FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

[X]      Annual  Report  Pursuant  to  Section  13 or  15(d)  of the  Securities
         Exchange Act of 1934. For the fiscal year ended September 30, 1997

[ ]      Transition  Report  Pursuant  to Section 13 or 15(d) of the  Securities
         Exchange  Act of 1934.  For the  transition  period from to ________ to
         _______.

                         Commission File Number 1-11416

                                 UDC HOMES, INC.
             (Exact name of Registrant as specified in its charter)

        Delaware                                        86-0702254
(State of Incorporation)                   (I.R.S.  Employer Identification No.)

6710 North Scottsdale Road, Scottsdale, Arizona                          85253
(Current address of principal executive offices)                      (Zip Code)

   Registrant's current telephone number, including area code: (602) 627-3000

      4812 S. Mill Avenue, Tempe, Arizona                                85282
(Former address of principal executive offices)                       (Zip Code)

    Registrant's former telephone number, including area code: (602) 820-4488

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

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

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

The  aggregate   market  value  of  the   Registrant's   Common  Stock  held  by
non-affiliates  as of  November  1, 1997 was $0.00 as all such  stock is held by
affiliates.  As of November 1, 1997,  the  Registrant had 1,000 shares of Common
Stock outstanding.

Indicate  by check mark  whether  the  Registrant  has filed all  documents  and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes  X  No
                          ---    ---

                    Documents incorporated by reference: None
<PAGE>
                                 UDC HOMES, INC.
                             FORM 10-K ANNUAL REPORT
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
                                TABLE OF CONTENTS

                                                                            Page

                                     PART I

Item 1.  Business..............................................................2
Item 2.  Properties...........................................................11
Item 3.  Legal Proceedings....................................................12
Item 4.  Submission of Matters to a Vote of Security Holders..................12

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder
         Matters..............................................................13
Item 6.  Selected Financial Data..............................................14
Item 7.  Management's Discussion and Analysis of Financial Condition 
         and Results of Operations............................................16
Item 8.  Financial Statements and Supplementary Data..........................28
Item 9.  Changes in and Disagreements With Accountants on Accounting and 
         Financial Disclosure.................................................29

                                    PART III

Item 10. Directors and Executive Officers of the Registrant...................30
Item 11. Executive Compensation...............................................32
Item 12. Security Ownership of Certain Beneficial Owners and Management.......36
Item 13. Certain Relationships and Related Transactions.......................37

                                     PART IV

Item 14. Exhibits,  Financial Statement Schedules, and Reports on Form 8-K....39
                                       i
<PAGE>
                                     PART I

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

General

         UDC Homes, Inc. and its subsidiaries  ("UDC" or the "Company") designs,
builds and markets  single  family  attached and detached  homes  primarily  for
move-up family and retirement home buyers in Arizona and California. The Company
builds  most of its  move-up  family  homes and all of its  retirement  homes in
master-planned  communities  on sites  selected for their  attractive  locations
which provide home buyers with  amenities  such as  recreational  facilities and
parks.

         The Company has  extensive  experience  in the  homebuilding  business,
having built and closed more than 30,350 homes since its  formation in 1968.  As
of September  30, 1997,  the Company was  developing  and/or  marketing for sale
housing products in 35 different subdivisions in Arizona and California.  In the
fiscal year ended September 30, 1997 ("fiscal 1997"),  UDC closed 1,854 homes at
an average  sales price of $205,000  compared to 1,951 homes at an average sales
price of $206,000 in the fiscal year ended  September 30, 1996 ("fiscal  1996").
The fiscal 1997 closings resulted in $380.7 million in housing revenues.  During
fiscal  1997,  the Company  received  2,042 net sales  orders,  representing  an
aggregate  sales value of $421.3  million,  an increase of 7% from the aggregate
sales value  achieved in fiscal 1996. At September  30, 1997,  the Company had a
sales backlog (represented by signed contracts with deposits from buyers) of 951
sold homes,  representing  an aggregate  sales value of $204.4 million and a 27%
increase from the sales value of the Company's backlog at September 30, 1996.

         UDC seeks to be a leading homebuilder in each of the geographic markets
in which it  operates.  The  Company's  Arizona  operations,  which are  located
principally  in the Phoenix  metropolitan  area,  generated 68% of the Company's
revenues in fiscal 1997. In the metropolitan  Phoenix market, the second largest
housing  market in the United  States based upon single family  housing  permits
issued in calendar year 1996,  UDC was the fourth largest  homebuilder  based on
housing permits issued. For calendar year 1997, the metropolitan Phoenix area is
expected to retain its number two national ranking and the Company expects to be
the third largest homebuilder in the Phoenix  metropolitan area based on permits
issued.  The  Company's  California  operations  are  located  in  the  southern
California  markets of Los Angeles and San Diego and the San  Francisco Bay area
of northern California.  In the San Francisco Bay area, the Company has targeted
a market niche  consisting of retirement home buyers seeking  gate-guarded  golf
course  communities.  California  operations  accounted for 32% of the Company's
fiscal 1997 revenues. The Company's geographic  concentration and limited number
of projects may make the Company  vulnerable to regional  economic  downturns or
other adverse project-specific matters.
                                       2
<PAGE>
         During  fiscal  year  1995,  the  Company  decided to  discontinue  its
operations in the Southeast markets of North Carolina,  Florida and Georgia (the
"Southeast Operations").  The Company has liquidated all remaining assets of its
Southeast Operations.  Unless otherwise noted, the information presented in this
Form 10-K describes only the Company's continuing  operations located in Arizona
and California.

         The Company commenced proceedings under Chapter 11 of the United States
Bankruptcy  Code on May 17, 1995 in order to restructure  its  indebtedness  and
other  liabilities.  The  Company's  plan of  reorganization  (the  "Plan")  was
confirmed  on  October  3, 1995 by the United  States  Bankruptcy  Court for the
District of Delaware and was  consummated  on November  14, 1995.  Pursuant to a
stock purchase  agreement (the "Stock  Purchase  Agreement")  dated May 16, 1995
between the Company and DMB Property Ventures Limited Partnership ("DMBLP"),  on
November  14, 1995  ("Acquisition  Date") DMB  Residential  L.L.C.  ("DMB"),  an
affiliate  of DMBLP,  purchased  from the  Company  (the  "Acquisition")  for an
aggregate  purchase  price of $108  million  all of the new common  stock of the
Company  (the "Common  Stock") and $30 million in  principal  amount of Series C
Subordinated  Notes. On the Acquisition Date, the Company also issued,  pursuant
to the Plan,  $70 million  aggregate  principal  amount of 12.5% Series A Senior
Notes due 2000 (the "Series A Senior Notes") and 12.5% Series B Senior Notes due
2000 (the "Series B Senior  Notes").  The Series A Senior Notes and the Series B
Senior Notes are referred to collectively  as the "Senior  Notes".  On March 15,
1996,  the  Company  issued  $10  million  principal  amount  of 14.5%  Series D
Subordinated Notes to DMB.

         On May 6, 1996,  pursuant  to an option  agreement  between DMB and AEW
Partners,  L.P.  ("AEW"),  Eastrich No. 184 LLC (as to all interests  except the
Westbrook  Village  Venture  ("WBV")),  and Eastrich No. 185, LLC (as to the WBV
interest), as assignees of AEW, acquired from DMB 500 shares of the Common Stock
owned by DMB, $15 million  principal  amount of the Series C Subordinated  Notes
owned by DMB, $5 million  principal  amount of the Series D  Subordinated  Notes
owned by DMB and 50% of the general partner  interest held by a DMB affiliate in
WBV. The operations of WBV are conducted  pursuant to a joint venture  agreement
in which the Company and affiliates of DMB and AEW own 77.5%,  11.25% and 11.25%
equity interests, respectively.

         During  fiscal  1997 DMB and AEW  invested  $17.5  million  each in the
Company in exchange for additional  Series D  Subordinated  Notes and $5 million
each in additional capital contributions.

The Housing Industry

         The housing industry has historically  been a cyclical  industry driven
by numerous factors beyond the control of market  participants,  such as general
economic conditions, inflation rates and the cost and availability of financing.
In addition,  the  homebuilding  business is subject to numerous  inherent risks
such as adverse local and national real estate
                                       3
<PAGE>
market  conditions,  supply of and demand for  particular  types of  properties,
changing environmental,  zoning and other governmental regulation,  the level of
real estate taxes, changes in federal tax laws, the cost of materials and labor,
availability of financing,  the need to expend significant amounts of capital on
communities before significant revenues are generated,  overbuilding,  increased
competition and changes in interest rates.

UDC's Markets

         UDC currently  focuses on providing homes primarily for two demographic
markets: move-up family buyers and retirees. By developing within master-planned
communities designed  specifically for these population markets, the Company has
targeted  what it believes to be among the fastest  growing home buyer  markets.
UDC's sales in its family market, which is comprised primarily of move-up homes,
accounted in fiscal 1997 for approximately 74% of the Company's revenues. In the
family  market,  UDC offers homes which range in size from 1,410 to 3,850 square
feet with base sales prices which range from  $115,000 to $453,000.  UDC's sales
in the retirement  market accounted in fiscal 1997 for  approximately 26% of the
Company's  revenues.  In the retirement  market, UDC offers homes which range in
size from 1,363 to 3,340  square  feet with base sales  prices  which range from
$105,000 to $625,000. The Company believes that its strategy of concentrating on
the  move-up  family and  retirement  home  buyer is  consistent  with  national
demographic  trends projected by the U.S.  Department of  Commerce-Bureau of the
Census, which indicate that the portion of the population age 45 and over, which
constitute  the  principal  purchasers  of  the  Company's  move-up  family  and
retirement  homes,  will grow at a  greater  rate  than the  general  population
through  2003  and  will  control  a  disproportionate  amount  of the  nation's
disposable income.
                                       4
<PAGE>
         The total  number of homes closed by the Company  (excluding  Southeast
operations)  for each of the years ended September 30, 1993 through 1997 are set
forth in the following table.

                                              Homes Closed - Units
                             ---------------------------------------------------
                                           Years Ended September 30,
                             ---------------------------------------------------
                                 1997      1996      1995      1994      1993
                                -----     -----     -----     -----     -----

Family:

   Arizona ................       989     1,117     1,071     1,194     1,253

   California .............       379       344       349       514       352
                                -----     -----     -----     -----     -----
Family Total ..............     1,368     1,461     1,420     1,708     1,605
                                -----     -----     -----     -----     -----

Retirement:

   Arizona ................       371       327       314       427       420

   California .............       115       163       110       127       165
                                -----     -----     -----     -----     -----
Retirement Total ..........       486       490       424       554       585
                                -----     -----     -----     -----     -----

Family and Retirement Total     1,854     1,951     1,844     2,262     2,190
                                =====     =====     =====     =====     =====


         The  following  table  reflects the  percentage  of UDC  revenues  from
housing sales for the prior five years.

                                                Housing Revenues
                             ---------------------------------------------------
                                           Years Ended September 30,
                             ---------------------------------------------------
                                 1997      1996      1995      1994      1993
                                -----     -----     -----     -----     -----

Family:

   Arizona .................       50%       54%       56%       49%       55%

   California ..............       24        25        24        27        21
                                  ---       ---       ---       ---       ---
Family Total ...............       74%       79%       80%       76%       76%
                                  ---       ---       ---       ---       ---

Retirement:

   Arizona .................       18%       14%       14%       16%       17%

   California ..............        8         7         6         8         7
                                  ---       ---       ---       ---       ---
Retirement Total ............      26%       21%       20%       24%       24%
                                  ---       ---       ---       ---       ---
                                  100%      100%      100%      100%      100%
                                  ===       ===       ===       ===       ===
                                        5
<PAGE>
Family
         Arizona - UDC currently sells primarily move-up homes in 20 communities
geographically  dispersed in each of the Phoenix  metropolitan  area's strongest
housing markets. UDC builds detached stucco homes with tile roofs which range in
size from 1,410 to 3,850  square feet,  with base sales prices from  $115,000 to
$331,000.   UDC  builds  in  both  selected   individual   subdivisions  and  in
master-planned  communities that offer various amenities including  championship
golf courses, tennis courts, parks and scenic views.

         California  - In San Diego and Los  Angeles,  the Company is  primarily
selling detached and attached move-up family homes in the counties of Riverside,
Orange and San Diego.  In San Diego,  the Company is currently  selling homes in
six communities with homes ranging in size from 1,412 to 3,340 square feet, with
base sales  prices from  $133,000 to $453,000.  In Los  Angeles,  the Company is
currently selling homes in two communities with homes ranging in size from 1,756
to 2,467 square feet, with base sales prices from $158,000 to $248,000.

Retirement
         Arizona  - UDC has  sold  retirement  homes  in its two  current  major
retirement communities,  Westbrook Village and MountainBrook Village, since 1982
and 1989,  respectively.  At these  communities,  which together  consist of six
active  subdivisions,  UDC builds  detached and attached  stucco homes with tile
roofs  ranging in size from 1,363 to 2,578 square  feet,  with base sales prices
from  $105,000 to $216,000.  At both  communities,  retirement  home buyers have
access  to  social  and  recreational  amenities,  including  championship  golf
courses, tennis courts, recreational centers and scenic views. Westbrook Village
is expected to have  approximately  3,800 homes (263 homesites were remaining at
September  30, 1997) and 7,000  residents  upon  completion,  and  MountainBrook
Village is  expected  to have  approximately  1,700  homes (817  homesites  were
remaining at September 30, 1997) and 3,000 residents upon completion.

         California  - UDC entered the northern  California  market in 1984 with
the acquisition of two  age-restricted  master-planned  retirement  communities,
Rossmoor in Walnut Creek and The Villages in San Jose. These  communities  offer
24-hour  gated  security  features and a full range of amenities  for their home
buyers, including championship golf courses, tennis courts, recreational centers
and scenic views.  UDC builds attached and detached stucco homes with tile roofs
in these communities  ranging in size from 1,629 to 3,340 square feet, with base
sales  prices from  $280,000 to  $625,000.  Rossmoor is expected  ultimately  to
provide  housing for more than 10,000  residents  in 7,000 homes (298  homesites
were remaining at September 30, 1997). The Villages, a 1,200-acre master-planned
community, is expected to provide housing for more than 5,000 residents in 3,000
homes (239 homesites were remaining at September 30, 1997) upon completion. 
                                       6
<PAGE>
Mortgage Related Operations

         Through May 31, 1997, the Company's  mortgage  banking  operations were
exclusively  conducted  through  its  indirect,   wholly-owned  subsidiary,  UDC
Mortgage Corporation ("UDC Mortgage Corp."). Effective June 1, 1997, the Company
entered into a joint venture with Norwest Ventures,  Inc. (entitled UDC Mortgage
) through which all future  mortgage  banking  operations of the Company will be
conducted.  The joint venture agreement provides that all capital  contributions
and distributions,  as well as all profits and losses,  will be split 50/50. UDC
Mortgage  Corp. is currently  winding down its  operations  but will continue to
operate until all mortgage  loans in process prior to the formation of the joint
venture have been originated and sold (anticipated to be during the first fiscal
quarter of 1998).

         UDC Mortgage  serves an  important  role in the  Company's  sale of its
homes by assisting  purchasers in obtaining  financing to purchase  their homes.
During fiscal 1997,  approximately  98% of the Company's  home buyers  purchased
their home with the assistance of mortgage  financing and  approximately  66% of
home buyers who financed their housing  purchases did so through UDC Mortgage or
UDC  Mortgage  Corp;  the average loan amount for  mortgages  orginated by these
entities during fiscal 1997 was  approximately  $151,000.  As a mortgage banker,
UDC Mortgage  underwrites its mortgages to comply with secondary market mortgage
underwriting standards. Accordingly, its loan criteria are consistent with those
of  traditional  mortgage  lenders  in its  respective  markets.  Based upon UDC
Mortgage's continued eligibility to participate in federally sponsored secondary
mortgage market programs,  the Company  believes that home purchasers  obtaining
mortgage  financing through UDC Mortgage are as credit-worthy as those who apply
for mortgages through  traditional lenders and that it offers mortgages on terms
and eligibility equivalent to that offered by traditional lenders. The Company's
policy  is  to  qualify  its   subdivisions  for  FNMA  and/or  Federal  Housing
Administration/Veterans Administration ("FHA/VA") financing, where appropriate.
                                       7
<PAGE>
Land Inventory

         The following  table  describes  the number of homesites  available for
future  development and sale (excludes units in backlog,  speculative  units and
model homes) at September 30, 1997 by location:


                                           UDC       Land       Joint
                                          Owned     Options    Ventures    Total
                                          --------------------------------------
         Family:

             Arizona ...............      1,938         91       --        2,029

             California ............         30        567       --          597
                                          -----      -----      -----      -----
         Family Total ..............      1,968        658       --        2,626
                                          -----      -----      -----      -----

         Retirement:

             Arizona ...............        703       --          116        819

             California ............        503       --         --          503
                                          -----      -----      -----      -----
         Retirement Total ..........      1,206       --          116      1,322
                                          -----      -----      -----      -----

         Family and Retirement Total      3,174        658        116      3,948
                                          =====      =====      =====      =====

         The Company  has  entered  into land  option  agreements  with  certain
entities  (including  affiliates of DMB and AEW) which have available sources of
capital.  These entities acquire land and grant purchase options to the Company.
At September 30, 1997, the Company had land option  agreements  with  affiliated
entities  which enable the Company to purchase up to 541 lots.  The Company also
has entered  into option  agreements  with  unrelated  parties  which enable the
Company to purchase up to 117 lots.  The  Company  believes  that lot prices and
other  monetary  provisions  under these  agreements  with  affiliated  entities
approximated  fair  value at the date the  agreements  were  entered  into.  The
Company is actively pursuing the acquisition of land to maintain or increase its
lot  inventory  levels  in  each of its  operating  divisions.  There  can be no
assurance  that the Company will be successful  in acquiring  land on acceptable
terms or in a timely manner.

         Since May 6, 1996, the Company's Westbrook Village operations have been
conducted under a joint venture agreement in which UDC and affiliates of DMB and
AEW own 77.5%, 11.25% and 11.25% equity interests, respectively.
                                       8
<PAGE>
Sales Activities

         At September 30, 1997, the Company had a sales backlog  (represented by
signed  contracts with deposits from buyers) of $204.4 million  comprised of 951
housing units.  At September 30, 1996, the Company had a sales backlog of $161.1
million  representing  762 units. See  "Management's  Discussion and Analysis of
Financial Condition and Results of Operations - Net Sales Backlog".

         A sale becomes part of backlog upon the  Company's  receipt of a signed
contract and a deposit.  However,  UDC's sales  strategy and marketing  program,
which provide  buyers the right to cancel their  purchase  contracts  based upon
specified   contingencies,   contemplates   a   certain   amount   of   contract
cancellations.  The percentage of gross sales  contracts which were canceled was
approximately  27% in fiscal 1997 and 31% in fiscal  1996.  Generally,  canceled
sales contracts are replaced with new sales contracts  within a relatively short
time after cancellation.  The Company believes that the inability of home buyers
to sell their existing homes or to qualify for mortgages  historically have been
the  primary   causes  of   cancellations.   The  Company  also   believes  that
cancellations  are  sometimes  attributable  to changes in buyers'  personal  or
employment-related circumstances.

         Except in instances  where  substantial  expenditures  on buyer options
have been  made by the  Company  in  construction,  the  Company  generally  has
released  canceling  buyers  from their  contracts  at  minimal  or no cost.  In
connection  with the  Company's  marketing to  prospective  buyers,  the Company
accepts  sales  contracts  where the  buyers  retain  the right to cancel  their
purchases  subject to certain  contingencies,  including the sale of the buyers'
existing  homes and/or  qualification  for  financing.  Although  this  approach
results in an increased number of  cancellations,  the Company believes that the
strategy increases the overall number of homes sold and closed.

         Management  expects that substantially all units included in backlog as
of  September  30, 1997 will close and result in revenues to the Company  during
fiscal 1998,  either under the sales contract in backlog or a subsequent sale of
the home to a different buyer. See "Business - Competition and Market Factors."
                                       9
<PAGE>
Construction

         The Company functions as its own general  contractor.  At all stages of
production,  the  Company's  management  personnel  and on-site  superintendents
coordinate  the  activities  of  subcontractors,  consultants  and suppliers and
subject their work to quality,  cost and production  time  controls.  Consulting
firms are engaged to assist in project planning. Independent subcontractors, who
are generally  selected on a competitive  basis,  are employed to perform all of
the site development and  construction  work at the Company's  communities.  UDC
contracts for  prescribed  periods with  qualified  subcontractors  to construct
homes on a fixed cost basis.

         Construction  time for the Company's homes depends on the time of year,
local  labor  situations,  availability  of  materials  and  supplies  and other
factors.  Construction of homes is generally completed within four to six months
after  construction  commences.  Although the construction of homes is generally
tied to home sales orders to minimize the costs and risk of completed but unsold
inventory,  some  construction may commence prior to UDC's receipt of a purchase
contract in order to maintain an inventory for quick delivery or to continue the
construction  sequence.  At  September  30, 1997,  there were 283 housing  units
(excluding  model homes) at various stages of construction  for which a purchase
contract was not in effect.

         The Company provides all home buyers standardized warranties subject to
specified  limitations.  The Company's  experience has been that the majority of
warranty claims are made within the six-month  period following the close of the
home sale.

Competition and Market Factors

         The residential housing industry is highly competitive. UDC competes in
each of its markets with numerous housing producers including regional, national
and small custom  homebuilders,  as well as with the resale of existing housing.
UDC's housing products compete on the basis of quality, price, design, location,
reputation and amenities. In certain markets and at times when housing demand is
high, UDC also competes with other homebuilders in the hiring of subcontractors.
Further,  UDC  competes  with other  homebuilders,  some of which  have  greater
financial resources than UDC, in the acquisition of land and financing.  In each
of the markets for its  operations,  UDC  believes  that there is ample room for
growth.  The overall market for new housing has  historically  been cyclical and
UDC's  business  is  affected  by changes  in  overall  as well as local  market
conditions.

         UDC's  business  focus  is on  the  customer  and  UDC  makes  customer
satisfaction a key goal. UDC's  organization  and its compensation  programs are
structured  to promote this goal.  UDC projects  and  reinforces  its image as a
quality homebuilder that stands behind its products.

         There can be no assurance that an increase in competition from existing
competitors  or the entry of new  competitors  will not have a material  adverse
effect on the Company's  business,  operating  results and financial  condition.
There can be no assurance that the Company will be able to compete  successfully
in the future with existing or new competitors.
                                       10
<PAGE>
Governmental Regulation and Environmental Considerations

         The Company's business is subject to extensive federal, state and local
regulatory requirements and the broad discretion that governmental agencies have
in  administering  those  requirements,  all of which  can  prevent,  delay,  or
significantly  increase  the  cost  of  the  Company's  developments.   Numerous
governmental  approvals  and permits are  required  throughout  the  development
process,  and no assurance can be given as to the receipt (or timing of receipt)
of  such  approvals  or  permits.  Further,  third  parties  can  file  lawsuits
challenging   approvals  or  permits  received,   which  may  cause  substantial
uncertainties  and material  delays for projects  involved  and, if  successful,
could result in approvals or permits being voided.  The Company is not currently
experiencing any significant delays in obtaining such approvals or permits.

         The Company's  business is subject to a variety of  environmental  laws
applicable to owners of real estate.  Before  acquiring a property,  the Company
obtains an environmental  study for soil  contamination and other conditions for
which  remediation  may be  required.  The Company has been advised that certain
environmental  contamination  exists at one of its southern  California projects
and has  recorded a reserve  for  estimated  remediation  costs.  Subject to the
foregoing,  the Company  believes  that its property is generally in  compliance
with existing  environmental laws and regulations.  However,  the Company cannot
predict the nature,  scope or effect of legislation  or regulatory  requirements
that could be imposed or how  existing  or future  laws or  regulations  will be
administered  or  interpreted  with respect to conditions or activities to which
they have not previously  been applied.  Compliance  with more stringent laws or
regulations,  as  well as  more  vigorous  enforcement  policies  of  regulatory
agencies,  could  require  substantial  expenditures  by the  Company  and could
adversely affect its financial condition and results of operations.

Employees

         At November 1, 1997,  the Company  and its  subsidiaries  employed  376
persons, including corporate staff, sales personnel,  construction personnel and
mortgage  staff.  None of the  Company's  employees  is covered by a  collective
bargaining  agreement and the Company  believes that its employee  relations are
good.  Certain of UDC's  subcontractors  employ  workers who are  represented by
labor unions.  Such  subcontractors  have not experienced  any significant  work
stoppages or slowdowns to date at the Company's developments.

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

         UDC's  business  is   administered   from  its  executive   offices  in
Scottsdale,  Arizona and three  regional  offices.  These  locations are general
business  offices  which are  leased by the  Company  and the  Company  does not
require specialized quarters for its operations.
                                       11
<PAGE>
Item 3.           Legal Proceedings
-------           -----------------

         The  Arizona  Actions - On June 5, 1995,  June 14, 1995 and October 25,
1995,  lawsuits were filed on behalf of a purported  class of present and former
shareholders of the Company in the Superior Court of the State of Arizona in and
for Maricopa County (the "Court") against, among others, certain former officers
and  directors  of the Company  (the  "Director/Officer  Defendants"),  entitled
Michael A. Isco v.  Richard C.  Kraemer,  et al. (Case No. CV  95-08941),  Larry
Alexander  et al. v. Arthur  Andersen  LLP, et al. (Case No. CV  95-09509),  and
Crandon Capital Partners v. Kraemer,  et al.,  respectively  (collectively,  the
"Arizona  Actions").  Subsequently,  the Arizona Actions were consolidated.  The
Arizona Actions seek, among other things,  unspecified money damages and contain
allegations which include violations of Arizona securities law, fraud, negligent
misrepresentation,  breach of fiduciary duty,  negligence and gross  negligence.
The Company is not a named defendant in these lawsuits.  Further,  the Company's
Reorganization  Plan  provided  for the  discharge  of claims  asserted in class
action lawsuits against the Company.  However,  the Company could be required to
indemnify  certain of the  Director/Officer  Defendants if such defendants incur
expenses or  liability  in the  Arizona  Actions  and seek  indemnification.  In
connection with the settlement described below, the Director/Officer  Defendants
agreed  to  limit  their   aggregate  claim  for   indemnification   in  certain
circumstances.

         An  agreement  (the  "Settlement  Agreement")  was  previously  reached
pursuant to which the plaintiffs and the  Director/Officer  Defendants agreed to
settle and compromise  the Arizona  Actions in their  entirety,  as such actions
relate to the  Director/Officer  Defendants  and the Company,  in exchange  for,
among  other  things,  $12.75  million.  Of such  amount,  $1.5  million,  which
represents the self-insured  retention under the Company's applicable directors'
and officers' insurance policies, has been paid by the Company. In addition, the
Company  paid  $250,000  on  behalf of DMB.  Certain  issuers  of the  Company's
directors'  and  officers'  insurance  policies,  together  with  the  Company's
insurance  carriers,  have  agreed to fund the  balance of the  settlement.  The
Company  does not  believe  that its  remaining  obligations  to  directors  and
officers will exceed its insurance  coverage.  The Settlement  Agreement and any
amendments thereto were approved by the Court at a final settlement hearing held
on February 14, 1997. The Court's  decision is being appealed by Arthur Andersen
LLP.

         The  Company  is also  involved  in  various  legal  proceedings  which
generally represent ordinary routine litigation  incident to its business,  some
of which are covered in whole or in part by insurance. In the Company's opinion,
none of the pending  litigation matters will have a material adverse effect upon
the Company's financial position, results of operations or cash flows.

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

         No matter was  submitted to a vote of the  Company's  security  holders
during the fourth quarter of the fiscal year covered by this report.
                                       12
<PAGE>
                                     PART II

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

         There  is  currently  no  established  public  trading  market  for the
Company's Common Stock. No market is expected to develop in the near term since,
as of  November 1, 1997,  the  Company had only two record  owners of its Common
Stock.

         The Company has not paid  dividends on its common  equity in any of its
last three fiscal years. Certain provisions of the Company's indentures and debt
agreements  materially  restrict the  Company's  ability to pay dividends on the
Common Stock. See "Management's  Discussion and Analysis of Financial  Condition
and Results of Operations."
                                       13
<PAGE>
Item 6.           Selected Financial Data
-------           -----------------------

         The  following  table  sets  forth  selected   consolidated   financial
information  regarding the results of operations  and financial  position of the
Company  for each of the five  years  ended  September  30,  1993  through  1997
(including  operations which have been  discontinued in the Southeastern  United
States).  The  consolidated  financial  information  has been  derived  from the
Company's consolidated financial statements.  This information should be read in
conjunction  with the  consolidated  financial  statements and notes thereto and
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations," included elsewhere herein.

                      SELECTED CONSOLIDATED FINANCIAL DATA
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                     Successor
                                                      Company                              Predecessor Company
                                            ---------------------------- -----------------------------------------------------------
                                               Twelve         Period        Period          Twelve         Twelve         Twelve
                                               Month           from          from           Month          Month          Month
                                               Period      November 14,    October 1,       Period         Period         Period
                                               Ended          1995 to         to            Ended          Ended          Ended
                                            September 30,  September 30,  November 13,   September 30,  September 30,  September 30,
                                                1997           1996          1995            1995           1994           1993

                                            -------------  -------------  ------------   -------------  -------------  -------------
<S>                                          <C>            <C>            <C>            <C>            <C>            <C>      
STATEMENTS OF
  OPERATIONS DATA:
  Housing sales                              $ 380,661      $ 387,455      $  29,624      $ 444,815      $ 508,800      $ 482,343
  Housing gross margin                          57,776         49,021          2,354         45,990         65,861         53,618
  (Loss) income before extraordinary items     (18,411)       (62,217)       (10,241)      (134,774)       (22,783)         5,038
  Net (loss) income (1)                        (18,411)       (62,217)        25,954       (134,774)       (22,783)         5,038

OPERATING DATA:
  New sales orders (dollars) (2)             $ 421,255      $ 362,300      $  31,373      $ 408,109      $ 540,473      $ 454,308
  New sales orders (units) (2)                   2,042          1,755            165          2,034          2,796          2,564
  Home closings (units)                          1,854          1,886            140          2,238          2,713          2,822
  Average revenue per home closing           $     205      $     206      $     212      $     199      $     188      $     171
  Dollar amount of homes under contract
    at period-end (backlog)                  $ 204,394      $ 161,110      $ 185,148      $ 181,838      $ 218,927      $ 180,897
  Homes (units) under contract at
    period-end (backlog)                           951            762            893            868          1,072            990
</TABLE>

<TABLE>
<CAPTION>
                                                   September 30,                                        September 30,
                                            --------------------------                   -----------------------------------------
                                                1997           1996                          1995           1994           1993
                                            -----------    -----------                   -----------    -----------    -----------
<S>                                          <C>            <C>                           <C>            <C>            <C>      
BALANCE SHEET DATA:
  Total assets                               $ 313,439      $ 296,343                     $ 436,425      $ 583,250      $ 590,995
                                             =========      =========                     =========      =========      =========
                                                                                                                      
  Debt:                                                                                                               
    Notes payable                            $  63,990      $  73,062                     $ 153,957      $ 154,636      $ 121,605
    Senior and subordinated notes payable      165,108        120,262                          --          191,406        194,811
    Liabilities subject to compromise (3)         --             --                         205,264           --             --
    Collateralized mortgage obligations                                                                               
      and mortgage lines of credit               1,378          6,299                        28,450         33,836         61,612
                                             ---------      ---------                     ---------      ---------      ---------
    Total debt                               $ 230,476      $ 199,623                     $ 387,671      $ 379,878      $ 378,028
                                             =========      =========                     =========      =========      =========
                                                                                                                      
Total stockholders' equity (deficit)         $   7,372      $  15,783                     $ (22,954)     $ 111,820      $ 134,603
                                             =========      =========                     =========      =========      =========
</TABLE>
                                       14
<PAGE>
 (1)  Net loss for the period  from  November  14,  1995 to  September  30, 1996
      includes  a  non-cash   loss  from   impairment  of  certain  real  estate
      inventories and goodwill in the amount of $42.8 million which was recorded
      in accordance with Statement of Financial  Accounting  Standards  ("SFAS")
      No.  121.  Net loss for the  periods  ended  September  30,  1995 and 1994
      includes   land   write-downs   of  $67.2   million  and  $24.1   million,
      respectively.  Net loss for the period from November 14, 1995 to September
      30,  1996,  the period from October 1, to November 13, 1995 and the period
      ended  September 30, 1995  includes  $6.6 million,  $7.1 million and $15.4
      million,  respectively,  of reorganization  items (primarily  professional
      fees and  severance  payments).  Net (loss)  income for the periods  ended
      September  30, 1995,  1994 and 1993  includes  income tax expense of $26.8
      million, $3.4 million and $3.3 million, respectively.                     
                                                                                
(2)   Home sales orders are net of cancellations  received during the applicable
      period.  Revenue from the sale of homes is  recognized at the time risk of
      ownership is transferred, which occurs at the close of the home sale.     
                                                                                
(3)   Fiscal 1995 includes $168 million of unsecured senior notes payable, $20.4
      million of  convertible  subordinated  notes  payable and $16.9 million of
      accrued  interest as  liabilities  subject to  compromise at September 30,
      1995 as a result of the Company's Chapter 11 filing.                      
                                       15
<PAGE>
Item 7.           Management's  Discussion  and Analysis of Financial  Condition
-------           --------------------------------------------------------------
                  and Results of Operations
                  -------------------------

Introduction

         On  November   14,   1995,   the  Company   consummated   its  plan  of
reorganization  and emerged from its Chapter 11  bankruptcy  proceeding as a new
reporting  entity.  The  following  discussion  and  analysis  of the  Company's
operations  includes  only the  Company's  continuing  operations in Arizona and
California  except as  otherwise  indicated.  The  Company  has  liquidated  all
remaining  assets of its  Southeast  operations,  and  management  believes that
discussion of such operations is no longer  material to obtain an  understanding
of the Company's operations.

Revenues

         The following  table presents  comparative  fiscal 1997,  1996 and 1995
housing revenues, deliveries and average sales prices (dollars in thousands):

                                         1997           1996          1995
                                         ----           ----          ----

Arizona and California:

 Family revenue ..................    $ 283,499      $ 315,604     $ 294,665

 Retirement revenue ..............    $  97,162      $  86,229     $  73,086

 Units delivered .................        1,854          1,951         1,844

 Average sales price .............    $     205      $     206     $     199

 Change from prior year ..........         (5.3)%          9.3%        (12.9)%

     Change due to volume ........         (5.0)%          5.8%        (18.5)%

     Change due to average sales price     (.3)%          3.5%          5.6%


Southeast:

 Family revenue ..................    $    --        $  14,625     $  56,151

 Retirement revenue ..............    $    --        $     621     $  20,913

 Units delivered .................         --               75           394

 Average sales price .............    $    --        $     203     $     196

         The decrease in volume in fiscal 1997  compared to fiscal 1996 resulted
from the closeout of several subdivisions in the Arizona and southern California
regions in the first and second  quarters of fiscal 1997 and the resulting  lack
of homesites available for sale. In the third and fourth fiscal quarters of 1997
the Company opened fourteen new  subdivisions in the Family divisions of Arizona
and southern California which has increased net orders in fiscal 1997.

         The increase in volume in fiscal 1996  compared to fiscal 1995 resulted
from  improved  sales in each market  during the fiscal  year.  The  increase in
average  sales price in fiscal 1996  compared to fiscal 1995 was  primarily  the
result of higher sales prices in California due to changes in the mix of product
types sold. In addition, the Company believes that its fiscal 1995 closings were
adversely  affected  by  home  buyer  concerns  about  the  Company's  financial
condition  and  restrictions  on the Company's  ability to finance  construction
during its Chapter 11 proceedings (the "Chapter 11 Case").
                                       16
<PAGE>
Net Orders

         The following table presents comparative fiscal 1997, 1996 and 1995 net
orders by market and region (dollars in thousands):

                                   1997              1996              1995
                                   ----              ----              ----
Family:

   Arizona:

    Dollars ...........          $232,256          $211,318          $214,221

    Units ordered .....             1,109             1,061             1,086

    Average sales price          $    209          $    199          $    197



   California:

    Dollars ...........          $ 99,096          $ 73,852          $ 59,155

    Units ordered .....               442               314               264

    Average sales price          $    224          $    235          $    224


Retirement:

   Arizona:

    Dollars ...........          $ 66,539          $ 56,735          $ 43,176

    Units ordered .....               418               373               289

    Average sales price          $    159          $    152          $    149

   California:

    Dollars ...........          $ 23,364          $ 47,323          $ 44,831

    Units ordered .....                73               149               154

    Average sales price          $    320          $    318          $    291


Southeast:

    Dollars ...........          $   --            $  4,445          $ 46,726

    Units ordered .....              --                  23               241

    Average sales price          $   --            $    193          $    194


Company Total:

    Dollars ...........          $421,255          $393,673          $408,109

    Units ordered .....             2,042             1,920             2,034

    Average sales price          $    206          $    205          $    201

         Net orders represent the aggregate dollar value and number of homes for
which the Company has received  purchase  deposits  and signed  sales  contracts
during the period,  net of  cancellations.  Total net orders increased in fiscal
1997  compared  to fiscal 1996 due to the  economic  strength of the Phoenix and
southern California markets and an increase in the number of homesites available
for sale in the Arizona and California regions of the Family Division due to the
opening of new subdivisions as previously discussed. Net orders decreased in the
California  region of the Retirement  Division in fiscal 1997 compared to fiscal
1996 due to  delays  in  obtaining  certain  approvals  on two  parcels  of land
consisting of 298 lots. As of September 30, 1997,  the needed  approval had been
obtained and land development activities have commenced.
                                       17
<PAGE>
         The  Company  believes  that  relatively  low  interest  rates  and the
economic  strength  of the  Phoenix  market and  improvement  in the  California
economy  resulted in new orders  increasing  in fiscal  1996  compared to fiscal
1995.  Additionally,  the Company completed its reorganization and therefore was
able to alleviate home buyer  concerns  about the Company's  ability to complete
construction  of homes  and  subdivisions  and  honor  its  post-sales  warranty
obligations.
                                       18
<PAGE>
Net Sales Backlog

         Net sales backlog  represents the aggregate  dollar value and number of
homes ordered, net of cancellations, pending delivery at September 30, for which
the Company had  received  purchase  deposits and signed  sales  contracts.  The
following  table  presents  comparative  fiscal  1997,  1996 and 1995 net  sales
backlog by market and region (dollars in thousands):


                                   1997              1996              1995
                                   ----              ----              ----
Family:

   Arizona:

    Dollars ...........          $129,510          $ 94,992          $103,651

    Units in backlog ..               587               466               522

    Average sales price          $    221          $    204          $    199


   California:

    Dollars ...........          $ 29,837          $ 14,732          $ 21,197

    Units in backlog ..               126                63                93

    Average sales price          $    237          $    234          $    228


Retirement:

   Arizona:

    Dollars ...........          $ 33,878          $ 25,891          $ 18,645

    Units in backlog ..               210               163               117

    Average sales price          $    161          $    159          $    159


   California:

    Dollars ...........          $ 11,169          $ 25,495          $ 27,616

    Units in backlog ..                28                70                84

    Average sales price          $    399          $    364          $    329


Southeast:

    Dollars ...........          $   --            $   --            $ 10,729

    Units in backlog ..              --                --                  52

    Average sales price          $   --            $   --            $    206


Company Total:

    Dollars ...........          $204,394          $161,110          $181,838

    Units in backlog ..               951               762               868

    Average sales price          $    215          $    211          $    209

         The increase in the  aggregate  dollar value and the number of homes in
backlog at September  30, 1997  compared to  September  30, 1996  resulted  from
increased  unit net sales in the Family  Division and  increased  average  sales
prices in all  divisions  and regions.  The decrease in the units and dollars in
backlog at September 30, 1997  compared to September 30, 1996 in the  California
region of the Retirement  Division  resulted from decreased  sales caused by the
delays in obtaining approvals as previously  discussed.  The decrease in backlog
at September  30, 1996  compared to September 30, 1995 resulted from fewer homes
available  for  sale in the  California  region  as a  result  of the  Company's
inability to acquire land for homesites during its Chapter 11 Case.
                                       19
<PAGE>
Gross Margins, Selling and Administrative Expenses and Interest, Net

         The following  table presents  comparative  fiscal 1997,  1996 and 1995
information  related  to gross  margins,  selling  and  administrative  expenses
("S&A") and interest,  net for home  building for the years ending  September 30
(dollars in thousands):

<TABLE>
<CAPTION>
                                                            1997                    1996                     1995
                                                 ------------------------ ------------------------ ------------------------
                                                   Dollars       Percent    Dollars       Percent    Dollars       Percent
<S>                                               <C>             <C>      <C>             <C>      <C>             <C>   
Revenue from
  housing sales ..............................    $ 380,661       100.0%   $ 417,079       100.0%   $ 444,815       100.0%
Cost of housing sales ........................      322,885        84.8      365,704        87.7      398,825        89.7
                                                  ---------       -----    ---------       -----    ---------       -----
Gross margin .................................       57,776        15.2       51,375        12.3       45,990        10.3
S&A expenses (including
  cost of Company
  reorganization) ............................       62,951        16.5       62,424        14.9       74,651        16.7
                                                  ---------       -----    ---------       -----    ---------       -----
Operating loss from
  home building ..............................       (5,175)       (1.3)     (11,049)       (2.6)     (28,661)       (6.4)
Interest, net ................................      (15,107)       (4.0)     (17,455)       (4.2)      (6,161)       (1.4)
                                                  ---------       -----    ---------       -----    ---------       -----
Pre-tax loss from
  home building ..............................    $ (20,282)       (5.3)%  $ (28,504)       (6.8)%  $ (34,822)       (7.8)%
                                                  =========       =====    =========       =====    =========       =====
</TABLE>

         Gross  margins  increased  during  fiscal 1997  compared to fiscal 1996
primarily due to decreased  amortization of purchased profit, which was recorded
as a result of the Acquisition.  Purchased profit amortization included in gross
margin  was  $11.2  million  in fiscal  1996 and $1.5  million  in fiscal  1997.
Additionally,  margins  were  favorably  impacted  in fiscal 1997 due to reduced
direct  construction  costs  incurred  as a result of more  competitive  bids on
construction contracts and lower levels of change orders.

         Gross  margins  increased  during  fiscal 1996  compared to fiscal 1995
primarily due to the  revaluation  of the Company's  housing  inventory and land
inventory  to fair  values at the  Acquisition  Date and the  effect of  reduced
interest  capitalization,  both of which resulted in lower land basis and higher
gross  margins.  These higher gross margins were offset by the  amortization  of
approximately $11.2 million of purchased profit.
                                       20
<PAGE>
         The   following   table   presents  the   components   of  selling  and
administrative  expenses in dollars and as a percentage of revenues from housing
sales (including Southeast Operations) (dollars in thousands):

<TABLE>
<CAPTION>
                                                                       Years ended September 30,
                                                                ---------------------------------------
                                                                    1997          1996          1995
                                                                    ----          ----          ----
<S>                                                              <C>           <C>           <C>      
Selling and administrative expenses:                            
                                                                
   Variable components .................................         $  23,394     $  22,168     $  28,114
                                                                                                
   Fixed components ....................................            39,557        26,630        31,099
                                                                
   Cost of Company reorganization ......................              --          13,626        15,438
                                                                 ---------     ---------     ---------
                                                                
Total selling and administrative expenses ..............         $  62,951     $  62,424     $  74,651
                                                                 =========     =========     =========
                                                                
                                                                
As a percentage of revenues from housing sales:                 
                                                                
   Variable components .................................               6.1%          5.3%          6.3%
                                                                
   Fixed components ....................................              10.4           6.4           7.0
                                                                
   Cost of Company reorganization ......................              --             3.2           3.4
                                                                 ---------     ---------     ---------
                                                                
Total selling and administrative expenses ..............              16.5%         14.9%         16.7%
                                                                 =========     =========     =========
</TABLE>                                                     

         The variable component of selling and administrative  expenses includes
sales   commissions,   advertising,   model   maintenance  and  model  furniture
amortization.  Variable selling and  administrative  expenses as a percentage of
housing sales  increased in fiscal 1997 compared to fiscal 1996 due to increases
in model furniture amortization, including a $1.1 million charge for the closure
of a large  model  complex,  and  increases  in  sales  commissions  paid to the
Company's  sales agents as well as increases in commissions  paid to third party
sales agents.  Sales  commissions paid to third party sales agents may fluctuate
from period to period as not all of the  Companys'  home buyers use the services
of third party sales agents.  Variable selling and administrative  expenses as a
percentage of housing sales decreased in fiscal 1996 compared to fiscal 1995 due
to decreases in advertising  expenditures  and  commissions  paid to third party
sales agents.

         The fixed component of selling and administrative expenses includes all
other  selling and  administrative  expenses  which  generally  do not vary with
housing sales volume.  Fixed selling and  administrative  expenses  increased in
fiscal 1997  compared to fiscal 1996  primarily due to increases in warranty and
settlement  costs incurred,  including  additional costs incurred related to the
Company's  departure  from the  Southeast  market.  The Company also incurred an
increase in professional fees, including fees paid to architects for new product
design;  fees paid to professional search and EDP systems consultants as well as
fees paid to attorneys  handling  customer  service  claims and  settlements  on
behalf of the Company.  Additionally, the Company incurred an increase in office
related  expenses  as a result  of the  relocation  of the  Company's  corporate
headquarters and two regional offices. During fiscal 1997, the Company estimates
the total amount of nonrecurring fixed selling and administrative expenses to be
approximately $6.7 million.
                                       21
<PAGE>
         The Company  capitalizes  certain  interest costs for its home building
operations and includes such capitalized interest in cost of home sales when the
related units are  delivered.  Total  interest  incurred by the  Company's  home
building  operations was  $28,184,000,  $31,035,000,  and  $34,041,000 in fiscal
1997,  1996  and  1995,  respectively.  Interest,  net for  home  building,  was
$15,107,000,  $17,455,000,  and  $6,161,000  in  fiscal  1997,  1996  and  1995,
respectively. Interest incurred decreased in fiscal 1997 compared to fiscal 1996
as a result of lower average debt levels. Interest, net decreased in fiscal 1997
compared  to  fiscal  1996  due to  lower  average  debt  levels  and  increased
development  activities  which  resulted  in  higher  interest   capitalization.
Interest  incurred  decreased in fiscal 1996 compared to fiscal 1995 as a result
of a reduction in debt levels upon the Company's  emergence  from its Chapter 11
Case.  Interest,  net  increased in fiscal 1996 due to the Company  changing its
method of applying  SFAS No. 34 in order to better match the  capitalization  of
interest with actual construction and development efforts.

Loss From Asset Impairment

         At September 30, 1996, the Company's  management reviewed the status of
the Company's operations,  and concluded that the Company's long-term assets may
be impaired.  In accordance  with SFAS No. 121, the Company tested its long-term
assets held,  including  allocated  goodwill,  for recoverability and determined
that an impairment  loss of $42.8 million should be  recognized.  The impairment
loss was comprised of $3.5 million and $4.2 million applicable to land inventory
and land held for sale, respectively, located in Phoenix and Northern California
and $35.1 million applicable to goodwill.

         In an effort to improve its liquidity,  in the second quarter of fiscal
1995 the  Company  announced  its  intention  to actively  market its  Southeast
homebuilding  operations which were under-performing in relation to management's
expectations.  In  connection  with its  restructuring  (and related  Chapter 11
Case), in May 1995 the Company also began marketing two residential  projects in
California for bulk sale along with certain commercial and mixed-use real estate
parcels in Arizona  not  previously  identified  for sale.  As a result of these
decisions,  the Company  wrote down the  carrying  amounts of such  projects and
parcels to the  amounts  expected  to be  realized  from their  immediate  sale,
reduced for costs to be incurred prior to and in connection with such sales. The
total charge to operations in fiscal 1995  resulting from such  write-downs  was
$67.2 million ($47.5  million in the  Southeast,  $9.8 million in California and
$9.9 million in Arizona).

Mortgage Operations

     Through May 31,  1997,  the  Company's  mortgage  banking  operations  were
exclusively  conducted  through  its  indirect,   wholly-owned  subsidiary,  UDC
Mortgage Corporation ("UDC Mortgage Corp."). Effective June 1, 1997, the Company
entered into a joint venture with Norwest Ventures, Inc. (entitled UDC Mortgage)
through  which all future  mortgage  banking  operations  of the Company will be
conducted.  The joint venture agreement provides that all capital  contributions
and distributions, as well as all profits and losses will be split 50/50. The
                                       22
<PAGE>
Company's  investment  in this joint  venture is being  accounted  for using the
equity method of accounting. At September 30, 1997, the Company's investment was
approximately  $166,000.  UDC  Mortgage  Corp.  is  currently  winding  down its
operations  but will  continue to operate  until all  mortgage  loans in process
prior to the  formation  of the  joint  venture  have been  originated  and sold
(anticipated to be during the first fiscal quarter of 1998).

     The following table presents  operating  information for UDC Mortgage Corp.
and the  Company's  equity  in the  operations  of UDC  Mortgage  for the  years
indicated (dollars in thousands):

<TABLE>
<CAPTION>
                                                                 1997            1996            1995
                                                                 ----            ----            ----
<S>                                                            <C>             <C>             <C>    
Number of loans originated -UDC Mortgage Corp. ..........          658             895             725
Number of loans originated -UDC Mortgage ................          125            --              --
UDC Mortgage Corp
  Revenues ..............................................      $ 2,141         $ 2,665         $ 1,764
  General and administrative expenses ...................        1,237           1,840           2,193
                                                               -------         -------         -------
  Operating income from mortgage banking ................          904             825            (429)
  Interest - net ........................................          (81)           (233)            (65)
                                                               -------         -------         -------
  Pre-tax profit (loss) from UDC Mortgage Corp. .........          985           1,058            (364)
Equity in operations of UDC Mortgage (June 1, 1997 to                                        
   September 30, 1997) ..................................           82            --              --
                                                               -------         -------         -------
Pre-tax profit (loss) from mortgage operations ..........      $ 1,067         $ 1,058         $  (364)
                                                               =======         =======         =======
</TABLE>                                                                     
         Revenues and general and administrative  expenses from mortgage banking
decreased in fiscal 1997  compared to fiscal 1996 as a result of the  operations
being   conducted   through  the  joint  venture  and  a  decrease  in  mortgage
originations  related to the  decrease  in  closings  recorded  by the  Company.
General and administrative  expenses decreased in fiscal 1996 compared to fiscal
1995 primarily as a result of the elimination of UDC Mortgage  Corp.'s  goodwill
based on purchase accounting principles resulting in a reduction in amortization
expense and  additionally,  a reduction in legal fees paid.  These  decreases in
fiscal 1996 were partially offset by an increase in salary expense  (relating to
severance  payments to employees  due to the Company  entering the joint venture
agreement) and an increase in foreclosure expense.

Liquidity and Capital Resources

         The Company's financing needs depend primarily upon sales volume, asset
turnover,  land acquisitions and inventory  balances.  The Company has financed,
and expects to continue to finance,  its working  capital  needs  through  funds
generated by operations,  borrowings and capital  contributions  by AEW and DMB.
Funds for future land  acquisitions  and  construction  costs are expected to be
provided primarily by cash flows from operations, future borrowings as permitted
under the Company's loan  agreements and capital  contributions  by AEW and DMB.
The  Company  believes  that  amounts  generated  from  operations,   additional
borrowings and capital  contributions will provide funds adequate to finance its
homebuilding activities and meet its debt service requirements.
                                       23
<PAGE>
         In fiscal 1996 and 1997, the Company  completed asset sale transactions
in which it sold to DMB/AEW Land Holdings One, LLC, an affiliate of DMB and AEW,
for cash $28.6 million and $25.5 million, respectively, of land at the Company's
cost which the Company had previously designated as land held for sale. Proceeds
from the sales were used to retire four of the Company's  term loan  facilities,
reduce  the  loan-to-value  ratio to 60% on one other  term loan  facility,  and
reduce the  outstanding  balance on the  Company's  principal  revolving  credit
facility.  These sales also created additional  acquisition and development fund
availability  under the  Company's  principal  revolving  credit  facility.  The
Company entered into a management  agreement with the DMB/AEW affiliate pursuant
to which the Company received a fixed monthly fee through September 30, 1997 for
the  management and marketing of the assets to third party buyers in addition to
commissions upon the sale of assets.  For the year ended September 30, 1997, the
Company earned $75,000 in management  fees and $557,000 in commissions  pursuant
to this agreement.

         The Company  has  entered  into option  agreements  with  DMB/AEW  Land
Holdings  Two, LLC ("Land  Holdings  Two"),  an affiliate of DMB and AEW,  which
provide for the purchase of lots in southern  California.  As of  September  30,
1997, the Company had land option  agreements with Land Holdings Two to purchase
up to 533 lots.

         At September 30, 1997,  the Company  finances its home  building,  land
development and mortgage operations as discussed below:

         Construction  and  Acquisition  and  Development  Financing - Effective
April 30,  1997,  the  Company  entered  into a $170  million  (the  "commitment
amount")  revolving  credit facility with a group of banks (the "new facility").
The new facility  replaced the Company's  then  existing $150 million  revolving
facility  (the  "old  facility").   The  new  facility  is  available  for  both
construction and acquisition and development  ("A&D")  activities in Arizona and
California.  The amount available for A&D activities is limited to the lesser of
(a) 37.5% of the commitment  amount or (b) $63,750,000,  as adjusted for various
sublimits, as defined. The new facility accrues interest at prime plus 1% or, at
the  Company's  option,  LIBOR  plus  3.25%,  payable  monthly,  and  requires a
commitment fee of 1% per annum of the commitment  amount,  an unused  commitment
fee of .25% per annum of the average unused commitment  amount,  and syndication
and agency fees.  The  interest  rate and  commitment  fee may be reduced if the
Company meets certain financial ratios.  The new facility is secured by portions
of the Company's  housing and land  inventory and matures on September 30, 1999.
At September 30, 1997,  $53.2 million was  outstanding  and an additional  $27.2
million was available under the new facility.

         Additionally, the Company has a revolving construction and A&D facility
(as amended on June 28, 1997) for Westbrook Village ("WBV") which consists of an
$8.0 million  construction  facility and a $2.728  million A&D  facility.  These
facilities accrue interest at prime plus 1%, payable monthly, require payment of
a  commitment  fee of 1% per  annum  and are  secured  by WBV  housing  and land
inventory.  The A&D  facility  matures  on March 31,  1998 and the  construction
facility  matures on January 1, 1999.  At September  30, 1997,  $5.8 million was
outstanding under these facilities.
                                       24
<PAGE>
         The  construction  and A&D facilities  described  above contain capital
distribution restrictions and various covenants,  including, but not limited to,
covenants regarding: (i) encumbrances;  (ii) minimum available liquidity;  (iii)
maximum total debt to tangible net worth;  (iv) minimum  tangible net worth; (v)
minimum ratio of earnings before interest,  taxes, depreciation and amortization
("EBITDA") to interest  incurred;  (vi) restrictions on mergers,  consolidations
and acquisitions;  (vii) restrictions on asset sales; and (viii) restrictions on
incurrence of additional  indebtedness.  Among other things,  such covenants may
limit the Company's  ability to obtain  additional  financing when needed and on
terms  acceptable to the Company.  Further,  the availability of funds under the
revolving  facilities is dependent upon compliance with such covenants,  certain
loan-to-value  ratios  stated in each  facility  and the levels of pre-sold  and
speculative  construction.  Accordingly,  all of the committed credit may not be
available to the Company at a particular  time.  Any inability of the Company to
obtain  financing  when needed in amounts or on terms  favorable  to the Company
could  have a  material  adverse  effect on the  Company's  business,  operating
results and financial condition.

         Other  Secured  Borrowings  - In  addition  to  the  credit  facilities
described  above,  the  Company  has various  notes  outstanding  collateralized
primarily by land held for development. The notes bear interest at rates ranging
from the prime rate to 10% and are due at various dates through  fiscal 2001. At
September 30, 1997, $4.9 million was outstanding under these notes.

         Senior  Unsecured Notes - On the  Acquisition  Date, the Company issued
Series A Senior  Notes in a principal  amount of $60 million and Series B Senior
Notes in a principal amount of $10 million  (collectively,  the "Senior Notes").
Interest on the Senior Notes accrues at a rate of 12.5% per annum and is payable
semi-annually.  Both series of Senior Notes mature on May 1, 2000.  The Series B
Senior Notes  further  require  prepayments  from the proceeds of certain  asset
sales in excess of $10 million,  subject to certain  limitations  related to the
Company's  construction  and A&D facilities.  Upon the  consummation of the next
qualifying asset sale, as defined, the Company will be required to make an offer
to repurchase all or a portion of the outstanding $10 million  principal  amount
of Series B Senior  Notes,  plus accrued and unpaid  interest.  The Senior Notes
contain  numerous  covenants which may, among other things,  limit the Company's
ability to obtain  additional  financing when needed and on terms  acceptable to
the Company.

         Subordinated Notes - On the Acquisition Date, the Company issued Series
C Subordinated  Notes in a principal amount of $35 million ($30 million of which
were  issued to DMB in  connection  with its  acquisition  of the  equity of the
Company).  Interest on the Series C  Subordinated  Notes  accrues at the rate of
14.5% per annum and is payable  semi-annually.  The Series C Subordinated  Notes
mature  November 1, 2000.  On May 6, 1996,  Eastrich  No. 184,  LLC acquired $15
million of the Series C Subordinated  Notes from DMB. The payment of interest in
cash on the Series C  Subordinated  Notes is restricted by certain  covenants in
the Company's construction and A&D facilities. The November 1, 1996, May 1, 1997
and November 1, 1997 payments of interest were paid in-kind in additional Series
C  Subordinated  Notes.  In fiscal 1997,  DMB acquired an  additional $2 million
principal amount of Series C Subordinated  Notes from existing note holders.  At
November  1,  1997,  the  principal  amount of the Series C  Subordinated  Notes
outstanding was approximately $45.9 million.
                                       25
<PAGE>
         On March 15, 1996,  DMB invested $10 million in the Company in exchange
for $10 million  principal  amount of Series D Subordinated  Notes. The terms of
the  Series D  Subordinated  Notes are  identical  to the terms of the  Series C
Subordinated  Notes  discussed  above,  except  that  payments  on the  Series D
Subordinated  Notes are  subordinate  to payments  on the Series C  Subordinated
Notes. On May 6, 1996, Eastrich No. 184, LLC acquired $5 million of the Series D
Subordinated  Notes from DMB.  During  fiscal 1997,  DMB and AEW invested  $17.5
million each in the Company in exchange  for  additional  Series D  Subordinated
Notes.  The  November  1, 1996,  May 1, 1997 and  November  1, 1997  payments of
interest  were paid  in-kind  in  additional  Series D  Subordinated  Notes.  At
November  1,  1997,  the  principal  amount of the Series D  Subordinated  Notes
outstanding was approximately $50.3 million.

         Common   Stock  -  In   connection   with  the   consummation   of  the
Reorganization  Plan,  the Company  sold all 1,000 of the  authorized  shares of
Common Stock of the reorganized  Company,  par value $.01 per share, to DMB. DMB
then entered into an option  agreement with AEW which, as amended,  gave AEW the
right to purchase  500 shares of the Common  Stock owned by DMB,  $15 million of
the  Series C  Subordinated  Notes  issued to DMB,  $5  million  of the Series D
Subordinated Notes issued to DMB and 50% of the general partner interest held by
a DMB affiliate in WBV for an aggregate  purchase price of $61.25 million,  plus
interest.  On April 21, 1996, AEW exercised its option, and, on May 6, 1996, the
purchase by Eastrich No. 184, LLC (as to all interests  except the WBV interest)
and  Eastrich  No.  185,  LLC (as to the WBV  interest),  as  assignees  of AEW,
pursuant to the exercise of the option was completed.  On December 31, 1996, the
Company received  additional  capital  contributions of $5 million each from DMB
and AEW.

         Mortgage  Debt - UDC Mortgage  Corp.  finances its mortgage  operations
with a $10 million revolving credit facility which originally matured on October
30, 1997. Subsequent to September 30, 1997, the commitment amount was reduced to
$3.0 million and the maturity was extended to December 31, 1997.  This  facility
is secured by residential  mortgages  originated in the closing of the Company's
residential  home sales. At September 30, 1997,  approximately  $1.4 million was
outstanding under the facility. The Company will not extend the maturity of this
facility as all ongoing  mortgage related  operations will be conducted  through
the joint venture. See "Business Mortgage Related Operations."

Inflation
         The  homebuilding  industry is affected by movements in interest rates.
Due to its highly leveraged  condition,  the Company is more sensitive than less
leveraged  companies to increases in interest rates which affect the cost of the
Company's  borrowings  and  impact  the  Company's  margins  and  profitability.
Further,   the  Company  may  have  difficulty  expanding  its  operations  when
opportunities  are  available  or  securing  financing  during a downturn in the
homebuilding  market.  While the Company  believes  that the move-up  family and
retirement  home  buyers to whom the  Company  provides  housing  have been less
sensitive  to  increasing  interest  rates  than the  industry  as a whole,  the
Company's business is nonetheless affected.  Residential homebuilding companies,
including the Company,  can be adversely  affected by inflation  through  higher
mortgage rates and increased costs for materials and  subcontractors,  resulting
in higher  prices,  both of which  adversely  affect  buyer  demand.  Management
believes  that the impact of  inflation  on its  revenues and costs has not been
material.
                                       26
<PAGE>
         Changes  in  interest  rates  have  several  impacts  on the  Company's
homebuilding operations.  Higher interest rates will increase the carrying costs
of inventory,  thereby  increasing  costs of housing sales and decreasing  gross
margins. Generally, higher interest rates tend to create a reduction in consumer
demand and reduce the  consumer's  ability to qualify  for  mortgage  financing.
Correspondingly,  lower  interest  rates will  decrease  the  carrying  costs of
inventory,  thereby  decreasing  costs of  housing  sales and  increasing  gross
margins.  Generally,  lower interest rates tend to increase  consumer demand and
the consumers' ability to qualify for mortgage financing.


Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

         The  statements  contained  herein which are not  historical  facts may
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended,  and Section 21E of the Securities  Exchange
Act of 1934, as amended,  and are subject to the safe harbors  created  thereby.
These forward-looking statements involve risks and uncertainties, including, but
not limited to, the Company's success in overcoming negative  perceptions on the
part of home  buyers as a result of its  Chapter 11 Case,  the  impact  that the
Company's  limited  sources of capital might have on its ability to compete with
better capitalized companies for the acquisition of land, the effect of interest
rates on demand  for the  Company's  homes and the cost of its  operations,  and
fluctuating  margins as a result of product mix and other factors.  In addition,
the  Company's  business,  operations  and  financial  condition  are subject to
substantial  risks which are described in the Company's  reports and  statements
filed from time to time with the Securities and Exchange Commission.
                                       27
<PAGE>
Item 8.           Financial Statements and Supplementary Data
-------           -------------------------------------------

1A.      Financial Statements
         The  following  financial  statements,  together  with the  reports  of
independent public accountants thereon, are included as follows:
                                                                     Page Number
                                                                     -----------
         UDC HOMES, INC. AND SUBSIDIARIES

         Reports of Independent Public Accountants ...............F - 1, F - 1a,

         Consolidated Balance Sheets as of September 30, 1997 and 1996 ....F - 2

         Consolidated  Statements of  Operations  for the Twelve Month
           Period Ended  September 30, 1997,  the Period from November
           14, 1995 to September 30, 1996,  the Period from October 1,
           1995 to November 13, 1995 and the Twelve Month Period Ended
           September 30, 1995 .............................................F - 3

         Consolidated  Statements of Changes in  Stockholders'  Equity
           (Deficit)  for the Twelve Month Period Ended  September 30,
           1997,  the Period from  November 14, 1995 to September  30,
           1996,  the Period from October 1, 1995 to November 13, 1995
           and the Twelve Month Period Ended September 30, 1995 ...........F - 4

         Consolidated  Statements  of Cash Flows for the Twelve  Month
           Period Ended  September 30, 1997,  the Period from November
           14, 1995 to September 30, 1996,  the Period from October 1,
           1995 to November 13, 1995 and the Twelve Month Period Ended
           September 30, 1995 .............................................F - 5

         Notes to Consolidated Financial Statements .......................F - 6

2A.      Financial Statement Schedules of UDC Homes, Inc. and Subsidiaries

         No  schedules  have been filed  because  they are not  required  or the
information is included elsewhere in the financial statements or notes thereto.
                                  28
<PAGE>
INDEPENDENT AUDITORS' REPORT


Board of Directors
UDC Homes, Inc.
Scottsdale, Arizona

We have audited the accompanying  consolidated balance sheets of UDC Homes, Inc.
and subsidiaries as of September 30, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
year ended  September  30, 1997 and the period from  November  14, 1995 (date of
acquisition)   through   September  30,  1996  ("Successor   Company   financial
statements").  We have also audited the  consolidated  statements of operations,
stockholders' equity and cash flows of the Predecessor Company under Fresh Start
reporting for the period from October 1, 1995 through  November 13, 1995.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

As  discussed in Note 1 to the  financial  statements,  on October 3, 1995,  the
Bankruptcy  Court entered an order confirming the plan of  reorganization  which
became effective after the close of business on November 13, 1995.  Accordingly,
the  accompanying  financial  statements  for the  period  from  October 1, 1995
through  November 13, 1995 have been prepared in conformity with AICPA Statement
of Position 90-7,  Financial Reporting for Entities in Reorganization  Under the
Bankruptcy  Code,  for  the  Successor  Company  as a new  entity  with  assets,
liabilities,  and a capital structure having carrying values not comparable with
prior periods as described in Note 2.

In our opinion,  the Successor  Company financial  statements  referred to above
present fairly, in all material  respects,  the financial position of UDC Homes,
Inc. and  subsidiaries  as September 30, 1997 and 1996, and the results of their
operations  and their cash flows for the year ended  September  30, 1997 and the
period from  November 14, 1995 through  September  30, 1996 in  conformity  with
generally  accepted  accounting   principles.   Further,  in  our  opinion,  the
Predecessor Company financial statements under Fresh Start reporting referred to
above present fairly,  in all material  respects,  the results of operations and
cash  flows of the  Predecessor  Company  for the  period  from  October 1, 1995
through  November 13, 1995 in  conformity  with  generally  accepted  accounting
principles.

DELOITTE & TOUCHE LLP
Phoenix, Arizona

November 7, 1997
                                F - 1
<PAGE>
               REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To UDC Homes, Inc.:


We have audited the accompanying consolidated statements of operations,  changes
in  stockholders'  equity  (deficit) and cash flows for the year ended September
30, 1995 of UDC Homes,  Inc. (a Delaware  corporation) and  subsidiaries.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

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

As described more fully in Note 2 to the accompanying  financial statements,  on
May 17, 1995, the Company filed a voluntary petition for relief under Chapter 11
of  the   U.S.   Bankruptcy   Code   and   was   operating   its   business   as
debtor-in-possession   under  the  supervision  of  the  Bankruptcy  Court.  The
Company's plan of reorganization  was confirmed on October 3, 1995, and the plan
was consummated on November 14, 1995, upon the DMB purchase described in Note 2.
Consummation of the plan of  reorganization  materially  changed certain amounts
recorded in the September 30, 1995,  consolidated  balance sheet (not  presented
herein).

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the results of operations  and cash flows of UDC Homes,
Inc. and  subsidiaries for the year ended September 30, 1995, in conformity with
generally accepted accounting principles.

                                                     ARTHUR ANDERSEN LLP


Phoenix, Arizona,
  December 6, 1995.
                                F - 1a
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ASSETS                                                                         1997             1996
                                                                           -----------      -----------
                                                                                  (In thousands)
<S>                                                                         <C>              <C>      
HOMEBUILDING :                                                                             
  Cash and cash equivalents                                                 $   8,871        $   3,556
  Receivables                                                                   1,930              985
  Housing inventory                                                           133,798          122,311
  Land inventory                                                              150,164          115,286
  Land held for sale                                                            6,830           28,332
  Property and equipment - net                                                  4,214            3,654
  Goodwill                                                                      3,366            3,545
  Other assets                                                                  2,593            8,303
                                                                            ---------        ---------
          Total homebuilding assets                                           311,766          285,972
                                                                            ---------        ---------
MORTGAGE BANKING :                                                                         
  Residential mortgages                                                         1,663           10,248
  Other assets                                                                     10              123
                                                                            ---------        ---------
          Total mortgage assets                                                 1,673           10,371
                                                                            ---------        ---------
TOTAL                                                                       $ 313,439        $ 296,343
                                                                            =========        =========
LIABILITIES AND STOCKHOLDERS' EQUITY                                                       
HOMEBUILDING :                                                                             
  Accounts payable                                                          $  22,228        $  19,371
  Accrued interest                                                              4,239            7,175
  Accrued liabilities and expenses                                             45,396           49,635
  Notes payable                                                                63,990           73,062
  Senior unsecured notes payable                                               70,000           70,000
  Subordinated notes payable ($90,921 and $44,628, respectively,                           
     due to related parties)                                                   95,108           50,262
                                                                            ---------        ---------
          Total homebuilding liabilities                                      300,961          269,505
                                                                            ---------        ---------
MORTGAGE BANKING :                                                                         
  Mortgage line of credit                                                       1,378            6,299
  Accrued liabilities and expenses                                                 47              308
                                                                            ---------        ---------
          Total mortgage liabilities                                            1,425            6,607
                                                                            ---------        ---------
          Total liabilities                                                   302,386          276,112
                                                                            ---------        ---------
MINORITY INTERESTS                                                              3,681            4,448
                                                                            ---------        ---------
COMMITMENTS AND CONTINGENCIES                                                              
STOCKHOLDERS' EQUITY :                                                                     
  Common stock, $.01 par value - 1,000 shares authorized, issued and                       
    outstanding                                                                  --               --
  Additional paid-in capital                                                   88,000           78,000
  Accumulated deficit                                                         (80,628)         (62,217)
                                                                            ---------        ---------
          Total stockholders' equity                                            7,372           15,783
                                                                            ---------        ---------
TOTAL                                                                       $ 313,439        $ 296,343
                                                                            =========        =========
</TABLE>
See notes to consolidated financial statements                                 
                                F - 2
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                        Successor
                                                         Company                        Predecessor Company
                                             -------------------------------     -------------------------------
                                                Twelve            Period            Period           Twelve
                                                 Month             from              from             Month
                                                Period          November 14,      October 1,         Period
                                                 Ended            1995 to           1995 to           Ended
                                             September 30,     September 30,     November 13,     September 30,
                                                 1997              1996              1995             1995
                                             -------------     -------------     -------------    --------------
                                                                        (In thousands)
<S>                                            <C>               <C>               <C>               <C>      
REVENUES:
  Housing sales                                $ 380,661         $ 387,455         $  29,624         $ 444,815
  Mortgage and finance operations - net            1,067             1,011                28              (583)
  Land sales - net                                 1,105              --                --                --
                                               ---------         ---------         ---------         ---------
          Total revenues                         382,833           388,466            29,652           444,232
                                               ---------         ---------         ---------         ---------
COSTS AND EXPENSES:
  Homebuilding:
    Cost of housing sales                        322,885           338,434            27,270           398,825
    Selling and administrative expenses           62,951            43,829             4,969            59,213
    Loss from asset impairment                      --              42,815              --              67,177
    Interest - net                                 5,313            11,625               568             6,161
    Interest on subordinated notes                 9,794             5,262              --                --
    Other - net                                      301             2,143                35             5,373
    Cost of Company reorganization                  --               6,575             7,051            15,438
                                               ---------         ---------         ---------         ---------
          Total costs and expenses               401,244           450,683            39,893           552,187
                                               ---------         ---------         ---------         ---------
LOSS BEFORE INCOME TAXES
  AND EXTRAORDINARY ITEMS                        (18,411)          (62,217)          (10,241)         (107,955)
INCOME TAXES                                        --                --                --              26,819
                                               ---------         ---------         ---------         ---------
LOSS BEFORE EXTRAORDINARY
  ITEMS                                          (18,411)          (62,217)          (10,241)         (134,774)
EXTRAORDINARY ITEMS:
  Gain on debt discharge                            --                --              50,264              --
  Fresh Start reporting adjustment                  --                --             (14,069)             --
                                               ---------         ---------         ---------         ---------
NET (LOSS) INCOME                              $ (18,411)        $ (62,217)        $  25,954         $(134,774)
                                               =========         =========         =========         =========
</TABLE>

See notes to consolidated financial statements.
                                F - 3
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY(DEFICIT)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                                      Total
                                           Preferred          Common           Additional         Retained        Stockholders'
                                         Stockholders'     Stockholders'        Paid-In           Earnings           Equity
                                            Equity            Equity            Capital           (Deficit)         (Deficit)
                                        ---------------   ---------------     ------------      ------------     ---------------

                                                                             (In thousands)
<S>                                        <C>               <C>               <C>               <C>               <C>      
BALANCE, OCTOBER 1, 1994                   $      94         $     114         $ 116,650         $  (5,038)        $ 111,820

  Preferred stock in-kind dividends                6              --               1,740            (1,746)             --

  Net loss                                      --                --                --            (134,774)         (134,774)
                                           ---------         ---------         ---------         ---------         ---------

BALANCE, SEPTEMBER 30, 1995                      100               114           118,390          (141,558)          (22,954)

  Issuance of subordinated notes                 (93)             --              (2,907)             --              (3,000)

  Cancellation of common and
    preferred stock                               (7)             (114)         (115,483)          115,604              --

  Net income                                    --                --                --              25,954            25,954
                                           ---------         ---------         ---------         ---------         ---------

PREDECESSOR COMPANY
  BALANCE, NOVEMBER 13, 1995                    --                --                --                --                --

  Common stock issued for cash                  --                --              78,000              --              78,000

  Net loss                                      --                --                --             (62,217)          (62,217)
                                           ---------         ---------         ---------         ---------         ---------

SUCCESSOR COMPANY BALANCE,
  SEPTEMBER 30, 1996                            --                --              78,000           (62,217)           15,783

  Capital contribution                          --                --              10,000              --              10,000

  Net loss                                      --                --                --             (18,411)          (18,411)
                                           ---------         ---------         ---------         ---------         ---------

BALANCE, SEPTEMBER 30, 1997                $    --           $    --           $  88,000         $ (80,628)        $   7,372
                                           =========         =========         =========         =========         =========
</TABLE>

See notes to consolidated financial statements.
                                F - 4
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                              Successor
                                                                               Company                     Predecessor Company
                                                                    -------------------------------- -------------------------------
                                                                        Twelve           Period         Period           Twelve
                                                                        Month             from           from            Month
                                                                        Period        November 14,    October 1,         Period
                                                                        Ended            1995 to        1995 to          Ended
                                                                     September 30,    September 30,   November 13,    September 30,
                                                                         1997             1996           1995             1995
                                                                    -------------------------------- --------------  ---------------
                                                                                             (in thousands)
<S>                                                                    <C>             <C>             <C>             <C>       
OPERATING ACTIVITIES:
  Net (loss) income                                                    $ (18,411)      $ (62,217)      $  25,954       $(134,774)
  Adjustments to reconcile net (loss) income to net cash
    provided by (used in) operating activities:
      Depreciation and amortization                                        6,576           5,810             536           7,274
      Fresh Start reporting adjustment                                      --              --            14,069            --
      Gain on debt discharge                                                --              --           (50,264)           --
      Equity in losses of unconsolidated affiliated partnerships            --             1,172            --               223
      Loss from asset impairment                                            --            42,815            --            67,177
      Income taxes                                                          --              --              --            26,772
  Changes in assets and liabilities:
    Receivables                                                             (945)          2,884             259           1,070
    Other assets                                                           5,822          (2,515)         (1,015)          1,233
    Housing inventory                                                    (17,129)         17,690          10,890         146,848
    Land inventory and land held for sale                                (13,376)         42,634           4,328        (112,517)
    Receivables from affiliated partnerships                                --             3,081              95          22,571
    Accounts payable                                                       2,857         (12,845)         (2,963)        (28,363)
    Accrued liabilities and expenses                                       1,643           6,687           4,655          24,117
                                                                       ---------       ---------       ---------       ---------
          Net cash (used in) provided by operating activities            (32,963)         45,196           6,544          21,631
                                                                       ---------       ---------       ---------       ---------
INVESTING ACTIVITIES:
  Decrease in residential mortgages
    and mortgage-backed securities                                         8,585          12,728           6,390           4,898
  Net additions to property and equipment                                 (1,314)         (3,437)             13          (2,404)
                                                                       ---------       ---------       ---------       ---------
          Net cash provided by investing activities                        7,271           9,291           6,403           2,494
                                                                       ---------       ---------       ---------       ---------
FINANCING ACTIVITIES:
  Decrease in notes payable                                               (9,072)        (75,088)        (11,492)        (12,299)
  Proceeds from issuance of subordinated notes payable                    35,000          15,262          30,000            --
  Proceeds from issuance of common stock                                    --              --            78,000            --
  Capital contributions                                                   10,000            --              --              --
  Payment of liabilities subject to compromise                              --              --           (83,000)         (3,000)
  Payments on collateralized mortgage obligations                           --           (16,814)           (247)         (3,592)
  (Decrease) increase in mortgage line of credit                          (4,921)            709          (5,799)         (1,794)
                                                                       ---------       ---------       ---------       ---------
          Net cash provided by (used in) financing activities             31,007         (75,931)          7,462         (20,685)
                                                                       ---------       ---------       ---------       ---------
NET INCREASE (DECREASE) IN CASH                                            5,315         (21,444)         20,409           3,440
CASH, BEGINNING OF PERIOD                                                  3,556          25,000           4,591           1,151
                                                                       ---------       ---------       ---------       ---------
CASH, END OF PERIOD                                                    $   8,871       $   3,556       $  25,000       $   4,591
                                                                       =========       =========       =========       =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION - Cash paid for interest, net of amounts
  capitalized                                                          $   8,249       $   8,171       $     254       $   5,221
                                                                       =========       =========       =========       =========

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
  AND FINANCING ACTIVITIES:
    Additional debt and land inventory due to consolidation
      of partnership                                                   $    --         $   7,067       $    --         $    --
                                                                       =========       =========       =========       =========
</TABLE>

See notes to consolidated financial statements
                                F - 5
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
--------------------------------------------------------------------------------


1.    BASIS OF PRESENTATION

      The  Company  designs,  builds and  markets  single  family  attached  and
      detached homes  primarily for move-up  family and retirement  home buyers.
      The Company has  historically  operated  in  Arizona,  California  and the
      Southeast  (Florida,  Georgia and North  Carolina);  however,  the Company
      ceased operations in the Southeast and has sold its Southeast assets.  The
      following table reflects the percentage of UDC revenues from housing sales
      by market and geographic regions (excluding Southeast operations):

                                                         Housing Revenues
                                                  ------------------------------
                                                     Years Ended September 30,
                                                  ------------------------------

                                                   1997        1996        1995
                                                   ----        ----        ----
      Family:
      
         Arizona ..........................         50%         54%         56%
       
         California .......................         24          25          24
                                                   ---         ---         --- 
      Family Total ........................         74%         79%         80%
                                                   ---         ---         --- 
                                           
      Retirement:                          
                                           
         Arizona ..........................         18%         14%         14%
                                           
         California .......................          8           7           6
                                                   ---         ---         --- 
      Retirement Total ....................         26%         21%         20%
                                                   ---         ---         --- 
                                                   100%        100%        100%
                                                   ===         ===         ===
                 
      Through May 31, 1997,  the  Company's  mortgage  banking  operations  were
      exclusively conducted through its indirect,  wholly-owned subsidiary,  UDC
      Mortgage  Corporation ("UDC Mortgage Corp.").  Effective June 1, 1997, the
      Company entered into a joint venture with Norwest Ventures, Inc. (entitled
      UDC Mortgage) through which all future mortgage banking  operations of the
      Company will be conducted.  The joint venture agreement  provides that all
      capital contributions and distributions, as well as all profits and losses
      will be split 50/50.  The  Company's  investment  in this joint venture is
      being  accounted for using the equity method of  accounting.  At September
      30, 1997,  the  Company's  investment  was  approximately  $166,000 and is
      included in other  homebuilding  assets in the  accompanying  consolidated
      balance  sheets.   UDC  Mortgage  Corp.  is  currently  winding  down  its
      operations  but will  continue  to  operate  until all  mortgage  loans in
      process prior to the  formation of the joint venture have been  originated
      and sold (anticipated to be during the first fiscal quarter of 1998).

      On May 17, 1995,  UDC Homes,  Inc.  (the  "Predecessor  Company")  filed a
      voluntary  petition  for  reorganization  under  Chapter  11 of the United
      States Bankruptcy Code (the "Bankruptcy Proceedings"). On October 3, 1995,
      the   Predecessor   Company's   reorganization   plan,   as  amended  (the
      "Reorganization  Plan"),  was  approved  by the United  States  Bankruptcy
      Court.  Under the  Reorganization  Plan,  which is more fully described in
      Note 2, DMB Property Ventures Limited  Partnership  ("DMBLP") entered into
      an  agreement  to acquire  100% of the equity (the  "Acquisition")  of the
      company that emerged from 
                                     F - 6
<PAGE>
      Bankruptcy   Proceedings  (the  "Predecessor  Company  under  Fresh  Start
      reporting").  On November 14, 1995  ("Acquisition  Date"), DMB Residential
      LLC ("DMB"),  an affiliate of DMBLP,  completed the acquisition and, as of
      that date,  the financial  statements  of the Company  reflect the cost of
      DMB's  acquisition  of the  Company,  utilizing  the  purchase  method  of
      accounting ("Acquisition Cost Basis") ("Successor Company").  Accordingly,
      the statements of operations and the statements of cash flows for the year
      ended September 30, 1996 reflect the operations of the Predecessor Company
      under  Fresh  Start  reporting  for the  period  from  October  1, 1995 to
      November  13,  1995,  and the  accounts  of the  Successor  Company on the
      Acquisition  Cost Basis from  November 14, 1995 to September 30, 1996 (the
      "Company"). Financial statements for the year ended September 30, 1995 are
      those previously issued by the Predecessor Company.

      The following are the accounting  policies  utilized in the preparation of
      these financial statements:

      a.    Principles of Consolidation - The consolidated  financial statements
            include   the   accounts  of  UDC  Homes,   Inc.   and  all  of  its
            majority-owned  subsidiaries,  joint ventures and partnerships.  All
            material intercompany balances and transactions have been eliminated
            in  consolidation.  Investments in joint ventures are recorded using
            the equity method of accounting.

      b.    Housing inventory  includes housing  construction  costs and related
            land  acquisition,  land  development  and other costs  (principally
            capitalized  interest and  overhead)  for homes under  construction.
            Inventory is carried at the lower of cost (specific  identification)
            or  estimated  net  realizable  value  ("NRV").  NRV  is  the  price
            obtainable in the future reduced by disposal and future  development
            and holding costs,  without  provision for future profit and without
            discounting  future cash  receipts to present  value.  In estimating
            NRV, the underlying assumptions reflect the intent to dispose of the
            Company's  real  estate  assets in an orderly  process on an ongoing
            basis in the normal course of the Company's homebuilding operations.

      c.    Land Inventory - Land acquisition,  land development and other costs
            (principally  capitalized interest) are accumulated by specific area
            and  allocated on a  parcel-by-parcel  basis  within the  respective
            area.  The areas are carried at the lower of cost or, prior to 1996,
            NRV on an ongoing basis. Beginning in 1996, the areas are carried at
            the lower of cost or fair  value less cost to sell (to the extent an
            asset is  impaired,  the asset is written  down to its fair  value).
            Upon commencement of housing construction,  allocated land costs are
            transferred to housing inventory on a lot-by-lot basis.

      d.    Land Held for Sale -  Properties  which are  currently  marketed for
            sale have been segregated on the accompanying  consolidated  balance
            sheets as land held for sale.  Debt related to such  properties  has
            been  included  in notes  payable on the  accompanying  consolidated
            balance sheets.  Losses attributable to the holding and operation of
            such properties are expensed as incurred. The properties are carried
            at the lower of cost or,  prior to 1996,  NRV on an  ongoing  basis.
            Beginning in 1996,  the  properties are carried at the lower of cost
            or fair value less cost to sell (to the extent an asset is impaired,
            the asset is written down to its fair value).

      e.    Property  and  equipment  are  carried at cost,  net of  accumulated
            depreciation.  Depreciation  of property and equipment is calculated
            using the  straight-line  method over the estimated  useful lives of
            the assets which range from 2 to 40 years.  Maintenance  and repairs
            are  charged  against  operations  in the year  incurred  and  major
            additions to property and equipment are capitalized. When assets are
            retired or otherwise  disposed of, the related costs and accumulated
            depreciation  are  removed  from the  appropriate  accounts  and the
            resulting gain or loss is included in results of operations.
                                     F - 7
<PAGE>
      f.    Cash and Cash  Equivalents - Cash  equivalents  include amounts with
            initial maturities of less than 90 days.

      g.    Goodwill,  which represents the excess of the Acquisition Cost Basis
            over the fair value of net assets acquired,  is being amortized on a
            straight-line basis over 25 years (Note 5).

      h.    Income Taxes - Income  taxes are  accounted  for using  Statement of
            Financial  Accounting  Standards  ("SFAS") No. 109,  Accounting  for
            Income Taxes,  which requires an asset and liability  method.  Under
            this tax  basis,  assets  and  liabilities  are  measured  using the
            enacted tax rates.

      i.    Sales  Recognition  - Income from  housing  sales is  recognized  in
            accordance  with SFAS No. 66,  Accounting  for Sales of Real Estate,
            when the homes are delivered and title passes to the new homeowners.
            Revenues  from the sale of other real estate are  recognized  when a
            significant  down  payment  is  received,  the  earnings  process is
            complete,  and  the  collection  of  any  remaining  receivables  is
            reasonably assured.

      j.    Mortgage  Banking  Fee  Recognition  -  Loan  origination  fees  are
            recognized as income upon the closing of the related home sale.

      k.    Use of  Estimates  - The  preparation  of  financial  statements  in
            accordance with generally accepted  accounting  principles  requires
            management  to  make  estimates  and  assumptions  that  affect  the
            reported   amounts  of  assets  and   liabilities,   disclosures  of
            contingent  assets  and  liabilities  at the  date of the  financial
            statements and the reported  amounts of revenues and expenses during
            the  reported  periods.  Actual  results  could  differ  from  those
            estimates.

      l.    SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
            for  Long-Lived  Assets to be  Disposed  Of - As of the  Acquisition
            Date,  the  Company  adopted  SFAS  No.  121,  which  requires  that
            long-lived  assets be reviewed  for  impairment  whenever  events or
            changes in  circumstances  indicate that the carrying  amount of the
            asset may not be recoverable. If the sum of the expected future cash
            flows  (undiscounted  and without interest charges) from an asset to
            be held and used is less than the carrying amount of the assets,  an
            impairment  loss must be recognized for the  difference  between the
            carrying  amount and fair  value.  Assets to be  disposed of must be
            valued at the lower of the carrying  amount or fair value less costs
            to sell. In accordance with reporting on the Acquisition  Cost Basis
            (Note 2),  the  Company  recorded  its  assets at fair  value at the
            Acquisition Date. Therefore,  at the date of adoption,  SFAS No. 121
            had no impact on the Company's consolidated financial statements. As
            required by SFAS No. 121, after the adoption date, long-lived assets
            will be reviewed for impairment at financial  statement  dates (Note
            5).

      m.    In June 1997, the Financial  Accounting  Standards Board issued SFAS
            No. 131,  Disclosures  about  Segments of an Enterprise  and Related
            Information.  SFAS No. 131  establishes  standards  for the way that
            public  enterprises  report  information about operating segments in
            annual  financial  statements  and requires  that those  enterprises
            report  selected  information  about  operating  segments in interim
            financial reports to shareholders. It also establishes standards for
            disclosures about products and services,  geographic areas and major
            customers.  This  statement is effective for fiscal years  beginning
            after December 15, 1997. The Company is in the process of evaluating
            the impact of implementing the provisions of this statement.

      n.    Reclassifications - Certain  reclassifications have been made to the
            1996 and 1995 amounts in the  consolidated  financial  statements to
            conform to the 1997 presentation.
                                     F - 8
<PAGE>
2.    BANKRUPTCY PROCEEDINGS AND ACQUISITION BY DMB

      On May 17, 1995, the  Predecessor  Company filed a voluntary  petition for
      reorganization  under Chapter 11 of the United States Bankruptcy Code (the
      "Bankruptcy  Code") in the United States Bankruptcy Court for the District
      of Delaware (the "Bankruptcy  Court").  On October 3, 1995, the Bankruptcy
      Court entered an order confirming the Predecessor Company's second amended
      reorganization  plan dated as of August 3, 1995, as amended by an addendum
      dated as of August 31,  1995,  and as  further  amended by such order (the
      "Plan"). On November 14, 1995, the Plan was substantially consummated and,
      pursuant  to a stock  purchase  agreement  dated as of May 16,  1995  with
      DMBLP,  DMB made a cash  investment  of  $108,000,000  in the  Company  in
      exchange  for  1,000  shares  of  common  stock  representing  100% of the
      Successor  Company's  equity and $30,000,000 of subordinated  notes of the
      Successor Company.

      Pursuant to the Plan,  holders of the Predecessor  Company's  Senior Notes
      received $83,000,000 in cash and $64,100,000 principal amount of unsecured
      senior notes ("Senior  Notes") in satisfaction of existing  obligations to
      such holders.  Pursuant to the Plan, holders of the Predecessor  Company's
      Convertible  Subordinated  Notes  received  $5,900,000 of Senior Notes and
      $2,000,000 of  subordinated  notes ("Series C Subordinated  Notes") of the
      Successor  Company.  Under the Plan,  holders of other allowed secured and
      unsecured  claims  generally  were  paid in  full  and  substantially  all
      executory  contracts  and unexpired  leases were  assumed.  Holders of the
      Predecessor  Company's Prime  Preferred Stock received trust  certificates
      representing a pro rata interest in $3,000,000  principal amount of Series
      C Subordinated Notes of the Successor Company.  Holders of the Predecessor
      Company's  Series A Preferred  Stock,  Series B Preferred Stock and Common
      Stock did not receive any  consideration  for their claims or interest and
      their shares were canceled.

      As of September 30, 1995, and during the bankruptcy case through  November
      13,   1995,   the   Predecessor   Company   managed  its   business  as  a
      debtor-in-possession, subject to the provisions of the Bankruptcy Code and
      control  and  supervision  of  the  Bankruptcy   Court.   Therefore,   the
      Predecessor  Company  accounted  for  all  transactions   related  to  the
      bankruptcy case in accordance with American  Institute of Certified Public
      Accountants  Statement of Position 90-7 ("SOP 90-7"),  Financial Reporting
      by Entities in  Reorganization  Under the  Bankruptcy  Code.  Accordingly,
      liabilities  which were subject to compromise in the bankruptcy  case were
      segregated on the September 30, 1995  consolidated  balance sheet and were
      recorded at the amounts that were allowed on known claims  rather than the
      amounts those claims received under the Plan. In accordance with SOP 90-7,
      no interest was accrued on pre-petition, unsecured debt.

      Pursuant  to the  provisions  of the  Bankruptcy  Code,  all  attempts  at
      collection or enforcement of the Predecessor  Company's  liabilities as of
      May 17, 1995 were  automatically  stayed  upon the Chapter 11 filing,  and
      interest on unsecured,  pre-petition  obligations of the Company ceased to
      accrue as of such date.

      The Acquisition Cost Basis, as explained above,  reflects the November 14,
      1995  acquisition  of the  Company by DMB under  which it  acquired  1,000
      shares  of  common  stock  and  $30,000,000  principal  amount of Series C
      Subordinated Notes for $108,000,000 cash. The excess of this cost over the
      fair value of net assets acquired was  $40,036,000  which was allocated to
      goodwill.  The  majority  of the fair value of net assets  arises from the
      Company's  housing and land  inventories  and land held for sale. The fair
      value  of  the   Company's   housing   inventory   was   calculated  on  a
      house-by-house  basis by determining  an estimated  selling price for each
      home and deducting  costs to complete,  costs of disposal and a reasonable
      profit,  considering  the stage of completion of each home. The fair value
      of the  Company's  land  inventory  and land  held for sale was  generally
      determined by independent third party 
                                     F - 9
<PAGE>
      appraisals.   Although  all  assets  and  liabilities  were  revalued,  no
      significant  adjustments  were  made to the  Company's  other  assets  and
      liabilities, as their fair values generally approximated historical cost.

      The  statement  of  operations  for the  period  from  October  1, 1995 to
      November 13, 1995 contains a $50,264,000  gain on debt  discharge  arising
      from  reorganization  of  the  Predecessor  Company  under  the  Plan.  In
      addition,  a Fresh Start reporting adjustment of $14,069,000 was recorded.
      The cost of company  reorganization  of  $13,626,000  and  $15,438,000  in
      fiscal 1996 and 1995, respectively, is comprised primarily of professional
      fees and costs related to employee severance agreements.

3.    FAIR VALUE OF FINANCIAL INSTRUMENTS

      The  following  disclosure  of  the  estimated  fair  value  of  financial
      instruments is made in accordance  with the  requirements of SFAS No. 107,
      Disclosures About Fair Value of Financial Instruments.  The estimated fair
      value  amounts have been  determined  by the Company at September 30, 1997
      and 1996 using available  market  information and valuation  methodologies
      described below.  Considerable judgment is required in interpreting market
      data to develop the  estimates of fair value.  Accordingly,  the estimates
      presented  below may not be  indicative  of the  amounts  that the Company
      could realize in a current market  exchange.  The use of different  market
      assumptions or valuation methodologies could have a material effect on the
      estimated fair value amounts.

      The carrying values of cash and cash  equivalents,  receivables,  accounts
      payable,   accrued   interest,   and  accrued   liabilities  and  expenses
      approximate  fair  values  due  to  the  short-term  maturities  of  these
      instruments.

      Residential  mortgages  are  stated at the  lower of cost or market  which
      approximates fair value.

      The carrying  amounts of the other notes  payable and the mortgage line of
      credit  approximate  fair value because the majority of these  instruments
      have variable interest rates based on the prime rate and LIBOR.

      At September 30, 1997 and 1996, the estimated fair value of the senior and
      subordinated    notes   payable   was   $152,592,000   and   $106,208,000,
      respectively.

4.    DEBT

      At September 30, notes payable consisted of the following:


                                                    1997              1996
                                                -----------       -----------
                                                       (In thousands)

        Revolving credit facility                 $53,229          $34,165
        Westbrook Village facility                  5,845            4,266
        Transoccidental note                         --             13,011
        Other                                       4,916           21,620
                                                  -------          -------

        Total notes payable                       $63,990          $73,062
                                                  =======          =======
                                     F - 10
<PAGE>
         Revolving  Credit  Facility -  Effective  April 30,  1997,  the Company
entered into a $170 million (the "commitment  amount") revolving credit facility
with a group of banks  (the  "new  facility").  The new  facility  replaced  the
Company's existing $150 million revolving facility (the "old facility"). The new
facility is available for both  construction  and  acquisition  and  development
("A&D")  activities  in Arizona and  California.  The amount  available  for A&D
activities is limited to the lesser of (a) 37.5% of the commitment amount or (b)
$63,750,000,  as adjusted for various  sublimits,  as defined.  The new facility
accrues interest at prime plus 1% or, at the Company's option, LIBOR plus 3.25%,
payable monthly, and requires a commitment fee of 1% per annum of the commitment
amount,  an  unused  commitment  fee of .25%  per  annum of the  average  unused
commitment  amount,  and  syndication  and agency fees.  The  interest  rate and
commitment fee may be reduced if the Company meets certain financial ratios. The
new facility is secured by portions of the Company's  housing and land inventory
and matures on September 30, 1999. At September  30, 1997,  approximately  $27.2
million was available under the new facility.

         Westbrook  Village Facility - The Company has a revolving  construction
and A&D facility,  as amended on June 28, 1997,  for Westbrook  Village  ("WBV")
which consists of an $8.0 million construction facility and a $2.728 million A&D
facility.  These  facilities  accrue interest at prime plus 1%, payable monthly,
require  payment  of a  commitment  fee of 1% per annum and are  secured  by WBV
housing and land inventory.  The A&D facility  matures on March 31, 1998 and the
construction facility matures on January 1, 1999.

         The  construction  and A&D facilities  described  above contain capital
distribution  restrictions and various covenants,  including but not limited to,
covenants regarding: (i) encumbrances;  (ii) minimum available liquidity;  (iii)
maximum total debt to tangible net worth;  (iv) minimum  tangible net worth; (v)
minimum ratio of earnings before interest,  taxes, depreciation and amortization
("EBITDA") to interest  incurred;  (vi) restrictions on mergers,  consolidations
and acquisitions;  (vii) restrictions on asset sales; and (viii) restrictions on
incurrence of additional  indebtedness.  Among other things,  such covenants may
limit the Company's  ability to obtain  additional  financing when needed and on
terms  acceptable to the Company.  Further,  the availability of funds under the
revolving  facilities is dependent upon compliance with such covenants,  certain
loan-to-value  ratios  stated in each  facility  and the levels of pre-sold  and
speculative  construction.  Accordingly,  all of the committed credit may not be
available to the Company at a particular  time.  Any inability of the Company to
obtain  financing  when needed in amounts or on terms  favorable  to the Company
could  have a  material  adverse  effect on the  Company's  business,  operating
results and financial condition.

         The  Transoccidental  Note  represents  a  mortgage  note  related to a
development in Phoenix.  Such note bears  interest at 10.25% due quarterly.  The
note was paid off in September 1997.

         Other  Secured  Borrowings  - In  addition  to  the  credit  facilities
described  above,  the  Company  has various  notes  outstanding  collateralized
primarily by land held for development. The notes bear interest at rates ranging
from the prime rate to 10% and are due at various dates through  fiscal 2001. At
September 30, 1997, $4.9 million was outstanding under these notes.

         Senior  Unsecured Notes Payable - On the Acquisition  Date, the Company
issued  Series A Senior Notes in a principal  amount of $60 million and Series B
Senior Notes in a principal amount of $10 million.  Interest on the Senior Notes
accrues at a rate of 12.5% per annum and is payable
                                     F - 11
<PAGE>
semi-annually.  Both series of Senior Notes mature on May 1, 2000.  The Series B
Senior Notes  further  require  prepayments  from the proceeds of certain  asset
sales in excess of $10 million,  subject to certain  limitations  related to the
Company's  construction  and A&D facilities.  Upon the  consummation of the next
qualifying asset sale, as defined, the Company will be required to make an offer
to repurchase all or a portion of the outstanding $10 million  principal  amount
of Series B Senior  Notes,  plus accrued and unpaid  interest.  The Senior Notes
contain  numerous  covenants which may, among other things,  limit the Company's
ability to obtain  additional  financing when needed and on terms  acceptable to
the Company.

         Subordinated  Notes  Payable  - At  September  30,  subordinated  notes
consist of the following:

                                                               1997      1996
                                                            --------- ---------
                                                               (In thousands)

         Series C Subordinated Notes                         $35,000   $35,000
         Series D Subordinated Notes                          45,000    10,000
         Interest paid-in-kind in additional C and D Notes     9,688      --
         Interest to be paid-in-kind                           5,420     5,262
                                                             -------   -------
         Total                                               $95,108   $50,262
                                                             =======   =======

         On the Acquisition Date, the Company issued Series C Subordinated Notes
in a principal amount of $35 million ($30 million of which were issued to DMB in
connection with its  acquisition of the equity of the Company).  Interest on the
Series C  Subordinated  Notes  accrues  at the rate of 14.5%  per  annum  and is
payable semi-annually.  The Series C Subordinated Notes mature November 1, 2000.
On May 6, 1996,  Eastrich  No.  184,  LLC  acquired  $15 million of the Series C
Subordinated  Notes from DMB.  The  payment of  interest in cash on the Series C
Subordinated  Notes is  restricted  by certain  covenants in the  Company's  new
facility.  The November 1, 1996,  May 1, 1997 and  November 1, 1997  payments of
interest were paid in-kind in additional Series C Subordinated Notes.

         On March 15, 1996,  DMB invested $10 million in the Company in exchange
for $10  million  Series  D  Subordinated  Notes.  The  terms  of the  Series  D
Subordinated Notes are identical to the terms of the Series C Subordinated Notes
discussed  above,  except that payments on the Series D  Subordinated  Notes are
subordinate  to payments  on the Series C  Subordinated  Notes.  On May 6, 1996,
Eastrich  No. 184, LLC  acquired $5 million of the Series D  Subordinated  Notes
from DMB.  During fiscal 1997,  DMB and AEW have invested  $17.5 million each in
the Company in exchange for additional Series D Subordinated Notes. The November
1, 1996, May 1, 1997 and November 1, 1997 payments of interest were paid in-kind
in additional Series D Subordinated Notes.

         Mortgage  Debt - UDC Mortgage  Corp.  finances its mortgage  operations
with a $10 million revolving credit facility which originally matured on October
30, 1997. Subsequent to September 30, 1997, the commitment amount was reduced to
$3.0 million and the maturity was extended to December 31, 1997.  This  facility
is secured by residential  mortgages  originated in the closing of the Company's
residential  home  sales.  The  Company  will not  extend the  maturity  of this
facility as all ongoing  mortgage related  operations will be conducted  through
UDC Mortgage.
                                     F - 12
<PAGE>


      Debt maturities for the five years ending September 30 are as follows:

                                                         (In thousands)

            1998                                             $64,281
            1999                                                 361
            2000                                              70,396
            2001                                              95,438
            2002                                                --
                                                             -------

            Total                                          $ 230,476
                                                             =======


5.    ASSET IMPAIRMENT

      1996 - At September 30, 1996, the Company  concluded that, on the basis of
      1996 operating losses and projected 1997 operating  losses,  its long-term
      assets  may not be  recoverable.  In  accordance  with SFAS No.  121,  the
      Company tested its long-term  assets currently held,  including  allocated
      goodwill,  for  recoverability  and determined  that an impairment loss of
      $42,815,000  should be recognized.  The  impairment  loss was comprised of
      $3,527,000 and  $4,151,000  applicable to land inventory and land held for
      sale,  respectively,  located  in  Phoenix  and  Northern  California  and
      $35,137,000  applicable to goodwill.  Therefore,  the goodwill  balance of
      $38,682,000  (net of accumulated  amortization  of $1,354,000) was written
      down to $3,545,000 at September 30, 1996. Fair value of land inventory was
      determined  based upon an evaluation  of comparable  market prices and the
      present value of estimated realizable values of such property.  Fair value
      of  property  held for sale was based upon  estimated  sales  prices  less
      selling  costs and the fair value of mortgage  assets was  estimated to be
      net carrying values.

      1995 - In an effort to improve  its  liquidity,  the  Predecessor  Company
      announced in the second  quarter of fiscal 1995 its  intention to actively
      market   its   Southeast   homebuilding    operations   which   had   been
      under-performing in relation to management's  expectations.  In connection
      with the Bankruptcy Proceedings, in May 1995, the Predecessor Company also
      identified two residential  projects in California and certain  commercial
      and mixed-use real estate parcels in Arizona to actively  market for sale.
      As a result of these decisions, in 1995 the Predecessor Company wrote down
      the carrying  amounts of the projects and parcels referred to above to the
      amounts  expected to be realized from their  immediate  sale,  reduced for
      costs to be  incurred  prior to and in  connection  with such  sales.  The
      write-downs  included the  immediate  amortization  of all deferred  costs
      associated  with  the  Predecessor  Company's  Southeast  operations.   In
      addition,  based  on new  information,  the  Predecessor  Company  revised
      downward  its  estimate of proceeds to be received  from  certain  parcels
      identified for sale in the year ended September 30, 1994, based on efforts
      to accelerate the sale of those parcels. The total charge to operations in
      the year ended  September 30, 1995  resulting  from such  write-downs  was
      $67,177,000.

6.    COMMITMENTS AND CONTINGENCIES

      In the  normal  course  of  business,  the  Company  enters  into  certain
      contracts and  commitments for real estate  development and  construction.
      Certain of these contracts  relate to options to purchase land under which
      the Company would lose cash deposits if such options were not exercised.

      The Company is obligated  under various  operating  leases  through fiscal
      2007.   Total  rental  expense  under  operating  leases  was  $1,350,000,
      $1,200,000  and  $1,200,000 in fiscal 1997,  1996 and 1995,  respectively.
      Included  in  rental  expense  in  fiscal  1996 and 1995 is  $593,000  and
      $551,000,  respectively,  paid to  entities  among whose  principals  were
      certain former officers of the Company.
                                     F - 13
<PAGE>
      Aggregate  minimum rentals under  noncancellable  operating leases for the
      next five years ending September 30 and thereafter are as follows:

                                                          (In thousands)

            1998                                              $1,094
            1999                                               1,101
            2000                                                 944
            2001                                                 813
            2002                                                 719
            Thereafter                                         2,342
                                                             -------
                                                             $ 7,013
                                                             =======

      During 1995, three lawsuits were filed against certain former officers and
      directors of the  Predecessor  Company  alleging  violation of  securities
      laws,  fraud and  negligence.  A settlement  has been  reached,  which has
      received approval from the Arizona Superior Court, under which the Company
      was  obligated  for the  $1,500,000  deductible  under its  directors  and
      officers policies. Such amount was paid in December 1995. In addition, the
      Company paid  $250,000 on behalf of DMB. The Company does not believe that
      any other  obligations  to officers  and  directors  under its bylaws will
      exceed its coverage under its officers and directors insurance policies.

      The Company is a defendant  in lawsuits  that arise from or are related to
      the conduct of the Company's  business.  The Company does not believe that
      the  ultimate  resolution  of  these  cases  will  materially  affect  the
      financial position, results of operations or cash flows of the Company.

7.    RELATED PARTIES

      As explained  in Note 2, on November  14, 1995 DMB  acquired  1,000 shares
      (100%) of the Company's  common stock.  At that time DMB issued a purchase
      option to AEW to acquire 500 of such shares. On May 6, 1996, AEW exercised
      its  option and  acquired  500 shares of common  stock.  As a result,  the
      Company is now 50% owned by DMB and 50% owned by AEW. Transactions between
      DMB and AEW and the Company during fiscal 1996 and 1997 are as follows:

      1.    Prior to the  Acquisition by DMB, the Company had option  agreements
            with DMB under  which the  Company  acquired  lots in certain of its
            subdivisions.  During  fiscal 1996 and 1997,  the  Company  paid DMB
            $9,780,000 and  $5,322,000,  respectively,  for the purchase of lots
            under  such  options.  At  September  30,  1997,  all  lots had been
            acquired under these pre-acquisition option agreements. Further, DMB
            paid the Company  $2,727,400  during fiscal 1996 for  infrastructure
            and other  work on  property  subject  to those  option  agreements.
            Subsequent  to the  Acquisition,  the Company  has entered  into new
            option agreements with DMB and DMB/AEW Land Holdings Two, LLC ("Land
            Holdings  Two") , an affiliate of DMB and AEW.  During  fiscal 1997,
            the Company paid these affiliates $16,205,000 under these new option
            agreements. Additionally, during fiscal 1997 the Company has paid or
            accrued  $297,000  in  property  taxes  on lots  under  option  with
            affiliates.  The Company believes that lot prices and other monetary
            provisions  under these  agreements  approximated  fair value at the
            date the agreements were entered into.
                                     F - 14
<PAGE>
      2.    During  fiscal 1996 and 1997,  DMB/AEW Land Holdings One, LLC ("Land
            Holdings  One"),  an  affiliate  of DMB and AEW,  acquired  from the
            Company approximately $28,607,000 and $25,519,000,  respectively, of
            land held for sale at the Company's cost, which the Company believes
            approximated  the fair value of such land. The Company  continues to
            market the land  purchased  by Land  Holdings  One in exchange for a
            management  fee and  commissions.  For the year ended  September 30,
            1997, the Company earned $75,000 in management  fees and $557,000 in
            commissions pursuant to this agreement.

      3.    During  fiscal 1997,  DMB and AEW invested  $17,500,000  each in the
            Company in exchange for additional  Series D Subordinated  Notes. At
            September  30,  1997  and  1996,  AEW  and  DMB  collectively  owned
            approximately  $85,741,000 and $40,000,000  principal  amount of the
            Subordinated Notes, respectively. Interest expense of $9,300,000 and
            $4,600,000 on  the  Subordinated  Notes  held  by  AEW  and  DMB was
            recorded in fiscal 1997 and 1996, respectively.

      4.    Affiliates  of DMB and  AEW  collectively  own  22.5%  of  Westbrook
            Village Venture, one of the Company's Arizona retirement operations.

      5.    On December  31,  1996,  the  Company  received  additional  capital
            contributions of $5,000,000 each from DMB and AEW.

      6.    In July 1997,  the  Company  entered  into a four year lease with an
            affiliate  of AEW to house the  Company's  Diamond  Bar,  California
            regional operations.

8.    PROPERTY AND EQUIPMENT

      Property and equipment consist of the following at September 30:

                                                      1997         1996
                                                   -----------------------
                                                        (In thousands)

        Office furniture and equipment               $2,097       $  907
        Sewer plant                                   2,930        2,930
        Other                                            36           29
                                                     ------       ------

        Total                                         5,063        3,866
        Less accumulated depreciation                   849          212
                                                     ------       ------

        Property and equipment - net                 $4,214       $3,654
                                                     ======       ======
                                     F - 15
<PAGE>
9.    ACCRUED LIABILITIES AND EXPENSES

      Accrued liabilities and expenses consist of the following at September 30:

                                                     1997            1996
                                                  ---------       ---------
                                                        (In thousands)

      Accrued construction costs                   $21,748         $18,797
      Accrued warranty costs                         2,874           1,918
      Accrued compensation                           3,833           6,531
      Restructuring reserves                          --             6,050
      Other                                         16,941          16,339
                                                   -------         -------

      Total                                        $45,396         $49,635
                                                   =======         =======

      At September 30, 1996,  accrued  compensation  includes severance accruals
      and  restructuring  reserves  include  fees  relating  to  the  Bankruptcy
      Proceedings and costs to exit the southeast market.

10.   INCOME TAXES

      The components of deferred taxes are as follows at September 30:

                                                             1997        1996
                                                          ----------  ----------
                                                              (In thousands)

        Differences between financial reporting and
          tax basis of housing and land inventories        $ 32,708    $ 39,797

        Differences between financial reporting and tax
          basis in affiliated land bank partnerships          9,216       6,315

        Net operating loss carryforward                      45,544      32,991

        Other - net                                           5,802       7,453
                                                           --------    --------

        Total                                                93,270      86,556
        Valuation allowance                                 (93,270)    (86,556)
                                                           --------    --------

        Total deferred taxes                               $   --      $   --
                                                           ========    ========

      During 1995, the Predecessor  Company increased its valuation allowance to
      reduce the balance of its net deferred tax asset to zero,  in  recognition
      of  the   uncertainties   surrounding  its   restructuring  and  statutory
      limitations  which may affect  the  Company's  ability to utilize  its net
      operating  losses and built-in losses resulting from the change in control
      which took place upon DMB's  acquisition  of the Company on  November  14,
      1995.

      The  acquisition of the Company by DMB on November 14, 1995  constitutes a
      change in control for income tax purposes.  The Company will be limited in
      the  utilization  of its net operating  loss  carryovers  and net built-in
      losses that existed at the time of the change in control.  The  limitation
      on utilization is approximately  $4.5 million per year. The carryovers and
      the net built-in losses subject to the limitation are  approximately  $130
      million.
                                     F - 16
<PAGE>
      The  Company  has  approximately   $110  million  of  net  operating  loss
      carryovers  at September  30, 1997  (including  approximately  $45 million
      subject to the limitation described above). The following table summarizes
      the  approximate   federal  carryovers  and  built-in  losses,  and  their
      expiration dates:

                                                                      Year of
                                                  (In thousands)     Expiration

        Pre-change net operating loss                 $45,000        2007 - 2012
        Post-change net operating loss                $65,000        2011 - 2012
        Net built-in loss                             $85,000        2018 - 2020
                                              

      The following is a reconciliation of income taxes at the federal statutory
      rate with  income  taxes  recorded  by the  Company  for the  years  ended
      September 30:

<TABLE>
<CAPTION>
                                                                  1997           1996           1995
                                                               ----------     ----------     ----------
                                                                            (In thousands)
<S>                                                             <C>            <C>            <C>      
        Computed income tax benefit at statutory rate           $ (6,444)      $(12,692)      $(36,705)
        State income tax benefit                                    (884)        (1,741)        (6,369)
        Fresh Start accounting adjustment and
          reorganization costs                                       476        (14,437)          --
        Goodwill amortization and write-off                           72          4,873           --
        Other                                                         66          2,852           --
        Increase in deferred tax asset valuation allowance         6,714         21,145         69,893
                                                                --------       --------       --------

        Total taxes                                             $   --         $   --         $ 26,819
                                                                ========       ========       ========
</TABLE>

11.   HOUSING INTEREST

      Housing  interest  incurred is  capitalized  and expensed  through cost of
      housing  sales,  as it  relates  to  housing  and  land  inventories.  The
      components  of  housing  interest  are as  follows  for  the  years  ended
      September 30:

<TABLE>
<CAPTION>
                                                       Successor Company          Predecessor Company
                                                   ------------------------    ------------------------
                                                      1997          1996          1996          1995
                                                   ----------    ----------    ----------    ----------
                                                                     (In thousands)
<S>                                                 <C>           <C>            <C>           <C>     
          Interest costs incurred                   $ 28,184      $ 27,856      $  3,179      $ 34,041
          Less interest capitalized                  (12,934)       (9,845)       (2,473)      (26,846)
                                                    --------      --------      --------      --------
        
          Interest expensed                         $ 15,250      $ 18,011      $    706      $  7,195
                                                    ========      ========      ========      ========
        
          Amortization of capitalized interest
            included in cost of sales               $  9,222      $  5,461      $  1,117      $ 28,550
                                                    ========      ========      ========      ========
        
          Interest income                           $    143      $  1,124      $    138      $  1,034
                                                    ========      ========      ========      ========
</TABLE>
                                     F - 17
<PAGE>


      As of the Acquisition Date, the Company changed its method of applying the
      principles of SFAS No. 34,  Capitalization  of Interest  Cost, in order to
      better match the  capitalization of interest with actual  construction and
      development  efforts as defined  by SFAS No. 34. In  connection  with such
      change, the Company also significantly  narrowed its definition of housing
      under  construction and land under  development to exclude land undergoing
      only periodic  entitlement efforts, the effect of which is to decrease the
      amount of interest  capitalized and ultimately  charged to expense through
      cost of sales, and increase interest expense in the period incurred.

      As  discussed  in Note 2,  interest on  pre-petition,  unsecured  debt was
      suspended  subsequent to the  commencement of the Bankruptcy  Proceedings.
      Had the accrual of interest  not been  suspended,  interest  incurred  and
      interest  expense  for the  year  ended  September  30,  1995  would  have
      increased by approximately $9,200,000 and $1,000,000, respectively.

12.   EMPLOYEE BENEFIT PLANS

      On November 14, 1995,  upon the Company's  acquisition by DMB,  holders of
      options to purchase the Predecessor Company's common stock did not receive
      any  consideration  for their claims or interests  and their  options were
      canceled.

      Employees Savings and Investment Plan - Substantially all employees of the
      Company are eligible to participate in an employee  savings and investment
      plan  which,  pursuant to Section  401(k) of the  Internal  Revenue  Code,
      permits deferral of a portion of their income into trusteed investments in
      third-party  managed  investment funds.  Matching  contributions  from the
      Company to the plan  amounted  to  approximately  $418,000,  $285,000  and
      $284,000  in  the  years  ended   September  30,  1997,   1996  and  1995,
      respectively.

      Profit Sharing Plan - Prior to January 1, 1997 all full-time  employees of
      the Company were eligible to  participate in a qualified  trusteed  profit
      sharing plan.  Effective  January 1, 1997, this plan was consolidated with
      the Employees  Savings and  Investment  Plan.  Contributions  to the plan,
      which are related to the prior year,  were made at the  discretion  of the
      Company's  board of directors  and amounted to $227,000 for the year ended
      September 30, 1995.
                                     F - 18
<PAGE>
13.   QUARTERLY RESULTS OF OPERATIONS (Unaudited)

The unaudited quarterly results of operations are as follows for the years ended
September 30, 1997 and 1996:


<TABLE>
<CAPTION>
                                                          The Company
                                  --------------------------------------------------------------
                                                         Quarter Ended
                                  --------------------------------------------------------------
                                   December 31,     March 31,        June 30,     September 30,
                                  --------------   -----------     -----------   ---------------
                                                         (In thousands)
<S>                                 <C>             <C>             <C>            <C>      
Year ended September 30, 1997:
    Housing sales                   $  80,705       $  84,926       $  98,757      $ 116,273
    Gross margin                       11,775          13,068          14,243         18,689
    Net loss                           (3,560)         (4,744)          6,134         (3,973)
</TABLE>

<TABLE>
<CAPTION>
                                          Predecessor
                                            Company                                 The Company
                                        --------------- -----------------------------------------------------------------

                                                                          Quarter Ended
                                        ---------------------------------------------------------------------------------
                                                  December 31,              March 31,        June 30,      September 30,
                                        ------------------------------     -----------     -----------    ---------------
                                                                              (In thousands)
<S>                                      <C>                <C>             <C>             <C>             <C>      
Year ended 
  September 30, 1996:
Housing sales                            $  29,624          $  50,358       $  81,845       $ 116,148       $ 139,104
Gross margin                                 2,354              3,462           8,777          13,958          22,824
Net loss before extraordinary items        (10,241)            (4,991)         (6,498)         (2,671)        (48,057)
Net income (loss)                           25,954(1)          (4,991)         (6,498)         (2,671)        (48,057)(2)
</TABLE>

      (1)   Includes gain of $50,264  arising from gain on debt  discharge and a
            charge of $14,069 due to Fresh Start reporting adjustments (Note 2).

      (2)   Includes charge of $42,815 from asset impairment (Note 5).

                                   * * * * * *
                                     F - 19
<PAGE>
Item 9.           Changes in and  Disagreements  with  Accountants on Accounting
-------           --------------------------------------------------------------
                  and Financial Disclosure
                  ------------------------

         There were no changes or disagreements during fiscal 1997.
                                       29
<PAGE>
                                    PART III

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

         Directors of the Company  hold office until the next annual  meeting of
stockholders  and until their  successors  are elected and  qualified,  or until
their earlier resignation or removal. All officers are appointed by and serve at
the  discretion  of the Board of  Directors.  There are no family  relationships
among any directors or officers of the Company.

         The  following  table sets forth the names,  ages and  positions of the
directors  and  executive  officers of the  Company as of  November  1, 1997.  A
summary of the  background  and  experience of each of these  individuals is set
forth after the table.

<TABLE>
<CAPTION>
Name                         Age        Position(s) with Company
----                         ---        ------------------------

<S>                          <C>        <C>
Garth R. Wieger              39         Chief Executive Officer, President and Director
Dean Bloxom                  36         President, UDC Mortgage Corp.
Kenda B. Gonzales            40         Senior Executive Vice President and Chief Financial Officer
James J. Grogan              43         Senior Executive Vice President
Jay D. Johnson               38         Executive Vice President and Chief Information Officer
Drew M. Brown                48         Director, Chairman
Joseph F. Azrack             50         Director
Bennett Dorrance             51         Director
Gadi Kaufmann                42         Director
James L. McCabe              54         Director
Thomas H. Nolan, Jr.         40         Director
Mark Sklar                   49         Director
</TABLE>

         Mr.  Wieger  has been  President  and Chief  Executive  Officer  of the
Company  since May 1996.  Prior to  joining  the  Company,  Mr.  Wieger  was the
President of the Arizona  Division of Shea Homes from 1991.  Prior to 1991,  Mr.
Wieger was employed by Continental Homes Holding Corp. as Vice President of Land
Acquisition and Development.

         Mr. Bloxom has been President of UDC Mortgage Corp.  since August 1996.
Prior to joining UDC  Mortgage  Corp.,  Mr.  Bloxom was Regional  Builder  Sales
Manager  for   Directors/Norwest   Mortgage  for  more  than  five  years.   His
responsibilities   included   managing   production  of  mortgage  products  for
homebuilders.

         Ms.  Gonzales  has been  Senior  Executive  Vice  President  and  Chief
Financial  Officer of the Company since July 1996. Prior to joining the Company,
Ms.  Gonzales  served as Senior Vice  President and Chief  Financial  Officer of
Continental Homes Holding Corp. for 11 years.

         Mr.  Grogan has been Senior  Executive  Vice  President  of the Company
since July 1996.  Prior to joining  the  Company,  Mr.  Grogan was the  Managing
Attorney of Gallagher & Kennedy, a Phoenix, Arizona law firm, for more than five
years.
                                       30
<PAGE>
         Mr. Johnson has been  Executive  Vice  President and Chief  Information
Officer of the  Company  since June 1996.  Prior to  joining  the  Company,  Mr.
Johnson  worked for 12 years in the quick  service  restaurant  business with 10
years at Taco Bell and most recently two years at Arby's Inc. Mr. Johnson served
in a variety of positions within these organizations.

         Mr. Brown has been a Director  since  November  1995.  Since 1984,  Mr.
Brown has served as President of DMB  Associates,  an investment and real estate
development  company.  Mr. Brown also serves as a director of Bank One, Arizona,
N.A. and Royal Grip, Inc., a manufacturer of golf grips and accessories.

         Mr.  Azrack has been a Director  since  June  1996.  Mr.  Azrack is the
President and Chief Executive Officer of AEW, a real estate investment and asset
management  company for institutional  investors.  He joined AEW in 1983 and has
over twenty years of  experience  in the real estate  investment  industry.  Mr.
Azrack  serves as a  Partnership  Committee  member of the Taubman  Realty Group
Limited Partnership.

         Mr.  Dorrance has been a Director since November 1995. Mr. Dorrance has
been a private investor and Chairman and Managing Director of DMB Associates, an
investment and real estate  development  company,  for more than five years. Mr.
Dorrance  also has served as the Vice  Chairman of Campbell  Soup Company  since
November 1993 and serves as a director of Banc One Corporation.

         Mr.  Kaufmann  has  been a  Director  since  November  1995.  He is the
Managing Director of Robert Charles Lesser & Co., a California-based real estate
advisory firm, having joined that firm in 1979.

         Mr. McCabe has been a Director since November 1995. Mr. McCabe has been
the President of McCabe Capital  Managers,  a registered  advisory  firm,  since
1982.

         Mr. Nolan has been a Director  since June 1996. Mr. Nolan is a Managing
Director of AEW and also serves as a Director of Portfolio  Management  for AEW.
He  joined  AEW in 1984  and has  responsibility  for  AEW's  high-yield  equity
investment  portfolios.  Mr. Nolan also serves as a director of Bedford Property
Investors, Inc.

         Mr. Sklar has been a Director  since January 1996. Mr. Sklar has been a
Managing Director of DMB Associates,  an investment and real estate  development
company, for more than five years.

Board Meetings and Committees

         Regular meetings of the Board of Directors of the Company are conducted
quarterly.  From time to time  special  meetings of the Board of  Directors  are
conducted as required.  During  fiscal  1997,  the Board of Directors  held five
meetings.  All directors  attended more than 80% of the meetings of the Board of
Directors and  committees  on which they serve.  Directors  are  reimbursed  for
out-of-pocket  expenses  incurred by them in connection with their attendance at
Board and committee meetings.  Non-employee members of the Board are paid $3,000
per meeting attended.  The Board of Directors has established an Audit Committee
and a Compensation Committee.

         The Audit Committee is composed of Messrs.  Kaufmann, Nolan and McCabe.
The function of the Audit Committee is to recommend to the Board the appointment
of the independent public accountants and to review the scope and results of the
annual audit engagement. In fiscal 1997, no Audit Committee meetings were held.

         The Compensation  Committee is composed of Messrs. Azrack and Dorrance.
The function of the  Compensation  Committee is to establish the amount and form
of compensation  for the Executive  Officers and to monitor  compensation of the
other  executives of the Company.  In fiscal 1997,  one  Compensation  Committee
meeting was held.
                                       31
<PAGE>
Item 11.          Executive Compensation
--------          ----------------------

         The following table sets forth information  concerning the compensation
for  services  in all  capacities  to the  Company  for the fiscal  years  ended
September 30, 1997, 1996 and 1995, of the Chief Executive Officer of the Company
and the other four most  highly  compensated  executive  officers of the Company
(collectively, the "Named Officers").

<TABLE>
<CAPTION>
                                                            SUMMARY COMPENSATION TABLE
                                    ---------------------------------------------------------------------------
Name and Principal Position                                                  Other Annual        All Other
                                       Year      Salary        Bonus        Compensation(1)     Compensation
                                    ---------------------------------------------------------------------------
<S>                                    <C>       <C>          <C>                <C>                 <C>
Garth R. Wieger                        1997      285,000      461,000            --                  --
  Chief Executive Officer and          1996      117,000      283,000            --                  --
  President(2)                         1995         --           --              --                  --

Dean Bloxom                            1997      112,500      166,500            --                  --
  President UDC Mortgage Corp. (3)     1996       23,942       23,000            --                  --
                                       1995         --           --              --                  --

Kenda B. Gonzales                      1997      175,000      158,000            --                  --
  Senior Executive Vice President      1996       40,497      130,000            --                  --
  and Chief Financial Officer(4)       1995         --           --              --                  --

James J. Grogan                        1997      175,000      158,000            --                  --
  Senior Executive Vice                1996       39,151       75,000            --                  --
  President(5)                         1995         --           --              --                  --

Jay D. Johnson                         1997      142,000       50,000            --                  --
  Executive Vice President and         1996       47,335       33,000            --                  --
  Chief Information Officer (6)        1995         --           --              --                  --
</TABLE>
                                                                                
(1)      Other  annual  compensation  is not included in the table for any Named
         Officer for any year in which the aggregate amount of such compensation
         does not exceed the lesser of $50,000 or 10% of the total annual salary
         and bonus for that year as reported herein.

(2)      Mr. Wieger has served as Chief  Executive  Officer and President of the
         Company since May 1996; he did not serve in any other  capacity for the
         Company prior to such date.

(3)      Mr. Bloxom has served as President of UDC Mortgage  Corp.  since August
         1996;  he did not serve in any other  capacity for the Company prior to
         such date.

(4)      Ms.  Gonzales has served as Senior  Executive  Vice President and Chief
         Financial  Officer of the Company since July 1996; she did not serve in
         any other capacity for the Company prior to such date.
                                       32
<PAGE>
(5)      Mr. Grogan has served as Senior Executive Vice President of the Company
         since July 1996; he did not serve in any other capacity for the Company
         prior to such date.

(6)      Mr.   Johnson  has  served  as  Executive   Vice  President  and  Chief
         Information Officer of the Company since June 1996; he did not serve in
         any other capacity for the Company prior to such date.

Employment Contracts, Termination of Employment and Change-in-Control Agreements

         The Company has no employment  agreements or agreements with respect to
"change in control" of the Company  with any of the Named  Officers,  except for
individually  negotiated letter agreements  entered into when each Named Officer
joined UDC related to minimum bonuses and other  allowances to be paid in fiscal
1996 and 1997.

         The Company and its former Chief Executive  Officer and President,  Mr.
Richard C. Kraemer,  entered into a written  employment  agreement (the "Kraemer
Employment Agreement") effective November 14, 1995 which continued Mr. Kraemer's
employment with the Company.  The term of the Kraemer  Employment  Agreement was
three years with automatic one year extensions unless terminated.  Mr. Kraemer's
employment  agreement  was  terminated  in March 1996 and the  Company  paid Mr.
Kraemer  $60,000 in severance  payments and forgave  indebtedness of $174,690 in
connection  therewith  in  fiscal  1996.  Mr.  Kraemer  received  an  additional
$1,340,000  in severance  payments and  $315,408 of debt  forgiveness  in fiscal
1997; these amounts were included in the accruals established at the Acquisition
Date.

Board  Compensation  Committee  Report on Executive  Compensation;  Compensation
Committee Interlocks and Insider Participation

         The  Compensation  Committee  of the Board of Directors is comprised of
Messrs.  Azrack and Dorrance.  The Committee is responsible for establishing the
compensation levels for the Named Officers and for reviewing and monitoring, but
not approving, compensation to other executives of the company.

         Set  forth  below  is  a  report  of  the  Committee  addressing  UDC's
compensation policies for fiscal 1997 as they affected the Named Officers.

         Overall Policy

         The key elements of UDC's  executive  compensation  program  consist of
base salary, annual bonus and long-term incentive opportunities.  The program is
intended to enable UDC to attract,  motivate  and retain  senior  management  by
providing  a  fully  competitive  total  compensation   package  based  on  both
individual  and  corporate  performance,  taking  into  account  both annual and
long-term   performance  goals,  and  recognizing   individual   initiative  and
achievements.
                                       33
<PAGE>
         Annual Compensation

         Annual total compensation for senior management consists of base salary
and potential for annual bonus payments.

         Base  salary  for the  Named  Officers  for 1997 was paid  pursuant  to
individually  negotiated letter agreements  entered into when each Named Officer
joined UDC. A  substantial  portion of the annual  bonus  payment for each Named
Officer  for fiscal  1997 was paid  pursuant to these  contracts,  although  the
Compensation  Committee  elected to augment such bonuses with the  potential for
awards under the Company's new incentive compensation program, described below.

         Incentive Compensation Plan

         The Compensation Committee approved an incentive compensation plan (the
"Incentive  Compensation  Plan") in February 1997. The purposes of the Incentive
Compensation  Plan are to  encourage  key  executives  to: (1) focus on building
efficient and high quality homes while providing extraordinary service for UDC's
customers,  developing an  experienced  and highly skilled home building team of
professionals,  and developing  strong  relationships  with the most  efficient,
productive and competent trade contractors; (2) create consistent goals at every
level  within  the  company so that  everyone  makes  decisions  as if they were
long-term owners; and (3) provide flexibility to the Division Presidents and key
managers to work within the market conditions that prevail locally.

         The Incentive  Compensation  Plan  incorporates  both the short-and the
long-term incentive aspects of UDC's executive compensation program.

         The  long-term   incentive   aspects  of  the  Plan  provide  for  cash
compensation  to be paid to eligible  executives  (which would include the Named
Officers) based on a valuation of the Company  beginning on October 1, 2001, or,
if earlier, a material change in control,  as defined.  The value of the Company
will be calculated by a  compensation  consultant  selected by the  Compensation
Committee based upon the market multiple of comparable home builders. The market
multiple  will be applied to the  average  net income for the  current and prior
year through 2003. At the end of each fiscal year the compensation  pool will be
calculated  with  one-third  of the pool paid in cash at the end of each  fiscal
year to eligible participants still serving the Company.

         The  short-term  aspect of the Plan  provides  for  annual  cash  bonus
payments to be made to eligible executives (including,  for fiscal 1997, each of
the Named  Officers) and key employees  based on the achievement of stated goals
and performance measures,  both at the divisional level and for the Company as a
whole.  As noted above, a substantial  portion of the bonus payments made to the
Named  Officers for fiscal 1997 were paid  pursuant to  individually  negotiated
letter agreements. However, the Compensation Committee approved the inclusion of
the Named  Officers in the annual  bonus plan for 1997 to enable them to achieve
additional  bonus payments if certain  performance  measures (i.e. net sales per
employee, cycle time improvement, home buyer survey
                                       34
<PAGE>
satisfaction  results,  fixed general and  administrative  costs as a percent of
revenue,  etc.) were achieved.  The  performance  measures are calculated at the
corporate level as well as at the divisional level. To the extent the divisional
goals are achieved,  the bonus payments made to the Named Officers is increased.
It is expected that the Named Officers  similarly will participate in the annual
bonus plan for fiscal 1998.

         At a meeting of the  Compensation  Committee held on November 17, 1997,
the  Committee  approved  the 1997 annual  bonus  payments  for  executives  and
employees under the Incentive Compensation Plan.




                                       Joe Azrack

                                       Bennett Dorrance
                                       35
<PAGE>
Item 12.          Security Ownership of Certain Beneficial Owners and Management
--------          --------------------------------------------------------------

         The  following  table  sets forth  certain  information  regarding  the
Company's  outstanding  shares of Common Stock beneficially owned as of November
1, 1997 by (i) each person who is known by the Company to beneficially  own more
than 5% of the  outstanding  shares of Common  Stock,  (ii) each director of the
Company,  (iii) each Named Officer, and (iv) directors and executive officers of
the Company as a group.

<TABLE>
<CAPTION>
                                                                  Amount and
                                                                  Nature of
Name and Address of 5% Stockholders,                              Beneficial
Names of Directors and Officers (1)                              Ownership(2)     Percentage(2)
-----------------------------------                              ------------     -------------
<S>                                                                  <C>               <C>
DMB Residential L.L.C.                                               500               50%
   4201 North 24th Street, Suite 120
   Phoenix, Arizona  85016
AEW Partners, L.P.                                                   500               50
   225 Franklin Street
   Boston, Massachusetts  02110
Garth R. Wieger                                                       0                 0
Dean Bloxon                                                           0                 0
Kenda B. Gonzales                                                     0                 0
James J. Grogan                                                       0                 0
Jay D. Johnson                                                        0                 0
Drew M. Brown                                                       500(3)             50
Joseph F. Azrack                                                      0                 0
Bennett Dorrance                                                    500(3)             50
Gadi Kaufmann                                                         0                 0
James L. McCabe                                                       0                 0
Thomas H. Nolan, Jr.                                                  0                 0
Mark Sklar                                                          500(3)             50
All directors and executive officers as a group (12 persons)        500                50
</TABLE>

--------------------------------
(1)      Except as set forth below, the address for each beneficial owner is c/o
         UDC Homes, Inc., 6710 N. Scottsdale Road, Scottsdale, Arizona 85253.
(2)      Unless otherwise indicated,  all parties have both exclusive voting and
         investing power or hold shares in joint tenancy with their spouses.
(3)      Includes  500 shares of Common  Stock  owned by DMB,  of which  Messrs.
         Brown and Sklar and a company controlled by Mr. Dorrance and trusts for
         the benefit of his children are members.
                                       36
<PAGE>
Item 13.          Certain Relationships and Related Transactions
--------          ----------------------------------------------

         Prior to the Acquisition by DMB, the Company had option agreements with
DMB under which the Company acquired lots in certain of its subdivisions. During
fiscal  1996  and  1997,  the  Company  paid  DMB  $9,780,000  and   $5,322,000,
respectively,  for the purchase of lots under such  options.  At  September  30,
1997, all lots had been acquired under these pre-acquisition  option agreements.
Further,  DMB paid the Company  $2,727,400 during fiscal 1996 for infrastructure
and other work on  property  subject  to option  agreements.  Subsequent  to the
Acquisition,  the Company has entered  into new option  agreements  with DMB and
DMB/AEW Land Holdings Two, LLC ("Land  Holdings  Two"),  an affiliate of DMB and
AEW.  During fiscal 1997, the Company paid these  affiliates  $16,205,000  under
these new option  agreements.  Additionally,  during fiscal 1997 the Company has
paid or accrued $297,000 in property taxes on lots under option with affiliates.
The Company  believes that lot prices under these agreements  approximated  fair
value at the date the agreements were entered into.

         During  fiscal 1996 and 1997,  DMB/AEW  Land  Holdings  One, LLC ("Land
Holdings One"), an affiliate of DMB and AEW, acquired approximately  $28,607,000
and  $25,519,000,  respectively,  of land held for sale at the  Company's  cost,
which the  Company  believed  to  approximate  the fair value of such land.  The
Company  continues to market the land purchased by Land Holdings One in exchange
for a management fee and commissions. For the year ended September 30, 1997, the
Company earned $75,000 in management  fees and $557,000 in commissions  pursuant
to this agreement.

         During  fiscal  1997,  DMB and  AEW  invested  $17,500,000  each in the
Company in exchange for additional Series D Subordinated Notes. Interest expense
of $9,300,000 and $4,600,000 on the  Subordinated  Notes held by AEW and DMB was
recorded in fiscal 1997 and 1996, respectively.  At September 30, 1997 and 1996,
AEW  and  DMB  collectively  owned  approximately  $85,741,000  and  $40,000,000
principal amount of the Subordinated Notes, respectively.

         Affiliates of DMB and AEW collectively  own 22.5% of Westbrook  Village
Venture, one of the Company's Arizona retirement operations.

         On  December  31,  1996,  the  Company  received   additional   capital
contributions of $5,000,000 each from DMB and AEW.

         During  fiscal 1997 and 1996,  the Company made payments of $22,000 and
$142,000,  respectively,  to Robert Charles Lesser & Co. for strategic  planning
and market  analysis.  Mr.  Kaufmann,  a Director  of the  Company,  is Managing
Director of Robert Charles Lesser & Co.

         In July  1997,  the  Company  entered  into a four year  lease  with an
affiliate  of AEW to  house  the  Company's  Diamond  Bar,  California  regional
operations.

         In 1983, the Predecessor  Company organized Mill & Ellis Office Limited
Partnership,  an  Arizona  limited  partnership  ("Mill &  Ellis"),  and in 1987
organized ME II Limited  Partnership,  an Arizona limited partnership ("ME II"),
each of which owns one of the  Company's  two  executive  office  buildings  and
leases these buildings to the Company. During fiscal 1996, Mr.
                                       37
<PAGE>
Kraemer  owned 24% of Mill & Ellis and 15% of ME II, and UDC  Advisory  Services
Inc.,  a wholly owned  subsidiary  of the Company,  having  purchased  interests
previously owned by certain former employees of the Company, owned 25% of ME II.
On June 25, 1996, Mr. Kraemer assigned his interest in Mill & Ellis and ME II to
the Company.  The total equity  contributions to these limited partnerships were
$261,667.  The  land  and  construction  costs  of  the  two  buildings  totaled
approximately  $2.4 million.  In 1993, the  Predecessor  Company  entered into a
lease for one of the  buildings for  approximately  $235,700 per year for 14,518
square feet and a lease initially for approximately $244,000 per year for 14,775
square feet for the second building.  Each of these leases contained a five-year
lease extension terminating in June 1998.

         In November 1995, in consideration of certain financial  accommodations
afforded the Company by Bank of America Arizona ("B of A"), the Company and Mill
& Ellis  agreed  in favor of B of A that  during  the  term of the  lease,  rent
payments  are payable from the Company to Mill & Ellis in the amount of $241,308
per year (or $20,109 per month) plus all Direct  Expenses (as defined) in excess
of $58,072  per year (or $4,839 per  month).  Similarly,  the  Company and ME II
agreed in favor of B of A that during the term of the lease,  rent  payments are
payable from the Company to ME II in the amount of $304,268 per year (or $25,355
per month) plus all Direct Expenses in excess of $59,100 per year (or $4,925 per
month). In December 1996, Mill & Ellis and ME II (which the Company  controlled)
sold these buildings to a third party. The Company relocated its operations from
these buildings in January 1997.
                                       38
<PAGE>
                                     PART IV

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

(a)      The following documents are filed as part of this report:

         1.       Financial   Statements  (See  Index  to  Financial  Statements
                  located in Item 8 of this report);

         2.       Financial   Statement   Schedules   (See  Index  to  Financial
                  Statements located in Item 8 of this report); and

         3.       Exhibits  required  by  Securities  and  Exchange   Commission
                  Regulation S-K, Item 601 are listed below.

Exhibit
Number            Description of Document
------            -----------------------

4.1(1)            $7,783,886 aggregate principal amount of Series C Subordinated
                  Notes due 2000. Terms identical to previously  issued Series C
                  Notes.

4.2(2)            $36,904,122   aggregate   principal   amount   of   Series   D
                  Subordinated  Notes due 2000.  Terms  identical to  previously
                  issued Series D Notes.

10.1(3)           Lease  Agreement  dated  November 5, 1996  between  Scottsdale
                  Spectrum LLC and the Company.

10.2(4)           Amended and Restated UDC Master  Revolving Line of Credit Loan
                  Agreement  (borrowing  base) dated April 30, 1997,  among Bank
                  One,   Arizona,   NA   ("BOAZ"),    Guaranty   Federal   Bank,
                  F.S.B.("Guaranty"),  Wells  Fargo Bank,  National  Association
                  ("WFB"),   Bank  of  America   National   Trust  and   Savings
                  Association   ("BofA"),   Norwest   Bank   Arizona,   National
                  Association ("Norwest") and the Company.

10.3(4)           Amended and Restated  Promissory  Note dated April 30, 1997 by
                  the  Company  in  favor  of BOAZ in the  principal  amount  of
                  $60,000,000.

10.4(4)           Amended and Restated  Promissory  Note dated April 30, 1997 by
                  the Company in favor of Guaranty  in the  principal  amount of
                  $30,000,000.

10.5(4)           Amended and Restated  Promissory  Note dated April 30, 1997 by
                  the  Company  in  favor  of  WFB in the  principal  amount  of
                  $40,000,000.

10.6(4)           Promissory  Note dated  April 30, 1997 by the Company in favor
                  of BofA in the principal amount of $30,000,000.
                                       39
<PAGE>
10.7(4)           Promissory  Note dated  April 30, 1997 by the Company in favor
                  of Norwest in the principal amount of $10,000,000.

27                Financial Data Schedule

Footnotes:
---------
         (1)      Incorporated by reference from the Company's  Annual Report on
                  Form 10-K for the fiscal year ended September 30, 1995.

         (2)      Incorporated by reference from the Company's  Quarterly Report
                  on Form 10-Q for the quarter ended June 30, 1996.

         (3)      Incorporated by reference from the Company's  Quarterly Report
                  on Form 10-Q for the quarter ended December 31, 1996.

         (4)      Incorporated by reference from the Company's  Quarterly Report
                  on Form 10-Q for the quarter ended March 31, 1997.

All other exhibits are omitted as the information required is inapplicable.

 (b)              There  were no  reports  on Form 8-K  filed  during  the three
                  months ended September 30, 1997.
                                       40
<PAGE>
                                   SIGNATURES

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

Dated:  December 22, 1997          UDC HOMES, INC.
                                   By: /s/ Garth R. Wieger
                                       -----------------------------
                                       Garth R. Wieger, Chief Executive Officer,
                                       President and Director

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

<TABLE>
<CAPTION>
Signature                                Title                               Date
---------                                -----                               ----

<S>                                      <C>                                 <C> 
/s/ Garth R. Wieger                      President, Chief Executive          December 22, 1997
------------------------------------     Officer and Director
Garth R. Wieger                          (Principal Executive officer)

/s/ Kenda B. Gonzales                    Senior Executive Vice President     December 22, 1997
------------------------------------     and Chief Financial Officer
Kenda B. Gonzales                        (Principal Financial and Accounting Officer)

/s/ Drew M. Brown                        Director, Chairman                  December 22, 1997
------------------------------------
Drew M. Brown

/s/ Joseph F. Azrack                     Director                            December 22, 1997
------------------------------------
Joseph F. Azrack

/s/ Bennett Dorrance                     Director                            December 22, 1997
------------------------------------
Bennett Dorrance

/s/ Gadi Kaufmann                        Director                            December 22, 1997
------------------------------------
Gadi Kaufmann

/s/ James L. McCabe                      Director                            December 22, 1997
------------------------------------
James L McCabe

/s/ Thomas H. Nolan, Jr.                 Director                            December 22, 1997
------------------------------------
Thomas H. Nolan, Jr.

/s/ Mark Sklar                           Director                            December 22, 1997
------------------------------------
Mark Sklar
</TABLE>
                                       41