuant to Regulation 14A within 
120 days after the close of its fiscal year.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
          ----------------------------------------------

          The information required by this item will be incorporated by 
reference to a definitive proxy statement involving the election of directors 
which is expected to be filed by the Company pursuant to Regulation 14A within 
120 days after the close of its fiscal year.

                  [balance of page intentionally left blank]

                                      -27-
<PAGE>
 
                                    PART IV

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

                                                                            Page
                                                                            ----

A.   The following documents are filed as part of this report:

     1.   Financial Statements

          Bresler & Reiner, Inc. Consolidated Financial Statements:

              Report of Independent Public Accountants                        29
                                                                              
              Consolidated Balance Sheets                                  30-31
                                                                                
              Consolidated Statements of Income                               32
                                                                                
              Consolidated Statements of Changes in Shareholders' Equity      33
                                                                              
              Consolidated Statements of Cash Flows                        34-35
                                                                               
              Notes to Consolidated Financial Statements                      36

     2.   Financial Statement Schedules III and IV                            52

          Schedules other than those listed above have been omitted because they
          are not required, not applicable, or the required information is set
          forth in the financial statements or notes thereto.

     3.   Exhibits                                                            60

B.   Reports on Form 8-K

     No report on Form 8-K was filed during the last quarter of the fiscal year
     1995.

                                      -28-
<PAGE>
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Bresler & Reiner, Inc.:

We have audited the accompanying consolidated balance sheets of Bresler &
Reiner, Inc. (a Delaware corporation, the "Company"), as of December 31, 1995
and 1994, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years ended December
31, 1995.  These consolidated financial statements and the schedules referred to
below are the responsibility of the Company's management.  Our responsibility is
to express an opinion on these consolidated financial statements and schedules
based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1995 and 1994, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole.  The schedules listed in the
index of financial statements are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
consolidated financial statements.  This information has been subjected to the
auditing procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, is fairly stated, in all material respects in
relation to the basic consolidated financial statements taken as a whole.


/s/ Arthur Andersen LLP

Washington, D.C.,
   March 15, 1996

                                      -29-
<PAGE>
 
                             BRESLER & REINER, INC.



                          CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 1995 AND 1994



                                     ASSETS

<TABLE>
<CAPTION>
                                              1995          1994
                                          ------------  ------------
<S>                                       <C>           <C>
     RENTAL PROPERTY AND EQUIPMENT, net   $ 38,018,000  $ 40,337,000

     CONSTRUCTION IN PROCESS                10,198,000    12,817,000

     HOMES HELD FOR SALE                     3,650,000     2,154,000

     LAND HELD FOR DEVELOPMENT               4,903,000     4,886,000

     LAND HELD FOR SALE                        431,000       793,000

     RECEIVABLES:
       Mortgages and notes, affiliates       5,971,000     6,358,000
       Mortgages and notes, other            1,228,000     2,417,000
       Direct financing leases               1,022,000     3,007,000
       Other                                 1,838,000     3,457,000

     INVESTMENT IN AND ADVANCES TO
      JOINT VENTURES AND PARTNERSHIPS        4,233,000     5,615,000
 
     CASH AND CASH EQUIVALENTS              10,921,000     7,200,000

     CASH DEPOSITS HELD IN ESCROW           11,215,000     7,165,000

     INCOME TAXES RECEIVABLE                   991,000     2,733,000

     DEFERRED CHARGES AND OTHER ASSETS       6,776,000     4,462,000
                                          ------------  ------------
                                          $101,395,000  $103,401,000
                                          ============  ============
</TABLE>




The accompanying notes are an integral part of these consolidated balance
                                    sheets.

                                      -30-
<PAGE>
 
                             BRESLER & REINER, INC.



                          CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 1995 AND 1994




                      LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                              1995           1994
                                          ------------   ------------
<S>                                       <C>            <C>
LIABILITIES:
 Notes payable-
  Mortgages                               $ 33,634,000   $ 40,045,000
  Land and development                         500,000      1,000,000
  Leasing equipment                             95,000      1,450,000
 Accounts payable, trade                     2,703,000      3,259,000
 Accrued expenses                              859,000        970,000
 Tenant deposits                               275,000        264,000
 Deferred income                             1,183,000        976,000
 Deferred income taxes payable               2,871,000      2,791,000
 Due to affiliates                           1,000,000              -
                                          ------------   ------------
   Total liabilities                        43,120,000     50,755,000

MINORITY INTEREST                              306,000        432,000

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
 Common stock, $0.01 par value:
  4,000,000 shares authorized,
  2,839,603 shares issued, 2,792,653
  and 2,836,403 shares outstanding at           28,000         28,000
  December 31, 1995 and 1994,
  respectively
 Capital in excess of par                    7,565,000      7,565,000
 Retained earnings                          50,804,000     44,664,000
 Treasury stock                               (428,000)       (43,000)
                                          ------------   ------------
   Total shareholders' equity               57,969,000     52,214,000
                                          ------------   ------------
                                          $101,395,000   $103,401,000
                                          ============   ============ 
</TABLE>



The accompanying notes are an integral part of these consolidated balance
                                    sheets.

                                      -31-
<PAGE>
 
                             BRESLER & REINER, INC.


                       CONSOLIDATED STATEMENTS OF INCOME
             FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

<TABLE>
<CAPTION>
                                              1995          1994          1993
                                          -----------   -----------   ------------
<S>                                       <C>           <C>           <C>
REVENUES:
          Sales of homes and lots         $ 8,117,000   $10,567,000   $  7,633,000
          Other construction, net           1,340,000       970,000        561,000
          Rental income - apartments       13,803,000    15,167,000     15,047,000
           and commercial
          Hotel income                      5,534,000     5,492,000      1,799,000
          Management fees, affiliates         831,000       879,000        835,000
          Leasing fees, affiliates            725,000       776,000      1,008,000
          Interest-
            Affiliates                      1,112,000     1,213,000      1,143,000
            Other                             866,000       656,000      1,245,000
          Gain on sales of realty             281,000     1,439,000        317,000
           interests, net
          Gain on commercial paper                  -             -        711,000
          Equipment leasing and vending       512,000     1,562,000      1,315,000
          Income from equity investments      641,000       763,000              -
          Other                                62,000        79,000         69,000
                                          -----------   -----------   ------------
                                           33,824,000    39,563,000     31,683,000
                                          -----------   -----------   ------------

COSTS AND EXPENSES:
          Cost of home and lot sales        7,927,000     9,702,000      6,576,000
          Rental expense                    6,594,000     6,854,000      7,345,000
          Hotel expense                     5,004,000     5,333,000      1,584,000
          Land development expense            107,000       178,000        509,000
          General and administrative        2,082,000     2,617,000      2,673,000
          Interest expense                  3,267,000     3,700,000      3,439,000
          Loss from equity investments              -             -     12,532,000
          Equipment leasing and vending       448,000       815,000        858,000
          Provision for loss on real          200,000    16,834,000      9,898,000
           estate
          Other                               673,000             -              -
                                          -----------   -----------   ------------
                                           26,302,000    46,033,000     45,414,000
                                          -----------   -----------   ------------

NET INCOME (LOSS) BEFORE INCOME TAXES, 
          EXTRAORDINARY ITEM AND 
          MINORITY INTEREST                 7,522,000    (6,470,000)   (13,731,000)
 
PROVISION FOR INCOME TAXES (BENEFIT)        3,087,000    (2,336,000)    (5,305,000)
                                          -----------   -----------   ------------
          
NET INCOME (LOSS) BEFORE EXTRAORDINARY 
          ITEM AND MINORITY INTEREST        4,435,000    (4,134,000)    (8,426,000)
          
 
EXTRAORDINARY ITEM:
          Debt elimination (Net of 
           income tax of $942,000 in 
           1995, $4,075,000 in 1994,           
           and $1,776,000 in 1993)          1,736,000     7,513,000      3,275,000    
 
 
NET INCOME (LOSS) BEFORE MINORITY 
          INTEREST                          6,171,000     3,379,000     (5,151,000)
          
MINORITY INTEREST                             (31,000)       25,000         18,000

NET INCOME (LOSS)                         $ 6,140,000   $ 3,404,000   $ (5,133,000)

EARNINGS PER COMMON SHARE BEFORE 
          EXTRAORDINARY ITEM              $      1.57   $     (1.45)  $      (2.96)
 
EXTRAORDINARY ITEM                                .61          2.65           1.15

EARNINGS PER COMMON SHARE                 $      2.18   $      1.20   $      (1.81)
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -32-
<PAGE>
 
                             BRESLER & REINER, INC.

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
             FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

<TABLE>
<CAPTION>
                                                   CAPITAL IN                                TOTAL
                                          COMMON   EXCESS OF     RETAINED     TREASURY   SHAREHOLDERS'
                                           STOCK      PAR        EARNINGS      STOCK         EQUITY
                                          -------  ----------  -----------   ---------   ------------- 
<S>                                       <C>      <C>         <C>           <C>         <C>
           BALANCE, December 31, 1992     $28,000  $7,565,000  $46,393,000   $ (40,000)    $53,946,000
           Net (loss)                           -           -   (5,133,000)          -      (5,133,000)
                                          -------  ----------  -----------   ---------   ------------- 
           BALANCE, December 31, 1993      28,000   7,565,000   41,260,000     (40,000)     48,813,000
                  Net income                    -           -    3,404,000           -       3,404,000
              Purchase of Treasury stock        -           -            -      (3,000)         (3,000)
                                          -------  ----------  -----------   ---------   ------------- 
           BALANCE, December 31, 1994      28,000   7,565,000   44,664,000     (43,000)     52,214,000
              Net income                        -           -    6,140,000           -       6,140,000
              Purchase of Treasury stock        -           -            -    (385,000)       (385,000)
                                          -------  ----------  -----------   ---------   ------------- 
           BALANCE, December 31, 1995     $28,000  $7,565,000  $50,804,000   $(428,000)    $57,969,000
                                          =======  ==========  ===========   =========   ============= 
</TABLE>

       The accompanying notes are an integral part of these statements.
                                    

                                      -33-
<PAGE>
 
                             BRESLER & REINER, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
                                              1995          1994           1993
                                          -----------   ------------   ----------- 
<S>                                       <C>           <C>            <C>  
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income (loss) before extraordinary                                             
  item                                    $ 4,404,000   $ (4,109,000)  $(8,408,000) 
 Extraordinary item, net of tax             1,736,000      7,513,000     3,275,000
                                          -----------   ------------   -----------  
 Net income (loss)                          6,140,000      3,404,000    (5,133,000)
 Adjustments to reconcile net income
  (loss) to net cash provided by
  operating activities-
    Extraordinary item - gain on debt      (2,678,000)   (11,588,000)   (5,051,000)
     forgiveness                         
    Depreciation and amortization           2,434,000      2,368,000     2,109,000
    Recognition of deferred income                  -              -      (325,000)
    Gain on commercial paper                        -              -      (711,000)
    Gain on sales of realty interests, net   (281,000)    (1,439,000)     (317,000)
    Investment in direct financing leases           -        (54,000)      (38,000)
    Direct financing lease payments         1,429,000      2,779,000     3,317,000
    Amortization of investment in direct     (141,000)      (329,000)     (572,000)
     financing leases                    
    Proceeds from sale of equipment under
     direct financing leases                  789,000      1,484,000         6,000
    (Gain) loss from equity investments      (641,000)      (763,000)   12,532,000
    Provision for loss on real estate         200,000     16,834,000     9,898,000
    Deferred income taxes                      80,000      1,960,000    (5,622,000)
    Other                                     (92,000)      (781,000)        4,000
    Changes in other assets and 
     liabilities-                        
     (Increase) decrease in:             
     Construction in process                2,619,000      3,322,000       376,000
     Homes held for sale                   (1,496,000)    (2,154,000)            -
     Land held for sale                       162,000       (793,000)            -
     Mortgages and notes receivable         1,857,000      3,290,000       823,000
     Income taxes receivable                1,742,000     (1,675,000)     (928,000)
     Other assets                          (4,361,000)    (4,866,000)    1,125,000
    All other liabilities                    (548,000)    (3,424,000)   (1,946,000)
                                          -----------   ------------   -----------  
      Total adjustments to reconcile net  
       income (loss) to net cash provided 
       by operating activities              1,074,000       4,171,00    14,680,000
                                          -----------   ------------   -----------                                           
      Net cash provided by operating         
       activities                           7,214,000      7,575,000     9,547,000 
</TABLE>

       The accompanying notes are an integral part of these statements.
                                    

                                      -34-
<PAGE>
 
                             BRESLER & REINER, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                                  (CONTINUED)

<TABLE>
<CAPTION>
                                              1995          1994           1993
                                          -----------   ------------   ----------- 
<S>                                       <C>           <C>            <C> 
CASH FLOWS FROM INVESTING ACTIVITIES:
 Investment in joint ventures             $ 1,485,000   $  1,337,000   $(2,911,000)
 Investment in commercial paper                     -              -     1,961,000
 Purchase of treasury stock                  (385,000)        (3,000)            -
 Other                                       (504,000)       619,000      (727,000)
                                          -----------   ------------   ----------- 
  Net cash provided by (used in)
   investing activities                       596,000      1,953,000    (1,677,000)
                                          -----------   ------------   ----------- 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
   Repayment of notes payable              (4,089,000)   (11,490,000)   (9,033,000)
   Proceeds from notes payable                      -      6,500,000             -
                                          -----------   ------------   -----------  
    Net cash used in financing             
     activities                            (4,089,000)    (4,990,000)   (9,033,000) 
                                          -----------   ------------   -----------  

NET INCREASE (DECREASE) IN CASH AND         3,721,000      4,538,000    (1,163,000)
 CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of     7,200,000      2,662,000     3,825,000
 year                                     -----------   ------------   -----------  

CASH AND CASH EQUIVALENTS, end of year    $10,921,000   $  7,200,000   $ 2,662,000
                                          ===========   ============   ===========  

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
 INFORMATION:
  Cash paid during the year for-
   Interest                               $ 3,293,186   $  3,675,000   $ 5,221,000
   Income taxes                             1,109,138        949,000     1,999,000

SUPPLEMENTAL DISCLOSURES OF NONCASH
 ACTIVITIES:
   Escrowed cash deposits received            176,325        214,000       228,000
   Escrowed cash deposits refunded            151,980        193,000       280,000
   Transfer of construction in process
    to rental property and equipment                -              -        21,000
   Transfer of construction in process
    to advances to/from affiliates                  -              -        22,000
   Acquisition of rental property and
    mortgage note payable                           -              -    13,836,000
 
REAL ESTATE ASSETS TRANSFERRED IN
 SATISFACTION OF LIABILITIES:
   Land held for development                        -     33,908,000             -
   Land                                       171,000              -             -
   Building & equipment, net                  553,000              -             -
   Accounts receivable and other assets       128,000              -             -
   Mortgage payable                         4,177,000     42,851,000             -
   Accounts payable                                 -      2,535,000             -
   Accrued expenses                             8,000      2,610,000             -
</TABLE>

The accompanying notes are an integral part of these statements.

                                      -35-
<PAGE>
 
                             BRESLER & REINER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    AS OF DECEMBER 31, 1995, 1994, AND 1993

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

ORGANIZATION AND PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Bresler & Reiner,
Inc., and its wholly and majority-owned subsidiaries (the "Company").  All
significant intercompany balances and transactions have been eliminated.

The Company's activities include residential land development and construction
and rental property ownership and management primarily in Maryland, Virginia and
the District of Columbia.

INVESTMENTS IN AND ADVANCES TO JOINT VENTURES AND PARTNERSHIPS

The Company includes its share of the earnings or losses of unconsolidated joint
ventures and partnerships under the equity method of accounting.

REVENUE RECOGNITION

The Company accounts for revenue from sales of homes and condominiums and sales
of real property in accordance with the provisions of the Statement of Financial
Accounting Standards ("SFAS") No. 66, "Accounting for Sales of Real Estate."
Rental, construction, and management service fees are generally recorded when
earned.  Leasing fees are recorded over the life of the lease.

RENTAL PROPERTY AND EQUIPMENT AND DEPRECIATION

Rental property and equipment are stated at cost.  Depreciation is recorded
using the straight-line method over the estimated useful lives of the related
assets.

CONSTRUCTION IN PROCESS AND LAND HELD FOR DEVELOPMENT

Construction in process and land held for development are stated at the lower of
cost or net realizable value.  When construction commences, costs are
transferred to construction in process where they are accumulated by project.
Other project costs included in construction in process include property taxes,
materials, labor, and allocated overhead.  These costs are charged to costs of
homes sold on a pro rata basis as homes are sold, in accordance with SFAS No.
67, "Accounting for Costs and Initial Rental Operations of Real Estate
Projects."  The Company generally finances its homebuilding operations from
internal cash flow.  The 

                                      -36-
<PAGE>
 
Company reviews its accumulated costs to determine that costs in excess of net
realizable value are charged to operations.

DIRECT FINANCING LEASES

The Company's leasing operations consist principally of the leasing of computer
equipment, tractors and trailers, rental store fixtures, and manufacturing plant
equipment.  The Company accounts for these leases as direct financing leases in
accordance with SFAS No. 13, "Accounting for Leases."

INCOME TAXES

Deferred income taxes result principally from temporary differences related to
the timing of the recognition of real estate sales, lease income, interest
expense and real estate taxes during development, and depreciation for tax and
financial reporting purposes.

EARNINGS PER COMMON SHARE

Earnings per common share is based upon the weighted average number of shares
outstanding during each year (2,823,866 shares in 1995, 2,836,481 shares in
1994, and 2,836,621 shares in 1993).

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.

CASH DEPOSITS HELD IN ESCROW

The Company treats the cash accounts of its management companies as restricted
for the exclusive use of the properties under management.

MANAGEMENT'S USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

LONG-LIVED ASSETS

Statement of Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of" ("SFAS 121") was
issued in March, 1995.  This statement addresses how entities should measure the
impairment of long-lived assets.  SFAS 121 is required to be implemented by the
Company in 1996.  The adoption of SFAS 121 is not expected to have a material
effect on the Company's 1996 consolidated financial statements.

                                      -37-
<PAGE>
 
RECLASSIFICATIONS

Certain 1994 and 1993 amounts have been reclassified in order to conform to the
1995 presentation.

2.   RENTAL PROPERTY AND EQUIPMENT, NET:

<TABLE>
<CAPTION>
                                              1995           1994
                                          ------------   ------------
<S>                                       <C>            <C>
         Land                             $  3,278,000   $  3,448,000
         Buildings and improvements         54,650,000     56,234,000
         Equipment                           3,268,000      3,002,000
                                          ------------   ------------
                                            61,196,000     62,684,000
         Less- Accumulated depreciation    (23,178,000)   (22,347,000)
                                          ------------   ------------
                                          $ 38,018,000   $ 40,337,000
                                          ============   ============
</TABLE>

Buildings and improvements and equipment are depreciated over the useful lives
of the related assets ranging from 5 to 40 and 3 to 12 years, respectively.

Substantially all rental property and equipment is pledged as collateral for
financing.

3.   LAND HELD FOR SALE:

Land held for sale represents land intended to be sold on the open market.  The
land is recorded at the lower of cost or realizable value.

4.   HOMES HELD FOR SALE:

Homes held for sale represents homes that have been substantially completed for
over one year and are held for sale on the open market.  These homes are
recorded at the lower of cost or realizable value.

5.   GAIN ON SALES OF REALTY INTERESTS, NET:

<TABLE>
<CAPTION>
                                             1995          1994         1993
                                          -----------  -------------  ----------
<S>                                       <C>          <C>            <C>
         Sales price                      $ 98,000(a)  $  485,000(a)  $       -
         Cost of sales                     167,000        458,000             -
                                          --------     ----------     --------- 
         (Loss) gain recognized,
          current year transactions        (69,000)        27,000             -
          Gain recognized from prior
           years' sales recorded using
           the installment method          350,000      1,412,000(b)    317,000
                                          --------     ----------     ---------  
                                          $281,000     $1,439,000      $317,000
                                          ========     ==========     ========= 
</TABLE>

(a)    The Company sold one convenience store property in 1995 and three
       convenience store properties in 1994 which are accounted for using the
       full accrual method.

                                      -38-
<PAGE>
 
(b)  During 1992, the Company sold a nursing home to an unaffiliated nursing
     home operator. The Company received a note, and therefore accounted for the
     gain on the transaction under the installment method of accounting and
     deferred profit to the extent of the note received. In 1994, the Company
     received the balance on the note and, therefore, the remaining deferred
     profit related to this transaction of $1,145,000 was recognized.

6.   OTHER CONSTRUCTION, NET:

<TABLE>
<CAPTION>
                                               1995            1994             1993    
                                           -----------      -----------      -----------
<S>                                        <C>              <C>              <C>       
      Other construction revenues          $ 2,137,000      $ 1,920,000      $ 1,409,000
      Other construction costs                 797,000          950,000          848,000
                                           -----------      -----------      -----------
      Total                                $ 1,340,000      $   970,000      $   561,000
                                           ===========      ===========      ===========
</TABLE>
    
7.   NOTES PAYABLE:

<TABLE>
<CAPTION>


 
                                                                             MATURITIES 
                                                                              FOR DEBT  
                                                                             OUTSTANDING
                                              1995*         1994              AT 12/31/95
                                           -----------      -----------      ------------ 
<S>                                        <C>            <C>                <C>
      Mortgages payable,            
       5.25% to 9.75% and          
       prime plus .125%,           
       (or 8.625% at               
       December 31, 1995)                                                                                      
       collateralized by           
       rental properties                   $33,634,000      $40,045,000        1997-2001 
      Notes payable, 4%                        500,000        1,000,000        1996
      Notes payable, 9.85% 
       to 11.5%,                             
       collateralized by           
       equipment                                95,000        1,450,000        1996-1997 
</TABLE>
     * Interest rates relate to the 1995 balances.

In connection with the assignment of leasehold interests in certain properties,
the Company received notes secured by the interests assigned.  The proceeds of
the notes received, as the result of the assignment of these interests, are used
to pay the original underlying mortgages on these properties.  These mortgages
remain on the Company's books, as of December 31, 1995 and 1994, at balances of
$7,713,000 and $8,671,000, respectively, and are included in mortgages payable
above.

Of the mortgages and notes payable, $10,192,000 are recourse to the Company at
December 31, 1995.  In addition, the Company has recourse obligations totaling
$1,196,000 related to guarantees given to creditors in certain of the Company's
investments in joint ventures.  See Note 10.

                                      -39-
<PAGE>
 
Annual principal payments are as follows.
<TABLE>
<CAPTION>
                                                    NOTES        NOTES             
                                       NOTES       PAYABLE,     PAYABLE, 
                                      PAYABLE,     LAND AND     LEASING 
                                     MORTGAGES    DEVELOPMENT  EQUIPMENT 
                                    -----------   -----------  ---------
<S>                                 <C>           <C>          <C>
1996                                $ 1,782,000   $500,000     $59,000                                                 
1997                                  1,932,000          -      36,000                                                 
1998                                 12,757,000          -           -                                                 
1999                                  9,169,000          -           -                                                 
2000                                  1,582,000          -           -                                                 
2001 and thereafter                   6,412,000          -           -                                                 
                                    -----------   --------     ------- 
                                    $33,634,000   $500,000     $95,000                                                 
                                    ===========   ========     ======= 
</TABLE>

 . Included in Mortgages on Rental Properties above is a renegotiated mortgage
  secured by an office building in Manassas, Virginia, which is substantially
  leased. At December 31, 1993, the note was in default and had a balance of
  $2,121,000. The mortgage was extended in 1994 for the principal balance at
  9.75% interest due December 1, 1998. As of December 31, 1995, the outstanding
  balance was $2,077,000.

 . Included in Mortgages on Rental Properties as of December 31, 1994, was a
  $4,177,000 mortgage in default on a property for which the Company had not
  made required principal and interest payments since June 1992.  The Company
  guaranteed the loan in an amount not to exceed $480,000.  During 1992, the
  Company offered to tender a deed to the property in partial satisfaction of
  the debt, which was refused by the noteholder.  The note was then acquired by
  a noteholder who purchased the note from the Resolution Trust Corporation.
  The new noteholder had a receiver appointed who took possession of the
  property on September 22, 1993.  The Resolution Trust Corporation then brought
  suit against the Company under the mortgage and guarantee.  In May 1995, the
  note holder foreclosed on the property, and in August 1995, the Court ratified
  the foreclosure sale.  At the time of foreclosure, the outstanding mortgage
  balance was $4,177,000 and the related net book value of the property, which
  approximated management's estimate of fair value, plus the guarantee and
  related expenses was $1,499,000 resulting in an extraordinary gain of
  $2,678,000.  The gain is presented as an extraordinary item net of tax in
  1995.

 . Paradise Sudley North Limited Partnership, 99 percent owned by the Company,
  was in default on a loan with the former National Bank of Washington.  the
  loan was secured by two of the four buildings owned by the partnership.  The
  noteholder, the Federal Deposit Insurance Corporation ("FDIC"), had demanded
  payment in full of the outstanding principal balance of $8,121,000 plus all
  accrued and unpaid interest.  Of this debt, 50 percent was guaranteed by the
  Company.  The FDIC had refused to fund tenant improvements and other
  obligations under the loan and had refused to extend the loan pursuant to its
  original terms.  In the opinion of management, the FDIC was obligated to
  fulfill the original terms of the National Bank of Washington loan.  In June
  1993, the company and the FDIC negotiated terms in which the Company paid
  approximately $5.0 million in full satisfaction of the debt resulting in a
  gain of $4.9 million due to the elimination of debt.  The gain is presented as
  an extraordinary item net of tax in 1993.

                                      -40-
<PAGE>
 
 . Included in Notes Payable, Land, at December 31, 1993, was $25,399,000, which
  was settled on February 10, 1994.  The Company entered into an agreement with
  the holder of the first and second mortgages relating to the property owned by
  Country Club Associates Partnership whereby the Company paid $3,500,000,
  including a two-year secured note for $1,000,000, for the release of the
  Company's guaranty of the first trust loan, the second trust note, the land
  exchange liability, any mechanics liens, real estate taxes, and unknown
  recourse claims.  Based on continuing negotiations to tender the asset in
  satisfaction of the debt, the Company recorded a provision for loss on real
  estate of $9,898,000 in 1993 to reduce the asset to its estimated fair value
  of $19,000,000 at December 31, 1993.  In accordance with generally accepted
  accounting principles, the Company recorded an extraordinary gain of
  approximately $6,398,000 due to satisfaction of the debt in the first quarter
  of 1994.  The gain is presented as an extraordinary item net of tax.

 . Included in Notes Payable, Land, at December 31, 1993, were nonrecourse
  mortgage notes totaling $18,452,000 that were secured by approximately 57
  acres of land held for development.  During 1994, the Company reevaluated its
  investment and concluded that the long term development plans for the property
  were no longer warranted given the continued softness in the commercial real
  estate market and the inability of the lenders to agree to continued debt
  modifications.  As a result, the Company recorded a write down of $16.8
  million representing the Company's estimate of the property value based on
  immediate liquidation.  In December 1994, one of the lenders took a deed in
  lieu of foreclosure on a 17 acre tract and took possession of the property.
  The Company tendered the deed in lieu of foreclosure to the seller on the
  remaining 40 acres.  As a result of this debt defeasance, the Company
  recognized an extraordinary gain of $5.2 million.  The gain is presented as an
  extraordinary item net of tax in 1994.

8.   MORTGAGES AND NOTES RECEIVABLES, AFFILIATES:

<TABLE>
<CAPTION>
                                       1995        1994
                                    ----------  ---------- 
<S>                                 <C>         <C>
              Mortgages and notes:
              Due 2001 (a)          $  473,000  $  545,000
              Due 2009               1,322,000   1,331,000
              Installment sales:
              Due 1999 (b)           1,883,000   1,948,000
              Due 2000 (c)           2,293,000   2,534,000
                                    ----------  ---------- 
                                    $5,971,000  $6,358,000
                                    ==========  ========== 
</TABLE>
(a)  In payment of construction costs, the Company accepted a second mortgage
     note with an office building pledged as collateral.  The note is due in
     monthly installments of principal and interest of $10,000, at 8.5 percent,
     from a limited partnership in which the Company is the general partner and
     has a 46 percent interest.  Certain of the Company's officers and directors
     own 4.5 percent of the limited partnership.  The note matures in 2001.

                                      -41-
<PAGE>
 
(b) Amounts due are net of deferred gains of $1,454,000 and $1,504,000 in 1995
    and 1994, respectively.  The amounts are due in monthly installments of
    $36,600, including interest at 9.5 percent through 1999, with a final
    payment due 1999 of approximately $2,838,000, from a limited partnership in
    which the Company is the sole general partner and has a 1 percent interest.
    The building sold is pledged as collateral for the note with no further
    recourse to the partnership.  Certain of the Company's officers and
    directors own 9 percent of the limited partnership.

(c) Amounts due are net of deferred gain of $2,725,000 and $3,011,000 in 1995
    and 1994, respectively.  The amounts are due in monthly installments of
    $95,700, including interest at 10 percent, through 2000, with a final
    payment of approximately $1,031,000, from a limited partnership in which the
    Company is a sole general partner and has a 1 percent interest.  The
    building sold is pledged as collateral for the note with no further recourse
    to the partnership.  Certain of the Company's officers and directors own 37
    percent of the limited partnership.

9.   MORTGAGES AND NOTES RECEIVABLES, OTHER:

<TABLE>
<CAPTION>
                                             1995        1994
                                          ----------  ----------
<S>                                       <C>         <C>
         Mortgages and notes:
          Home sales, 8% to 12.5%, due    $  433,000  $  639,000
           through 2020

         Sale of partnership interests,            -     562,000
          8% to 10%

         Condominium sales, 8% to 13%,
          net of deferred gain of            189,000     202,000
          $195,000 in 1995 and $208,000
          in 1994
 
         Notes receivable:
                  Other, 8% to 10%           567,000     975,000
                  Tenant improvement,         
                   10%                        39,000      39,000 
                                          ----------  ----------
                                          $1,228,000  $2,417,000
                                          ==========  ==========
</TABLE>

Substantially all notes are collateralized by first trusts on houses,
residential property or undeveloped land.

10.  INVESTMENT IN AND ADVANCES TO
     JOINT VENTURES AND PARTNERSHIPS:


The Company has general and limited partnership interests in entities that are
developing or operating properties located in Northern Virginia, Washington,
D.C., Baltimore, Maryland, and Orlando, Florida.

                                      -42-
<PAGE>
 
The Company held a 40 percent interest in the Colonnade Limited Partnership (the
"Colonnade")which owned a mixed-use property including a 119 unit condominium, a
125-room hotel and restaurant and  approximately 16,000 square feet of retail
and office space.  The Colonnade has been in various forms of default on the
underlying mortgage, which culminated in a public trustee sale of the property
on September 13, 1993, at which time the uptown Hotel Corporation ("Uptown") a
wholly owned subsidiary of the Company purchased the hotel, commercial spaces,
six condominium units and certain parking spaces. As a result of these
activities the Company, in 1993, recorded a loss in their equity investment of
$13,828,000, which is the result of writing down the Company's investment to
fair value and recording the Colonnade's operating losses for 1993.  The
property which is now wholly owned, and the related results of operations are
consolidated in the 1995 and 1994 financial statements.

The following is a summary of joint ventures and partnerships in which the
Company holds ownership interests.

<TABLE>
<CAPTION>

                                                                                                                 
                              COMPANY INTERESTS                                         AS OF DECEMBER 31, 1995                    
                              -----------------                                         -----------------------                    
                              GENERAL   LIMITED    CURRENT STATUS                                                    PARTNERSHIP   
                              PARTNER   PARTNER    OF PARTNERSHIPS     ASSETS    RECOURSE DEBT  NONRECOURSE DEBT  EQUITY (DEFICIT) 
                              --------  -------   -----------------  ---------   -------------  ----------------  ---------------
<S>                          <C>        <C>       <C>                <C>         <C>            <C>               <C>
Entities Accounted for
Under the Equity Method:
Town Center East, L.P.              1%       45%  Owns and
                                                  operates an
                                                  office building
                                                  in Southwest       
                                                  Washington, D.C.   $5,261,000  $         -          $2,118,000       $ 4,207,000 
 
SEW Associates                      1%        -   Owns and
                                                  operates a
                                                  segment of a
                                                  Shopping Mall in    
                                                  Southwest,
                                                  Washington, D.C.    5,379,000              -         5,018,000           151,000 
 
Third Street S.W. Investors         1%        -   Owns and
                                                  operates 256 Apt
                                                  units in            
                                                  Southwest
                                                  Washington, D.C.    1,548,000              -         4,658,000        (4,018,000) 

 
Tech High Leasing                  50%        -   Leveraged
                                                  equipment leasing   3,572,000        458,000         1,433,000         1,662,000
 
Builders Leasing                   20%        -   Leveraged
                                                  equipment leasing   3,592,000      1,256,000         2,885,000          (760,000)
 
Pine Club II                        -        64%  Owns and
                                                  Operates 160
                                                  Apt. units in       
                                                  Orlando, FLA.       6,276,000              -         5,424,000           420,000 
</TABLE>

11.  COMMITMENTS AND CONTINGENCIES:

The Company is contingently liable for $1,196,000 of outstanding liabilities of
nonconsolidated partnerships and joint ventures in which it has investments at
December 31, 1995.  The Company also pledged their interests in the General
Services Administration's ("GSA")lease to the lender as security for Town Center
East, L.P.'s mortgage and Trilon Plaza Company's (an entity affiliated with the
Company) mortgages totaling $8.7 million.

                                      -43-
<PAGE>
 
The Company was the holder of $2.5 million of short-term commercial paper of
Washington Bancorporation ("WBC"), the holding company of the National Bank of
Washington.  The commercial paper represented an unsecured obligation of WBC.
In August 1990, WBC defaulted on its commercial paper and filed for protection
under Chapter 11 of the Federal Bankruptcy Act.  In 1990, the Company recorded a
$1.25 million reserve for potential losses on the commercial paper and ceased
accruing interest.  In June 1993, the Company received $1,961,000 in settlement
of its commercial paper claim.  As a result, the Company recognized a $711,000
gain in the 1993 financial statements.

During 1990 and 1989, the Company purchased limited partnership interests in
limited partnerships, which are operating low income housing units.  The
required capital contributions over the next 5 years are projected to aggregate
$2,630,000.  The amount of projected contributions are to be adjusted annually
to be a percentage of tax benefits derived.  The Company anticipates that the
annual tax benefits will be more than sufficient to fund the annual capital
contributions.

At December 31, 1995, the Company had approximately $3,998,000 of outstanding
letters of credit representing performance guarantees for land improvements in
home building and land development operations.

The Company and other related entities are defendants in a suit filed in October
1990 by certain present and former employees of the Environmental Protection
Agency ("EPA"), which leases office space at the Waterside Mall Complex (a
portion of which is owned by the Company).  The complaint alleges claims of
negligence, breach of contract, and other allegations relating to certain
renovations performed at the Waterside Mall Complex.  The complaint seeks
$40,000,000 in damages.  The claims of six plaintiffs were heard in a jury trial
from October 25, 1993, to December 23, 1993, with verdicts for the plaintiffs
totaling $948,000.  The Company appealed the verdicts and, in 1995, received a
judgment that reduced the total damages to $232,000.  No punitive damages were
awarded.  The cases of the other plaintiffs remain to be tried.  Management
believes, based on consultations with outside counsel, that the claims are
without merit and that the litigation should not have a material adverse effect
on results of operations or the financial position of the Company.

The EPA occupies a significant amount of the space in the Company's portion of
the Waterside Mall.  The lease expired in September 1992 and in 1993, the
Company negotiated a new lease with the GSA  including new terms and conditions
for lease of space to EPA.  The lease was signed retroactively for the five-year
period beginning September 1992.  The catch-up payment was received in August
1993 and the Company recorded $2,078,000 as income representing its share of the
payment.

The new GSA lease provided that the rent is to be reduced, if GSA elected,
before December 31, 1994, to extend the lease for a further five years.  In
November 1994, GSA elected to extend the lease resulting in a reduction of the
annual rent.  The lease extension and resulting reduction in rent is accounted
for prospectively over the remaining lease term.  As a result of extending the
lease, GSA has the option to cancel the lease on certain space effective any
time during the second five years and on certain other space at any time after
the eighth year.

                                      -44-
<PAGE>
 
12.  DIRECT FINANCING LEASES:

The Company engages in personal property leveraged equipment leasing.  These
leases involve computer equipment, tractors and trailers, rental store fixtures,
and manufacturing plant equipment.

<TABLE>
<CAPTION>
                                             1995        1994
                                          ----------  ---------- 
<S>                                       <C>         <C>
            Total minimum lease                                  
             payments to be received      $  125,000  $1,690,000 
            Unamortized initial direct                           
             costs                             3,000      57,000 
            Estimated residual values                            
             of leased property (not                             
             guaranteed)                     906,000   1,476,000 
                                          ----------  ----------   
                                           1,034,000   3,223,000
            Less unearned income              12,000     216,000
                                          ----------  ----------   
            Net investment in direct                              
             financing leases             $1,022,000  $3,007,000  
                                          ==========  ==========
</TABLE>

Future minimum lease payments to be received under the above noncancelable lease
agreements as of December 31, 1995, are as follows:

<TABLE>
<CAPTION>
                                           MINIMUM     
                                        LEASE PAYMENTS 
                                        -------------- 
<S>                                     <C>            
                 1996                     $  83,000    
                 1997                        42,000     
                 1998                          -        
                 1999                          -        
                 2000                          -        
                                           --------    
                                           $125,000    
                                           --------     
</TABLE>
13.  INCOME TAXES:

The Company follows Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes."  SFAS No. 109 establishes financial
accounting and reporting standards for the effects of income taxes that result
from the Company's activities during the current and preceding years.  It
requires an asset and liability approach in accounting for income taxes, as
such, balance sheet accruals for income taxes are adjusted to reflect changes in
tax rates in the period such changes are enacted.

                                      -45-
<PAGE>
 
The Company and its subsidiaries file a consolidated Federal income tax return.
The provision (benefit) for income taxes includes the following components:

<TABLE>
<CAPTION>
                                             1995         1994          1993
                                          ----------  -----------   ----------- 
<S>                                       <C>         <C>           <C> 
     Provision for income taxes
          Current                         $3,007,000  $(4,296,000)  $   317,000
          Deferred tax (benefit)              80,000    1,960,000    (5,622,000)
                                          ----------  -----------   -----------
     Total provision for                      
       income taxes (benefit)              3,087,000   (2,336,000)   (5,305,000)
                                          ----------  -----------   -----------
     Extraordinary item -
       income tax effect                     942,000    4,075,000     1,776,000
                                          ----------  -----------   -----------
     Total income tax expense                 
       (benefit)                          $4,029,000  $ 1,739,000   $(3,529,000)
                                          ==========  ===========   ===========
</TABLE>

A reconciliation between the amount of income tax computed by multiplying income
before income taxes by the applicable statutory Federal income tax rate and the
income tax provision (benefit) shown on the consolidated income statements
follows:

<TABLE>
<CAPTION>
                                          1995   1994    1993
                                          ----   ----    ----
<S>                                       <C>    <C>    <C>
     Statutory rate                       34.0%  34.0%   (34.0)%
     Alternative Minimum Tax                -      -      14.0
     Increase (decrease) resulting from:
        State taxes, net of Federal
         income tax benefit                3.8    3.8      4.0
 
     Low income housing tax benefits      (5.2)  (3.8)   (14.0)
                     
     Other                                 8.4      -    (10.7)
                                         -----  -----   ------
                                          41.0%  34.0%   (40.7)%
                                         =====  =====   ======
</TABLE>

Deferred income taxes result from temporary differences in the recognition of
revenue and expense for income tax and financial statement reporting purposes.
The sources of these differences and the estimated tax effect of each are as
follows:

<TABLE>
<CAPTION>                  
                                                       DEFERRED TAX LIABILITY               
                             DEFERRED INCOME TAX     (ASSET) FOR THE YEAR ENDED             
                             PROVISION (BENEFIT)          DECEMBER 31,                       
                             FOR THE YEAR ENDED    ----------------------------  
                             DECEMBER 31, 1995         1995             1994
                             ------------------    ------------    ------------
<S>                          <C>                   <C>             <C>
 Basis in property             $(113,000)           $ 2,103,000     $ 2,216,000                                         
 Investment in                                                                                                         
   partnerships                   48,000              1,541,000       1,493,000                                         
Installment sales               (359,000)               176,000         535,000                                         
Leases                           (45,000)               885,000         930,000                                         
Debt elimination                 529,000             (1,137,000)     (1,666,000)                                         
Other                             20,000               (697,000)       (717,000)                                         
                               ---------            -----------     -----------
   Total                       $  80,000            $ 2,871,000     $ 2,791,000                                          
                               =========            ===========     ===========
</TABLE>

                                      -46-
<PAGE>
 
14. OPERATING LEASES:

AS A LESSEE

At December 31, 1995, the Company was obligated under a land lease, on which the
Company owns commercial properties, with the District of Columbia Redevelopment
Land Agency with aggregate annual rental payments of approximately $43,000 plus
certain expenses.  The lease expires in 2058.

At December 31, 1995, the Company was obligated under a land lease for 8
parcels, on which the Company owns commercial property.  The lease expires in
2000 and contains three renewal options of five years.  Pursuant to the terms of
the lease, the aggregate annual rental is approximately $39,000, and the Company
has the option to purchase the land parcels at any time during the initial lease
term or renewal periods.

Rent expense for the years 1995, 1994, and 1993 was approximately $78,000,
$93,000, and $107,000, respectively.

Although certain leases require the Company to pay real estate taxes, insurance
and certain other operating expenses of the property, the basic rental payment
for each lease is used in presenting minimum rentals below.

Minimum rentals to be paid under all noncancelable leases at December 31, 1995,
are as follows:

<TABLE>
<CAPTION>
                                     AMOUNT
                                    --------
<S>                                 <C>
    1996                            $ 77,000
    1997                              78,000
    1998                              79,000
    1999                              80,000
    2000                              50,000
    2001 and thereafter              154,800
                                    --------
       Total                        $518,800
                                    ========
</TABLE>

AS A LESSOR

Substantially all noncancelable leases of residential property are for a term of
one year or less.  Minimum future rentals to be received for commercial property
subject to noncancelable leases are as follows:
<TABLE>
<CAPTION>
                                      AMOUNT
                                    -----------
<S>                                 <C>
   1996                             $10,025,000
   1997                               9,906,000
   1998                               9,708,000
   1999                               7,686,000
   2000                               7,323,000
   2001 and thereafter               19,010,000
                                    -----------
      Total                         $63,658,000
                                    ===========
</TABLE>

                                      -47-
<PAGE>
 
15.  TRANSACTIONS WITH AFFILIATES:

The Company has business transactions with several affiliates that are owned in
part by certain of the Company's shareholders, officers, and/or directors.
These transactions are summarized as follows:

<TABLE>
<CAPTION>
                              1995        1994        1993
                          ----------  ----------  ----------
<S>                       <C>         <C>         <C> 
Revenues:
   Leasing fees           $  725,000  $  776,000  $1,008,000
   Management Fees           825,000     879,000     835,000
   Interest                1,112,000   1,213,000   1,143,000

Cost and expenses:
   Lumber and millwork        11,000      25,000      13,000
   Insurance                 677,000     740,000     789,000
</TABLE>

See Notes 7, 8, 10, and 11 for additional information regarding related party
transactions.

16.  PENSION PLAN:

The Company and certain of its subsidiaries have a noncontributory defined
benefit pension plan (the "Plan") covering substantially all full-time
employees.  The Plan provides for benefits to be paid to eligible employees at
retirement based primarily upon years of service with the Company and their
compensation rates for the five years preceding retirement.  The Company's
funding policy is consistent with the funding requirements of federal law and
regulations.  Plan assets consist principally of mortgage notes receivable and
cash equivalents.

The net periodic pension costs for 1995, 1994, and 1993 are computed as follows:

<TABLE>
<CAPTION>
                                       1995        1994        1993
                                    ---------   ---------   --------- 
<S>                                 <C>         <C>         <C>
     Services cost - benefits
       earned during the year       $ 300,000   $ 383,000   $ 338,000
 
     Interest cost on projected                 
       benefit obligation             409,000     442,000     392,000
 
     Return on Plan assets           (455,000)   (314,000)   (315,000)
     Amortization of                            
       unrecognized net obligation     57,000      57,000      57,000
 
     Asset gain recognized                  -    (211,000)   (153,000)
     Loss recognized on settlements         -       3,000           -
                                    ---------   ---------   ---------
     Net periodic pension cost      $ 311,000   $ 360,000   $ 319,000
                                    =========   =========   =========  
</TABLE>

                                      -48-
<PAGE>
 
The following table details the Plan's net pension asset at December 31, 1995
and 1994:

<TABLE>
<CAPTION>
                                             1995          1994
                                          ----------   ----------- 
<S>                                       <C>          <C> 
Actuarial Present Value of Benefit
 Obligation:
 Vested benefits                          $6,121,000   $ 5,756,000
 Nonvested benefits                           54,000        35,000
                                          ----------   ----------- 
  Accumulated benefit obligation           6,175,000     5,791,000
 Effect of projected future
  compensation increases                   1,032,000     1,663,000
                                          ----------   ----------- 
 Projected benefit obligation              7,207,000     7,454,000
 Plan assets at fair value                 7,970,000     7,497,000
                                          ----------   ----------- 
 Plan assets in excess of projected
  benefit obligation                         763,000        43,000
 Unrecognized net (gain) loss               (681,000)      293,000
 Unrecognized net obligation at date
  of adoption being recognized over                              
  22 years                                   794,000       851,000 
                                          ----------   ----------- 
                    Net pension asset     $ (876,000)  $(1,187,000)
                                          ==========   ===========
</TABLE>
The net periodic pension cost is treated as a reduction of the net pension asset
in the accompanying consolidated financial statements.

<TABLE>
<CAPTION>
Interest assumptions used were:
                                          1995   1994
                                          ----   ----
<S>                                       <C>    <C>
    Preretirement discount rate           6.00%  6.25%
    Postretirement discount rate          6.00   6.00
    Rate of increase in future                        
     compensation                         4.00   5.00 
    Long-term rate of return on                       
     Plan assets                          7.00   7.05 
</TABLE>

17.  DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:

In December 1991, the Financial Standards Accounting Board issued SFAS No. 107,
"Disclosure about Fair Value of Financial Instruments."  SFAS No. 107 requires
all entities to disclose the fair value of financial instruments, both assets
and liabilities, recognized and not recognized in the statements of financial
condition, for which it is practicable to estimate fair value.  If estimating
fair value is not practicable, SFAS No. 107 requires disclosure of descriptive
information pertinent to estimating the fair value of a financial instrument.
SFAS No. 107 is generally effective for financial statements issued for fiscal
years ending after December 15, 1992.

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:

                                      -49-
<PAGE>
 
 . Cash and Cash Equivalents, and Cash Deposits Held In Escrow

  Cash balances represent demand and short-term deposits with depository
  institutions as well as short-term liquid investments. The carrying amount is
  a reasonable estimate of fair value.

 . Receivables

  The fair value of mortgage receivables is estimated by discounting the future
  cash flows using the current rates at which similar loans would be made to
  borrowers with similar credit ratings and for the same remaining maturities.
  For short-term loans, defined as those maturing or repricing in 90 days or
  less, the carrying amount is a reasonable estimate of fair value.  Other
  receivables represent short-term receivables for which the carrying amount is
  a reasonable estimate of fair value.

 . Notes Payable

  Based on borrowing rates currently available to the Company for financing on
  similar terms for borrowers with similar credit ratings, the fair value of the
  notes payable approximates their carrying value at December 31, 1995.
  Additionally, for short-term notes payable, the carrying amount is a
  reasonable estimate of fair value.

 . Accounts Payable, Trade and Due to Affiliates

  The fair value of accounts payable, trade and due to affiliates is the
  carrying amount payable at the reporting date.

The estimated fair values of the Company's financial instruments are as follows:

<TABLE>
<CAPTION>
                                         DECEMBER 31, 1995             DECEMBER 31, 1994
                                    ----------------------------  ---------------------------- 
                                        CARRYING                      CARRYING        
                                         AMOUNT      FAIR VALUE        AMOUNT      FAIR VALUE
                                    ---------------  -----------  ---------------  -----------
<S>                                 <C>              <C>          <C>              <C>
Financial assets:
 Cash and cash equivalents              $10,921,000  $10,921,000      $ 7,200,000  $ 7,200,000
 Cash deposits held in escrow            11,215,000   11,215,000        7,165,000    7,165,000
 Receivables-
   Mortgages and notes, affiliates        5,971,000    7,522,000        6,358,000    7,970,000
   Mortgages and notes, others            1,228,000    1,246,000        2,417,000    2,289,000
   Other                                  1,838,000    1,838,000        3,457,000    3,457,000
Financial liabilities:
 Notes payable-
   Mortgages                             33,634,000   33,901,000       40,045,000   40,045,000
   Land and development                     500,000      498,000        1,000,000      922,000
    Accounts payable, trade               2,703,000    2,703,000        3,259,000    3,259,000
</TABLE>

                                      -50-
<PAGE>
 
Changes in assumptions or estimation methodologies may have a material effect on
these estimated fair values.  Management is concerned that reasonable
comparability between companies may not be likely due to the wide range of
permitted valuation techniques and numerous estimates that must be made given
the absence of active secondary markets for many of the financial instruments.
This lack of uniform valuation methodologies also introduces a greater degree of
subjectivity to these estimated fair values.

18.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED
                                          ---------------------------------------------------------------------
                                          MARCH 31, 1995  JUNE 30, 1995  SEPTEMBER 30, 1995   DECEMBER 31, 1995
                                          --------------  -------------  ------------------   -----------------
<S>                                       <C>             <C>            <C>                  <C> 
Revenues                                    $9,098,000      $ 7,855,000    $ 8,585,000          $ 8,286,000
Net income before income taxes, 
 minority interest and                                                                                          
 extraordinary items                         2,007,000        2,650,000      1,308,000            1,557,000 
Net income before
 extraordinary items                         1,296,000        1,693,000        855,000              591,000
Extraordinary item-
 Debt elimination, net of tax                      -                -        1,736,000                  -
Net income                                   1,296,000        1,693,000      2,591,000              591,000
Earnings per common share before 
 extraordinary item                                .46              .59            .30                  .21
Earnings per common share                          .46              .59            .91                  .21
</TABLE> 

<TABLE> 
<CAPTION>  
                                                                   THREE MONTHS ENDED
                                          ---------------------------------------------------------------------
                                          MARCH 31, 1994  JUNE 30, 1994  SEPTEMBER 30, 1994   DECEMBER 31, 1994
                                          --------------  -------------  ------------------   -----------------
<S>                                       <C>             <C>            <C>                  <C> 
Revenues                                      $7,350,000    $11,016,000         $ 9,913,000         $11,284,000
Net income (loss) before            
 income taxes, minority             
 interest and                       
 extraordinary items                           1,537,000      3,512,000          (1,558,000)         (9,961,000)
Net income (loss) before               
 extraordinary items                           1,008,000      2,292,000          (1,013,000)         (6,396,000)
Extraordinary item-                      
 Debt elimination, net of tax                  4,148,000              -                   -           3,365,000
                                         
Net income (loss)                              5,156,000      2,292,000          (1,013,000)         (3,031,000)
Earnings per common share              
 before extraordinary item                           .36            .80                (.35)              (2.26)
                                         
Earnings per common share                           1.82            .80                (.35)              (1.07)
</TABLE>

                                      -51-
<PAGE>
 
                             BRESLER & REINER, INC.
                             ----------------------

            SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                 FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                 COLUMN C               COLUMN D                 COLUMN E
                                           --------------------  ----------------------  ---------------------------  
                                                                  COST CAPITALIZATION        GROSS AMOUNT AT  
                                             INITIAL COST TO         SUBSEQUENT TO           WHICH CARRIED AT     
         COLUMN A              COLUMN B          COMPANY              ACQUISITION            CLOSE OF PERIOD 
--------------------------   ------------  --------------------  ----------------------  ---------------------------  
                                                     BUILDING                                      BUILDING          
                                                       AND                     CARRYING              AND             
     DESCRIPTION             ENCUMBRANCES   LAND   IMPROVEMENTS  IMPROVEMENTS    COST     LAND   IMPROVEMENTS  TOTAL 
--------------------------   ------------  ------  ------------  ------------  --------  ------  ------------  ----- 
<S>                          <C>           <C>     <C>           <C>           <C>       <C>     <C>           <C>    
YEAR ENDED DECEMBER 31,                                                                                                     
 1995:                                                                                                            
Allentown                                                                                                            
 Apartments                                                                                                            
 (Apartments in                                                                                                        
 Suitland, Maryland)                         $  -        $    -        $    -      $  -    $  -        $    -   $    - 
Charlestown North                                                                                                      
 (Apartments in                                                                                                        
 Greenbelt,                                                                                                            
 Maryland)                                      -         2,179           358         -       -         2,340    2,340 
Commons (Apartments                                                                                                    
 in Washington,                                                                                                        
 D.C.)                                        277         1,047           429         -     387         1,388    1,775  
Waterside Mall East                                                                                                    
 (Shopping Center                                                                                                      
 in Washington,                                                                                                        
 D.C.)                                          -         6,631        13,131       111       -        15,533   15,533 
Georgian Gardens                                                                                                       
 (Apartments in                                                                                                        
 Oxon Hill,                                                                                                            
 Maryland)                                      -           289           397         -       -           668      668 
Lakeview Manor                                                                                                         
 Nursing Home                                                                                                          
 (Lakewood, New                                                                                                        
 Jersey)                                      100         4,026             -         -     101         4,026    4,127 
Uptown (Hotel in                                                                                                       
 Baltimore,                                                                                                            
 Maryland)                                      -         7,368           125         -       -         5,980    5,980  
Allentown Road                                                                                                         
 Motel (Suitland,                                                                                                      
 Maryland)                                    378         2,793           411         -     378         3,384    3,762  
Egap (Convenience                                                                                                      
 stores in Florida,                                                                                                    
 Louisiana, and                                                                                                        
 North Carolina)                               58         3,388             -         -     142         2,334    2,476 
Nations Bank                                                                                                           
 Building (Office                                                                                                      
 Building in                                                                                                           
 Manassas, Virginia)                           63           798            43         -      90           787      877 
Paradise/Sudley                                                                                                        
 North (4 office                                                                                                       
 buildings in                                                                                                          
 Manassas, Virginia)                        2,216        12,679         3,758         -   1,898        16,342   18,240 
7800 Building                                                                                                          
 (Office building                                                                                                      
 in Manassas,                                                                                                          
 Virginia)                                    317         1,636           399         -     283         1,917    2,200 
                                           ------       -------       -------      ----  ------       -------  -------
                                           $3,409       $42,834       $19,051      $111  $3,279       $54,699  $57,978 
                                           ======       =======       =======      ====  ======       =======  =======

<CAPTION> 

                                         COLUMN F     COLUMN G     COLUMN H         COLUMN I
                                       ------------  ------------  --------    ---------------- 
                                                                                LIFE ON WHICH
                                                                                DEPRECIATION
                                                                                 ON LATEST
                                       ACCUMULATED     DATE OF       DATE      INCOME STATEMENT 
     DESCRIPTION                       DEPRECIATION  CONSTRUCTION  ACQUIRED     IS COMPUTED  
------------------------------         ------------  ------------  --------    ---------------- 
<S>                                    <C>           <C>           <C>         <C> 
YEAR ENDED DECEMBER 31,                                                            
 1995:                                                                   
Allentown                                                                   
 Apartments                                                                                
 (Apartments in                                                                            
 Suitland, Maryland)                   $     -                        1971       5-40 years      
Charlestown North                                                                          
 (Apartments in                                                                            
 Greenbelt,                                                                                
 Maryland)                               1,601                        1971       5-40 years        
Commons (Apartments                                                                        
 in Washington,                                                                            
 D.C.)                                     889                        1971       5-40 years         
Waterside Mall East                                                                        
 (Shopping Center                                                                          
 in Washington,                                                                            
 D.C.)                                   8,937          1975                     8-40 years        
Georgian Gardens                                                                           
 (Apartments in                                                                            
 Oxon Hill,                                                                                
 Maryland)                                 607                       Various     20 years          
Lakeview Manor                                                                             
 Nursing Home                                                                              
 (Lakewood, New                                                                            
 Jersey)                                 2,129                        1984       5-30 years        
Uptown (Hotel in                                                                           
 Baltimore,                                                                                
 Maryland)                                 303                        1993 (a)                      
Allentown Road                                                                             
 Motel (Suitland,                                                                          
 Maryland)                               1,475                        1987       19 years           
Egap (Convenience                                                                          
 stores in Florida,                                                                        
 Louisiana, and                                                                            
 North Carolina)                         1,171                        1987       19 years          
Nations Bank                                                                               
 Building (Office                                                                          
 Building in                                                                               
 Manassas, Virginia)                       101          1991                     31-1/2 years      
Paradise/Sudley                                                                            
 North (4 office                                                                           
 buildings in                                                                              
 Manassas, Virginia)                     3,619          1987                     31-1/2 years      
7800 Building                                                                              
 (Office building                                                                          
 in Manassas,                                                                               
 Virginia)                                 464          1990                     15-31-1/2 years              
                                       -------
                                       $21,296                                         
                                       =======

</TABLE>
(a)  Asset acquisition recorded December 31, 1993

                                      -52-
<PAGE>
 
                            BRESLER & REINER, INC.

           SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
                            (dollars in thousands)

<TABLE>
<CAPTION>

                                                 COLUMN C               COLUMN D                 COLUMN E
                                           --------------------  ----------------------  ---------------------------  
                                                                  COST CAPITALIZATION        GROSS AMOUNT AT  
                                             INITIAL COST TO         SUBSEQUENT TO           WHICH CARRIED AT     
         COLUMN A              COLUMN B          COMPANY              ACQUISITION            CLOSE OF PERIOD 
--------------------------   ------------  --------------------  ----------------------  ---------------------------  
                                                     BUILDING                                      BUILDING          
                                                       AND                     CARRYING              AND             
     DESCRIPTION             ENCUMBRANCES   LAND   IMPROVEMENTS  IMPROVEMENTS    COST     LAND   IMPROVEMENTS  TOTAL 
--------------------------   ------------  ------  ------------  ------------  --------  ------  ------------  ----- 
<S>                          <C>           <C>     <C>           <C>           <C>       <C>     <C>           <C>    
YEAR ENDED           
 DECEMBER 31, 1994:  
Allentown             
 Apartments (Apartments in
 Suitland, Maryland)                       $  170       $ 1,180       $   295     $   -   $  170     $ 1,444    $ 1,614    
Charlestown North                                                                                                          
 (Apartments in                                                                                                           
 Greenbelt, Maryland)                           -         2,179           322         -        -       2,304      2,304    
Commons (Apartments                                                                                                        
 in Washington, D.C.)                         277         1,047           393         -      388       1,352      1,740     
Waterside Mall East                                                                                                        
 (Shopping Center                                                                                                          
 in Washington, D.C.)                           -         6,631        13,131       111        -      15,485     15,485     
Georgian Gardens                                                                                                          
 (Apartments in                                                                                                           
 Oxon Hill, Maryland)                           -           289           397         -        -         668        668    
Lakeview Manor                                                                                                            
 Nursing Home                                                                                                             
 (Lakewood, New Jersey)                       100         4,026             -         -      100       4,026      4,126    
Uptown (Hotel in                                                                                                          
 Baltimore, Maryland)                           -         7,368           125         -        -       6,020      6,020     
Allentown Road Hotel
 (Suitland, Maryland)                         378         2,793           402         -      378       3,375      3,753     
Egap (Convenience stores
 in Florida, Louisiana,
 and North Carolina)                           58         3,388             -         -      142       2,575      2,717    
Nations Bank Building
 (Office Building in
 Manassas, Virginia)                          63           798            43         -       90         787        877    
Paradise/Sudley North
 (4 office buildings in
 Manassas, Virginia)                       2,216        12,679         3,698         -    1,898      16,282     18,180    
7800 Building (Office
 building in Manassas,
 Virginia)                                   317         1,636           399         -      283       1,909      2,192
                                          --------     --------     ---------     -----  -------   ---------   -------
                                                                                                                           
                                          $3,579       $44,014       $19,205      $111   $3,449     $56,227    $59,676     
                                          ========     ========     =========     =====  =======    =======    =======

<CAPTION> 

                                         COLUMN F     COLUMN G     COLUMN H         COLUMN I
                                       ------------  ------------  --------    ---------------- 
                                                                                LIFE ON WHICH
                                                                                DEPRECIATION
                                                                                 ON LATEST
                                       ACCUMULATED     DATE OF       DATE      INCOME STATEMENT 
     DESCRIPTION                       DEPRECIATION  CONSTRUCTION  ACQUIRED     IS COMPUTED  
------------------------------         ------------  ------------  --------    ---------------- 
<S>                                    <C>           <C>           <C>         <C> 
YEAR ENDED          
  DECEMBER 31, 1994: 
Allentown Apartments
 (Apartments in      
 Suitland, Maryland)                    $   955                       1971       5-40 years           
Charlestown North (Apartments                                                                   
 in Greenbelt, Maryland)                  1,528                       1971       5-40 years           
Commons (Apartments                                                                            
 in Washington, D.C.)                       835                       1971       5-40 years
Waterside Mall East                                                                            
 (Shopping Center                                                                              
 in Washington, D.C.)                     8,655           1975                   8-40 years            
Georgian Gardens                                                                              
 (Apartments in Oxon
 Hill,  Maryland)                           572                      Various     20 years             
Lakeview Manor Nursing
 Home (Lakewood, New Jersey               1,994                       1984       5-30 years
Uptown (Hotel in Baltimore,
 Maryland)                                  148                       1993 (a)
Allentown Road Motel
 (Suitland, Maryland)                     1,306                       1987       19 years 
Egap (Convenience stores in                                                                             
 Florida, Louisiana, and
 North Carolina)                          1,157                       1987       19 years             
Nations Bank Building
 (Office Building in
 Manassas, Virginia)                         76           1991                   31-1/2years          
Paradise/Sudley North (4
 office buildings in
 Manassas, Virginia)                      3,045           1987                   31-1/2years          
7800 Building (Office
 building in Manassas,
 Virginia)                                  383           1990                   15-31-1/2 years                
                                         -------
                                        $20,654     
                                        =======

</TABLE>
(a) Asset acquisition recorded December 31, 1993

                                      -53-
<PAGE>
 
                             BRESLER & REINER, INC.
                             ----------------------

                             NOTES TO SCHEDULE III

                             (dollars in thousands)

<TABLE>
<CAPTION>
                                            1995     1994
                                          -------  ------- 
<S>                                       <C>      <C> 
LAND AND BUILDING AND IMPROVEMENTS:
  Balance, January 1                      $59,676  $61,206
    Additions during period-           
      Improvements                            241      605
                                          -------  ------- 
                                           59,917   61,811

    Deductions during period-          
      Write-off of fully                        -       23
       depreciated assets              
      Other                                 1,939    2,112
                                          -------  ------- 
  Balance, December 31                    $57,978  $59,676
                                          =======  ======= 

ACCUMULATED DEPRECIATION:
  Balance, January 1                      $20,654  $19,014
    Additions during period-          
      Depreciation expense                  1,713    1,800
                                          -------  ------- 
                                           22,367   20,814

    Deductions during period-         
      Write-off of fully                        -       23
       depreciated assets             
      Other                                 1,071      137
                                          -------  ------- 
  Balance, December 31                    $21,296  $20,654
                                          =======  =======
</TABLE>

                                      -54-
<PAGE>
 
                             BRESLER & REINER, INC.

                  SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
             FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

<TABLE>
<CAPTION>
         COLUMN A              COLUMN B       COLUMN C        COLUMN D       COLUMN E      COLUMN F       COLUMN G       COLUMN H
---------------------------  -------------  ------------  -----------------  ---------  --------------  -------------  ------------ 

                                                                                                                         PRINCIPAL
                                                                                                                         AMOUNT OF
                                                                                                                           LOANS
                                                                                                                        SUBJECT TO
                                                                                                          CARRYING      DELINQUENT
                                              MATURITY    PERIODIC PAYMENT     PRIOR     FACE AMOUNT      AMOUNT OF    PRINCIPAL OR
        DESCRIPTION            INTEREST         DATE            TERMS          LIENS     OF MORTGAGES     MORTGAGES      INTEREST
---------------------------  -------------  ------------  -----------------  ---------  --------------  -------------  ------------ 

<S>                          <C>            <C>           <C>                <C>        <C>             <C>            <C>
FOR THE YEAR ENDED                
 DECEMBER 31, 1995:               
  Related parties-                    
    Second mortgages:               
      3rd Street Southwest                                                                                               
      Investors (S.W.                    
      Washington, D.C.)          9 1/2%          1999       $36,600/mo. (a)   None         $4,350,000     $1,883,000    None 
      SEW Investors (S.W.                    
      Washington, D.C.)             10%          2000        95,700/mo. (b)   None          9,300,000      2,293,000    None 
      Town Center East                     
      Investors (S.W.                    
      Washington, D.C.)          8 1/2%          2001         9,670/mo.       None          1,200,000        473,000    None 
      3rd Street Southwest                
      Investors (S.W.                    
      Washington, D.C.)          9 1/2%          2009        11,200/mo. (c)   None          1,333,000      1,322,000    None 
                                                                                                          ----------
                                                                                                          $5,971,000
                                                                                                          ----------  
  Other-                    
    First mortgages:        
      Home loans (Montgomery 
      County, Maryland)                      Various
      ($50,000 to $159,000)     9 1/2% to    through
      (3 units)                 13 1/2%       2013                                                        $  294,000    None
      Developed land loans                                       
      (St. Mary's County,                    Various
      Maryland) ($20,000                     through
      to $50,000) (6 units)      14 1/2%      2013                                                           139,000    None
      Condominium loans     
      (Oxon Hill, Maryland) 
      ($10,000 to $20,000)  
      (38 units)                8% to 13%     2004                                                           189,000    None
                                                                                                          ----------  
                                                                                                             622,000
                                                                                                          ----------  
                                                                                                          $6,593,000
                                                                                                          ==========   
</TABLE>

                                      -55-
<PAGE>
 
                             BRESLER & REINER, INC.

                  SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
             FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

<TABLE>
<CAPTION>

         COLUMN A              COLUMN B       COLUMN C        COLUMN D       COLUMN E      COLUMN F       COLUMN G       COLUMN H
---------------------------  -------------  ------------  -----------------  ---------  --------------  -------------  ------------ 

                                                                                                                         PRINCIPAL
                                                                                                                         AMOUNT OF
                                                                                                                           LOANS
                                                                                                                        SUBJECT TO
                                                                                                          CARRYING      DELINQUENT
                                               MATURITY    PERIODIC PAYMENT     PRIOR     FACE AMOUNT      AMOUNT OF    PRINCIPAL OR
        DESCRIPTION            INTEREST          DATE            TERMS          LIENS     OF MORTGAGES     MORTGAGES      INTEREST
--------------------------  -------------   ------------  -----------------  ---------  --------------  -------------  ------------ 

<S>                          <C>            <C>           <C>                <C>        <C>             <C>            <C>
FOR THE YEAR ENDED          
 DECEMBER 31, 1994:         
  Related parties-          
    Second mortgages:       
      3rd Street Southwest  
      Investors (S.W.       
      Washington, D.C.)           9 1/2%             1999     $36,600/mo. (a)     None         $4,350,000     $1,948,000  None
      SEW Investors (S.W.   
      Washington, D.C.)           12%                1995      95,700/mo. (b)     None          9,300,000      2,534,000  None 
      Town Center East      
      Investors (S.W.       
      Washington, D.C.)           8 1/2%             1996       9,670/mo.         None          1,200,000        545,000  None 
      3rd Street Southwest                                                                                                  
      Investors (S.W.       
      Washington, D.C.)           9 1/2%             2009      11,200/mo.(c)      None         $1,333,000     $1,331,000  None 
                                                                                                              ----------
                                                                                                              $6,358,000
                                                                                                              ========== 
  Other-                   
    First mortgages:       
      Home loans (Montgomery
      County, Maryland)     
      ($50,000 to $159,000)         
      (5 units)                   9 1/2% to 13 1/2%  Various through 2013                                     $  484.00   None
      Developed land loans  
      (St. Mary's County,   
      Maryland) ($20,000    
      to $50,000) (7 units)       141/2%             Various through 2013                                      155,000    None 
      Condominium loans                                                                                    
      (Oxon Hill, Maryland) 
      ($10,000 to $20,000) 
      (38 units)                  8% to 13%          2004                                                      202,000    None
      PNHG, Inc.                  
      (Philadelphia, PA)          9%                 2012                                                           --    None
                                                                                                            ----------
                                                                                                               841,000
                                                                                                            ----------
                                                                                                            $7,199,000
                                                                                                            ==========
</TABLE>

                                      -56-
<PAGE>
 
                             BRESLER & REINER, INC.

                  SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
             FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

<TABLE>
<CAPTION>

         COLUMN A              COLUMN B       COLUMN C        COLUMN D       COLUMN E      COLUMN F       COLUMN G       COLUMN H
---------------------------  -------------  ------------  -----------------  ---------  --------------  -------------  ------------ 

                                                                                                                         PRINCIPAL
                                                                                                                         AMOUNT OF
                                                                                                                           LOANS
                                                                                                                        SUBJECT TO
                                                                                                          CARRYING      DELINQUENT
                                              MATURITY    PERIODIC PAYMENT     PRIOR     FACE AMOUNT      AMOUNT OF    PRINCIPAL OR
        DESCRIPTION            INTEREST         DATE            TERMS          LIENS     OF MORTGAGES     MORTGAGES      INTEREST
---------------------------  -------------  ------------  -----------------  ---------  --------------  -------------  ------------ 

<S>                          <C>            <C>           <C>                <C>        <C>             <C>            <C>
FOR THE YEAR ENDED          
 DECEMBER 31, 1993:         
  Related parties-          
    Second mortgages:       
      3rd Street Southwest  
      Investors (S.W.       
      Washington, D.C.)           9 1/2%          1994     $36,600/mo. (a)     None         $4,350,000     $2,008,000     None
      SEW Investors (S.W.   
      Washington, D.C.)           12%             1995      95,700/mo. (b)     None          9,300,000      2,741,000     None 
      Town Center East      
      Investors (S.W.       
      Washington, D.C.)           8 1/2%          1996       9,670/mo.         None          1,200,000        611,000     None 
                                                                                                           ----------
                                                                                                           $5,360,000
                                                                                                           ----------

  Other-                   
    First mortgages:       
      Home loans (Montgomery
      County, Maryland)     
      ($50,000 to $159,000)         
      (8 units)                   9 1/2% to 13 1/2 %    Various through 2013                               $  729,000     None
      Developed land loans  
      (St. Mary's County,   
      Maryland) ($20,000    
      to $50,000) (11 units)      141/2%                Various through 2013                                  273,000     None 
      Condominium loans                                                                                    
      (Oxon Hill, Maryland) 
      ($10,000 to $20,000) 
      (38 units)                  8% to 13%             2004                                                  214,000     None
      PNHG, Inc.                  
      (Philadelphia, PA)          9%                    2012                                                2,461,000     None
                                                                                                           ----------
                                                                                                            3,677,000
                                                                                                           ----------
                                                                                                           $9,037,000
                                                                                                           ==========
</TABLE>

                                      -57-
<PAGE>
 
                            Bresler & Reiner, Inc.

                             Notes to Schedule IV

<TABLE> 
<CAPTION> 

                                           1995          1994           1993
                                        -----------  ------------   -----------
<S>                                     <C>          <C>            <C> 
Carrying value at January 1              $7,199,000   $ 9,038,000    $9,585,000
   Additions during period-
     New mortgage loans                      80,000     1,333,000       139,000
                                        -----------  ------------   -----------
                                          7,279,000    10,371,000     9,724,000 
   Deductions during period-
     Collections of pricipal                686,000     3,172,000       687,000
                                        -----------  ------------   -----------
Carrying value at December 31            $6,593,000   $ 7,199,000    $9,037,000
                                        ===========  ============   ===========
</TABLE> 


(a)   The terms of this agreement call for a final payment of $2,838,000 due in 
      1999.

(b)   The terms of this agreement call for a final payment of $1,031,000 due in 
      2000.

(c)   The terms of this agreement call for a final payment of $1,082,000 due in 
      2009.

                                      -58-
<PAGE>
 
                           S I G N A T U R E S
                           -------------------

            Pursuant to the requirements of Section 13 of the Securities 
Exchange Act of 1934, Registrant has duly caused this report to be signed on 
its behalf by the undersigned thereunto duly authorized.

                                          BRESLER & REINER, INC.
                                          ----------------------
                                                (Registrant)

Date:  March 27, 1996                     /s/ Charles S. Bresler        
                                          ------------------------------
                                          Charles S. Bresler, Chairman
                                          of the Board
                                          (Chief Executive Officer)

Date:  March 27, 1996                     /s/ William L. Oshinsky       
                                          ------------------------------
                                          William L. Oshinsky, Treasurer
                                          (Chief Financial and Chief
                                          Accounting Officer)

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

            The following persons constitute a majority of the Board of 
Directors of Registrant.

Date:  March 27, 1996                     /s/ Charles S. Bresler        
                                          ------------------------------
                                          Charles S. Bresler, Director

Date:  March 27, 1996                     /s/ William L. Oshinsky       
                                          ------------------------------
                                          William L. Oshinsky, Director

Date:  March 27, 1996                     /s/ Edwin Horowitz            
                                          ------------------------------
                                          Edwin Horowitz, Director

Date:  March 27, 1996                     /s/ Burton J. Reiner          
                                          ------------------------------
                                          Burton J. Reiner, Director

Date:  March 27, 1996                     /s/ Stanley S. DeRisio        
                                          ------------------------------
                                          Stanley S. DeRisio, Director

                                      -59-
<PAGE>
 
      (c)   Exhibits.

            Index to Exhibits
            -----------------

Exhibit 3 

                  (i)  Articles of Incorporation 

            A. Restated Certificate of Incorporation of Registrant filed
February 23, 1971, Amendment filed August 12, 1987, and Amendment filed May 31,
1991.

            (Incorporated by reference to Exhibit 3A of Registrant's Quarterly
Report on Form 10Q for the second quarter of 1991, dated August 14, 1991, filed
with the Securities and Exchange Commission.)

                  (ii)  By-Laws

            B.    Revised By-laws of Registrant.                              

            (Incorporated by reference to Exhibit 3B of Registrant's Report on
Form 10-K for 1994, dated March 31, 1995, filed with the Securities and Exchange
Commission.)

Exhibit 10 - Material Contracts.

            C. (i) Amendment No. 1 to Agreement of December 2, 1974 among Trilon
Plaza Company, Town Center East Investors and Registrant, dated April 14, 1982.

               (ii) Amendment dated March 10, 1983 to Agreement of December 2,
1974, among Trilon Plaza Company, Town Center East Investors and Registrant.
(Exhibits C(i) and C(ii) are incorporated by reference to Exhibits 19A and B to
Registrant's Report on Form 10-K for 1982, dated March 23, 1983, filed with the
Securities and Exchange Commission).

            D. Partnership Agreement of Builders Leasing Company dated December
14, 1983 among the Registrant and Robert J. Schattner, Charles Bresler, Philip
Friedman, Edwin Horowitz, Lloyd Needle and Burton J. Reiner.

            (Incorporated by reference to Exhibit 10D to Registrant's Report on
Form 10-K for 1983, dated March 21, 1984, filed with the Securities and Exchange
Commission).
            E. (i) Deed of Trust Note dated September 3, 1986 from Paradise
Developers to Paradise Associates, Inc. (Manassas property)

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<PAGE>
 
            (Incorporated by reference to Exhibit 10E(i) to Registrant's Report
on Form 10-K for 1986, dated March 24, 1987, filed with the Securities and
Exchange Commission.)

                (ii) Deferred Purchase Money Deed of Trust dated September 3,
1986 from Paradise Developers to Paradise Associates, Inc.

            (Incorporated by reference to Exhibit 10E(ii) to Registrant's Report
on Form 10-K for 1986 dated March 24, 1987, filed with the Securities and
Exchange Commission.)

Exhibit 21        Subsidiaries of Registrant.                           62
                                                                        

Exhibit 27        Financial Data Schedule.                              63

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