<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K

[X]              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1996

                                       OR

[ ]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
              For the transition period from _______ to _______.

                          Commission File Number 1-9885

                             Legend Properties, Inc.
               (formerly known as Banyan Mortgage Investment Fund)
             (Exact name of Registrant as specified in its charter)

         Delaware                                                36-3465359
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)


1420 Fifth Avenue, Suite 4200, Seattle, Washington                 98101
(Former address: 150 South Wacker Drive, Chicago, Illinois)       (60606)
(Address of principal executive offices)                         (Zip Code)

Registrant's telephone number, including area code             (206) 464-0123

Securities registered pursuant to Section 12(b) of the Act:

                                                  Name of each exchange
Title of each Class                                on which registered 

Shares of Common Stock                            National Association of
                                               Securities Dealers Automated
                                            Quotation System - Small Cap Market

Securities registered pursuant to Section 12(g) of the Act:

                                      None
                                (Title of Class)

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

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

Shares of common stock outstanding as of April 11, 1997: 6,276,744. The
aggregate market value of the Registrant's shares of common stock held by
non-affiliates on such date was $6,405,882.

                       DOCUMENTS INCORPORATED BY REFERENCE
<PAGE>   2

                      See Exhibit index located on page __

<PAGE>   3
                                TABLE OF CONTENTS


                                     PART I

<TABLE>
<S>                                                                        <C>
ITEM 1.    DESCRIPTION OF BUSINESS                                           1

ITEM 2.    PROPERTIES                                                        4
                                                              
ITEM 3.    LEGAL PROCEEDINGS                                                 9
                                                              
ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS              12

                                     PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S SHARES AND
           RELATED SHAREHOLDER MATTERS                                      13

ITEM 6.    SELECTED FINANCIAL DATA                                          15

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS                                            16

ITEM 8.    CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA         29

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                                           31

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT   32

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                   35

                                     PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K           39

SIGNATURES                                                                  41
</TABLE>


<PAGE>   4
                                     PART I

ITEM 1.    DESCRIPTION OF BUSINESS

BUSINESS OPERATIONS

           The Registrant, Legend Properties, Inc., formerly known as Banyan
Mortgage Investment Fund (the Company), is the surviving corporation from the
December 31, 1996 merger (the Merger)of Banyan Mortgage Investment Fund (Banyan)
and RGI U.S. Holdings (RGI/US).

           Certain statements in this Annual Report that are not historical fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Discussions containing forward-looking
statements may be found in this section and in the sections headed "Properties",
"Legal Proceedings", "Market for the Registrant's Shares and Related Matters"
and "Management's Discussion and Analysis of Financial Condition - Results of
Operations and Factors Affecting Legend's Business Plan." Without limiting the
foregoing, words such as "anticipates," "expects," "intends," "plans" and
similar expressions are intended to identify forward-looking statements. These
statements are subject to a number of risks and uncertainties. Actual results
could differ materially from those projected in the forward-looking statements.
The Company undertakes no obligation to update these forward-looking statements
to reflect future events or circumstances.

           The Company was organized as a corporation under the laws of the
State of Delaware, pursuant to a Restated Certificate of Incorporation filed
December 31, 1996. The Company was originally established to invest primarily in
(i) short-term loans, junior mortgage loans, wraparound mortgage loans and first
mortgage loans on income-producing properties and (ii) construction loans,
pre-development loans and land loans. In response to defaults on loans made by
the Company to its borrowers, in February 1990, the Company suspended making new
loans, except for advances of additional funds under circumstances which it
deemed necessary to preserve the value of existing collateral, including
instances where the Company has foreclosed upon or taken title, directly or
indirectly to the collateral. The Company also suspended distributions to
stockholders. As of December 31, 1996, the Company had a 51% interest in various
general partnerships and through these partnerships controls the ownership of a
2,230-acre parcel located in Charles County, Maryland (Chapman's Landing) and a
2,555-acre parcel located in Prince William County, Virginia (Southbridge
/Wayside Village). The Company also held a 50% controlling interest in a limited
partnership which owns a 565-acre parcel located six miles east of Monterey,
California (Laguna Seca Ranch).

           These properties are in various stages of entitlement or development
and were acquired by the Company through foreclosure proceedings or deeds in
lieu thereof from borrowers which had defaulted on loans that the Company made
to these borrowers. These properties are owned in partnerships which the
Company, as of January 21, 1997 as part of the Omnibus Settlement Agreement (See
further discussion at Item 3 "Legal Proceedings"), owns 100% thereof. The 
Company believes that the market for the sale of large tracts of
undeveloped land is currently limited and consequently has attempted to enhance
the value of these parcels by selectively developing these parcels and by
modifying their zoning and entitlements. With the exception of the Laguna Seca
Ranch, the Company believes that there is a substantial difference between the
potential value which might be realized if the parcels are further developed and
zoned, and the immediate salable value of these parcels. In the case of Laguna
Seca Ranch, the Company believes that the difference between the property's
value in its present condition and its value after significant further
development is not substantial due to the property's uniquely attractive
location and smaller size.
<PAGE>   5
ITEM 1.    DESCRIPTION OF BUSINESS (CONTINUED)

           As a result of the Merger, the Company also has interests in the
properties previously owned by RGI/US as described below.

           RGI/US was a Washington corporation and until the Merger, was a
wholly-owned subsidiary of RGI Holdings, Inc. ("Holdings") which is an indirect
majority-owned subsidiary of Resource Group International, Inc. ("RGI Inc.").
RGI Inc. is an indirect subsidiary of RGI (Antilles) N.V., a Netherlands
Antilles limited liability company ("RGI Antilles"). In January 1997, RGI
Antilles merged with Aker ASA, a Norwegian corporation with interests in cement
and building materials as well as oil and gas technology, forming Aker RGI. On
an unaudited pro forma basis, the combined entity had gross revenue of
approximately $3.2 billion (U.S.) for the year ended December 31, 1996 and total
assets of $3.1 billion (U.S.) as of December 31, 1996.

           RGI/US owned, operated and developed real estate through its
wholly-owned subsidiaries (American Property Investments, Inc. ("API"), Grand
Harbor Associates, Inc. ("GHA"), Grand Harbor Corporation, Inc. ("GHC"), K.W.
Properties, Inc. ("KW"), and Resource Group, Inc. ("TRG").

           API owns a 164,724 square foot shopping center located in Lynnwood,
Washington (the Lynnwood Center). RGI/US listed the Lynnwood Center for sale
during 1996. GHA owns a 90% interest in Grand Harbor Property Holdings, Inc.
(GHPH) and Oak Harbor Property Holdings Inc. and Quality Life Services, Inc.
(Collectively OHPH), corporations that own: (i) Grand Harbor, a 772-acre
residential golf community development project located in Vero Beach, Florida;
(ii) Oak Harbor, a 116-acre, 352-unit adult retirement community also located in
Vero Beach, Florida; and (iii) the Royal Palm Convalescent Center, a skilled
nursing center licensed for 72 beds and located in Vero Beach, Florida in close
proximity to Oak Harbor. GHC was formed as a holding company during 1994 for
certain bank debt and was merged into GHPH during 1996. KW and TRG were spun-off
by means of a dividend to Holdings from RGI/US in April 1996.

           For financial reporting purposes, the merger was treated as a
recapitalization of RGI/US, with RGI/US as the acquiror of Banyan. As of
December 31, 1996, the historical consolidated financial statements of the
Company became those of RGI/US, and are referred to hereafter as "Legend."
Through December 31, 1996, RGI/US was a wholly-owned subsidiary of RGI Holdings,
Inc. As of December 31, 1996, RGI Holdings, Inc. and a company affiliated by
common ownership, own approximately 79% of the outstanding common shares of the
Company.

           On April 12, 1996, the Company entered into an Agreement and Plan of
Merger, which was subsequently amended on May 20, and September 17, 1996, (the
"Amended Merger Agreement") with Holdings and its wholly-owned subsidiary,
RGI/US (collectively "RGI").

           On May 21, 1996, Holdings (i) purchased 7,466,666 shares (298,666
shares after giving effect to the reverse stock split - see discussion to
follow), of authorized but unissued shares of Banyan's common stock for $.46875
per share ($11.71 per share after giving effect to the reverse stock split) or
an aggregate purchase price of $3.5 million (the "Private Placement"); (ii)
purchased the loan made to the Company in October, 1994 by a group of lenders
for which Morgens, Waterfall, Vintiadis & Co., Inc. served as agent (the
"Morgens Loan") and (iii) purchased the loan made to a subsidiary of the Company
by Societe Generale ("SoGen Loan") which is secured by a first mortgage on the
Company's Wayside Village property and a portion of the Southbridge property. In
addition, Mr. Kenneth Uptain, President of Holdings and RGI/US, was named to
fill a vacant seat on the Company's Board of Directors.

           Both the Morgens Loan and the SoGen Loan were in default, and
concurrent with the purchase of these loans by Holdings, the Company and
Holdings entered into agreements modifying each loan. Under these modification
agreements, Holdings agreed that, among other things, prior to December 31, 1996
it would not accelerate either the Morgens Loan or the SoGen Loan nor foreclose
on any collateral securing such loans based upon (i) any events of default
occurring before May 15, 1996; or (ii) any non-monetary defaults occurring after
May 15, 1996 but before the merger completion date; or (iii) as a result of the
execution of the Amended Merger Agreement as described above.

           Holdings also agreed to capitalize and add to the outstanding
principal balance of the Morgens Loan the interest payment due on January 1,
1996 in the approximate amount of $1,025,000. The outstanding principal balance
of the Morgens Loan as of December 31, 1996 was $24,258,788. Additionally,
effective December 31, 1996, the terms of the Morgens Loan were further modified
to reduce the non-default interest rate on the Morgens loan from 

<PAGE>   6
ITEM 1.    DESCRIPTION OF BUSINESS (CONTINUED)

17.5% per annum to the prime rate plus 2% per annum (10.25% at December 31,
1996). Finally, the original Morgens Loan provisions that required the
outstanding principal balance to be reduced to $11,000,000 by September 30, 1997
and prohibited prepayment of the entire loan prior to September 30, 1996 were
eliminated with the entire loan due and payable on September 30, 1998. A portion
of the proceeds from the sale of stock to RGI were used to pay (i) interest for
the period from January 1, 1996 through March 31, 1996, which was due April 1,
1996, in the amount of approximately $1,179,000 and (ii) a $500,000 loan
restructuring fee to Holdings. As part of Holding's acquisition of the Morgens
Loan, outstanding warrants to purchase 175,200 shares of common stock of the
Company which were issued to the previous lenders were cancelled. Also, Holdings
allowed the Company to utilize for general business purposes, without requiring
application against debt, the net proceeds from the sale of certain properties.
On December 31, 1996, the Company was required to pay, and did not pay, an
interest payment of approximately $1,070,000, thereby causing the loan to be in
default.

           Upon acquisition of the SoGen Loan by Holdings, the $287,702 of
interest due as of December 31, 1995 was capitalized and added to the
outstanding loan balance of $6,360,000, which was partially offset by cash
proceeds from lot sales at Wayside Village that were held in escrow by SoGen.
The principal balance of the loan, after adding interest, was reduced by
approximately $317,000 which primarily represents the net proceeds released from
escrow by SoGen in respect to the sale of four lots at Wayside Village which
occurred on April 9, 1996. The outstanding principal balance subsequent to the
modification was $6,391,084. Using a portion of the proceeds from the sale of
stock to RGI, the Company paid interest for the period January 1, 1996 through
April 30, 1996 in the amount of $319,782 and also paid late fees and legal fees
in the amount of $302,708. No additional payments of principal or interest were
required until December 31, 1996. On December 31, 1996, the Company did not pay
the required amount, thereby causing the loan to be in default. The maturity
date of the SoGen Loan is December 31, 1997. The $2,000,000 revolving loan
agreement, executed by SoGen and the Company in 1994, under which no funds were
ever disbursed, was cancelled and released. The Company and SoGen also exchanged
mutual releases of liability.

           On April 15, 1997, Legend announced that it had signed a stipulation
and settlement agreement to resolve various lawsuits filed against the Company
(See Item 3 "Legal Proceedings" for further discussion). The agreement is
subject to, among other things, court approval. As part of the settlement,
Holdings has agreed to, among other things, (i) defer interest due on the
Morgens and SoGen loans (the Loans) until December 31, 1997; (ii) forebear on
any defaults existing on the Loans as of the effective date of the settlement
until December 31, 1997; (iii) effective January 1, 1997, reduce the interest
rate on the Loans to the lower of the prime rate plus 2% (10.25% at January 1,
1997) or LIBOR plus 2.5% (8.1% at January 1, 1997); (iv) provide Legend with a
line of credit in the aggregate principal amount of $8.5 million, a portion of
which will be utilized to repay Holdings for advances previously made to Legend;
and (v) repurchase up to $300,000 of the Company's shares of common stock from
time to time on the open market over the next twelve months subject to
compliance with the SEC's rules and regulations relating to open market
repurchase programs. Until the settlement is approved by the court and becomes
effective, management does not expect to be able to satisfactorily restructure
or refinance the Loans. If and when the settlement is approved, management
expects to enter into discussions with Holdings and/or other third party lenders
to restructure or refinance the Loans.

           Effective December 31, 1996, RGI/US was merged with and into the
Company, the Company's certificate of incorporation was amended to, among other
things, convert each twenty-five shares issued and outstanding of the Company's
common stock into one issued and outstanding share (the "Reverse Split").
Additionally, the name of Banyan was changed to Legend Properties, Inc. After
giving effect to the Reverse Split, all outstanding shares of RGI/US were
converted into 4,386,986 shares of the Company's common stock.

           The Company had been previously advised by the NYSE that the merged
entity would be required to file an original listing application and comply with
the original listing criteria in order to continue the listing of the Company's
shares on the NYSE. The Company had determined that the merged entity would not
be able to satisfy certain of the quantitative standards imposed by the NYSE for
an original listing. Therefore, the Company filed an application, which was
subsequently approved, to include its shares of common stock for quotation on
the Nasdaq SmallCap Market ("Nasdaq"). See Item 5. "Market for the Registrant's
Shares and Related Shareholder Matters".


OTHER INFORMATION

           The Company's real property investments are subject to competition
regarding the size and location of similar types of properties in the vicinities
in which they are located. See Item 2, "Properties" for a description of the
Company's real property investments.

           As it relates to development and construction work performed in the
State of Florida, the activities of the Company are not seasonal, however
development and construction activities performed in the States of Virginia and
Maryland are affected by inclement weather, , and the majority of the
development and construction work in Virginia and Maryland occurs between the
months of March and November. As it relates to sales activities, the majority of
revenues recorded related to sales in the State of Florida are recorded between
the months of October and May while revenues recorded related to sales occurring
in the States of Virginia and Maryland are recorded fairly evenly throughout the
<PAGE>   7
ITEM 1.    DESCRIPTION OF BUSINESS (CONTINUED)



year. The Company's business activities related to the Lynnwood Center in the
State of Washington are not seasonal.

           The Company does no foreign or export business and has no real
property investments located outside of the United States. The Company does not
segregate revenue or assets by geographic region, as such a presentation would
not be significant to an understanding of the Company's business for the year
ended December 31, 1996.

           As of December 31, 1996 and March 31, 1997, the Company had 290 and
360 employees and 1 and 3 executive officers, respectively.

           The Company reviews and monitors compliance with federal, state and
local provisions which have been enacted or adopted regulating the discharge of
material into the environment, or otherwise relating to the protection of the
environment. For the year ended December 31, 1996, the Company did not incur a
material amount for capital expenditures for environmental matters nor does it
anticipate making any material expenditures for environmental matters for the
year ended December 31, 1997.

ITEM 2.  PROPERTIES

As of December 31, 1996, the Company owned interests in eight properties. Below
is a brief description of property interests owned by the Company:

<TABLE>
<CAPTION>
Name, Location and              Approx.                Date
Type of Property                 Size                Acquired     Description
<S>                            <C>                      <C>       <C> 
Grand Harbor                   400 acres                6/91(2)   a 90% interest in a corporation
Vero Beach, FL                                                    which owns the subject property
Residential Development


Oak Harbor                     115 acres                6/91(2)   a 90% interest in a corporation
Vero Beach, FL                                                    which owns the subject property
Residential Development


Royal Palm                     72-Bed                   6/94(2)   a 90% interest in a corporation
Convalescent Center                                               which own the subject property
Vero Beach, FL
Skilled Nursing
Care facility


Lynnwood Shopping Center       164,724 Sq. Ft.          11/87(2)  100% Fee Simple Interest
Lynnwood, WA                   gross leaseable
Retail Shopping Center         area (g.l.a.)


Southbridge                    2,050 acres               5/91     a 51% interest in a general
Prince William County, VA                                         partnership which provides for a
Residential Land Development                                      prioritized return of investment (1)
</TABLE>

<PAGE>   8

ITEM 2.   PROPERTIES (CONTINUED)

<TABLE>
<S>                            <C>                      <C>       <C> 
Wayside Village                505 acres                5/91      a 51% interest in a general
Prince William County,  VA                                        partnership which provides for a
Residential Land Development                                      prioritized return of investment (1)


Chapman's Landing              2,230 acres              3/91      a 51% interest in a general
Charles County, MD                                                partnership which provides for
Land Parcel                                                       prioritized return of investment (1)


Laguna Seca Ranch              565 acres                9/91      a 50% controlling interest in a 
Monterey County, CA                                               limited partnership which 
Land Parcel                                                       provides for a prioritized return
                                                                  of investment (1)
</TABLE>


(1) Effective January 21, 1997, as part of the Omnibus Settlement Agreement (See
further discussion at Item 3 "Legal Proceedings"), the Company owns a 100%
interest in the general or limited partnership which holds the subject property.

(2) The acquisition date represents the date the property was acquired by RGI/US
or affiliates.  RGI/US merged with and into the Company Effective December 31, 
1996.

           Grand Harbor. Grand Harbor is a 772-acre residential golf community,
of which the Company owned approximately 400 acres at December 31, 1996, located
along the Indian River in Vero Beach, Florida, with two 18-hole championship
golf courses and waterfront access with a marina containing 144 slips which can
accommodate vessels with six feet of draft up to 100 feet in length. The slips
are available to be leased on a daily, monthly or annual basis. The residences
at Grand Harbor are clustered in individual communities affording views of the
surrounding golf courses and scenic waterways. Development of Grand Harbor began
in 1987 with a U.S. savings and loan institution providing approximately $115
million in acquisition and infrastructure financing. The Resolution Trust
Corporation acquired Grand Harbor in 1990 and most development and construction
activities at Grand Harbor were terminated. After the acquisition of Grand
Harbor by affiliates of RGI/US, the marina and clubhouse were completed and
housing development continued.

           Grand Harbor offers two 18-hole championship golf courses that opened
in 1989: a Harbor Course designed by Pete Dye and a River Course designed by Joe
Lee. The 28,000 square foot Grand Harbor clubhouse, serving both courses, opened
in 1994 and also serves as a social center for Grand Harbor residents. Grand
Harbor maintains 24-hour access control, together with a variety of amenities,
including eight clay tennis courts and a separately located ocean-front beach
club. In 1992, Grand Harbor received an ENVY, a residential environmental award
from the Florida Association of Realtors.

           Grand Harbor and Oak Harbor collectively received zoning entitlements
for the development of a maximum of 2,688 residential units. The Company's
business plan, however, contemplates the development of 1,103 residential units
at Grand Harbor and 352 residential units at Oak Harbor. The Company believes
this plan best maximizes the value of these parcels based on existing and
anticipated market conditions, even though these parcels are zoned for greater
density. If market conditions change, the Company can increase, to a certain
extent, the proportion of multi-family lots to be developed under existing
zoning. If the Company elects to develop additional multi-family lots beyond
that currently entitled, such a change would likely require approval of local
zoning authorities.

           Grand Harbor currently offers single-family detached homes,
townhomes, duplexes and low-rise condominiums with sales prices ranging from
approximately $200,000 to approximately $900,000 with sizes ranging from 1,600
square feet to over 4,000 square feet. In addition, there are golf course and
riverfront undeveloped lots available at sales prices ranging from $165,000 to
over $500,000. When the Company acquired Grand Harbor in 1991, approximately 265
residences had been sold. Since the acquisition, through December 31, 1996, 350
additional residences have been sold. These include all product types offered at
Grand Harbor (condominiums, duplexes, villas and single family homes). Based
on the current development plans, approximately 488 additional residences are
planned for Grand Harbor. Grand Harbor has received governmental approvals for


<PAGE>   9
ITEM 2.   PROPERTIES (C0NTINUED)


approximately 484,000 square feet of commercial space and 241,000 square feet of
office space. Currently, Grand Harbor has not developed any commercial or office
space.

           Grand Harbor currently derives revenue from the construction and sale
of single-family villas, condominiums and individual lots; rental commissions
from residential units and rental income from marina docks; and the operation of
harbor and club facilities. In conjunction with offering residential units for
sale, Grand Harbor offers four (4) types of equity memberships in the Grand
Harbor Golf and Beach Club: (i) full memberships for $37,500; (ii) golf and
tennis memberships for $20,000; (iii) tennis memberships for $10,000; and (iv)
social memberships for $7,500. Upon the completion of sale of the equity
memberships, Grand Harbor will turn over management and control of the Grand
Harbor Golf and Beach Club to its members.

           There are several communities located within Vero Beach, that compete
with Grand Harbor in terms of location, quality, and/or price, including but not
limited to Windsor, Orchid Island Golf & Beach Club, and Indian River Club.
While these communities offer many of the same amenities as Grand Harbor such as
an oceanfront beach club and a gated community, many do not offer boating
access, a completed golf clubhouse, or have a limited product choice.

           Oak Harbor. Oak Harbor is a 116-acre luxury country club retirement
community, of which the Company owned approximately 115 acres at December 31,
1996, with on-site health facilities located within Grand Harbor. With the
opening of the Oak Harbor clubhouse in March 1997, Oak Harbor members receive
daily meals, transportation, housekeeping, social activities and access to
optional health care. In addition to the already completed 36,000 square foot
clubhouse with a community hall, arts & crafts room, hobby shop, game room,
library and fitness center; community amenities will include a 24,900 square
foot, 24 private room on-site assisted care health facility; a nine-hole golf
course designed by Joe Lee; and a total of 352 residences consisting of
different types of condominiums, cottages and villas. Oak Harbor provides the
opportunity to own a home within a community offering on-site health care and a
club that offers a wide range of daily services to make life easier for Oak
Harbor residents. A discussion of Oak Harbor's zoning entitlements is included
under "--Grand Harbor" above.

           Currently, the clubhouse, golf course, all roads and related
infrastructure and the first twenty-two villa and cottage homes are complete. A
24-unit condominium complex was completed in March 1997. The Company anticipates
that the on-site assisted care health facility will be completed in September
1997.

           Oak Harbor offers condominiums and single-family homes ranging in
price from $250,000 to $635,000 and ranging in size from 1,178 to 2,850 square
feet. All residences have emergency call systems and trained health
professionals will be available 24 hours a day. Three levels of health care
including skilled, assisted-living and home health care will be available to Oak
Harbor residents at a cost in addition to the monthly dues described below.

           The Oak Harbor Club requires a $25,000 initial club deposit from all
of its members. Upon the re-sale of an Oak Harbor residence, the $25,000 initial
club deposit is refundable subject to the new member paying his or her deposit.
In addition, there is an initiation fee equal to ten percent (10%) of the
purchase price of the residence. This fee may be deferred until the residence is
resold, but will then equal the greater of 10% of the initial purchase price or
10% of the subsequent sale price of the residence. The Oak Harbor Club is a
non-equity club and Oak Harbor will not turn over management and control to its
members. Monthly dues, ranging from $1,650 for a single person to $2,150 for a
couple, will include, among other things, one meal per day, transportation
around Oak Harbor and Vero Beach, weekly housekeeping and linen service, and
24-hour emergency call service.

           As of December 31, 1996, 36 residences were under contract, and sales
on 13 single-family homes had been completed. In addition, as of April 10, 1997,
Oak Harbor had entered into sales contracts for an additional 14 residences. The
Company anticipates that the majority of these fifty homes will be occupied
by May 1997. These sales are subject to a non-refundable deposit of 20% of the
sales price but are typically subject to cancellation by the purchaser under
specified circumstances, such as the purchaser becoming incapable of independent
living. Although Oak Harbor is a retirement community, all residents must be
capable of independent living to join the Oak Harbor Club.


<PAGE>   10
ITEM 2.   PROPERTIES (C0NTINUED)


           The Royal Palm Convalescent Center. In 1994 RGI/US acquired the Royal
Palm Convalescent Center ("Royal Palm"), which was established in 1965. Royal
Palm is a skilled nursing facility licensed for 72 beds and is regulated by the
State of Florida Agency for Health Care Administration. As of April 10, 1997,
Royal Palm operated 51 beds, substantially all of which were occupied. Royal
Palm accepts only patients who pay privately and does not accept Medicaid or
Medicare reimbursement. Monthly rates range from approximately $3,900 for a
semi-private room to approximately $5,600 for a private suite. These prices
include lodging, meals and basic nursing services. Pharmaceutical charges, most
medical supplies, physical therapy and other items ordered by attending
physicians are additional. Royal Palm provides Oak Harbor residents with
preferred admission should their health condition deteriorate to a state where
high levels of nursing care (skilled nursing care)is required.

           There are two competing lifecare communities located within a 35 mile
radius of Oak Harbor. Indian River Estates, located in Vero Beach, and Sandhill
Cove, located 32 miles south in Stuart, Florida. Both target a lower demographic
prospect than Oak Harbor, have smaller average units than those offered by Oak
Harbor, and do not offer home ownership to their residents.

           The Lynnwood Center. The Lynnwood Center, acquired by the Company in
1987, is a neighborhood retail shopping center located on an approximately
14.35-acre site in Lynnwood, Washington, approximately 20 miles north of
Seattle, Washington. The Lynnwood Center with 164,724 square feet of gross
leasable area currently has 16 tenants, including anchor tenants PayLess Drugs,
Safeway and The Sports Authority. Overall occupancy of the Lynnwood Center at
December 31, 1996 and 1995 was 95% and 88%, respectively. During 1996, the
Company listed the Lynnwood Center for sale and expects to sell the Lynnwood
Center by December 31, 1997.

           The Lynnwood Center represented 9.42% of the Company's total assets
based on book value and 7.0% of total revenues as of December 31, 1996. Annual
base rentals range from $11.00 to $20.00 per square foot, and average $12.29 per
square foot. The 1996 taxes were approximately $164,000 (including special
assessments), substantially all of which was reimbursed by tenants under their
leases.

           The following summarizes 1996 occupancy levels by quarter at the
Lynnwood Center:

<TABLE>
<CAPTION>
at March 31      at June 30          at September 30       at December 31
-----------      ----------          ---------------       --------------
<S>              <C>                   <C>                   <C>
   89%           93%                   95%                   95%
</TABLE>


           Southbridge/Wayside Village (Southbridge). Southbridge is a
2,685-acre "Planned Unit Development", of which the Company owned approximately
2,555 acres at December 31, 1996, located along the Potomac River in the
eastern portion of Prince William County, Virginia, approximately 24 miles south
of Washington D.C. The project is entitled for approximately 7,200 residential
units, including single family, townhouse and multi-family, and 4.48 million
square feet of commercial space. The Company anticipates developing the project
in phases over the next 15 to 20 years (See also Item 7 "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Factors
Affecting Legend's Business Plan"). For financing purposes, title to the project
is held by two separate partnerships.

           Phase 1, which constitutes the property known as Wayside Village, is
zoned for 2,376 residential units and 280,000 square feet of commercial space.
Although zoned for 2,376 residential units, the Company's current development
plan anticipates development of 1,616 units, which the Company believes
maximizes the underlying value of the property based on existing and anticipated
market conditions. The Company can modify its development plans within the
limitations of the existing zoning, in response to changes in market conditions.
As of March 31, 1997, 582 of the 1,616 residential lots have been delivered to
builders who have in turn constructed and sold 78 single family homes and 447
townhouses. An additional 26 single family lots have been developed and are
under

<PAGE>   11
ITEM 2.   PROPERTIES (C0NTINUED)


contract with a builder for a selling price of $42,000 per lot with quarterly
deliveries of 6 lots. The Company has completed the development of all 26 lots,
and the first delivery of lots occurred in early April 1997. In addition, the
Company has executed a Letter of Intent to sell lots for 100 semi-attached
single family home at a purchase price of $24,000 per lot with deliveries
anticipated to start in the first quarter of 1998. The Company continues to
negotiate with other builders for additional residential lot sales contracts.
During 1996 a builder terminated contracts to purchase a total of 242 single
family and townhouse lots due to the Company's inability to develop and deliver
the lots within the time frame provided for in the contract. Engineering of
additional residential sections is currently underway. Development of additional
sections is anticipated to commence during the second quarter of 1997 once
development financing is secured(See also Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Factors Affecting
Legend's Business Plan"). Development of residential lots will be timed to
satisfy contractual requirements and anticipated market demands.

           On the commercial side, the Company has executed a Letter of Intent
to sell approximately 22.4 acres at a purchase price of approximately $4.1
million (approximately $4.25 per square foot). Closing is expected to occur on
the earlier of the date the purchaser obtains all required permits or December
31, 1997. In addition, the Company has executed a contract to sell an
approximately 1.4 acre site for $650,000 with an anticipated closing date of
June 30, 1997.

           Chapman's Landing. Chapman's Landing is a 2,230-acre land parcel
located along the Potomac River in the western portion of Charles County,
Maryland, approximately 20 miles south of Washington D.C. The project is a mixed
use master planned community which is entitled for 4,600 residential units;
including single family, townhouse and multi-family; an 18 hole public golf
course and 2.26 million square feet of commercial space. The Company anticipates
developing the project in five phases over a 15 to 20 year period.

           Phase 1 is zoned for 576 residential units consisting of 404 single
family and 172 townhouses. Engineering for certain infrastructure improvements
and the initial sections of residential units is substantially complete.
Development of the infrastructure improvements and initial residential sections
is anticipated to commence during the second quarter of 1997 once final state
and federal permits are issued and development financing is secured.

           Contracts to sell 156 single family and townhouse lots in Phase 1
over the next five years have been executed with two builders. The contracts
provide for a base sales price, with defined increases in prices over the term
of the contracts. The contracts require the delivery of lots to the builders by
the Company in unequal quarterly installments. The Company is also anticipating
negotiating with other builders for additional residential lot sales contracts
(See also Item 7 "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Factors Affecting Legend's Business Plan").

           The housing industry in the Greater Washington D.C. region is highly
competitive. In each of the Company's local Washington D.C. markets, there are
numerous land developers, home builders and private interests with which the
company competes to attract home builders to its projects. the Company competes
primarily on the basis of price, location and the level of amenities provided
within the community (See also Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Factors Affecting Legend's
Business Plan").

           Laguna Seca Ranch. Laguna Seca Ranch is a 565-acre parcel of land
with entitlement for approximately 253 residential units, including 160 single
family lots, 93 multi-family lots, and an 18-hole golf course, which is located
approximately four miles east of the City of Monterey. Effective January 21,
1997, as part of the Omnibus Settlement Agreement (See further discussion at
Item 3 "Legal Proceedings"), the Company effectively owns a 100% interest in the
limited partnership which holds this property. The Company currently intends to
sell the Laguna Seca Ranch property and to apply a portion of the proceeds to
repay a portion of the Morgens Loan which is now held by Holdings (See also Item
7 "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Factors Affecting Legend's Business Plan"). In contrast to the
Southbridge/ Wayside Village and Chapman's Landing projects, the Company
believes that the Laguna Seca Ranch project is salable in its entirety
due to its size and location. Although the project is currently held for sale,
the Company anticipates proceeding with limited development activity to ensure
the preservation of development rights.


<PAGE>   12
ITEM 3.  LEGAL PROCEEDINGS

           On September 1, 1995, an action was filed in the Circuit Court of
Cook County, Illinois entitled: Monterey County Partners et al v. BMIF Monterey
County Limited Partnership et al; 95 CH 8456 (the "Illinois Litigation"). The
plaintiffs in the Illinois Litigation were as follows: (a) Monterey County
Partners, a partnership which itself was a partner of the Company's subsidiary,
BMIF Monterey County Corp., in a partnership known as BMIF Monterey County
Limited Partnership (the "Ownership Partnership"), which is the entity that
owned the Laguna Seca project; (b) Investors Liquidating Trust, a Delaware Trust
which has been alleged to own (i) 100% of the common stock of VMS Laguna Seca,
Inc., the 1% general partner of VMS Laguna Seca Limited Partnership, which is an
alleged 80% partner in Monterey County Partners; and (ii) the 99% limited
partnership interest in VMS Laguna Seca Limited Partnership; and (c) VMTGZ
Mortgage Investors, L.P. II, the principal beneficiary of Investors Liquidating
Trust.

           Named in the case as defendants, in addition to the Ownership
Partnership and BMIF Monterey County Corp. were: (a) Leonard G. Levine, former
President of the Company and (b) Banyan Management Corp., the company which
provides administrative services to the Company pursuant to an Administrative
Services Agreement (as amended). Mr. Levine and Banyan Management Corp. were
subsequently dismissed from this litigation, but were later rejoined by a Third
Amendment Complaint.

           The original complaint sought: (i) the removal of BMIF Monterey
County Corp. as the general partner of the Ownership Partnership (BMIF Monterey
County Limited Partnership) and the replacement with Kimball Small Residential
Properties, Inc., a partner in Monterey County Partners as the new general
partner; (ii) declaratory relief that BMIF Monterey County Corp. was not
entitled to any "priority return" or "preferred return" on its capital account
in the Ownership Partnership; (iii) avoidance of an alleged fraudulent transfer
whereby the Ownership Partnership became the owner of the project after the
default in 1991 on the Company's former mortgage loan to Monterey County
Partners upon which the Company had initiated foreclosure proceedings which
culminated in the execution of the Ownership Partnership agreement; and the
creation of a capital account in an amount not less than approximately
$4,800,000 in favor of Monterey County Partners; (iv) an accounting; and (v) a
constructive trust to be created for the benefit of one of the plaintiffs.
Numerous counts of the plaintiff's complaint and various theories of recovery
were stricken on the Company's motions after which the matter proceeded to trial
on January 13, 1997 (see below).

           On October 10, 1995, a companion action was filed in the Superior
Court of Monterey County, California entitled: Monterey County Partners, et al.
v. BMIF Monterey County Limited Partnership, et al; Case No. 105280 (the
"California Litigation").

           The plaintiff entity which owns the Laguna Seca Ranch property (the
"Ownership Partnership") filed suit in its own name and derivatively on behalf
of the Ownership Partnership against the Ownership Partnership and each of the
participant entities in the Morgens Loan (the Morgens defendants), which loan is
partially guaranteed by the Ownership Partnership, which partial guaranty is
collateralized by a deed of trust recorded against the Laguna Seca Ranch
property.

           The California Litigation alleged fraudulent transfer and conspiracy
and sought the following as remedies: (i) to set aside the Deed of Trust and the
obligations of the 


<PAGE>   13
ITEM 3.  LEGAL PROCEEDINGS (CONTINUED)


Ownership Partnership under the Morgens Loan guaranty; (ii) to quiet title to
the Laguna Seca Ranch project, declaring null and void the interest of Morgens
under the Deed of Trust; and (iii) an award of attorneys' fees and costs. After
a variety of motions, the California Court set a status hearing in the
California Litigation for January 31, 1997 in an effort to award the results of
the trial in the Illinois Litigation.

           Trial in the Illinois Litigation commenced on January 13, 1997. After
four days of testimony, the parties commenced settlement negotiations, and on
January 21, 1997 all parties to the Illinois Litigation and the California
Litigation executed and delivered an Omnibus Settlement Agreement pursuant to
which, among other things: (i) the California Litigation and the Illinois
Litigation were dismissed with prejudice, (ii) all parties executed and
delivered mutual releases; (iii) the Company paid to the plaintiffs the sum of
$200,000; (iv) the Morgens defendants paid the sum of $50,000 to the plaintiffs;
(v) Limited partnership interests held by the plaintiffs in the Company's Laguna
Seca Ranch, Chapman's Landing and Southbridge/Wayside Village properties were
assigned and conveyed to subsidiaries of the Company; and (vi) certain ancillary
litigation among some of the parties was settled and dismissed.

           The execution and delivery of the aforesaid Omnibus Settlement
Agreement allows the Company to enjoy 100% ownership of the Laguna Seca Ranch,
Chapmans Landing and Southbridge/Wayside Village properties without minority
interests and is expected to facilitate financing or other strategic
alternatives with respect to these projects.

           On October 31, 1996, a lawsuit was filed in Delaware state court by
two of the Company's stockholders on behalf of the themselves and all of the
non-defendant stockholders of the Company, against the Company and certain of
its directors and officers, including Leonard G. Levine, Neil D. Hansen, Robert
G. Higgins, Walter E. Auch, Sr. and Robert M. Ungerlieder.

           The plaintiffs have alleged, among other things, that the Company's
board of directors breached its fiduciary duties by failing to seek alternative
change of control transactions, other than the merger with RGI/US, or
appropriately evaluate the alternative of liquidating the Company. Plaintiffs
further alleged that the merger unfairly diluted the voting and equity
interests of the Company's stockholders since Holdings, the parent of RGI/US,
ended up owning approximately 79% of the Company's common stock. In addition,
the plaintiffs alleged that the proxy statement circulated by the Company in
connection with the annual meeting held to consider and vote upon the merger
was misleading and failed to disclose certain material information. Among other
remedies, the plaintiffs sought to enjoin the merger and require the defendants
to undertake additional activities to maximize shareholder value and disclose
certain additional information to the Company's stockholders in connection with
considering the merger.

           On November 13, 1996, another Banyan stockholder filed an action
asserting allegations substantially similar to those in the action filed on
October 31st. These two suits were ultimated consolidated by the Delaware court
of chancery on December 11, 1996 under the case number C.A. No. 15287. The
parties subsequently engaged in discovery, including producing and reviewing
documents and taking depositions of certain of the Company's former officers,
as well as that of one of the Company's directors. Plaintiffs filed a motion
for preliminary injunction and an opening brief in support of that motion on
November 15, 1996. On December 24, 1996, the plaintiffs served and filed a
consolidated amended and supplemental complaint repeating the allegations made
in the initial complaint and addition additional factual allegations that the
Company had failed to properly consider acquisition proposals submitted by
third parties to acquire the Company. The amended complaint also claimed that
purchases made by Holdings during December of shares of the Company's common
stock from third parties constituted unlawful vote buying. Certain of the
plaintiffs in the Delaware action then filed an individual action in federal
court in New York against RGI/US, Holdings and Legend's president, Kenneth L.
Uptain, alleging, among other things, that these purchases constituted an
illegal tender offer (the "New York Action").

           On January 8, 1997, the plaintiffs filed an application pursuant to
Section 225(b) of the General Corporation Laws of the State of Delaware seeking
judicial review of the certified vote on the merger. Plaintiffs contended that:
(i) the merger was approved by fewer than 210,000 votes; (ii) many shareholders
had sought to revoke proxies previously cast in favor of the merger; and (iii)
the Company had announced varying results of the vote. The plaintiffs sought an
expedited hearing on the Section 225 application. The Delaware court
subsequently scheduled a hearing on the plaintiffs' application for relief
under Section 225 for March 4, 1997. The parties engaged in discovery incident
to the application, including a review of documents obtained from the
independent inspector of election for the annual meeting, as well as other
third parties and taking depositions of certain of the plaintiff and class
representatives. The hearing scheduled for March 4, 1997 was subsequently
postponed without date at the direction of the Delaware court. In the interim,
the parties entered into discussions with a view towards finding a mutually
agreeable basis for resolving the litigation.

           On April 15, 1997, Legend announced that it had reached an agreement
in principle to settle the various lawsuits. The agreement is subject to, among
other things, court approval. As part of the settlement, the plaintiffs will
likely file a second consolidated amended and supplemental complaint repeating
the allegations contained in their previous complaints and adding the claims
underlying their application pursuant to Section 225 of the Delaware Code. In
addition, Holdings and RGI/US will likely be added as defendants solely for
purposes of the settlement. All of the defendants will subsequently answer this
complaint and have consented to a conditional certification of the lawsuit as a
plaintiff class action pursuant to Rules 23(a) and 23(b)(1)-(2) of the Court of
Chancery of the State of Delaware. As part of this settlement, Holdings has
agreed to, among other things, (i) defer interest due on the Loans until
December 31, 1997; (ii) forebear on any defaults existing on the Loans as of the
effective date of the settlement until December 31, 1997; (iii) effective
January 1, 1997, reduce the interest rate on the Loans to the lower of the prime
rate plus 2% (10.25% at January 1, 1997) or LIBOR plus 2.5% (8.1% at January 1,
1997); (iv) provide Legend with a line of credit in the aggregate principal
amount of $8.5 million, a portion of which will be utilized to repay Holdings
for advances previously made to Legend; and (v) repurchase up to $300,000 of the
Company's shares of common stock from time to time on the open market over the
next twelve months subject to compliance with the SEC's rules and regulations
relating to open market repurchase programs. The parties will schedule a hearing
during the week of April 21, 1997 to submit the settlement to the Delaware court
for its preliminary review.

           Contemporaneously with and in conjunction with the resolution of this
Delaware litigation, the plaintiffs, as well as the defendants in the New York
Action, have agreed to settle and dismiss the matter. As part of this
settlement, RGI Holdings, Inc. has agreed to purchase all of the shares owned by
John Hinson, John Temple and Gary Goldberg, the named plaintiffs in the Delaware
lawsuits, for $13.25 per share ($0.53 prior to the reverse split). In return,
Messrs Hinson, Temple and Goldberg have agreed not to purchase or otherwise
acquire any of the Company's securities until April 2002, or until such time as
RGI Holdings, Inc. no longer owns 25% or more of the Company's equity, whichever
occurs first.

           The Company is not aware of any other material pending legal
proceedings as of April 10, 1997.


<PAGE>   14
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

           The Company called its 1996 Annual Meeting of Stockholders to order
in November 1996. After several adjournments, formal action on the following
proposals was taken on December 27, 1996. Voting was held open until December
30, 1996.

           There were four proposals considered at the Meeting.

           Proposal #1: To consider and vote upon a proposal to merge RGI/US
           with and into the Company (the "Merger"), pursuant to the Agreement
           and Plan of Merger, dated as of April 12, 1996, by and among RGI/US,
           Holdings and the Company as amended and restated as of May 20, 1996
           and further amended as of September 17, 1996;

           Proposal #2: To consider and vote upon a proposal to amend the
           Company's certificate of incorporation to reclassify, combine and
           convert each twenty-five issued and outstanding shares of the
           Company's common stock into one issued and outstanding share;

           Proposal #3: To consider and vote upon a proposal to adopt the
           Amended and Restated Certificate of Incorporation (the "Restated
           Certificate") that, among other things, changes the Company's name
           from Banyan Mortgage Investment Fund to "Legend Properties, Inc.";
           and

           Proposal #4: To elect three directors to hold office until the next
           Annual Meeting of Stockholders or otherwise as provided in the
           Restated Certificate.

           The following votes (on a pre-split basis prior to approval of
           proposal #2) were cast in connection with the proposals in the manner
           as set forth:

<TABLE>
<CAPTION>
             Proposal         Votes For       Votes Against       Votes Abstaining          Non-Votes
             --------         ---------       -------------       ----------------          ---------
            <S>              <C>                 <C>                   <C>                  <C>      
             Number 1        23,862,753          10,414,143            844,969              1,519,847
             Number 2        23,710,343          10,315,175          1,096,347              1,519,847
             Number 3        23,995,166           9,820,267          1,306,432              1,519,847
</TABLE>



           PROPOSAL #4
<TABLE>
<CAPTION>
                                                            For              Withheld
                                                            ---              --------
           <S>                                       <C>                    <C>      
           Walter E. Auch, Sr.                       29,852,568             6,789,144
           Olav Revhaug                              29,866,172             6,775,540
           Fred E. Welker III                        29,881,491             6,760,221
</TABLE>



<PAGE>   15
                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S SHARES AND RELATED SHAREHOLDER MATTERS

           Historically the Company's shares of common stock were listed on both
the New York Stock Exchange and Chicago Stock Exchange, although principally
traded on the New York Stock Exchange (the "NYSE") under the symbol "VMG". On
December 31, 1996, the Company's stockholders approved the Merger of RGI/US with
and into the Company. (see Item 1. "Description of Business" for further details
regarding the Merger). The Company had been previously advised by the NYSE that
the merged entity would be required to file an original listing application and
comply with the original listing criteria in order to continue the listing of
the Company's shares on the NYSE. The Company had determined that the merged
entity would not be able to satisfy certain of the quantitative standards
imposed by the NYSE for an original listing. Therefore, the Company filed an
application, which was subsequently approved, to include its shares of common
stock for quotation on the Nasdaq SmallCap Market ("Nasdaq"). Effective January
1997, the Company's shares of common stock began trading on The Nasdaq SmallCap
Market tier of the Nasdaq Stock market under the symbol: "LPRO". In addition,
simultaneously with the Merger, the Company's stockholders approved a proposal
to reclassify, combine and convert each twenty-five issued and outstanding
shares of its common stock (prior to the Merger) into one issued and outstanding
share. The range of high and low share prices as reported by the NYSE for each
of the quarters in the years ended December 31, 1996 and 1995, after giving
effect to the reverse stock split, are as follows:

<TABLE>
<CAPTION>
                                                                   Share Price
          Quarter                                         1995                      1996
          <S>                       <C>                  <C>                       <C>    
            3/31                    High                 $17.175                   $14.075
                                    Low                  $ 9.375                   $10.150
            6/30                    High                 $18.750                   $12.500
                                    Low                  $15.625                   $ 9.375
            9/30                    High                 $17.175                   $10.150
                                    Low                  $10.925                   $ 6.250
           12/31                    High                 $12.500                   $11.725
                                    Low                  $ 9.375                   $ 2.725
</TABLE>

           The quarterly high and low share price as provided above have been
adjusted by multiplying the actual high and low stock price as reported per the
NYSE by twenty-five, thus giving effect to the Company's reverse stock-split as
approved by its stockholders.

           Based upon the Company's projected cash flow and capital needed to
hold and maximize the long-term value of its assets, no distributions were
declared by the Company during the years ended December 31, 1996 and 1995, nor
does the Company anticipate the declaration of any such distributions in the
near future. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for further details.

           At April 11, 1997, there were 9,154 record holders of Legend's
shares of common stock.

<PAGE>   16
ITEM 6.  SELECTED FINANCIAL DATA

For financial reporting purposes, the December 31, 1996 Merger of Banyan and
RGI/US was treated as a recapitalization of RGI/US, with RGI/US as the acquiror
of Banyan. Accordingly, the historical consolidated financial statements of
Legend and the selected financial data presented below are those of RGI/US.

<TABLE>
<CAPTION>
                                             For the Year Ended December 31,
                          1996(1)           1995             1994            1993(2)        1992(2)
<S>                    <C>              <C>             <C>             <C>             <C>         
Cash and Cash
  Equivalents          $   1,529,898    $    578,906    $    430,819    $     63,098    $    396,908
                       =============================================================================

Investment in Real
  Estate (1)           $ 129,199,173    $ 21,984,169    $ 14,153,666    $ 13,450,635    $ 15,704,445
                       =============================================================================

Properties Owned at
  December 31 (1)                  8               4               4               3               2
                       =============================================================================

Notes and Interest
  Receivable from
  Related Parties      $   1,987,481    $ 16,239,419    $ 17,883,808    $  6,729,696    $  3,386,589
                       =============================================================================

Total Assets           $ 184,110,129    $ 40,555,418    $ 36,061,717    $ 24,930,057    $ 22,318,056
                       =============================================================================

Notes Payable to
  banks and others     $  86,700,617    $ 23,288,065    $ 21,435,774    $ 12,619,520    $ 14,484,520
                       =============================================================================

Payables to
  Related Parties      $  47,609,097    $ 25,728,682    $ 17,521,229    $ 15,892,081    $ 10,725,504
                       =============================================================================


Total Revenues         $  35,589,215    $  2,088,247    $  2,410,407    $  2,427,854    $  1,982,850
                       =============================================================================

Loss Before
  Extraordinary Item   $  (2,153,853)   $ (4,069,032)   $ (1,504,261)   $ (2,491,127)   $ (3,446,864)
                       =============================================================================

Net Income (Loss)      $  (2,153,853)   $ (4,069,032)   $    971,097    $ (2,491,127)   $ (3,446,864)
                       =============================================================================
Income (Loss) Per
  Share of Common
  Stock Before
  Extraordinary
  Item (2)             $        .(49)   $       (.93)   $       (.34)   $       (.57)   $      --
                       =============================================================================
Net Income (Loss)
  Per Share of
  Common Stock (2)     $        (.49)   $       (.93)   $        .22    $       (.57)   $      --
                       =============================================================================
</TABLE>


(1)        "Investments in Real Estate" and "Properties Owned at December 31"
           include investments in Grand Harbor and Oak Harbor through December
           31, 1995. Effective January 1, 1996, Grand Harbor Associates, Inc.(a
           wholly-owned subsidiary of Legend), a 45% owner of the Grand Harbor
           and Oak Harbor projects (The Projects), acquired an additional 45%
           interest in The Projects. Additionally, effective December 31, 1996,
           RGI/US merged with Banyan. Both of these business combinations were
           accounted for under the purchase method of accounting, wherein the
           purchase price was allocated to the assets acquired and liabilities
           assumed based upon their relative fair values. The accounts of these
           acquired companies have been included in the consolidated financial
           statements of Legend from the acquisition dates.

(2)        RGI/US was incorporated in December 1993. Financial data prior to
           December 1993 is for certain predecessor companies (see Item 1
           "Business Operations"). At December 31, 1995, 1994, and 1993 the
           weighted average number of shares of Legend common stock outstanding
           was 4,386,983. For the year ended December 31, 1996, the weighted
           average number of shares of Legend common stock outstanding was
           4,392,166, due to the recapitalization of RGI/US on December 31, 1996
           (See also Item 3 "Legal Proceedings").
<PAGE>   17

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
           RESULTS OF OPERATIONS

OVERVIEW

           The Registrant, Legend Properties, Inc., formerly known as Banyan
Mortgage Investment Fund (the Company), is the surviving corporation from the
December 31, 1996 merger (the Merger) of Banyan Mortgage Investment Fund
(Banyan) and RGI U.S. Holdings (RGI/US).

           For financial reporting purposes, the merger was treated as a
recapitalization of RGI/US, with RGI/US as the acquiror of Banyan. As of
December 31, 1996, the historical consolidated financial statements of the
Company became those of RGI/US, and are referred to hereafter as "Legend."

The Disclaimer of Opinion

           Legend's independent auditors in their report dated April 15, 1997,
stated that they were unable to express, and did not express, an opinion on
Legend's 1996 consolidated financial statements (the Disclaimer of Opinion).
This inability was caused by uncertainties regarding the finalization of a
settlement of a class action lawsuit. The Independent Auditors' Report states
that "Because of the significance of the uncertainties regarding the lawsuit
discussed in the preceding paragraph, we are unable to express, and we do not
express, an opinion on the 1996 consolidated financial statements". See
"Consolidated Financial Statements of Legend Properties, Inc. and Subsidiaries".

           The audits performed by independent auditors and the form and
content of their opinions on financial statements are governed by the
Statements on Auditing Standards (the Auditing Standards) of the Auditing
Standards Board of the American Institute of Certified Public Accountants.

           Under the Auditing Standards, a disclaimer of opinion, stating that
the auditor does not express an opinion on the consolidated financial
statements, is appropriate when the auditor has not performed an audit
sufficient in scope to enable the auditor to form an opinion on the consolidated
financial statements, but may also be appropriate in cases where substantial
concerns exist about the outcome of a future event which is not susceptible to
reasonable estimation. The Auditing Standards prohibit use of a disclaimer of
opinion in cases where the auditor believes, on the basis of the audit, that
there are material departures from generally accepted accounting principles,
without describing such departures in the auditors' report.

           If the auditor disclaims an opinion because of a limit in scope of
the audit, the Auditing Standards require disclosure of the reasons why the
audit did not comply with generally accepted auditing standards, and a statement
that the scope of the audit was not sufficient to warrant the expression of an
opinion. If the auditor disclaims an opinion based on an uncertainty, the
Auditing Standards require that the uncertainties which are the basis of the
disclaimer and their possible effects should be disclosed in an appropriate
manner and that the auditors' report state all of the substantive reasons for
the disclaimer of opinion. The Disclaimer of Opinion was not based upon a
limitation in the scope of the audit, and accordingly does not state that the
scope of the audit was limited or insufficient.

           In the opinion of management of Legend, the underlying reason for the
failure of KPMG Peat Marwick LLP, Legend's independent auditors, to render an
opinion on Legend's 1996 consolidated financial statements, as disclosed in the
Disclaimer of Opinion, is the uncertainty surrounding the finalization of a
settlement of the class action lawsuit.

           Additionally, the Independent Auditors' Report states that "Legend
Properties, Inc. has substantial indebtedness maturing in 1997 and does not have
sufficient resources to satisfy these obligations without restructuring or
refinancing certain of this indebtedness. These matters raise substantial doubt
about the ability of Legend Properties, Inc. to continue as a going concern".
See "Consolidated Financial Statements of Legend Properties, Inc. and
Subsidiaries".

           On April 15, 1997, Legend reached a stipulation and settlement
agreement to resolve the class action lawsuit, however, the agreement is subject
to, among other things, court approval. Management of Legend also believes that
once the settlement of the lawsuit is approved and becomes effective, they will
be able to satisfactorily restructure or refinance certain indebtedness maturing
in 1997.

           Upon satisfactory resolution of the lawsuit the underlying basis for
the Disclaimer of Opinion will have been eliminated.

           RGI/US was a Washington corporation and until the Merger, a wholly-
owned subsidiary of RGI Holdings, Inc. ("Holdings") which is an indirect
majority-owned subsidiary of Resource Group International, Inc. ("RGI Inc.").
RGI Inc. is an indirect subsidiary of RGI (Antilles) N.V., a Netherlands
Antilles limited liability company ("RGI Antilles"). In January 1997, RGI
Antilles merged with Aker ASA, a Norwegian corporation with interests in cement
and building materials as well as oil and gas technology, forming Aker RGI.

           RGI/US owned, operated and developed real estate through its wholly-
owned subsidiaries (American Property Investments, Inc. ("API"), Grand Harbor
Associates, Inc. ("GHA"), Grand Harbor Corporation, Inc. ("GHC"), K.W.
Properties, Inc. ("KW"), and Resource Group, Inc. ("TRG").

           API owns a 164,724 square foot shopping center located in Lynnwood,
Washington (the Lynnwood Center). RGI/US listed the Lynnwood Center for sale
during 1996. GHA owns a 90% interest in Grand Harbor Property Holdings, Inc.
(GHPH) and Oak Harbor Property Holdings Inc. and Quality Life Services, Inc.
(collectively OHPH), corporations that own: (i) Grand Harbor, a 772-acre
residential golf community development project located in Vero Beach, Florida;
(ii) Oak Harbor, a 116-acre, 352-unit adult retirement community also located in
Vero Beach, Florida; and (iii) the Royal Palm Convalescent Center, a skilled
nursing center licensed for 72 beds and located in Vero Beach, Florida in close
proximity to Oak Harbor. GHC was formed as a holding company during 1994 to
incur certain bank debt (the proceeds of which were loaned to GHPH) and was
merged into GHPH during 1996. KW and TRG were spun-off in the form of dividend
to Holdings from RGI/US in April 1996.

           Prior to January 1996, GHA owned a 45% interest in GHPH and OHPH, the
corporations which own the partnerships and corporations that own Grand Harbor
and Oak Harbor. Legend recorded these investments using the equity method of
accounting. In January 1996, GHA purchased an additional 45% interest in GHPH
and OHPH, as well as interests in a finance company and a title and escrow
company. This business combination was accounted for under the purchase method
of accounting.

           Through December 31, 1995, Legend's revenues primarily consisted of
rental revenue generated from the Lynnwood Center. During 1996, revenues
primarily consisted of the operations of Grand Harbor, Oak Harbor and Lynnwood
Center. Currently, Legend intends to focus on continuing the development of
infrastructure, amenities and residential units at Grand Harbor and Oak Harbor
consistent with approved zoning and development plans. Additionally, Legend
intends to develop and sell land parcels at Southbridge/Wayside and Chapman's
Landing. In connection with Legend's current plan to
<PAGE>   18
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
           RESULTS OF OPERATIONS (CONTINUED)


focus on these land and residential developments, Legend has listed the
Lynnwood Center and Laguna Seca Ranch for sale, and expects to sell them by
December 31, 1997.

LIQUIDITY AND CAPITAL RESOURCES

           The cash flow for each of Legend's projects can differ substantially
from reported earnings, depending on the status of the development cycle. The
initial years of development require significant cash outlays for, among other
things, land acquisition, obtaining master plan and other approvals,
construction of amenities (including golf courses and club houses and recreation
centers), model homes, sales and administrative facilities, major roads,
utilities, general landscaping and interest. Since these initial costs are
generally capitalized, this can result in income reported for financial
statement purposes during the initial years significantly exceeding cash flow.
However, after the initial years of development, when these expenditures are
made, cash flow can significantly exceed earnings reported for financial
statement purposes, as costs and expenses include charges for substantial
amounts of previously expended and capitalized costs.

           Legend's cash and cash equivalents balance at December 31, 1996 and
December 31, 1995 was $1,529,898 and $578,906, respectively. The increase in
1996 is attributable to cash flow from financing activities of $28,724,520,
partially offset by cash flow utilized in investing activities of $25,407,886
and cash flow utilized in operating activities of $2,365,642.

           Cash Flows from Operating Activities: For 1996, Legend utilized cash
in operating activities of $2,365,642, compared to cash provided by operating
activities of $190,641 for 1995. The net increase in cash flow utilized in
operating activities is primarily due to the acquisition of an additional 45%
interest in GHPH and OHPH in January 1996. This business combination was
accounted for under the purchase method of accounting and accordingly, the
results of operations of GHPH and OHPH are included in the consolidated
financial statements of Legend since the acquisition date.

           Cash utilized in operations in 1996 is primarily due to the
following:

o  In 1996, real estate inventory increased by $4,925,186, primarily due to
   construction and development costs incurred at Oak Harbor. 1996 was the
   initial year for the development and sale of residential units at Oak Harbor.
   In 1996 the clubhouse, golf course, all roads and related infrastructure and
   the first twenty-two villa and cottage homes were substantially completed. A
   24-unit condominium complex was started during 1996 and completed in March
   1997. During 1995, real estate inventory at Oak Harbor consisted primarily of
   development costs, such as architectural and other planning costs, and
   initial grounds preparations for the land and infrastructure to be developed.

o  Accounts and notes receivable and accounts payable and other liabilities
   increased in 1996. These increases were generally due to the timing of cash
   receipts and payments and can vary significantly depending on the status of
   the development cycle for each of Legend's properties. Due to the nature of
   Legend's business, significant fluctuations in payables and receivables are
   not considered unusual.

o  The decrease in the net loss to $2,153,583 for 1996 from $4,069,032 for 1995
   is primarily due to a decrease in the net loss of API to $541,955 for 1996
   from $911,308 for 1995 and a decrease in the net loss of GHA to $1,523,101
   for 1996 from $3,137,354 for 1995.

o  The decrease in the net loss of API to $541,955 for 1996 from $911,308 for
   1995 is primarily due to the addition of The Sports Authority as a tenant in
   November 1995 offset by the $1,000,000 provision recorded to reflect the
   loss expected on the disposal of the Lynnwood Center.

o  The decrease in the net loss of GHA to $1,523,101 for 1996 from $3,137,354
   for 1995 is primarily due to a decrease in the loss at Grand Harbor to
   $1,070,256 (net of minority interest of $118,917), for 1996 from $5,412,034
   for 1995 as well as the purchase of an additional 45% interest in GHPH and
   OHPH and the inclusion of the operating results of GHPH and OHPH in the
   consolidated operating results since their acquisition in January 1996.

o  In 1996 a provision of $1,000,000 was recorded to reflect the loss expected
   on the disposal of the Lynnwood Center. The Lynnwood Center assets are stated
   at their estimated fair value less costs to sell. Legend expects to dispose
   of the Lynnwood Center by December 31, 1997.

o  Depreciation and amortization expense was $1,968,984, related primarily to
   Grand Harbor and Oak Harbor. As of June 30, 1996, management decided to
   dispose of the Lynnwood Center and discounted recording depreciation on the
   related assets.

           Cash Flows From Investing Activities: During 1996 Legend utilized
cash flow in investing activities of $25,407,886 compared to $3,886,693 in 1995.
The amount of cash flow utilized in investing activities for 1996 was primarily
due to Legend purchasing $15,219,862 of property and equipment and restricting
the use of cash and investments of $8,746,205 during 1996. During 1996, OHPH
completed construction of a 36,000 square foot clubhouse, a nine hole golf
course, and the related roads and infrastructure. Additions to property and
equipment during 1996 at Oak Harbor totaled approximately $14,448,059. The
clubhouse and related facilities opened March 1, 1997.

           The increase in restricted cash and investments during 1996 is due to
OHPH and GHPH depositing with various lenders cash and investments of
$8,746,205, primarily related to the financing obtained to construct the Oak
Harbor assisted care living facility, golf course and related infrastructure.
Included in the increase in restricted cash and investments are customer
deposits received on the sale of real estate and club memberships at Grand
Harbor and Oak Harbor. The use of these funds is subject to lender restrictions
and the amounts are to be released to OHPH as construction on the assisted care
living facility occurs or the related loans are paid down to certain
pre-determined levels.

           Cash Flows from Financing Activities: During 1996 Legend generated
cash flow from financing activities of $28,724,520 compared to $3,844,139 
<PAGE>   19
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
           RESULTS OF OPERATIONS (CONTINUED)


for 1995. The 1996 amount was primarily due to proceeds from $62,381,041 on
borrowings, offset by repayments of $32,310,431. Additionally, Legend paid
$1,346,090 of loan fees in 1996.

           The increase in loan fees and net borrowings during 1996 is primarily
due to the acquisition of an additional 45% interest in GHPH and OHPH in January
1996. During 1996, GHPH and OHPH collectively paid $1,346,090 in loan fees,
borrowed $58,994,500 and repaid $32,248,244. During 1995, Legend recorded the
investments in GHPH and OHPH using the equity method of accounting.

           During 1996, API borrowed $1,899,208 from a bank and repaid $62,187.
API used the net proceeds primarily to fund remaining construction costs related
to remodeling activities which took place at the Lynnwood Center.

           During 1996, RGI/US borrowed $1,500,000 from Holdings and used the
proceeds to fund costs associated with the Merger, primarily a termination
payment of $1,218,285 to Mr. Levine, the former president of the Company. See a
further discussion relating to the payment to Mr. Levine at Item 11 "Executive
Compensation". A total of $1,100,000 of this payable was offset against a
receivable from Holdings in a non-cash transaction as of December 31, 1996.

           Historically, Legend has used internally generated funds, third party
borrowings and funds from RGI affiliated entities for construction and
development purposes. The business plan of Legend contemplates the continued
development of Southbridge, Wayside Village, Grand Harbor and Oak Harbor and the
initiation of development activities at the Chapman's Landing project (See also
"Factors Affecting Legend's Business Plan").

           Legend's business plan for Southbridge/ Wayside Village, Grand Harbor
and Oak Harbor contemplates development expenses during 1997 of approximately
$40.6 million. Legend has obtained $27.2 million of construction financing for
Grand Harbor and Oak Harbor, and 


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


anticipates obtaining construction financing of approximately $10.9 million for
Southbridge/Wayside village and Chapman's Landing.  Legend anticipates that the
additional $2.5 million needed to fund development expenses will be generated by
operations or funded with proceeds from the $8.7 million funding provided by
Holdings (See Item 3 "Legal Proceedings").

           Management of Legend recognizes that its remaining cash and cash
equivalents at December 31, 1996 will not be sufficient to implement and
complete its current business plan for each of the properties. In addition to
the $8.5 million line of credit from Holdings, Legend intends to sell Laguna
Seca Ranch and the Lynnwood Center in order to provide the Company additional
funding for its planned development activities. On April 15, 1997, Legend
announced that it had signed a stipulation and settlement agreement to resolve
various lawsuits filed against the Company (see Item 3 "Legal Proceedings" for
further discussion). The agreement is subject to, among other things, court
approval. Until the settlement is approved by the court and becomes effective,
management does not expect to be able to satisfactorily restructure or refinance
certain of its existing debt obligations that mature on December 31, 1997 and in
1998.  If and when the settlement is approved, management expects to enter into
discussions with Holdings and/or other third party lenders to restructure or
refinance certain of its existing debt obligations which mature on December 31,
1997 and during 1998.  The Company's ability to meet its cash flow needs is
dependent upon its success in obtaining construction financing at its
development properties, as well as its ability to restructure or refinance
certain of its existing debt obligations.

           As of December 31, 1996 Legend's outstanding notes payable to banks
and others aggregated $86,700,617, of which $26,203,656 matures in 1997,
$22,310,338 in 1998, $15,083,514 in 1999, $19,081,807 in 2000, $345,049 in 2001
and $3,676,253 thereafter.

          Additionally, as of December 31, 1996 outstanding payables to related
parties totaled $47,609,097, of which $12,950,309 matures in 1997, $24,258,788
in 1998 and $10,400,000 in 1999.        

RESULTS OF OPERATIONS

1996 compared with 1995

           Results of operations for 1996 include the revenues and expenses of
GHPH and OHPH whereas the results of operations for 1995 include Legend's 45%
share of losses from GHPH and OHPH under the equity method of accounting as
"Equity in Losses of Investees". As a result of this change, Legend believes
that its consolidated financial statements as of and for the year ended December
31, 1996 are not comparable with its consolidated financial statements as of and
for the year ended December 31, 1995. To allow for comparability of period to
period variances, the results of operations for 1996 are compared to unaudited
pro forma results of operations for 1995 ("Pro Forma 1995"). The Pro Forma 1995
information has been prepared as if the 45% acquisition of interests had been
made on January 1, 1995.
<PAGE>   21
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
           RESULTS OF OPERATIONS (CONTINUED)



<TABLE>
<CAPTION>
                                                         Year Ended
                                                         December 31
                                                 --------------------------
                                                       Actual     Pro Forma
                                                         1996          1995
                                                 ------------    ----------
<S>                                              <C>              <C>       
Revenues:
  Real estate sales                              $ 24,649,096     16,334,806
  Club operations                                   5,334,940      4,601,160
  Patient service                                   2,617,615      2,380,767
  Rent                                              2,480,846      1,872,392
  Other                                               506,718        427,095
                                                 ------------    -----------
           Total revenues                          35,589,215     25,616,220
                                                 ------------    -----------
Costs and expenses:
  Real estate                                      18,172,004     10,937,011
  Club operations                                   4,055,377      5,004,028
  Patient service                                   1,378,808      1,260,640
  Rent                                                591,725        817,433
  Other                                                77,287        176,947
                                                 ------------    -----------
  Provision for assets held for sale                1,000,000            -
                                                                 -----------
  Selling, general and administrative expenses      9,354,471      8,528,795
                                                 ------------    -----------
Total costs and expenses                           34,629,672     26,724,854
                                                 ------------    -----------
           Operating income                           959,543     (1,108,634)
                                                 ------------    -----------
Other income (expense):
  Interest income                                     746,035      1,422,114
  Interest expense                                 (4,859,968)    (8,126,806)
  Other, net                                          743,235        415,340
                                                 ------------    -----------
           Net other expense                       (3,370,698)    (6,289,352)
                                                 ------------    -----------
           Loss before minority interests          (2,411,155)    (7,397,986)
Minority interests                                    257,572        683,815
                                                 ------------    -----------
           Net loss                              $ (2,153,583)    (6,714,171)
                                                 ------------    -----------
</TABLE>

           Total revenues in 1996 and for Pro Forma 1995 were $35,589,215 and
$25,616,220, respectively. Real estate sales increased by $8,314,290 to
$24,649,096 in 1996 from $16,334,806 in Pro Forma 1995. A total of 55 Grand
Harbor residential units were sold during 1996 at an average sale price of
$315,000 as compared to 43 units sold during 1995 at an average sale price of
$298,000. 1996 was the first year of sales of residential units at Oak Harbor,
and a total of 13 units were sold during 1996 at an average sale price of
$457,000. Contributing to the increase in total revenues was an increase in the
sale of club memberships and revenues generated by club operations at Grand
Harbor during 1996 as compared to 1995. Grand Harbor Club operations revenues
increased $733,780 in 1996 to $5,334,940 from $4,601,160 in Pro Forma 1995. The
club operations revenue increases for the year ended December 31, 1996 as
compared to the Pro Forma Year Ended December 31, 1995 were due primarily to the
increase in overall membership and related activities. The Oak Harbor Club did
not begin operations until March 1, 1997. Rent revenues increased $608,454 in
1996 as compared to Pro Forma 1995 to $2,480,846 from $1,872,392. The increase
was the result of the new major tenant in the Lynnwood Center in November of
1995. The occupancy rate for the Lynnwood Center in 1996 and 1995 was 95% and
88% respectively. During 1996, Legend listed the Lynnwood Center for sale, and
expects to sell the Lynwood Center December 31, 1997.

           Total costs and expenses increased $7,904,818 to $34,629,672 for the
year ended December 31, 1996 from $26,724,854 for the Pro Forma Year Ended
December 31, 1995. The overall increase was primarily due to increased real
estate sales at Grand Harbor and Oak Harbor, increased membership in the Grand
Harbor Club, a $1,000,000 provision taken in 1996, changes in selling, general
and administrative costs as noted below, less the impact of the implementation
of various cost saving measures during 1996 at the Grand Harbor

<PAGE>   22
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
           RESULTS OF OPERATIONS (CONTINUED)


Club and the discontinuance of the depreciation of the Lynnwood Center as of
June 30, 1996.  Real estate sales gross margin as a percentage of real estate
sales amounted to 26% in 1996 compared to 33% in Pro Forma 1995. Gross margin
percentages vary materially based on the type of unit sold. Unit sales for 1995
included six undeveloped lots that generated a significantly higher margin than
completed residence sales. During 1996 a provision of $1,000,000 was recorded to
reflect the loss expected on the disposal of the Lynnwood Center at December
31, 1996. The Lynnwood Center assets are stated at their estimated fair value
less costs to sell. As of June 30,, 1996, management decided to dispose of the
Lynwood Center and discontinued recording depreciation on the related assets.
Legend expects to dispose of the Lynnwood Center by December 31, 1997. Selling,
general and administrative expenses increased $825,676 to $9,354,471 in 1996
from $8,528,795 in Pro Forma 1995. The increase  was primarily due to the fact
that the Oak Harbor sales organization was not fully operational in 1995.

           Interest expense decreased $3,266,838 to $4,859,968 in 1996 from
$8,126,806 in Pro Forma 1995. The decrease was primarily a result of the
conversion of related party payables to equity of Legend amounting to
$21,663,015 in January 1996.

           The combination of the above changes resulted in a net loss of
$2,153,583 ($0.49 per share) in 1996 as compared to a net loss of $6,714,171
($1.07 per share) in Pro Forma 1995.



1995 compared with 1994

           Total revenues for the years ended December 31, 1995 and 1994 were
$2,088,247 and $2,410,407, respectively. Total revenues for 1995 decreased by
$322,160 or 13% from 1994 primarily due to a decrease of $175,093 in rental
revenue and a $100,000 one time consulting fee that was earned in 1994. The
decrease in rental revenue resulted from a 17% decrease in space available for
rent due to a renovation and re-tenanting plan implemented at the Lynnwood
Center during 1995. The renovation and re-tenanting plan was initiated to
accommodate a new major tenant and allowed for replacement of a number of
smaller tenants that were experiencing financial difficulty. Pursuant to the
renovation plan, four buildings comprising approximately 36,000 square feet of
gross leasable area were demolished and replaced with one new building
containing approximately 42,500 square feet of gross leasable area. Construction
of the new building was completed in November 1995. In addition, contributing to
the decline in total revenues for 1995 when compared to 1994 was a decrease of
$47,067 in other revenue relating to consulting fees.

           Total costs and expenses for the years ended December 31, 1995 and
1994 were $1,126,626 and $1,218,590, respectively. The decrease in costs and
expenses of $91,964 for 1995 when compared to 1994 was due primarily to a
decrease in rental operations expenses associated with the reduction in gross
leasable area as a result of the renovation and re-tenanting plan initiated in
1995.

           Total operating income for the years ended December 31, 1995 and 1994
was $961,621 and $1,191,817, respectively. The decrease in operating income of
$230,196 for 1995 when compared to 1994 was primarily the result of the lease
terminations and the implementation of the renovation and re-tenanting plan at
the Lynnwood Center. Due to the renovation and re-tenanting plan, average gross
leasable area at the Lynnwood Center amounted to approximately 130,000 square
feet in 1995 and 157,000 square feet in 1994. Average occupancy increased
approximately seven percentage points between 1994 and 1995. The new space was
not completely leased until late 1995 and therefore did not substantially
contribute to rental revenue for 1995. At December 31, 1995, the Lynnwood Center
was 91% occupied.

           "Equity in Losses of Investees" relates to Grand Harbor Associates'
45% ownership interest in GHPH and OHPH. For 1995 and 1994 Legend recognized
losses in the amounts of $3,059,205 and $1,920,598, respectively. A breakdown of
Grand Harbor's and Oak Harbor's results of operations for 1995 and 1994 follows:

<PAGE>   23
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
           RESULTS OF OPERATIONS (CONTINUED)


<TABLE>
<CAPTION>
                                                          1995             1994
                                                      ------------    ------------
<S>                                                   <C>             <C>         
Revenues
  Grand Harbor                                        $ 20,958,541    $ 30,773,765
  Oak Harbor                                             2,605,434       1,158,590
                                                      ------------    ------------
           Total Revenue                                23,563,975      31,932,355
                                                      ------------    ------------
Cost of Sales
  Grand Harbor                                          16,017,986      23,351,087
  Oak Harbor                                             1,260,640         604,812
                                                      ------------    ------------
           Total Cost of Sales                          17,278,626      23,955,899
                                                      ------------    ------------
Operating and Other Expenses
  Grand Harbor                                          10,352,589      10,188,794
  Oak Harbor                                             2,730,995       2,055,659
                                                      ------------    ------------
           Total Operating and Other Expenses           13,083,584      12,244,453
                                                      ------------    ------------

Net Loss Before Extraordinary Gain
  Grand Harbor                                          (5,412,034)     (2,766,116)
  Oak Harbor                                            (1,386,201)     (1,501,881)
                                                      ------------    ------------
           Total Net Loss Before Extraordinary Gain   $ (6,798,235)   $ (4,267,997)
                                                      ------------    ------------

Share of Net Loss Before Extraordinary Gain
  Grand Harbor (45%)                                    (2,435,415)     (1,244,752)
  Oak Harbor (45%)                                        (623,790)       (675,846)
                                                      ------------    ------------
           Total Share of Net Loss Before
              Extraordinary Gain                      $ (3,059,205)   $ (1,920,598)
                                                      ------------    ------------
</TABLE>

           In 1995 and 1994, 43 and 90 residential units respectively, were sold
      at Grand Harbor for an average sales price of $298,000 and $248,000
      respectively. Total revenues for Grand Harbor for 1995 declined when
      compared to 1994 due to a decrease in the number of residential units and
      club memberships sold which was partially offset by an increase in the
      average sales price per unit. Total revenues for Grand Harbor for 1995 and
      1994 were also impacted by membership fees and other income related to
      operation of the Grand Harbor Club of $4,623,735 and $3,867,925,
      respectively. Prior to January 1, 1994, all revenues and expenditures
      relating to Grand Harbor Club operations were netted and capitalized to
      real estate inventory as additional amenity costs. Net club operation
      losses of approximately $2,300,000 were capitalized from July 1991
      (inception) to December 31, 1993. The Grand Harbor Club was fully
      operational as of January 1, 1994, and results of operations of the Grand
      Harbor Club from January 1, 1994, are included in current operations.
      Membership dues and other income for 1995 increased $755,810 when compared
      to 1994 due to increased membership and an overall dues increase.

           The decrease in the cost of sales for Grand Harbor in the amount of
      $7,333,101 for 1995 when compared to 1994 was due to the reduction in
      units sold. Other operating expenses for Grand Harbor remained relatively
      unchanged between 1995 and 1994.

           Oak Harbor acquired Royal Palm as of June 30, 1994.  1995 financial 
      results for Oak Harbor reflect a full year of operation of Royal Palm
      whereas 1994 only includes six months.

           There were no residential unit sales at Oak Harbor in 1995 or 1994.
      Total cost of sales increased at Oak Harbor for 1995 when compared to 1994
      due to a full year of operation of Royal Palm. Other operating expenses in
      1995 for Oak Harbor increased by $675,336. The increase was primarily due
      to development, sales/marketing and interest expenditures incurred for
      only a partial year in 1994 compared to a full year in 1995. This increase
      was partially offset because of a write off in 1994 of $578,362 in
      expenses relating to application to the State of Florida for a Certificate
      of Need necessary for a life care facility. This Certificate of Need was
      no longer necessary after the acquisition of Royal Palm.

           Interest income for the years ended December 31, 1995 and 1994 was
$2,032,182 and $1,267,775, respectively. The increase in interest income for
1995 of $764,407 when compared to 1994 was due to an increase in interest income
relating to Legend's loan to Grand Harbor in the original principal amount of
$12,000,000 (the "1994 Grand Harbor 

<PAGE>   24
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
           RESULTS OF OPERATIONS (CONTINUED)


Loan") which was outstanding during all of 1995 and eleven months in 1994. Also,
Legend recognized $690,702 in additional interest income in 1995 as a result of
its loan to RGI Inc. in the original principal amount of $9,500,000 which became
outstanding during the first quarter of 1995 and was repaid in December 1995.

           Interest expense for the years ended December 31, 1995 and 1994 was
$4,139,315 and $2,573,208, respectively. Interest expense increased by
$1,566,107 for 1995 when compared to 1994 primarily due to a loan received by
Legend in the original principal amount of $9,500,000 in February 1995. The loan
proceeds were in turn utilized to provide a loan to RGI Inc. in an equal amount.
Interest expense associated with this loan amounted to $690,702. In addition, in
1995 Legend incurred additional interest expense of $480,000 as a result of
varying terms of related party loans during 1994. Also, Legend borrowed
$12,000,000 in 1994 to fund the 1994 Grand Harbor Loan. This loan was paid down
to $10,900,000 by the end of 1994 and the balance was outstanding for all of
1995. Interest expense associated with this loan in 1995 increased by $200,000
due to the overall increase in interest rates as well as the principal being
outstanding for a full twelve months versus eleven months in 1994.

           Other income for the years ended December 31, 1995 and 1994 was
$135,685 and $529,953, respectively. Other income decreased by $394,268 for 1995
when compared to 1994 primarily due to a $1,300,000 brokerage fee charged to
Grand Harbor by Legend during 1994 for certain loans. Legend had deferred a
portion of the amount and was amortizing the balance into income using the
straight line method over the term of the loan. In 1995 and 1994 Legend
recognized $157,083 and $514,583 respectively, as income.

           For 1994, Legend recognized an extraordinary gain in the amount of
$2,475,358 on its 45% share of Grand Harbor's extinguishment of debt.

           The combination of the above changes resulted in a net loss of
$4,069,032 ($0.93 per share) for the year ended December 31, 1995 as compared to
net income of $971,097 ($0.22 per share) for the year ended December 31, 1994.



FACTORS AFFECTING LEGEND'S BUSINESS PLAN

           In addition to the other information contained in this Annual Report,
the following factors should be considered carefully:

Interest Rates

           Legend's business and financial condition may be adversely affected
during periods of high inflation, primarily because of the impact of higher
interest rates that may significantly affect Legend's interest and construction
costs. In addition, higher interest rates could negatively impact the demand for
housing since potential purchasers may have difficulty obtaining mortgage
financing on acceptable terms, if at all.

Substantial Debt Obligations and Terms of Debt

           As of December 31, 1996 Legend's outstanding notes payable to banks
and others aggregated $86,700,617, of which $26,203,656 matures in 1997, 
$22,310,338 in 1998, $15,083,514 in 1999, $19,081,807 in 2000, $345,049 in 
2001 and $3,676,253 thereafter. 

           Additionally, as of December 31, 1996 outstanding payables to related
parties totaled $47,609,097, of which $12,950,309 matures in 1997, $24,258,788
in 1998 and $10,400,000 in 1999.

           Until the settlement of the Delaware litigation is approved by the
court and becomes effective (See Item 3 "Legal Proceedings"), management does
not expect to be able to satisfactorily restructure or refinance certain of its
existing debt obligations that mature on December 31, 1997 and in 1998.  If and
when the settlement is approved, management expects to enter into discussions
with Holdings and/or other third party lenders to restructure or refinance
certain of its existing debt obligations which mature on December 31, 1997 and
during 1998.
           
           Legend's ability to service its debts and other obligations when they
become due will depend on various factors affecting its properties, such as
operating expenses and construction schedules, which, in turn, may be adversely
affected by general and local economic conditions. Certain expenditures, such as
loan payments and real estate taxes, are not necessarily decreased by events
adversely affecting revenues generated by the properties. The cost of developing
properties may, therefore, exceed the income derived from the sale of lots or
homes. Therefore, Legend may have to obtain funds from other sources to operate
and maintain a property in order to protect its investment. A failure to make
required payments on Legend's indebtedness when due could result in a loss of
the 


<PAGE>   25
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
           RESULTS OF OPERATIONS (CONTINUED)


property securing these obligations and would have a material adverse effect
on Legend's results of operations and financial condition.

Need for Additional Capital

           The monies provided Legend by operations and the anticipated sale of
assets (primarily Laguna Seca Ranch and the Lynnwood Center) will not be
sufficient to allow Legend to complete its business plans for its remaining
properties. There can be no assurance that additional capital will be available
to Legend or that, if available, the terms and conditions will be acceptable to
Legend or will not be dilutive to Legend's stockholders, including Holdings.
A failure to secure additional capital when needed would have a material adverse
effect on Legend's results of operation and financial condition.

Potential Conflicts

           Construction Contract. Proctor Construction Company ("Proctor") has
provided all development and construction services at Grand Harbor and Oak
Harbor since Legend acquired the projects. Donald C. Proctor is the majority
shareholder of Proctor, and an affiliate of Mr. Proctor owns 10% of GHPH and
OHPH, the corporations that own Grand Harbor and Oak Harbor. This exclusive
contract is in effect until December 31, 1999, and is based on the cost of the
work plus a 7% overhead fee and a 5% profit fee, half of which is payable to
GHPH and OHPH. There can be no assurance that Legend has purchased these
services at prevailing market rates. Legend anticipates continuing this
relationship and may therefore incur costs for construction
and development services at these properties in excess of those which would
prevail in an arm's length relationship.

Real Estate Investment Risks

           Real property investments are subject to certain risks that are not
always susceptible to prediction or control. The cash flow generated by, and
capital appreciation realized from, real property investments may be adversely
affected by the national and regional economic climate (which, in turn, may be
adversely impacted by plant closings, industry slow downs, income tax rates,
interest rates, demographic changes and other factors), local real estate
conditions (such as oversupply of, or reduced demand for rental space or housing
in the area), the attractiveness of the properties, zoning and other regulatory
restrictions, competition from other land developers or developments, increased
operating costs (including maintenance costs, insurance premiums and real estate
taxes), perceptions by tenants or potential buyers of the safety, convenience
and attractiveness of the property and the willingness of the owner of the
property to provide capable management and adequate maintenance. Legend's
development properties currently do not generate sufficient cash flow to meet
operating expenses, including debt service, and development oriented
expenditures. In light of the foregoing factors, there can be no assurance that
Legend's properties will be salable at a price or prices sufficient to recover
costs. In the event Legend is forced to sell a property, Legend may find that it
may sustain a loss due to the inherent lack of liquidity in such an investment.

           The cash flow generated by, or capital appreciation from, real
property investments may also be adversely affected by changes in governmental
regulations, zoning or tax laws, potential environmental or other legal
liabilities and changes in interest rates. Real estate investments, particularly
development properties, are also relatively illiquid and, therefore, Legend's
ability to vary its portfolio promptly in response to changes in economic or
other conditions will likely be limited.

Construction and Development Activities

           Legend anticipates continuing substantial residential construction at
Oak Harbor and Grand Harbor. Legend owns 90% interests in these properties and
is substantially responsible for funding the costs associated with these
activities. Legend also anticipates engaging in residential construction at both
the Chapman's Landing and Southbridge/Wayside Village properties. In general, a
project under development and construction is subject to numerous risks
including delays in construction, certain of which (for example, acts of God,
labor strikes or shortages of supplies) may not be controllable, and quality of
construction, which depends upon a number of factors including the professional
capabilities of the contractor(s), site constraints, adherence 

<PAGE>   26
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
           RESULTS OF OPERATIONS (CONTINUED)


to plans and specifications, adequacy of supervision, and financial ability of
the developer to bear any unanticipated additional costs of construction.
Similarly, development and construction activities generally require various
governmental and other approvals and permits, the issuance or granting of which
cannot be assured. There can be no assurance Legend will be able to secure all
entitlements and permits necessary to complete the development and construction
of each of its properties. Further, these activities require the expenditure of
funds on, and the devotion of management's time to, projects which may not be
completed or which, if completed, may not be completed on time or on budget.
Likewise, financing may not be available on favorable terms for construction and
development projects, and delays in completing construction and development
could result in increases in debt service costs.

           Legend currently provides, and will continue to provide, certain
warranties with respect to the quality of the construction of the homes built at
Grand Harbor and Oak Harbor. In addition, Florida law requires homebuilders to
provide for certain additional warranties that cannot be disclaimed. Regardless
of whether there are actual deficiencies in the quality of materials used or the
construction of the homes built at Grand Harbor and Oak Harbor, Legend could
face contractual or other legal claims from homeowners at Grand Harbor or Oak
Harbor for alleged breaches of these warranties. Legend has entered into
settlement agreements with 55 homeowners at Grand Harbor regarding alleged
defects in homes constructed by a third party before Legend purchased Grand
Harbor. Legend is currently involved in a lawsuit with the builder of the homes
to recover, among other things, the costs associated with the settlement
agreements entered into with the homeowners. The cost of settling, or the
failure to settle, this claim is not expected to have a material adverse effect
on Legend's results of operations and financial condition.  The cost of
settling, or the failure to settle, any presently unasserted claims in the
future may have a material adverse effect on Legend's future results of
operations and financial condition.

Lack of Geographic Diversification

           Each of the Chapman's Landing and Southbridge/ Wayside Village
properties are located in close proximity to Washington, D.C. Similarly, Grand
Harbor and Oak Harbor are both located in close proximity to Vero Beach,
Florida. Economic weakness or recession in either of these two areas, or the
occurrence of other adverse circumstances, could have a material adverse effect
on Legend's results of operation and financial condition.


Concentration of Tenants at the Lynnwood Center

           As of December 31, 1996, three tenants at the Lynnwood Center
accounted for approximately 76% of the annual rental revenue for this property.
If one or more of these tenants were to default on its lease or file for
bankruptcy or reorganization, Legend's revenues could be reduced thereby
reducing substantially the amount realized by Legend from a sale of the Lynnwood
Center.

Government Regulation

           Land Use and Zoning. Although Legend is not aware of contemplated
changes in land use and zoning regulations affecting their respective
properties, federal, state and local regulations may be promulgated which could
have the effect of restricting or curtailing certain uses of land or existing
structures or requiring renovation or alteration of these structures. Any
restrictions on the anticipated development of the properties of Legend could
affect the market for and price of the lots or homes and prevent or delay sales.
Furthermore, obtaining any additional permits or other consents of local
governments for development of properties may require public hearings and
meetings with public officials and community groups. There can be no assurance
that some or all of the entitlements relating to Legend's properties will not be
revoked or modified in the future. From time to time, governmental entities have
imposed limitations on the development of certain areas because of perceived
overbuilding or for other reasons. In addition, it may be difficult or
impossible to modify existing zoning to respond to changing market conditions in
order to increase the realizable value of the property. Any revocation or
modification, or refusal to modify existing entitlements, could have a material
adverse effect on Legend's results of operations and financial condition.

           Environmental Matters. Under various federal, state and local laws,
ordinances and regulations, an owner, operator, manager or developer of real
estate may be liable for the cost of removing or remediating certain hazardous
or toxic substances (including asbestos 

<PAGE>   27
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
           RESULTS OF OPERATIONS (CONTINUED)


containing materials) on, under or in real estate owned, operated, managed or
developed. These enactments often impose liability without regard to whether the
owner, operator, manager or developer knew of, or was responsible for, the
presence of the hazardous or toxic substances. The cost of any required
remediation and the liability therefor as to any property is generally not
limited under these enactments and could exceed the value of the property or the
aggregate assets of the owner, operator, manager or developer. The presence of
hazardous or toxic substances, or the failure to properly remediate these
substances, may adversely affect an owner's ability to sell or rent the
property, or to borrow money using the property as collateral. In addition,
liability may be imposed for releasing asbestos containing materials into the
air. In connection with owning and operating its properties, Legend may be
potentially liable for these costs. Legend does not maintain insurance for any
of these potential environmental liabilities and does not anticipate securing
any such insurance in the foreseeable future.

           Americans With Disabilities Act. Under the Americans with
Disabilities Act of 1990 (the "ADA"), all public accommodations must comply with
certain federal requirements related to access and use by disabled persons.
These requirements became effective in 1992. The ADA has separate compliance
requirements for "public accommodations" and "commercial facilities" but
generally requires that buildings be made accessible to people with
disabilities. Noncompliance with the ADA requirements could result in the
imposition of fines by the federal government or an award of damages to private
litigants. Management believes that Legend is substantially in compliance with
federal requirements related to access and use by disabled persons.

           Healthcare Regulations. Legend's healthcare operations in the State
of Florida, including the Royal Palm Convalescent Center, are subject to varying
degrees of regulation and licensing by health or social service agencies and
other regulatory authorities. Changes in the laws or new interpretations of
existing laws can have a significant effect on methods and costs of doing
business. Currently, no federal rules explicitly define or regulate assisted
living. In addition, the Royal Palm Convalescent Center does not accept Medicare
or Medicaid reimbursement. However, federal, state or local laws or regulatory
procedures which might adversely affect assisted living businesses could be
expanded or imposed and changes to licensing and certification standards could
have a material adverse effect on Legend's results of operations and financial
condition.

Uncertainty of Combining Home Ownership with Assisted Living

           The concept of combining home ownership with assisted living services
as Legend is attempting at Oak Harbor has not been widely tested, and may not be
successful. The failure of the assisted living portion of the Oak Harbor project
to attract residents could have a material adverse effect on Legend's results of
operations or financial condition. The long term care industry is highly
competitive and Legend expects that the assisted living business, in particular,
will become more competitive in the future. Oak Harbor will compete with
numerous other companies providing similar long term care alternatives, such as
home health agencies, home life care providers, community based service
programs, nursing homes, retirement communities and convalescent centers which
may be significantly larger and better capitalized. This potential increased
competition could limit Oak Harbor's ability to attract residents or expand its
assisted living business and could have a material adverse effect on Legend's
results of operations and financial condition.

Liability and Insurance

           Legend anticipates maintaining sufficient liability insurance to
cover any legal claims made against it by third parties. There can be no
assurance, however, that in the future Legend will be able to obtain liability
insurance or that, if coverage is available, the coverage will be available on
acceptable terms. In addition, claims in excess of Legend's insurance coverage
or claims not covered by Legend's insurance, such as claims for punitive
damages, may arise. A successful claim against Legend not covered by, or in
excess of, Legend's insurance could have a material adverse effect on Legend's
financial condition and results of operations. Claims against Legend, regardless
of their merit or eventual outcome, may also reduce Legend's ability to attract
residents or expand its business and would require management to devote time to
matters unrelated to operating Legend's business.


<PAGE>   28
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
           RESULTS OF OPERATIONS (CONTINUED)


Litigation

           Legend is subject to legal claims made against it by third parties,
and additional claims may be filed against it in the future. If Legend does not
prevail in this litigation, it is possible that Legend could incur substantial
damages, which could have a material adverse effect upon Legend's financial
condition and results of operations. See "Item 3--Legal Proceedings."

Loss of Tax Benefits

           Section 382 of the Code limits the use of losses and tax attributes
by a company that has undergone an "ownership change." Generally, an "ownership
change" will occur if one or more stockholders, each of whom owns 5% or more of
the Company's stock, increase their aggregate percentage ownership by more than
50 percentage points over the lowest percentage of stock owned by those
stockholders over the preceding three year period. For this purpose, all holders
who hold less than 5% of the Company's stock are generally treated as one 5%
stockholder. In addition, certain attribution rules are applied in determining
the level of the stock ownership of a particular stockholder. The Merger
constituted an "ownership change" with respect to the Company thereby limiting
the amount of taxable income after the ownership change which may be offset by
existing tax loss and tax credit carryforwards. Since the value of Company's
assets prior to the Merger ("Banyan's assets") may be less than the aggregate
tax basis of Banyan's assets, the Company may be subject to the built in loss
limitations set forth in Section 382(h) of the Code. Built in losses recognized
in the period beginning with the ownership change date and ending with the last
day of the fifth taxable year after the ownership change will be subject to the
annual carry over limitations.

Book Value Not Reflective of Current Realizable Value

           Legend currently evaluates the carrying value of its real property
assets and other assets on an ongoing basis relying on a number of factors,
including operating results, business plans, budgets and economic projections.
In addition, Legend considers non-financial data such as continuity of
personnel, changes in the operating environment, competitive information, market
trends and client and business relationships. A change in any or all of these
factors could result in an impairment in value of Legend's assets. The future
value of these assets is subject to numerous contingencies, including the
completion of construction and development. The current realizable value may
differ significantly from the carrying value of these assets.

Bankruptcy Risks

           If Legend were to default on its indebtedness, it may be required to
restructure its financial affairs under the Federal Bankruptcy Code or seek some
other type of restructuring. A restructuring or other reorganization under the
Bankruptcy Code or otherwise may result in the Stockholders losing their entire
interest.

Issuance of Preferred Stock or Common Stock

           Legend's board of directors has the authority to cause the issuance
of preferred stock in one or more series or classes with such designations,
preferences and rights and such qualifications, limitations or restrictions as
determined by the board. The issuance of preferred stock or common stock could
have a dilutive or other material adverse effect on the holders of Legend's
shares of common stock.

Shares Available for Future Sale

           As of December 31, 1996, Holdings owns approximately 79% of Legend's
outstanding shares of common stock. These shares are subject to resale
restrictions but a portion may, in certain circumstances, be registered for
sale. Sales of a substantial number of these shares of common stock in the
public market or the perception that sales could occur could adversely affect
the market price of the common stock and Legend's ability to raise capital in
the future in the equity markets.



<PAGE>   29
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
           RESULTS OF OPERATIONS (CONTINUED)

Dividend Policy

           The Company has not paid cash dividends since the first quarter of
1990 and Legend does not contemplate paying cash dividends until sustainable
development activity has begun on all of the projects and Legend generates cash
flow in excess of its capital needs. There can be no assurance that Legend will
ever generate sufficient cash flow to pay dividends to its stockholders. In
addition, certain of Legend's loan agreements prohibit the payment of dividends.
If Legend issues preferred stock with a dividend, the stockholders' right to
receive dividends, if any, will be subordinated to that of the holders of
preferred stock. See "Item 5--Market for The Registrant's Shares and Related
Shareholder Matters".


<PAGE>   30
ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

           See Index to Consolidated Financial Statements on Page F-1 of this
Report for financial statements and financial statement schedules, where
applicable.

           See Item 6, "Selected Financial Data", for the supplemental financial
information specified by Item 302 of Regulation S-K.


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

           The Registrant, Legend Properties, Inc., formerly known as Banyan
Mortgage Investment Fund (the Company), is the surviving corporation from the
December 31, 1996 merger (the Merger)of Banyan Mortgage Investment Fund (Banyan)
and RGI U.S. Holdings (RGI/US).

           Effective December 31, 1996, the Registrant has engaged the
independent accounting firm of KPMG Peat Marwick LLP (KPMG) to serve as the
Registrant's principal independent accountant, to audit the Registrant's
consolidated financial statements. KPMG was the principal independent accountant
for RGI/US, and audited RGI/US' consolidated financial statements as of and for
the years ended December 31, 1993, 1994, and 1995.

           The independent accounting firm of Ernst and Young LLP (E&Y) served
as the principal independent accountant to audit Banyan's financial statements
since December 21, 1995. At no time during E&Y's engagement as Banyan's
principal accountant were there any disagreements between Banyan and E&Y on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.




<PAGE>   31
                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

           The directors and the executive officers of the Company are:

           Walter E. Auch, Sr.         Director
           Robert M. Ungerleider       Director
           Olav Revhaug                Director
           Fred E. Welker              Director
           Kenneth L. Uptain           President, Chief Executive Officer and 
                                       Director
           Raymond J. Whitty           Chief Financial Officer,
                                       Treasurer and Secretary
           Chris J. Pollak             Vice President and Corporate Controller

Walter E. Auch, Sr., age 75, was the chairman and chief executive officer of the
Chicago Board Options Exchange from 1979 to 1986. Prior to that time, he was
executive vice president, director and a member of the executive committee of
Paine Webber. Mr. Auch is a director of Pimco L.P., Geotek Communications, Smith
Barney Concert Series Funds, Smith Barney Trak Fund, Nicholas Applegate Funds
and Fort Dearborn Fund, and a trustee of Hillsdale College and the Arizona Heart
Institute. Mr. Auch has been a director of the Company since 1988. Mr. Auch is a
trustee of Banyan Strategic Realty Trust and a director of Banyan Strategic Land
Fund II and BMC.

Olav Revhaug, age 46, was the Chief Financial Officer and Secretary of RGI Inc.
from August 1994 until March 1997. He is also a director of Aker RGI, Brooks
Sports, Inc., RGI Distribution Inc., and RGI Industries, Inc., and the secretary
of Alaska Net Company and RGI Inc., and the secretary/treasurer of Rena Box
Packaging, Inc., all of which are affiliated with Aker RGI. From December 1986
to April 1993, Mr. Revhaug was Chief Financial Officer of Gresvig ASA, a
sporting goods company based in Norway and affiliated with Aker RGI. Mr. Revhaug
owns 35,778 shares of the outstanding common stock of Aker RGI.

Fred E. Welker, III, age 49, has been the President of Realty Financial
Advisors, Inc., a real estate investment banking firm, since January 1993. From
1982 to 1992, Mr. Welker was the Executive Vice President for the Southeast
Regional Office of Sonnenblick-Goldman Company, a real estate investment banking
firm. From 1981 to 1982, Mr. Welker was Vice President-Joint Ventures for
American Savings & Loan Association, and from 1976 to 1981 he was a commercial
loan officer with First Federal of Broward (merged with Glendale Federal).

Robert M. Ungerleider, age 55, is presently the President of Pilot Books, a book
publisher located in Greenport, New York, and practices law with and is of
counsel to the firm of Felcher, Fox & Litner P.C., in New York, New York. He has
founded, developed and sold a number of start-up ventures including Verifone
Finance, an equipment leasing business, SmartPage, a paging service company and
Financial Risk Underwriting Agency, Inc., an insurance agency specializing in
financial guarantee transactions. Prior to these endeavors, Mr. Ungerleider
practiced real estate and corporate law. Mr. Ungerleider received his B.A.
Degree from Colgate University and his Law Degree from Columbia University Law
School. Mr. Ungerleider has been a director of the Company since 1988. Mr.
Ungerleider is also a director of Banyan Strategic Land Fund II.

Kenneth L. Uptain, age 43, has been the President of the Company since December
31, 1996. He has also been the President and Director of RGI/US, Holdings and
RGI Real Estate since August 1994. Since 1988, he has been the President and a
Director of Resource Group, Inc., a real estate development company affiliated
with RGI Inc. Mr. Uptain was elected to the Company's board in May 1996 in
connection with the Private Placement and pursuant to the Merger Agreement. Mr.
Uptain owns 361,774 shares of the outstanding common stock of Aker RGI.

Raymond J. Whitty, age 52, has been Chief Financial Officer and Treasurer of the
Company since January 1997. He has been Secretary of the Company since February
1997. From May 1996 to December 1996, Mr. Whitty was a financial consultant to
RGI. From October 1995 to May 1996 he was an independent financial consultant.
From August 1988 until September 1995, Mr. Whitty was the Chief Financial
Officer of Westin Hotel Company.

<PAGE>   32
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)


Chris J. Pollak, age 30, has been Corporate Controller of the Company since
January 1997. Mr. Pollak has been Vice President of the Company since February
1997. From October 1996 to January 1997, Mr. Pollak was the Corporate Controller
for Northwest Lodging, Inc. and American Motels Acquisition Company L.P.
(collectively "Northwest"). Northwest owns and operates hotels and motels in the
Western United States. Prior to assuming his responsibilities at Northwest,, Mr.
Pollak was manager in KPMG Peat Marwick LLP's Real Estate Practice. Mr. Pollak
received a B.A. Degree in Business Administration with concentrations in
Accounting and Finance from Washington State University. He is a Certified
Public Accountant and a member of the Washington State Society of CPA's.

           In connection with the Company's completion of its Merger with RGI/US
(see Item 1. "Description of Business" for further details), the Company's
previous executive officers; Messrs. Leonard G. Levine, President, Neil D.
Hansen, First Vice President, Robert G. Higgins, Vice President, Secretary and
General Counsel and Joel L. Teglia, Vice President and Chief Financial Officer,
resigned effective December 31, 1996.


ITEM 11.  EXECUTIVE COMPENSATION

A.         DIRECTOR COMPENSATION

           The Directors are paid an annual fee of $15,000, payable quarterly,
plus $875 for each board meeting, including meetings of the audit committee,
attended in person and $250 an hour for each board meeting, including meetings
of the audit committee, attended via telephonic conference call. In addition,
each Director is reimbursed for out-of-pocket expenses incurred in attending
meetings of the Board.

B.         EXECUTIVE COMPENSATION

           Since December 31, 1996, Ken Uptain has served as President of the
Company (see item 10, "Directors and Executive Officers of the Registrant" for
further details regarding the resignation of the Company's former Executive
Officers). Mr. Uptain has served as the President of RGI/US since August 1994.
No salary or other forms of compensation were paid to Mr. Uptain by the Company
or RGI/US in 1996, 1995 and 1994. Mr. Donald Procter, an executive officer of
GHPA, earned approximately $200,000 in salary and $1,500 in bonuses in 1996. Mr.
Ronald D'Haeseleer, an executive officer of GHPH, earned approximately $140,000
in salary and $1,000 in bonuses in 1996. Mr. Widell, an executive officer of
OHPH, earned approximately $140,000 in salary and $11,500 in bonuses in 1996.
Prior to the acquisition of an additional 45% interest in GHPH and OHPH by
Legend in January 1996, Messrs. Procter, D'Haeseleer and Widell were not
employees of Legend. No other executive officers of Legend earned more than
$100,000 in salary and bonus during 1996, 1995 or 1994 (see also Item 13
"Certain Relationships and Related Transactions).

           Compensation paid to the former executive officers of the Company
(see item 10, "Directors and Executive Officers of the Registrant" for further
details regarding the resignation of the Company's former Executive Officers)
for the years ended December 31, 1996, 1995 and 1994 follows:

<TABLE>
<CAPTION>
                                                                              Long-Term Compensation
                                                                                      Awards
                                                                             -------------------------
                                                                                           Securities
                             Annual Compensation                             Restricted    Underlying
                       ----------------------------------    Other Annual      Stock       Options/        Payouts       All Other
                       Year        Salary       Bonus(2)     Compensation    Award(2)       SARs(#)     LTIP Payouts   Compensation
                       ----        ------       ---------     ------------    ----------    ----------   ------------   ------------
<S>                    <C>         <C>           <C>             <C>           <C>           <C>            <C>           <C>       
Leonard G. Levine,     1996        $108,141      $ 32,044        n/a           $ 8,011       n/a            n/a           n/a
President (1)          1995        $105,606      $171,805        n/a           $42,951       n/a            n/a           n/a
                       1994        $102,800      $231,166        n/a           $58,002       n/a            n/a           n/a
</TABLE>

(1)        No other executive officer earned more than $100,000 in salary and
           bonus.

(2)        Pursuant to Mr. Levine's employment agreement the incentive amounts
           which were earned in the current year are paid or awarded to him by
           the Company in the following year.
<PAGE>   33
ITEM 11.  EXECUTIVE COMPENSATION (CONTINUED)

           Mr. Levine served as Chief Executive Officer of the Company pursuant
to an employment agreement entered into on January 1, 1990 through December 31,
1996. As amended, the agreement expires December 31, 1998. Under the amended
agreement, Mr. Levine was paid a base salary during 1996 of $108,141. Mr. Levine
was also eligible to receive compensation under an incentive program included in
his contract. Mr. Levine earned incentive compensation based upon specified
percentages of the Company's collateralized claims which were converted into
cash, the amount of the Company's unsecured claims which were converted into
cash, cash distributions of capital to stockholders and distributions of income
to stockholders of the Company.

           Pursuant to Mr. Levine's amended employment agreement, all incentive
amounts earned had been paid 80% in cash and 20% in shares of the Company's
common stock (the "Award Shares") on or before March 15 of the year following
the period for which the incentive was earned. The preceding table set forth the
incentive compensation earned by Mr. Levine during the last three fiscal years.
Mr. Levine received 3,196 Award Shares (issue price equal to $13.43 per share)
and 2,017 Award Shares (issue price equal to $28.75 per share) in respect to
incentive compensation earned by Mr. Levine for the fiscal years ended December
31, 1994 and 1993 respectively. In addition, Mr. Levine received 742 Award
Shares (issue price equal to $10.78 per share) for the fiscal year ended
December 31, 1995. The Award Shares issued to Mr. Levine had been held in trust
by the Company, pending satisfaction of the vesting requirements contained in
the employment agreement. Mr. Levine satisfied the vesting requirement of his
amended employment agreement upon his resignation and termination of employment
with the Company without cause following a change in control of the Company,
pursuant to the terms of the Merger.

           Pursuant to the Merger, Mr. Levine's resignation was given and his
employment was terminated without cause following a change of control of the
Company (as defined in the Merger agreement). However, the Company remains
obligated to pay Mr. Levine his base salary as defined in the amended employment
agreement through its expiration date of December 31, 1998, which will result in
a payment to Mr. Levine of approximately $110,000 in base salary for the fiscal
year ended December 31, 1997. In addition, under the employment agreement, as a
result of the change of control, on December 31, 1996 Mr. Levine received a
payment of $1,218,285 representing incentive compensation equal to that which he
would have earned if all of the Company's assets had been converted into cash
and all proceeds were distributed as of the date of his employment termination.

           The number of Award Shares issued to Mr. Levine and the share prices
as described above have been adjusted by multiplying the issue price and
dividing the number of shares issued by twenty-five thus giving effect to the
Company's reverse stock-split as approved by its stockholders (see Item 1.
"Business Description" and Item 5. Market for the Registrant's Shares and
Related Stockholder Matters" for further details)."

C.   EXECUTIVE AND DIRECTORS' STOCK OPTION PLAN

           On June 25, 1993, the Company's stockholders approved and adopted the
1993 Executive and Directors' Stock Option Plan (the "Plan"). The Plan grants
the Board of Directors the authority to issue up to 40,000 shares (adjusted for
the stock split)of the Company's common stock for stock option awards. The Plan
consists of an Executive Option Grant Program and a Director Option Grant
Program. Under the Director Option Grant Program, each Director holding office
on the tenth business day after adjournment of the 1992 annual meeting received
options to acquire 1,000 shares. Commencing with the annual meeting of
stockholders as held during 1994 and each year thereafter, each Director holding
office on the tenth business day after adjournment of the annual meeting
automatically receives an option to acquire 1,000 shares. The Director's options

<PAGE>   34
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)

C.   EXECUTIVE AND DIRECTORS' STOCK OPTION PLAN (CONTINUED)


vest 50% upon the first anniversary of the date of the grant and 50% upon the
second anniversary of the date of the grant and expire ten years from the date
of the grant. The exercise price for the options granted in January 1997 (1996
Annual Meeting), 1995, 1994 and 1993 is $7.75, $15.64, $17.19 and $15.64 per
share, respectively.

           The Board administers the Executive Option Grant Program and has the
authority to determine, among other things, the individuals to be granted
executive options, the exercise price at which shares may be acquired, the
number of shares subject to each option and the exercise period of each option.
The Board is also authorized to construe and interpret the Executive Option
Grant Program and to prescribe additional terms and conditions of exercise in
option agreements and provide the form of option agreement to be utilized with
the Executive Option Grant Program. No Director is eligible to receive options
under the Executive Option Grant Program.

           Options granted under the Plan are not transferable except by will or
by the laws of descent and distribution, and are exercisable during an
optionee's lifetime only by the optionee or the appointed guardian or legal
representative of the optionee. Upon the: (a) death or permanent and total
disability of an optionee; or (b) retirement in accord with the Company's
retirement practices, then any unexercised options to acquire shares will be
exercisable at any time within one year in the case of (a) and ninety days in
the case of (b) (but in no case beyond the expiration date specified in the
Option Agreement). If, while unexercised options remain outstanding under the
Plan, the Company ceases to be a publicly-traded company, or if the Company
merges with another entity or a similar event occurs, all options outstanding
under the Plan shall immediately become exercisable at that time.

           The Plan requires the optionee to pay, at the time of exercise, for
all shares acquired on exercise in cash, shares or, in the case of the Executive
Option Grant Program, other forms of consideration acceptable to the Board.

           If the Company declares a stock dividend, splits its stock, combines
or exchanges its shares, or engages in any other transactions which results in a
change in capital structure such as a merger, consolidation, dissolution,
liquidation or similar transaction, the Board may adjust or substitute, as the
case may be, the number of shares available for options under the Plan, the
number of shares covered by outstanding options, the exercise price per share of
outstanding options, any target price levels for vesting of the options and any
other characteristics of the options as the Board deems necessary to equitably
reflect the effects of those changes on the option holders.

           Pursuant to the Plan, the Board granted, 4,840 options on September
3, 1996, 4,840 options on February 8, 1995, 4,800 options on January 12, 1994
and 4,800 options on April 21, 1993 to the Company's former officers and certain
Banyan Management Corp. personnel under the program, at an exercise price of
$11.69 per share, $28.13 per share and $15.63 per share, (the average weekly
closing price of common stock for the months of August 1996, January 1995,
December 1993 and March 1993), respectively.

           Pursuant to the Company's Merger on December 31, 1996 which has
resulted in a change in control (as defined in the Merger agreement),
substantially all stock options issued to the executive officers and various
employees of Banyan Management Corp. under the Executive Option Grant Program
became fully vested. Simultaneously with the vesting of the options issued under
the Executive Option Grant Program the period in which such options could be
exercised was extended to no later than one year from the date of the Merger.

           The option's exercise prices as well as the number of shares
authorized and issued under the Plan as described above have been adjusted by
multiplying the issue price and dividing the number of options as originally
issued by twenty-five thus giving effect to the Company's reverse stock-split as
approved by its stockholders (see Item 1. "Business Description" and Item 5.
"Market for the Registrant's Shares and Related Stockholder Matters" for further
details).

           The terms of future grants for the issuance of options for shares
after December 31, 1996 (other than which have been described above) under the
Executive Option Grant Program will be exercisable and vested in installments as
follows: (1) 33.3% of the number of shares commencing on the first anniversary
of the date of grant; (ii) an additional 33.3% of the shares commencing on the
second anniversary of the date of the grant; and (iii) an 


<PAGE>   35
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)

C.   EXECUTIVE AND DIRECTORS' STOCK OPTION PLAN (CONTINUED)


additional 33.4% of shares commencing on the third anniversary of the date of
grant. Options for all shares as granted under the Director Option Grant Program
shall be exercisable and vested in installments as follows: (i) 50.0% of the
number of shares commencing on the first anniversary of the date of grant; and
(ii) an additional 50.0% of the number of shares commencing on the second
anniversary of the date of grant. The Board is granted discretion to determine
the term of each Option granted under the Executive Option Grant Program, but in
no event will the term exceed ten years and one day from the date of grant.

           There were no stock options granted or exercised by any executive
officers for the year ended December 31, 1996. Stock options granted or
exercised by former executive officers of the Company for the year ended
December 31, 1996, are as follows:

                      OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                            Individual Grants
                                                                                    Potential Realized
                                           % of Total                                    Value at     
                           Number of         Options                                  Assumed Annual  
                          Securities       Granted to                                 Rates of Stock  
                          Underlying        Employees    Exercise                   Price Appreciation
                            Options         in Fiscal    or Base     Expiration       for Option Term 
           Name           Granted(1)          Year        Price        Date         5%              10%

<S>                          <C>             <C>         <C>         <C>          <C>              <C>   
Leonard G. Levine(1)         3,200           66%         $11.69      12/30/97     $1,870           $3,740
</TABLE>

(1)        The remainder of the 1996 stock options were granted to employees of
           the Company and Banyan Management Corp, none of whom are "named
           executives" for these purposes.


          AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR
                             END OPTION/SAR VALUES

<TABLE>
<CAPTION>

                                                        Number of
                                                        Securities              Value of
                                                        Underlying             Unexercised
                                                        Unexercised           In-the-Money
                                                         Options at             Options at
                         Shares                       December 31,1996       December 31,1996
                       Acquired on                      Exercisable/           Exercisable/
            Name        Exercise    Value Realized     Unexercisable          Unexercisable
<S>                    <C>          <C>               <C>                    <C> 
Leonard G. Levine(1)      ---           $---           12,800/12,800            $ ---/$---
</TABLE>


           The number of option shares granted and the exercise price have been
adjusted to reflect the Company's reverse stock-split effective December 31,
1996.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

           The following entity is known by the Company (based on filings on
Schedule 13d) to be the beneficial owner of more than five percent (5%) of the
outstanding shares of common stock of the Company as of March 31, 1997.

<TABLE>
<CAPTION>
                            Name and Address of                            Amount of             Percent
Title of Class              Beneficial Owner                         Beneficial Ownership      of Interest
<S>                    <C>                                           <C>                       <C>
Shares of Common       RGI Holdings, Inc.
Stock, $0.01 par       1420 Fifth Avenue, Suite 4200,
value                  Seattle, Washington  98101                          4,956,317                79%
</TABLE>


           The following table sets forth the ownership interest and shares
owned directly or indirectly by the directors and principal officers of the
Company as of March 31, 1997:
<PAGE>   36
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 
(CONTINUED)

<TABLE>
<CAPTION>
                                                   Amount of
                               Name of            Beneficial       Percent
Title of Class            Beneficial Owner         Ownership      of Interest
<S>                     <C>                       <C>             <C>
Shares of Common
Stock, $0.01 par
value                   Walter E. Auch, Sr.         640 Shares    Less than 1%
                                                               
Shares of Common                                               
Stock, $0.01 par                                               
value                   Robert M. Ungerleider     1,560 Shares    Less than 1%
                                                               
Shares of Common        All Directors and                      
Stock, $0.01 par        Officers of the                        
value                   Company, as a group                    
                        (7 persons)               2,200 Shares    Less than 1%
</TABLE>


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

           For financial reporting purposes, the merger of Banyan and RGI/US was
treated as a recapitalization of RGI/US, with RGI/US as the acquiror of Banyan.
As of December 31, 1996, the historical consolidated financial statements of
the Company became those of RGI/US, and are referred to hereafter as "Legend."

           The following is a summary of other significant transactions and
accounts with related parties during 1996, 1995 and 1994 and as of December 31,
1996 and 1995:

Management Fees
           The Lynnwood Center was managed by TRG, which is related through
common ownership, under a management agreement with API through July 31, 1995.
Legend was required under the agreement to pay TRG 4% of rental income for the
management services. Effective August 1, 1995, a third party management company
was hired to manage the Lynnwood Center under a one-year contract. Legend is
required under the new agreement to make payments in the amount of 3.5% of gross
rental revenue or $4,000 per month, whichever is greater. After one year, the
management agreement converted to a month-to-month basis. Total management fees
paid by Legend to TRG for 1995 and 1994 were $60,000 and $74,000,
respectively.

Consulting and Other Fees

           Legend received $718,000, $216,000 and $263,000 in 1996, 1995 and
1994, respectively, from Proctor Construction Company, the general contractor of
GHPH and OHPH, for consulting and other services. The owner of Proctor
Construction Company indirectly owns 10% of GHPH and OHPH. Legend also received
$100,000 in 1994 from TRG for consulting services.

           Legend paid $100,000 in 1996, 1995 and 1994 to K.L. Associates, a
corporation of which Mr. Uptain is the sole shareholder, for consulting
services.  Mr. Uptain also received $150,000, $180,000 and $80,000 as salary
from entities related through common ownership during 1996, 1995 and 1994,
respectively.

 Receivables

                Receivables from related parties consist of the following at
December 31:

<TABLE>
<CAPTION>
                                                         1996           1995
                                                      ----------     ----------
  <S>                                                 <C>            <C>
  Note receivable, principal and interest 
    at 10% to be paid solely out of borrower's 
    interest in the Grand Harbor/Oak Harbor 
    projects (Projects), outstanding principal due  
    December 2005, secured by the borrower's         
    interest in the Projects                          $1,462,770     1,462,770
</TABLE>
<PAGE>   37
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)



<TABLE>
                 <S>                                                                        <C>           <C>
                 Unsecured note receivable from parent, interest only due quarterly 
                       at LIBOR plus 1%, repaid during 1996                                         -      4,000,000

                 Note  receivable from investee, interest only due monthly at
                       LIBOR plus 2.75%, principal due in annual installments
                       ranging from $550,000 to $1,950,000 from 1997 to 1999,
                       remaining principal balance of $6,500,000 due January
                       2000                                                                         -     10,674,773

                 Other unsecured noninterest-bearing receivables from parent, 
                       due upon demand
                                                                                               378,434        67,500

                 Interest receivable                                                           146,277        34,376
                                                                                            ------------------------

                              Total receivables from related parties                        $1,987,481    16,239,419
                                                                                            ========================
</TABLE>

                  o     Interest income from related parties was $146,277,
                        $2,000,000 and $1,172,560 for 1996, 1995 and 1994,
                        respectively.

                  o     During 1994, Legend charged a $1,300,000 brokers fee to
                        GHPH relating to a loan. Legend had deferred a portion
                        of the amount and was amortizing the balance into income
                        using the straight-line method over the term of the
                        loan. The deferred balance was $628,334 as of December
                        31, 1995.

                  o     During 1995, Legend contributed $8,548,064 of notes
                        receivable and related accrued interest due from GHPH
                        and OHPH to such entities. The remaining deferred
                        balance was eliminated in consolidation at December 31,
                        1996.

                  o     During December 1995, and in conjunction with the
                        January 1996 acquisitions of GHPH and OHPH, Holdings
                        paid $4,000,000 as collateral to a bank on behalf of
                        Legend in order to replace and release the seller's
                        collateral on a loan to GHPH. Legend recorded both a
                        receivable from and a payable to parent at December 31,
                        1995. During 1996, Holdings assigned the collateral to
                        Legend as repayment of the receivable.

Payables

           Payables to related parties consist of the following at December 31:

<TABLE>
<CAPTION>
                                                                                                   1996               1995
                                                                                                  -----------     -----------

                 <S>                                                                              <C>             <C>
                 Unsecured note payable to parent, interest at the prime rate
                       plus 5% (13.25% at December 31, 1996), principal and
                       interest due on demand
                                                                                                  $   400,000            -

                 Mortgage note payable to parent, interest only payable monthly
                       at the prime rate plus 6% (14.25% at December 31, 1996),
                       principal due December 1997, secured primarily by certain
                       real estate inventory
                                                                                                    6,391,084            -

                 Unsecured note payable to parent, interest only payable
                       quarterly at LIBOR plus 1% (6.56% at December 31, 1996),
                       principal due December 1997
                                                                                                    4,000,000      4,000,000
</TABLE>


<PAGE>   38
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)


<TABLE>
                 <S>                                                                              <C>             <C>
                 Mortgage note payable to parent, interest at the prime rate
                       plus 2% (10.25% at December 31, 1996), principal and
                       interest due September 1998. The note agreement requires
                       that Legend remit any cash proceeds generated from the
                       sale or joint venture development of the Laguna Seca
                       Ranch and 50% of the net cash proceeds generated by
                       developed lot or raw land sales at the Southbridge,
                       Wayside Village or Chapman's Landing properties to the
                       lender, secured primarily by certain real estate
                       inventory
                                                                                                   24,258,788            -

                 Unsecured notes payable to parent, interest at LIBOR plus 1%, contributed to
                       equity during 1996                                                                   -     20,133,670

                 Unsecured notes payable to parent, interest payable quarterly at 10%, due on
                       demand                                                                      10,400,000            -

                 Accrued interest                                                                   2,159,225      1,503,992

                 Other                                                                                      -         91,020
                                                                                                  --------------------------

                                                                                                  $47,609,097     25,728,682
                                                                                                  ==========================
</TABLE>

           In 1996, RGI/US had borrowed $1,500,000 from Holdings and used the
proceeds to fund costs associated with the Merger, primarily a termination
payment of $1,218,285 to Mr. Levine, the former president of the Company,
representing incentive compensation equal to that which he would have earned if
all of the Company's assets had been converted into cash and all proceeds were
distributed as of the date of his employment termination. See a further
discussion relating to the payment to Mr. Levine at Item 11 "Executive
Compensation". A total of $1,100,000 of this payable was offset against a
receivable from Holdings in a non-cash transaction as of December 31, 1996. The
receivable was primarily the result of RGI/US funding acquisition costs, such as
legal accounting and consulting fees, on behalf of Holdings in 1996.

           Unsecured notes payable to parent and related accrued interest of
$21,663,015 were contributed to equity during 1996.

Guarantees
           The principal shareholder of the ultimate parent of Legend has
guaranteed up to approximately $7,600,000 of specific obligations of GHPH and
OHPH as of December 31, 1996.

Subsequent borrowings

           From January 1 to March 31, 1997, Legend had short-term borrowings
from Holdings of $2.2 million. In conjunction with the announcement of the
settlement of the Delaware litigation (See Item 3 "Legal Proceedings"). Holdings
agreed to provide Legend with a line of credit in the aggregate principal amount
of $8.5 million, bearing interest at the prime rate plus 2% (10.5% at March 31,
1997). Except for any portion funded as equity, the $8.5 million line of credit
will be secured by a second mortgage on certain real estate inventory. In April
1997, Legend borrowed approximately $5.6 million under the agreement. The
proceeds were used to, among other things, pay an unsecured note payable to
Holdings from 1996 with a principal balance of $400,000, repay the $2.2 million
borrowed during the first quarter of 1997, and pay the accrued interest on the
$400,000 and $2.2 million loans. The remaining proceeds will be used to fund
outstanding Merger costs, costs associated with the settlement of the lawsuits,
and development and construction costs at the properties.
<PAGE>   39
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)




           Prior to the Merger, administrative costs, primarily salaries and
certain general and administrative expenses incurred on the Company's behalf by
Banyan Management Corp. ("BMC") were reimbursed by the Company to BMC at cost.
BMC had been owned by the Company, Banyan Short Term Income Trust, Banyan
Strategic Realty Trust and Banyan Strategic Land Fund II (the "Banyan Funds").
As a result of the Merger (which resulted in a change of control as defined in
the Merger agreement) the Company is required to assign its interest and stock
in BMC to the remaining Banyan Funds. The Company's former executive officers
serve as management of BMC. Following the Merger, Legend has continued to obtain
certain services from BMC at cost. On March 31, 1997, Legend terminated the
services of BMC's and Legend was required to pay BMC a termination fee of
approximately $370,000 pursuant to an administrative services agreement. During
April 1997, Legend escrowed the termination fee due to BMC, and does not
anticipate releasing the funds to BMC prior to the resolution of the class
action lawsuit (See also Item 3 "Legal Proceedings").



<PAGE>   40
                             LEGEND PROPERTIES, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                Pages
<S>                                                                          <C>
Report of Independent Auditor                                                    F-2

Consolidated Balance Sheets at December 31, 1996 and 1995                        F-3

Consolidated Statements of Operations For the Years Ended
  December 31, 1996, 1995 and 1994                                               F-4
Consolidated Statements of Stockholders' Equity (Deficit)For the Years
  Ended December 31, 1996, 1995 and 1994                                         F-5

Consolidated Statements of Cash Flows For the Years Ended December 31,
  1995, 1994 and 1993                                                            F-6

Notes to Consolidated Financial Statements                                   F-8 to F-33
</TABLE>






All schedules are omitted since the required information is not present or is
not present in amounts sufficient to require submission of the schedule or
because the information required is included in the consolidated financial
statements and notes thereto.
<PAGE>   41
                         INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
Legend Properties, Inc.:


We have audited the accompanying consolidated balance sheets of Legend
Properties, Inc. (a subsidiary of RGI Holdings, Inc.) and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the years
in the three-year period ended December 31, 1996. These consolidated financial
statements are the responsibility of the management of Legend Properties, Inc.
Our responsibility is to express an opinion on these consolidated 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 report.

In our opinion, the 1995 and 1994 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Legend
Properties, Inc. and subsidiaries as of December 31, 1995, and the results of
its operations and its cash flows for the years ended December 31, 1995 and 1994
in conformity with generally accepted accounting principles.

As discussed in note 12(b) to the consolidated financial statements, Legend
Properties, Inc. is a defendant, among others, in a shareholder class action
lawsuit claiming damages as the result of the merger executed December 31, 1996
between RGI U.S. Holdings, Inc. and Banyan Mortgage Investment Fund. The lawsuit
seeks, among other things, unspecified damages and rescission of the merger. On
April 15, 1997, a stipulation and settlement agreement was reached among the
parties which is subject to court approval. In addition, as discussed in note
12(b) to the consolidated financial statements, Legend Properties, Inc. has
substantial indebtedness maturing in 1997 and does not have sufficient resources
to satisfy these obligations without restructuring or refinancing certain of
this indebtedness. These matters raise substantial doubt about the ability of
Legend Properties, Inc. to continue as a going concern. Management's plans with
regard to these matters are described in note 12(a) and 12(b). The consolidated
financial statements do not include any adjustments that might result from the
outcome of these uncertainties. 

Because of the significance of the uncertainties regarding the lawsuit discussed
in the preceding paragraph, we are unable to express, and we do not express, an
opinion on the 1996 consolidated financial statements.





KPMG Peat Marwick LLP
Seattle, Washington
April 15, 1997

<PAGE>   42
                            LEGEND PROPERTIES, INC.
                     (A Subsidiary of RGI Holdings, Inc.)
                               AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                          December 31, 1996 and 1995


<TABLE>
<CAPTION>
=============================================================================
                                                        1996         1995
-----------------------------------------------------------------------------
<S>                                                <C>             <C>        
                       Assets

Real estate inventory                              $103,762,798           -
Assets held for sale                                 25,436,375           -
Cash and cash equivalents                             1,529,898       578,906
Restricted cash and investments                      22,491,305           -
Accounts and notes receivable                         1,893,838        71,344
Receivables from related parties                      1,987,481    16,239,419
Investments                                                 -       3,395,985
Property and equipment, net                          19,860,865    18,588,184
Intangibles, net of accumulated amortization of       2,325,406           -
   $693,372 in 1996
Other assets, net of accumulated amortization of
   $2,642,907 in 1996 and $286,839 in 1995            4,822,163     1,681,580
                                                   --------------------------

                                                   $184,110,129    40,555,418
                                                   ==========================


                 Liabilities and Stockholders' Equity (Deficit)

Notes payable to banks and others                    86,700,617    23,288,065
Payables to related parties                          47,609,097    25,728,682
Accounts payable                                      5,655,401        62,269
Other notes and liabilities                          12,662,828     2,171,961

Minority interests                                      492,910           -

Stockholders' equity (deficit) -
  Common stock, $.01 par value, Authorized
    100,000,000 shares; issued 6,277,548 shares 
    and 6,276,774 shares outstanding at
    December 31, 1996 and 4,386,986 shares   
    issued and outstanding at December 31, 1995          62,776        43,870
  Additional paid-in capital                         43,793,708       (36,120)
  Accumulated deficit                               (12,855,892)  (10,703,309)
  Treasury stock, 804 shares of common stock
    at December 31, 1996                                (11,316)          - 
                                                   --------------------------
        Total stockholders' equity (deficit)         30,989,276   (10,695,559)

Commitments, contingencies and subsequent events
-----------------------------------------------------------------------------
                                                   $184,110,129    40,555,418
=============================================================================
</TABLE>


See accompanying notes to consolidated financial statements.

<PAGE>   43
                             LEGEND PROPERTIES, INC.
                      (A Subsidiary of RGI Holdings, Inc.)
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                  Years ended December 31, 1996, 1995 and 1994


<TABLE>
<CAPTION>
==============================================================================================================
                                                                          1996          1995          1994
--------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>             <C>           <C>
Revenues:
     Real estate sales                                               $ 24,649,096           -             -
     Club operations                                                    5,334,940           -             -
     Patient service                                                    2,617,615           -             -
     Rent                                                               2,480,846     1,872,392     2,047,485
     Other                                                                506,718       215,855       362,922
                                                                     ----------------------------------------
                  Total revenues                                       35,589,215     2,088,247     2,410,407
                                                                     ----------------------------------------
Costs and expenses:
     Real estate                                                       18,172,004           -             -
     Club operations                                                    4,055,377           -             -
     Patient service direct costs                                       1,378,808           -             -
     Rental operations                                                    591,725       817,433       895,053
     Other                                                                 77,287       100,000       100,000
     Provision for loss on assets held for sale                         1,000,000           -             -
     Selling, general and administrative                                9,354,471       209,193       223,537
                                                                     ----------------------------------------
                  Total costs and expenses                             34,629,672     1,126,626     1,218,590
                                                                     ----------------------------------------
                  Operating income                                        959,543       961,621     1,191,817
                                                                     ----------------------------------------
Other income (expense):
     Equity in losses of investees                                            -      (3,059,205)   (1,920,598)
     Interest income                                                      599,758        32,118        95,215
     Interest income, related party                                       146,277     2,000,064     1,172,560
     Interest expense                                                  (4,049,738)   (2,329,871)   (1,958,459)
     Interest expense, related party                                     (810,230)   (1,809,444)     (614,749)
     Other, net                                                           743,235       135,685       529,953
                                                                     ----------------------------------------
                  Net other expense                                    (3,370,698)   (5,030,653)   (2,696,078)
                                                                     ----------------------------------------

                  Loss before share of investee's extraordinary
                      gain and minority interests                      (2,411,155)   (4,069,032)   (1,504,261)

Share of investee's extraordinary gain on extinguishment of debt              -             -       2,475,358

Minority interests in losses of consolidated subsidiaries                 257,572           -             -
                                                                     ----------------------------------------
                  Net income (loss)                                  $ (2,153,583)   (4,069,032)      971,097
                                                                     ========================================

Net income (loss) per share:
     Loss before share of investee's extraordinary gain on
         extinguishment of debt                                             $(.49)         (.93)         (.34)
     Share of investee's extraordinary gain on extinguishment of
         debt                                                                 -             -             .56
                                                                     ----------------------------------------
                  Net income (loss) per share                               $(.49)         (.93)          .22
                                                                     ========================================
Weighted average number of common shares outstanding                    4,392,163     4,386,986     4,386,986
=============================================================================================================
</TABLE>


See accompanying notes to consolidated financial statements.

<PAGE>   44
                             LEGEND PROPERTIES, INC.
                      (A Subsidiary of RGI Holdings, Inc.)
                                AND SUBSIDIARIES

            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

                  Years ended December 31, 1996, 1995 and 1994


<TABLE>
<CAPTION>
=========================================================================================================================
                                            Common stock                                                         Total
                                         ------------------      Additional                                   stockholders'
                                                      Par         paid-in    Accumulated     Treasury            equity
                                         Shares      value        capital      deficit        stock            (deficit)
--------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>         <C>        <C>           <C>            <C>               <C>        
Balances at December 31, 1993           4,386,986   $43,870       (37,120)    (7,598,130)         -            (7,591,380)

Stockholder distribution                      -         -             -           (7,244)         -                (7,244)
Formation of Grand Harbor Corporation         -         -           1,000            -            -                 1,000
Net income                                    -         -             -          971,097          -               971,097
                                        ---------------------------------------------------------------------------------

Balances at December 31, 1994           4,386,986    43,870       (36,120)    (6,634,277)         -            (6,626,527)

Net loss                                      -         -             -       (4,069,032)         -            (4,069,032)
                                        ---------------------------------------------------------------------------------

Balances at December 31, 1995           4,386,986    43,870       (36,120)   (10,703,309)         -           (10,695,559)

Merger of Grand Harbor Corporation
     and Grand Harbor
     Associates, Inc.                         -         -          (1,000)         1,000          -                   -
Stockholder contribution                      -         -      21,663,015            -            -            21,663,015
Business combination with Banyan
   Mortgage Investment Fund             1,890,562    18,906    22,167,813            -          (11,316)       22,175,403
Net loss                                      -         -             -       (2,153,583)           -          (2,153,583)
-------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1996           6,277,548   $62,776    43,793,708    (12,855,892)       (11,316)       30,989,276
=========================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>   45
                             LEGEND PROPERTIES, INC.
                      (A Subsidiary of RGI Holdings, Inc.)
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 1996, 1995 and 1994


<TABLE>
<CAPTION>
=================================================================================================================
                                                                           1996           1995            1994
-----------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>              <C>               <C>    
Cash flows from operating activities:
    Net income (loss)                                                 $ (2,153,583)    (4,069,032)       971,097
    Adjustments to reconcile net income (loss) to net cash
       provided by (used in) operating activities:
         Depreciation and amortization                                   1,968,984        446,548        485,585
         Increase (decrease) in deferred income                                -         (157,083)       785,417
         Related party interest expense not paid                           469,377      1,333,505        209,703
         Related party interest income not collected                      (146,277)      (232,801)      (357,100)
         Provision for loss on assets held for sale                      1,000,000            -              -
         Minority interests in losses                                     (257,572)           -              -
         Equity in results of operations of investees:
            Operating losses                                                   -        3,059,205      1,920,598
            Extraordinary gain on extinguishment of debt                       -              -       (2,475,358)
         Change in certain assets and liabilities, net of effect of
             acquisitions:
                Increase in real estate inventory                       (4,925,186)           -              -
                Increase in accounts and notes receivable and
                   other assets                                           (821,210)      (116,542)       (90,816)
                Increase (decrease) in accounts payable and
                   other notes and liabilities                           2,499,825        (73,159)        56,974
                                                                      ------------------------------------------
                      Net cash provided by (used in) operating
                          activities                                    (2,365,642)       190,641      1,506,100
                                                                      ------------------------------------------

Cash flows from investing activities:
    Increase in restricted cash and investments                         (8,746,205)           -              -
    Purchase of property and equipment                                 (15,219,862)    (1,204,591)           -
    Loans to related parties                                            (2,120,100)   (13,090,099)   (12,923,620)
    Collection of loans to related parties                               1,288,265     10,431,892      2,150,679
    Investments and acquisitions, net of cash acquired                    (609,984)       (23,895)      (567,226)
    Other                                                                      -              -          (28,667)
                                                                      ------------------------------------------
                      Net cash used in investing activities            (25,407,886)    (3,886,693)   (11,368,834)
                                                                      ------------------------------------------
                      Subtotal, carried forward                        (27,773,528)    (3,696,052)    (9,862,734)
                                                                      ------------------------------------------
</TABLE>



See accompanying notes to consolidated financial statements.
<PAGE>   46

                                       2


                CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

<TABLE>
<CAPTION>
==============================================================================================================
                                                                         1996           1995           1994
--------------------------------------------------------------------------------------------------------------

<S>                                                                 <C>              <C>            <C>        
                      Subtotal, brought forward                     $(27,773,528)    (3,696,052)    (9,862,734)
                                                                    ------------------------------------------

Cash flows from financing activities:
    Proceeds from notes payable to bank and others                    50,493,708     22,100,792     12,000,000
    Repayment of notes payable to bank and others                    (32,310,431)   (20,898,501)    (3,183,746)
    Proceeds from loans from related parties                          11,887,333      3,150,000      2,939,405
    Repayment of loans from related parties                                  -         (288,719)    (1,519,960)
    Payment of loan fees                                              (1,346,090)      (219,433)           -
    Other                                                                    -              -           (5,244)
                                                                    ------------------------------------------

                      Net cash provided by financing activities       28,724,520      3,844,139     10,230,455
                                                                    ------------------------------------------

                      Net increase in cash and cash equivalents          950,992        148,087        367,721

Cash and cash equivalents at beginning of year                           578,906        430,819         63,098
                                                                    ------------------------------------------

Cash and cash equivalents at end of year                            $  1,529,898        578,906        430,819
                                                                    ==========================================


Supplemental disclosure of cash flow information - cash paid
    during the year for interest                                    $  5,470,755      3,273,344      3,367,498
                                                                    ==========================================

Supplemental schedule of noncash investing and financing 
    transactions:
    Contribution to equity of notes and interest payable from
       stockholder, net of receivable                               $ 21,663,015            -              -
    Increase in restricted cash and investments and decrease in
       receivables from related parties                                4,012,667            -              -
    Decrease in receivables from related parties and payables
       to related parties                                              1,100,000            -              -
    Contribution of notes and interest receivable to investees               -        8,548,064            -
    Increase in notes receivable and payable to parent                       -        4,000,000            -
    Purchase of property and equipment funded through contract
       payable                                                               -        1,500,000            -
    Net assets of Banvan Mortgage Investment Fund, net of cash
       acquired through the issuance of common stock                  21,698,244            -              -
==============================================================================================================
</TABLE>

<PAGE>   47
                             LEGEND PROPERTIES, INC.
                      (A Subsidiary of RGI Holdings, Inc.)
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1996, 1995 and 1994


================================================================================

    (1)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          (A)   DESCRIPTION OF BUSINESS

                Legend Properties, Inc. (Legend) is the surviving corporation
                from the December 31, 1996 merger of Banyan Mortgage Investment
                Fund (Banyan) and RGI U.S. Holdings (RGI/US) (see note 2).

                For financial reporting purposes, the merger was treated as a
                recapitalization of RGI/US, with RGI/US as the acquiror of
                Banyan. As of December 31, 1996, the historical consolidated
                financial statements of Legend are those of RGI/US. To December
                31, 1996, RGI/US was a wholly-owned subsidiary of RGI Holdings,
                Inc. (Holdings). As of December 31, 1996, Holdings owns
                approximately 79% of the outstanding common shares of Legend.

                RGI/US owned, operated and developed real estate through its
                wholly-owned subsidiaries (American Property Investments, Inc.,
                Grand Harbor Associates, Inc., Grand Harbor Corporation, Inc.,
                K.W. Properties, Inc. and Resource Group, Inc.).

                    o         American Property Investments, Inc. was formed
                              effective June 30, 1995 and represented the
                              combination and reorganization of a partnership
                              and its two corporate partners. The partnership,
                              American Property Investment Company, was
                              previously formed for the purpose of acquiring,
                              renovating and operating the Lynnwood Shopping
                              Center in Lynnwood, Washington in 1987. Prior to
                              June 30, 1995, the partnership was 90% owned by
                              Lynnwood Center Enterprises, Inc. and 10% by
                              Uptain Enterprises, Inc., subchapter S
                              corporations. Effective June 30, 1995, Lynnwood
                              Center Enterprises, Inc., Uptain Enterprises, Inc.
                              and the partnership were combined and reorganized
                              as a C corporation named American Property
                              Investments, Inc. These entities are hereinafter
                              referred to collectively as API. Effective July 1,
                              1995, two stockholders of RGI/US's then ultimate
                              parent contributed API to RGI/US.

                    o         Grand Harbor Associates, Inc. (GHA) was formed as
                              a holding company in 1991 and owns a 90% interest
                              in Grand Harbor Property Holdings, Inc. (GHPH) and
                              a 90% interest in the Oak Harbor Property
                              Holdings, Inc. and Quality Life Services, Inc.
                              (collectively, OHPH).


                                                                     (Continued)
<PAGE>   48
                                       2



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================

                              GHPH includes nine corporations and seven limited
                              partnerships and was formed in 1991 to acquire and
                              develop approximately 900 acres of real estate in
                              Indian River County, Florida. Grand Harbor (the
                              development) is planned for approximately 1,100
                              mid to high-end residential products. The
                              development has numerous amenities and facilities,
                              including golf and beach clubs, two 18-hole
                              championship golf courses, tennis courts and a
                              marina.

                              OHPH includes eight corporations and a limited
                              partnership and was formed in 1993 to develop a
                              senior citizen country club community with an
                              on-site assisted living center and health clinic.

                    o         Grand Harbor Corporation, Inc. (GHC) was formed as
                              a holding company during 1994 to obtain certain
                              bank debt, the proceeds of which were loaned to
                              GHPH. GHC was merged into GHPH during 1996.

                    o         Resource Group, Inc. and K.W. Properties, Inc. are
                              two previously owned subsidiaries which have been
                              excluded from these consolidated financial
                              statements as described in note 1(b).

          (B)   BASIS OF PRESENTATION

                The consolidated financial statements include the accounts of
                Legend, certain of its wholly and majority-owned subsidiaries
                and, from the effective date of the merger (see note 2), the
                Chapman's Landing Southbridge/Wayside Village and Laguna Seca
                Ranch partnerships in which Legend owns, indirectly through
                wholly-owned subsidiaries, controlling 50% to 51% partnership
                interests. As of January 21, 1997, as part of the Omnibus
                Settlement Agreement [see note 12(c)], Legend owns 100% of these
                partnerships. The accounts of Resource Group, Inc. and K.W.
                Properties, Inc., both wholly-owned subsidiaries of RGI/US,
                prior to April 1996, have been excluded from these consolidated
                financial statements as these independent entities were not
                included as part of the merger with Banyan. These two
                subsidiaries were spun-off by means of a dividend to Holdings
                from Legend in April 1996. All significant intercompany accounts
                and transactions have been eliminated in consolidation.


                                                                     (Continued)
<PAGE>   49
                                       3

                            LEGEND PROPERTIES, INC.
                      (A Subsidiary of RGI Holdings, Inc.)
                                AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================

          (C)   USE OF ESTIMATES

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

          (D)   REAL ESTATE INVENTORY

                Real estate inventory is recorded at the lower of cost or fair
                value less cost to sell. Cost includes costs of land, common
                improvements, amenities, completed residential units,
                construction in progress, and acquisition costs related to
                legal, engineering, and other. Interest, real estate taxes and
                other carrying costs are capitalized only for discrete parcels
                or units undergoing active development. The costs of common
                improvements are allocated to discrete parcels or units based on
                relative sales values or specific identification.

          (E)   CASH AND CASH EQUIVALENTS

                Cash and cash equivalents consist of cash, demand deposits with
                banks and highly liquid investments with maturity dates of three
                months or less at the date of acquisition.

          (F)   RESTRICTED CASH AND INVESTMENTS

                Restricted cash includes customer deposits of $4,434,156
                received on the sale of real estate and club memberships and
                cash held in bank as loan collateral of $12,849,428.

                Restricted investments include an irrevocable trust consisting
                of three annuities totaling $5,207,720, the sole purpose of
                which is to provide security for payment on note payable. The
                annuity contracts will fully satisfy the note through annual
                principal and interest payments.

          (G)   INVESTMENTS

                Investments in partnerships and corporations of GHPH and OHPH
                prior to obtaining majority ownership in 1996 were recorded
                using the equity method of accounting. On January 2, 1996, GHA
                purchased an additional 45% interest in GHPH and OHPH, as well
                as interests in a finance company and a title and escrow
                company. Beginning in 1996, the accounts of these investees are
                included in the consolidated financial statements.


                                                                     (Continued)
<PAGE>   50
                                       4


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================

          (H)   PROPERTY AND EQUIPMENT

                Property and equipment are stated at cost. Significant additions
                and improvements are capitalized while repairs and maintenance
                are expensed as incurred. Interest charges incurred on the cost
                of assets developed or constructed for use in operations are
                capitalized during the construction period. Depreciation and
                amortization are provided using the straight-line method over
                the assets' estimated useful lives as follows:

                   Buildings and improvements            15 - 31 years
                   Furniture and fixtures                 4 - 10 years

                Tenant improvements are amortized over the shorter of the
                assets' estimated useful lives or the related lease term,
                generally 3 to 30 years.

          (I)   INTANGIBLES

                Intangibles include goodwill and a non-compete agreement.
                Goodwill, which represents the excess of the purchase price over
                fair value of net assets acquired, is amortized using the
                straight-line method over a period of fifteen years. Legend
                assesses the recoverability of this intangible asset by
                determining whether the amortization of the goodwill balance
                over its remaining life can be recovered through undiscounted
                future operating cash flows of the acquired operation. The
                amount of goodwill impairment, if any, is measured based on
                projected discounted future operating cash flows using a
                discount rate reflecting Legend's average cost of funds. The
                non-compete agreement is amortized using the straight-line
                method over a period of fifteen years, the term of the
                agreement.

          (J)   OTHER ASSETS

                Other assets include organization costs, deferred loan costs and
                deferred lease costs. Organization costs are amortized using the
                straight-line method over a period of five years. Deferred loan
                costs are amortized using the straight-line method over the term
                of the related debt. Deferred lease costs include leasing
                commissions and incentives which are amortized using the
                straight-line method over the terms of the related leases.
                Amortization of lease incentives is considered to be a reduction
                of rental revenue.

          (K)   REVENUE RECOGNITION

                Revenues on retail sales of real estate are recorded upon
                closing of escrow and transfer of title to the buyer. Rental
                revenue is recognized over the respective tenant lease terms (1
                to 30 years) using the straight-line method. Sales of equity
                memberships in the Grand Harbor Golf and Beach Club (Club) are
                included as real estate sales. Club assets are treated as an
                amenity and are charged to cost of real estate sales as full
                equity memberships are sold. Membership dues are billed on an
                annual basis and recognized ratably as revenue over the year as
                earned.


                                                                     (Continued)
<PAGE>   51
                                       5

                            LEGEND PROPERTIES, INC.
                      (A Subsidiary of RGI Holdings, Inc.)
                                AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================

          (L)   DEPOSITS

                Customer deposits received on the sale of real estate and club
                memberships are recorded as restricted cash and other
                liabilities and amounted to $4,434,156 at December 31, 1996.
                Associate Club membership deposits will be refunded to the
                associate member at the end of the associate membership term or
                cancellation of membership by the member.

          (M)   INCOME TAXES

                For portions of the periods presented, certain entities
                comprising Legend were not taxable entities. Accordingly, the
                income tax effects of all earnings or losses were passed
                directly to the partners and owners of these entities, and the
                entities did not record any provision or benefit for income
                taxes, nor any related assets or liabilities. Had the entities
                operated in the taxable corporate form since inception, for the
                years ended December 31, 1996, 1995 and 1994, there would have
                been no benefit or expense for income taxes. A 100% valuation
                allowance would have been recorded based on the entities'
                insufficient levels of taxable income available to recognize
                benefits of the net operating loss carryforwards.

                Commencing with the change in tax status of certain entities
                comprising Legend, deferred income taxes are provided for the
                expected future tax consequences of temporary differences
                between the reported amounts of assets and liabilities and their
                tax bases. Deferred income tax liabilities are recognized for
                taxable temporary differences, and deferred income tax assets
                are recognized for deductible temporary differences. Deferred
                income tax assets are reduced by a valuation allowance when, in
                the opinion of management, it is more likely than not that some
                portion or all of the deferred income tax assets will not be
                realized.

          (N)   ADVERTISING COSTS

                Costs of advertising, promotion and marketing are charged to
                operations in the year incurred.


                                                                     (Continued)
<PAGE>   52
                                       6



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================

          (O)   IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE 
                DISPOSED OF

                Legend adopted the provisions of Statement of Financial
                Accounting Standards No. 121 (SFAS 121), Accounting for the
                Impairment of Long-Lived Assets and for Long-Lived Assets to Be
                Disposed Of, on January 1, 1996. SFAS 121 requires that
                long-lived assets and certain identifiable intangibles be
                reviewed for impairment whenever events or changes in
                circumstances indicate that the carrying amount of an asset may
                not be recoverable. Recoverability of assets to be held and used
                is measured by a comparison of the carrying amount of an asset
                to future net cash flows expected to be generated by the asset.
                If such assets are considered to be impaired, the impairment to
                be recognized is measured by the amount by which the carrying
                amount of the assets exceed the fair value of the assets. Assets
                to be disposed of are reported at the lower of the carrying
                amount or fair value less costs to sell. The adoption of SFAS
                121 did not have a significant impact on the consolidated
                financial statements.

          (P)   NET INCOME (LOSS) PER SHARE

                Net income (loss) per share is computed by dividing net income
                (loss) by the weighted average number of common shares
                outstanding during the period. For the purpose of these
                consolidated financial statements, Legend's common shares for
                all periods have been restated into the equivalent number of
                Banyan shares. The exercise of common stock equivalents,
                representing stock options outstanding only in 1996, would be
                antidilutive and therefore have not been considered in the
                computation.

          (Q)   RECLASSIFICATIONS

                Certain 1995 and 1994 amounts in these consolidated financial
                statements have been reclassified to conform to the 1996
                presentation.

    (2)   ACQUISITIONS

         The following business combinations consummated during 1996 were
         accounted for under the purchase method of accounting, wherein the
         purchase price was allocated to the assets acquired and liabilities
         assumed based upon their relative fair values. Results of operations of
         these acquired companies have been included in the consolidated
         financial statements from the acquisition dates.

          (A)   BANYAN MORTGAGE INVESTMENT FUND

                On April 12, 1996 and as amended and restated on May 20, 1996
                and September 17, 1996, an Agreement and Plan of Merger (the
                "Merger Agreement") was entered into among RGI/US, Holdings and
                Banyan.


                                                                     (Continued)
<PAGE>   53
                                       7

                            LEGEND PROPERTIES, INC.
                      (A Subsidiary of RGI Holdings, Inc.)
                                AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================

                On May 21, 1996, Holdings (i) purchased 7,466,666 shares
                (298,666 shares after giving effect to the reverse stock split -
                see discussion to follow), of authorized but unissued shares of
                Banyan's common stock for $.46875 per share ($11.71 per share
                after giving effect to the reverse stock split) or an aggregate
                purchase price of $3.5 million; (ii) purchased the loan made to
                Banyan in October 1994 by a group of lenders for which Morgens,
                Waterfall, Vintiadis & Co., Inc. served as agent (Morgens Loan)
                and (iii) purchased the loan made to a subsidiary of Banyan by
                Societe Generale (SoGen Loan) which is secured by a first
                mortgage on Banyan's Wayside property and a portion of Banyan's
                Southbridge property. In addition, Mr. Kenneth Uptain, President
                of Holdings and RGI/US, was named to fill a vacant seat on
                Banyan's Board of Directors.

                Both the Morgens Loan and the SoGen Loan were in default, and
                concurrent with the purchase of these loans by Holdings, Banyan
                and Holdings entered into agreements modifying each loan. Under
                these modification agreements. Holdings agreed that, among other
                things, prior to December 31, 1996, it would not accelerate
                either the Morgens Loan or the SoGen Loan nor foreclose on any
                collateral securing such loans based upon (i) any events of
                default occurring before May 15, 1996; or (ii) any nonmonetary
                defaults occurring after May 15, 1996 but before the merger
                completion date; or (iii) as a result of the execution of the
                amended Merger Agreement as described above.

                Holdings also agreed to capitalize and add to the outstanding
                principal balance of the Morgens Loan the interest payment due
                on January 1, 1996 in the approximate amount of $1,025,000. The
                outstanding principal balance of the Morgens Loan as of December
                31, 1996 was $24,258,788. Additionally, effective December 31,
                1996, the terms of the Morgens Loan were further modified to
                reduce the non-default interest rate on the Morgens Loan from
                17.5% to the prime rate plus 2% per annum. Finally, the original
                Morgens Loan provisions that required the outstanding principal
                balance to be reduced to $11,000,000 by September 30, 1997 and
                prohibited prepayment of the entire loan prior to September 30,
                1996 were eliminated and the entire loan became due and payable
                on September 30, 1998. A portion of the proceeds from the sale
                of stock to Holdings were used to pay (i) interest for the
                period from January 1, 1996 through March 31, 1996, which was
                due April 1, 1996, in the amount of approximately $1,179,000 and
                (ii) $500,000 loan restructuring fee. As part of Holdings'
                acquisition of the Morgens Loan, outstanding warrants to
                purchase 175,200 shares of common stock of Banyan which were
                issued to the previous lenders were canceled. Also, Holdings
                allowed Banyan to utilize for general business purposes, without
                requiring application against debt, the net proceeds from the
                sale of certain properties. On December 31, 1996, Legend was
                required to pay, and did not pay, an interest payment of 
                approximately $1,070,000, thereby causing the loan to be in 
                default.


                                                                     (Continued)
<PAGE>   54
                                       8


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================

                Upon acquisition of the SoGen Loan by Holdings, $287,702 of the
                interest due as of December 31, 1995 was added to the
                outstanding loan balance of $6,360,000 which was partially
                offset by cash proceeds from lot sales at Wayside Village that
                were held in escrow by SoGen. The principal balance of the loan,
                after adding interest, was reduced by $256,618 which primarily
                represents the net proceeds released from escrow by SoGen in
                respect to the sale of four lots at the Wayside Village property
                which occurred on April 9, 1996. The outstanding principal
                balance subsequent to the modification was $6,391,084. Using a
                portion of the proceeds from the sale of stock to Holdings,
                Banyan paid interest for the period January 1, 1996 through
                April 30, 1996 in the amount of $319,782 and also paid late fees
                and legal fees in the amount of $302,708. No additional payments
                of principal or interest were required until December 31, 1996.
                The maturity date of the SoGen Loan is December 31, 1997. The
                $2,000,000 revolving loan agreement, executed by SoGen and
                Banyan in 1994, under which no funds were ever disbursed, was
                canceled and released. Banyan and SoGen also exchanged mutual
                releases of liability.

              
                Effective December 31, 1996, RGI/US was merged with and into
                Banyan, Banyan's certificate of incorporation was amended to
                convert each twenty-five shares of Banyan's issued and
                outstanding common stock into one issued and outstanding share
                (Reverse Split). Additionally, the name of Banyan was changed to
                Legend Properties, Inc.  After giving effect to the Reverse
                Split, all outstanding shares of RGI/US were converted into
                4,386,986 shares of Banyan's common stock.  As of December 31,
                1996, the percentage of Legend's common stock that Holdings owns
                was approximately 79%.


                For accounting purposes, the merger was treated as a
                recapitalization of RGI/US, with RGI/US as the acquiror of
                Banyan. 

                The purchase price of Banyan by RGI/US is calculated as follows:



                       <TABLE>
                       
                       <S>                                           <C>
                       Banyan common shares outstanding at           
                         December 31, 1996                             47,307,527
                       Fair market value per share on or about
                         April 12, 1996                               $    .46875
                                                                      -----------
                                Purchase price                        $22,175,403
                                                                      ===========
                       </TABLE>

           On April 15, 1997, Legend announced that it had reached an agreement
in principle to settle the various lawsuits. The agreement is subject to, among
other things, court approval. As part of the settlement, the plaintiffs will
likely file a second consolidated amended and supplemental complaint repeating
the allegations contained in their previous complaints and adding the claims
underlying their application pursuant to Section 225 of the Delaware Code. In
addition, Holdings and RGI/US will likely be added as defendants solely for
purposes of the settlement. All of the defendants will subsequently answer this
complaint and have consented to a conditional certification of the lawsuit as a
plaintiff class action pursuant to Rules 23(a) and 23(b)(1)-(2) of the Court of
Chancery of the State of Delaware. As part of this settlement, Holdings has
agreed to, among other things, (i) defer interest due on the Loans until
December 31, 1997; (ii) forebear on any defaults existing on the Loans as of the
effective date of the settlement until December 31, 1997; (iii) effective
January 1, 1997, reduce the interest rate on the Loans to the lower of the prime
rate plus 2% (10.25% at January 1, 1997) or LIBOR plus 2.5% (8.1% at January 1,
1997); (iv) provide Legend with a line of credit in the aggregate principal
amount of $8.5 million, a portion of which will be utilized to repay Holdings
for advances previously made to Legend; and (v) repurchase up to $300,000 of the
Company's shares of common stock from time to time on the open market over the
next twelve months subject to compliance with the SEC's rules and regulations
relating to open market repurchase programs. The parties will schedule a hearing
during the week of April 21, 1997 to submit the settlement to the Delaware court
for its preliminary review.




                                                                (Continued)
<PAGE>   55
                                       9

                            LEGEND PROPERTIES, INC.
                      (A Subsidiary of RGI Holdings, Inc.)
                                AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================

                The purchase price related to the acquisition was allocated as
                follows:

<TABLE>
<CAPTION>
                     <S>                             <C>        
                     Real estate inventory           $50,835,299
                     Assets held for sale              7,991,701
                     Cash                                477,000
                     Other                             2,215,000
                                                     -----------
                     Fair value of assets acquired    61,519,000
                                                     -----------
                     Less liabilities                 39,344,000
                                                     -----------
                     Fair value of common stock      $22,175,000
                                                     ===========
</TABLE>

                The allocation of the purchase price is preliminary, and is
                based upon fair values that were determinable, and estimates of
                fair values that were not yet determinable. In particular, the
                values assigned to real estate inventory were based upon
                appraisals and discounted estimated future cash flows, when
                appraisals were not available. The calculated fair values of the
                real estate inventory were adjusted downward on a pro rata basis
                to arrive at the "allocated" fair value of real estate
                inventory. Finalization of the appraisals will likely result in
                adjustments to the allocation of the purchase price to the net
                assets acquired. In addition, final settlement of the litigation
                described in note 12(b) may result in the assumption of
                additional liabilities by Legend, thereby resulting in
                adjustments to the allocation of the purchase price.

          (B)   GRAND HARBOR PROPERTY HOLDINGS, INC., OAK HARBOR PROPERTY 
                HOLDINGS, INC., SOUTHMORTGAGE FINANCE CO. AND HARBOR TITLE AND 
                ESCROW CO. LTD.

                On January 2, 1996, GHA, a 45% general partner in GHPH and OHPH,
                purchased Southmortgage Finance Co., a holding company for
                certain bank debt (the proceeds of which were loaned to GHPH),
                and an additional 45% interest in GHPH, OHPH and Harbor Title
                and Escrow Co. Ltd. (collectively, the Acquired Companies).
                Harbor Title and Escrow Co. Ltd. is a title and escrow company
                for GHPH and OHPH. The Acquired Companies were purchased from
                Andlinger Properties Capital L.P. for cash consideration in the
                amount of $52,237 and a promissory note in the amount of
                $996,220.

                The purchase price related to the acquisition was allocated as
                follows:

<TABLE>
<CAPTION>
                     <S>                             <C>
                     Fair value of assets acquired   $35,635,000

                     Less liabilities                 34,587,000
                                                     -----------
                     Purchase price                  $ 1,048,000
                                                     ===========

</TABLE>


                                                                     (Continued)
<PAGE>   56
                                       10


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================

          The unaudited pro forma consolidated statements of operations that
          follow give effect to the transactions described above as if they had
          been consummated on January 1, 1996 or 1995. The unaudited pro forma
          consolidated statements of operations are presented for information
          purposes only and do not purport to represent what Legend's results of
          operations for the years ended December 31, 1996 and 1995 would
          actually have been had the acquisitions, in fact, occurred on January
          1, 1996 or 1995, or Legend's results of operations for any future
          period.

                                                     

                          Year ended December 31, 1996

                    Assuming Acquisition on January 1, 1996

                                  (Unaudited)

<TABLE>
              <S>                                     <C>       
              Total revenues                          $ 35,822,109
              Total costs and expenses                  39,504,813
                                                      ------------
                     Operating income (loss)            (3,682,704)
              Net other expenses                        (7,498,906)
                                                      ------------
                     Net loss                         $(11,181,610)
                                                      ============
              Net loss per share                            $(1.78)
                                                      ============
              Shares of common stock outstanding         6,276,744
                                                      ============
</TABLE>                                                                    

                          Year ended December 31, 1995

                    Assuming Acquisition on January 1, 1995

                                   (Unaudited)

<TABLE>
              <S>                                    <C> 
              Total revenues                         $ 26,846,248
              Total costs and expenses                 29,431,931
                                                     ------------
                     Operating income (loss)           (2,585,683)
              Net other expense                        (9,433,067)
                                                     ------------
                     Net loss                        $(12,018,750)
                                                     ============
              Net loss per share                           $(1.91)
                                                      ===========

              Shares of common stock outstanding        6,276,744
                                                      ===========
</TABLE>
                                                                     (Continued)
<PAGE>   57
                                       11


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================


    (3)   REAL ESTATE INVENTORY AND ASSETS HELD FOR SALE

          At December 31, 1996, Legend's investments in real estate consisted of
          the following:

<TABLE>
<CAPTION>
                                                                                              Cost adjustments
                                                  Initial cost to Legend                  subsequent to acquisition
                                              ------------------------------    ---------------------------------------------
 Name, approximate size,                                      Buildings and      Buildings and      Carrying
    type and location       Encumbrances           Land       improvements        improvements      costs (a)        Land
-----------------------------------------------------------------------------------------------------------------------------
<S>                        <C>                 <C>               <C>                <C>            <C>           <C>
Lynnwood Shopping             Note 7            $4,308,000        3,338,000          5,535,602       700,000       6,748,015
Center, 164,724 sq. ft.        (A)
retail shopping center
in Lynnwood, WA (c)(f)

Grand Harbor,                 Note 8            15,847,986        9,600,348          5,747,261     1,820,497         575,590
400 acre residential          (I-O)
development in Vero
Beach, FL

Oak Harbor,                   Note 8             2,753,605                -         13,556,580     1,253,716       1,771,798
115 acre residential          (E-H)
development in Vero
Beach, FL

Chapman's Landing,           Note 4(d)          14,358,682        6,774,880                  -             -               -
2,230 acre residental         (2,4)
land development in
Charles County, MD (h)

Southbridge,                 Note 7 (B)         14,190,804        2,053,251                  -             -               -
2,050 acres residental       Note 4(d)
land development in            (2,4)
Prince William County,
VA (h)

Wayside Village,             Note 7 (B)          7,170,506        6,287,294                  -             -               -
505 acres land parcel in   Note 4(d) (2,4)
Prince William County,
VA (h)

Laguna Seca Ranch,           Note 4(d)           4,243,086        3,748,615                  -             -               -
565 acre land parcel in        (2,4)
Monterey County, CA (h)
                                               -----------------------------------------------------------------------------
                                                62,872,669       31,802,388         24,839,443     3,774,213       9,095,403

Real estate held for 
   sale (g)                                              -                -                  -             -               -
                                               -----------------------------------------------------------------------------

                                               $62,872,669       31,802,388         24,839,443     3,774,213       9,095,403
                                               =============================================================================
</TABLE>




                                                                     (Continued)
<PAGE>   58
                                       12

                            LEGEND PROPERTIES, INC.
                      (A Subsidiary of RGI Holdings, Inc.)
                                AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================


<TABLE>
<CAPTION>
                                           Amounts at which carried at December 31, 1996
                                -----------------------------------------------------------------
                                                                   Valuation   
                                                                adjustment and 
                                                                  accumulated  
                                                                  depreciation 
                                                 Buildings and         and            Total           Date of         Date
Description                         Land         improvements     amortization         (b)         construction     acquired
------------------------- ---- ---------------- ---------------- ---------------- --------------- ---------------- ----------
<S>                              <C>               <C>             <C>               <C>         <C>              <C>
Lynnwood Shopping Center,        $11,056,015        9,573,602       (3,184,943)       17,444,674        (d)        10/87
164,724 sq. ft.  retail
shopping center in
Lynnwood, WA (c)(f)

Grand Harbor,                     16,423,576       17,168,106                -        33,591,682        (e)        03/91
400 acre residential
development in Vero
Beach, FL

Oak Harbor,                        4,525,403       14,810,296                -        19,335,699        (e)        05/91
115 acre residential
development in Vero
Beach, FL

Chapman's Landing,                14,358,682        6,774,880                -        21,133,562        (e)        12/96
2,230 acre residental
land development in
Charles County, MD (h)

Southbridge,                      14,190,804        2,053,251                -        16,244,055        (e)        12/96
2,050 acre residental
land development in
Prince William County,
VA (h)

Wayside Village,                   7,170,506        6,287,294                -        13,457,800        (e)        12/96
505 acre land parcel in
Prince William County, VA
(h)

Laguna Seca Ranch,                 4,243,086        3,748,615                -         7,991,701        (e)        12/96
565 acre land parcel
in Monterey County, CA
(h)
                               -----------------------------------------------------------------------------------------

                                  71,968,072       60,416,044       (3,184,943)      129,199,173

Real estate held for             (15,299,101)     (13,322,217)       3,184,943       (25,436,375)
   sale (g)
                               -----------------------------------------------------------------------------------------

                                 $56,668,971       47,093,827                -       103,762,798
                               =========================================================================================
</TABLE>




                                                                     (Continued)
<PAGE>   59
                                       13


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================



          (a)   Consists primarily of capitalized construction period interest
                and related loan fees, where applicable, and real estate taxes.
                During 1996, $5,470,800 of interest was paid and $1,964,000 of
                interest was capitalized. During 1995, $3,273,300 of interest
                was paid and none was capitalized.

          (b)   Reconciliation of real estate inventory and assets held for sale
                for the years ended December 31:

<TABLE>
<CAPTION>
                                                                                      1996           1995           1994
                                                                                  ------------   ------------  -------------
                  <S>                                                            <C>              <C>            <C>
                  Balance at beginning of year                                    $ 18,588,184    16,270,435     16,689,392

                  Net dispositions through sale                                    (16,680,199)           --             --
                  Acquisitions                                                     106,480,671            --             --
                  Net additions                                                     22,005,547     2,704,591             -- 
                  Depreciation                                                        (195,030)     (386,842)      (418,957)
                  Valuation adjustment                                              (1,000,000)           --             --
                                                                                 -------------    ----------     ----------

                  Balance at end of year                                         $ 129,199,173    18,588,184     16,270,435
                                                                                 =============    ==========     ==========
</TABLE>

                The aggregate cost for Federal income tax purposes was
                approximately $199,252,000 at December 31, 1996.

          (c)   Assets Held for Sale - During the second quarter of 1996, Legend
                decided to dispose of the Lynnwood Shopping Center (Lynnwood
                Center). The Lynnwood Center includes the land, building and
                improvements. A provision of $1,000,000 was recorded to reflect
                the loss expected on the disposal of the Lynnwood Center. The
                Lynnwood Center assets are stated at their estimated fair value
                less costs to sell and are classified as assets held for sale in
                the accompanying balance sheet at December 31, 1996 and as
                property and improvements at December 31, 1995.

                Legend acquired Laguna Seca Ranch on December 31, 1996 as part
                of the merger with Banyan. Due to the property's uniquely
                attractive location and smaller size, Legend believes that the
                property is salable in its present condition. Legend expects to
                dispose of the Laguna Seca Ranch by December 31, 1997.

          (d)   The Lynnwood Center was originally constructed in 1948, and 
                underwent major renovations in 1990 and 1995.

          (e)   Properties are currently at various stages of development and
                entitlement. The development of projects is currently expected
                to continue through 2011.

          (f)   Prior to the decision to dispose of the Lynnwood Center,
                depreciation and amortization were provided using the
                straight-line method over the assets' estimated useful lives as
                follows:

                  Building and improvements               15 - 31 years
                  Furniture and fixtures                   4 - 10 years



                                                                     (Continued)
<PAGE>   60
                                       14

                            LEGEND PROPERTIES, INC.
                      (A Subsidiary of RGI Holdings, Inc.)
                                AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================

                Tenant improvements were amortized over the shorter of the
                assets' estimated useful lives of the related lease term,
                generally 3 to 30 years.

          (g)   Real estate held for sale includes the Lynnwood Center and
                Laguna Seca Ranch which are reflected net of accumulated
                depreciation and amortization and their respective valuation
                adjustments as of December 31, 1996.

          (h)   The allocation of the purchase price is preliminary, and is
                based upon fair values that were determinable, and estimates of
                fair values that were not yet determinable. In particular, the
                values assigned to real estate inventory were based upon
                appraisals and discounted estimated future cash flows, when
                appraisals were not available. The calculated fair values of the
                real estate inventory were adjusted downward on a pro rata basis
                to arrive at the "allocated" fair value of real estate
                inventory. Finalization of the appraisals will likely result in
                adjustments to the allocation of the purchase price to the
                net assets acquired.  In addition, the final settlement of the
                litigation described in note 12(b) may result in the assumption
                of additional liabilities by Legend, thereby resulting in
                adjustments to the allocation of the purchase price.

    (4)   OTHER RELATED PARTY TRANSACTIONS

          The following is a summary of other significant transactions and
          accounts with related parties during 1996, 1995 and 1994 and as of
          December 31, 1996 and 1995:

          (a)   MANAGEMENT FEES

                The Lynnwood Shopping Center was managed by Resource Group, Inc.
                (TRG), which is related through common ownership, under a
                management agreement with API through July 31, 1995. API was
                required under the agreement to pay TRG 4% of rental income for
                the management services. Effective August 1, 1995, a third party
                management company was hired to manage the Lynnwood Shopping
                Center under a one-year contract. API is required under the new
                agreement to make payments in the amount of 3.5% of gross rental
                revenue or $4,000 per month, whichever is greater. After one
                year, the management agreement converted to a month-to-month
                basis. Total management fees paid by API to TRG for 1995 and
                1994 were $59,651 and $73,501, respectively.

                GHA was managed by TRG during 1995. Management fees were based
                on GHA's cash flow and amounted to $150,000 in 1995.

          (b)   CONSULTING AND OTHER FEES

                Proctor Construction Company (Proctor) has provided all
                development and construction services at Grand Harbor and Oak
                Harbor since Legend acquired the projects. Donald C. Proctor is
                the majority shareholder of Proctor, and an affiliate of Mr.
                Proctor owns 10% of GHPH and OHPH, the corporations that own
                Grand Harbor and Oak Harbor. This exclusive contract is in
                effect until December 31, 1999, and is based on the cost of the
                work plus a 7% overhead fee and a 5% profit fee, half of which
                is payable to GHPH and OHPH. There can be no assurance that
                Legend has purchased these services at prevailing market rates.
                Legend anticipates continuing this relationship and may
                therefore incur costs for construction and development services
                at these properties in excess of those which would prevail in an
                arm's length relationship. Legend received $718,000, $215,855
                and $262,922 in 1996, 1995 and 1994, respectively, from Proctor
                Construction Company, the general contractor of GHPH, for
                consulting and other services. The owner of Proctor Construction
                Company indirectly owns 10% of GHPH. Legend also received
                $100,000 in 1994 from TRG for consulting services.



                                                                     (Continued)
<PAGE>   61
                                       15


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================

                Legend paid $100,000 in 1995 and 1994 to K.L. Associates, an
                entity owned by an officer of Legend, for consulting services.
                Legend also paid approximately $44,000 during 1995 to K.L.
                Associates for maintenance work performed at the Lynnwood
                Center.

          (c)   RECEIVABLES

                Receivables from related parties consist of the following at
                December 31:

<TABLE>
<CAPTION>
                                                                                                     1996        1995
                                                                                                  ----------------------
                 <S>                                                                              <C>         <C>
                 Note  receivable, principal and interest at 10% to be paid
                       solely out of borrower's interest in the Grand Harbor/Oak
                       Harbor projects (Projects), outstanding principal due
                       December 2005, secured by the borrower's
                       interest in the Projects                                                   $1,462,770   1,462,770

                 Unsecured note receivable from parent, interest only due quarterly at LIBOR
                       plus 1%, repaid during 1996                                                         -   4,000,000

                 Note  receivable from GHPH, interest only due monthly at LIBOR
                       plus 2.75%, principal due in annual installments ranging
                       from $550,000 to $1,950,000 from 1997 to 1999, remaining
                       principal balance of $6,500,000 due January
                       2000. As a result of the GHPH acquisition, this note was
                       eliminated in 1996                                                                  -  10,674,773

                 Other unsecured noninterest-bearing receivables from parent, due upon demand        378,434      67,500

                 Interest receivable                                                                 146,277      34,376
                                                                                                  ----------------------

                              Total receivables from related parties                              $1,987,481  16,239,419
                                                                                                  ======================
</TABLE>

                  o        Interest income from related parties was $146,277,
                           $2,000,064 and $1,172,560 for 1996, 1995 and 1994,
                           respectively.

                  o        During 1994, Legend charged a $1,300,000 brokers fee
                           to GHPH relating to a loan. Legend had deferred a
                           portion of the amount and was amortizing the balance
                           into income using the straight-line method over the
                           term of the loan. The deferred balance was $628,334
                           as of December 31, 1995.

                  o        Receivables of $1.1 million from parent were offset
                           against an unsecured note payable to parent in a
                           non-cash transaction as of December 31, 1996.

                  o        During 1995, Legend contributed $8,548,064 of notes
                           receivable and related accrued interest due from GHPH
                           and OHPH to such entities. The remaining balances
                           were eliminated in consolidation at December 31,
                           1996.

                  o        During December 1995, and in conjunction with the
                           January 1996 acquisitions discussed in note 2(b),
                           Holdings paid $4,000,000 as collateral to a bank on
                           behalf of Legend in order to replace and release the
                           seller's collateral on a loan to GHPH. Legend
                           recorded both a receivable from and a payable to
                           parent at December 31, 1995. During 1996, Holdings
                           transferred the collateral to Legend as repayment of
                           the receivable.

                                                                     (Continued)
<PAGE>   62
                                       16

                            LEGEND PROPERTIES, INC.
                      (A Subsidiary of RGI Holdings, Inc.)
                                AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================



          (D)   PAYABLES

                Payables to related parties consist of the following at December
                31:

<TABLE>
<CAPTION>
                 Reference                                                                    1996           1995
                                                                                          ----------------------------

                  <S>                                                                     <C>               <C>
                  (1) Unsecured note payable to parent, interest at the prime rate
                            plus 5% (13.25% at December 31, 1996), principal and
                            interest due on demand                                        $   400,000                -

                  (2) Mortgage note payable to parent, interest
                            only payable monthly at the prime rate plus
                            6% (14.25% at December 31, 1996), principal
                            due December 1997, secured primarily by
                            certain real estate inventory
                                                                                            6,391,084                -

                  (3) Unsecured note payable to parent, interest only payable
                            quarterly at LIBOR plus 1% (6.56% at December 31, 1996),
                            principal due December 1997                                     4,000,000        4,000,000

                  (4) Mortgage note payable to parent, interest at the prime rate plus
                            2% (10.25% at December 31, 1996), principal and interest
                            due September 1998.  The note agreement requires that
                            Legend remit any cash proceeds generated from the sale or
                            joint venture development of the Laguna Seca Ranch and 50%
                            of the net cash proceeds generated by developed lot or raw
                            land sales at the Southbridge/Wayside or Chapman's Landing
                            properties to the parent, secured primarily by certain
                            real estate inventory                                          24,258,788                -

                  (5) Unsecured notes payable to parent, interest at LIBOR plus 1%,
                            contributed to equity during 1996                                       -       20,133,670

                  (6) Unsecured notes payable to parent, interest payable quarterly at
                            10%, due July 1999                                             10,400,000                -

                  (7) Accrued interest                                                      2,159,225        1,503,992

                  (8) Other                                                                         -           91,020
                                                                                          ----------------------------

                                                                                          $47,609,097       25,728,682
                                                                                          ============================
</TABLE>


                                                                     (Continued)
<PAGE>   63
                                       17

                            LEGEND PROPERTIES, INC.
                      (A Subsidiary of RGI Holdings, Inc.)
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

                Scheduled principal maturities of related party payables at
                December 31, 1996 are as follows:

<TABLE>
                    <S>          <C> 
                    1997         $12,950,309
                    1998          24,258,788
                    1999          10,400,000
                                 -----------
                                 $47,609,097
                                 ===========
</TABLE>

                Unsecured notes payable to parent and related accrued interest
                of $21,663,015 were contributed to equity during 1996.

                At December 31, 1996, mortgage notes payable to parent of
                $6,391,084 and $24,258,788 (collectively the Loans) were in
                default.  In conjunction with the stipulation and settlement
                agreement [see note 12(b)], the parent has agreed to, among
                other things, forebear or any defaults existing on the Loan as
                of the effective date of the settlement until December 31, 1997.


          (E)   SUBSEQUENT BORROWINGS
                
                In conjunction with the announcement of the settlement of the
                litigation discussed in Note 12(b), Holdings agreed to
                provide Legend with a line of credit in the aggregate principal
                amount of $8.5 million, bearing interest at the prime rate plus
                2% (10.5% at March 31, 1997).  The $8.5 million line of credit
                is secured by a second mortgage on certain real estate
                inventory.

          (F)   GUARANTEES

                Resource Group International, Inc., the indirect parent of
                Holdings, and the principal shareholder of the ultimate parent
                of Legend have collectively guaranteed up to approximately
                $35,500,000 of specific obligations of GHPH and OHPH as of
                December 31, 1996.  The balance of these guaranteed obligations
                as of December 31, 1996 was approximately $26,400,000.

(5)       PROPERTY AND EQUIPMENT

          Property and equipment are stated at cost and consist of the following
          at December 31:

<TABLE>
<CAPTION>
                                                                       1996         1995
                                                                   ------------------------

                  <S>                                              <C>           <C>
                  Marina                                           $ 2,683,475          -
                  Buildings and improvements                         8,455,761    9,054,334
                  Furniture, fixtures and equipment                  4,679,258       26,558
                  Tenant improvements                                      -        215,767
                                                                   ------------------------
                                                                    15,818,494    9,296,659
                  Less accumulated depreciation and
                     amortization                                    3,389,203    1,989,915
                                                                   ------------------------
                                                                    12,429,291    7,306,744
                  Land                                               4,293,424   11,281,440
                  Construction in progress                           3,138,150          -
                                                                   ------------------------
                                                                   $19,860,865   18,588,184
                                                                   ========================
</TABLE>

          Included in property and equipment at December 31, 1995 are rental
          property and improvements (Lynnwood Center) with a net book value of
          $18,588,184. No interest was capitalized in 1996, 1995 or 1994. As
          discussed further in note 3, the Lynnwood Center is classified as
          assets held for sale at December 31, 1996.


                                                                     (Continued)
<PAGE>   64
                                       18

                            LEGEND PROPERTIES, INC.
                      (A Subsidiary of RGI Holdings, Inc.)
                                AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================

(6)       INVESTMENTS

          Investments at December 31, 1995 represent 45% interests in GHPH and
          OHPH.

          In January 1994, GHPH realized an extraordinary gain of $5,500,796 on
          an early extinguishment of debt.

          Summary combined financial information for GHPH and OHPH follows:

<TABLE>
<CAPTION>
                  December 31, 1995
                  -----------------
                  <S>                              <C>        
                  Total assets                     $71,552,809
                                                   ===========

                  Total liabilities                $64,006,177
                                                   ===========

                  Total owners' equity             $ 7,546,632
                                                   ===========
</TABLE>


<TABLE>
<CAPTION>
                                                                   Year ended December 31
                                                                 ---------------------------
                                                                     1995           1994
                                                                 ---------------------------
                  <S>                                            <C>              <C>   
                  Operating revenues                             $ 23,563,975     31,932,355
                                                                 ===========================
                  Operating loss                                   (2,788,209)    (1,010,166)
                  Other expenses, principally interest, net        (4,010,026)    (3,257,831)
                                                                 ---------------------------
                             Loss before extraordinary gain        (6,798,235)    (4,267,997)

                  Extraordinary gain on extinguishment of debt            -        5,500,796
                                                                 ---------------------------
                               Net income (loss)                 $ (6,798,235)     1,232,799
                                                                 ===========================
</TABLE>

                As further discussed in note 2(b), Legend acquired an additional
                45% interest in GHPH and OHPH in January 1996.


                                                                     (Continued)
<PAGE>   65
                                       19



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================

(7)       NOTES PAYABLE TO BANKS AND OTHERS

          Notes payable to banks and others consists of the following at
          December 31:

<TABLE>
<CAPTION>
          Reference                                                                                  1996            1995
                                                                                                  ----------------------------
           <S>                                                                                    <C>               <C>  
           (A)    Mortgage note payable to bank, interest at the prime rate plus .75% (9.0%
                     at December 31, 1996), monthly principal and interest installments
                     of approximately $122,000, remaining principal due June 1997.  If
                     Legend is not in default, as defined in the loan agreement, the due
                     date may be extended to June 1998.  As of December 31, 1996 Legend
                     was not in default. Secured by substantially all rental
                     property and related tenant improvements and an assignment
                     of leases and rent.                                                          $14,437,813       12,600,792

           (B)    Notes payable, interest only payable monthly at
                     the prime rate plus 2.0%, not to exceed 10% (10%
                     at December 31, 1996) to 12%. Principal payments
                     of $382,000 due in 1997, remaining principal due
                     in 1999; secured by certain real estate inventory                              3,332,000                -

           (C)    Unsecured note payable, interest only payable
                     monthly at the prime rate plus .5% (8.75% at
                     December 31, 1996), principal due July 1998                                      996,220                -

           (D)    Note payable to Henry L. Block, interest at 6.34%, due in annual                                               
                     installments of $600,000, including interest through July 1, 2009              5,207,685                -

           (E)    Notes payable to banks, interest payable monthly                                                               
                     at the banks' cost of funds rate (not to exceed                                                          
                     the LIBOR rate plus .50%) plus 2.25% to 2.75%                                                            
                     (8.0625% to 8.5625% at December 31, 1996);                                                               
                     principal payments of $2,510,736, $2,000,000 and                                                         
                     $3,500,000 due in 1998, 1999 and 2000,                                                                   
                     respectively. Secured by second mortgages on                                                             
                     certain real estate inventory.                                                 8,010,736                -

           (F)    Note payable to bank, interest payable monthly at                                                              
                     the bank's cost of funds rate (not to exceed the                                                         
                     LIBOR rate plus .25%) plus 2.5% (8.20% at December                                                       
                     31, 1996); principal payments of $592,192,                                                               
                     $2,250,000 and $4,750,000 due in 1998, 1999 and                                                          
                     2000, respectively. Secured by first mortgage on                                                         
                     the clubhouse and third mortgages on certain real                                                        
                     estate inventory                                                               7,562,192                -
</TABLE>


                                                                     (Continued)
<PAGE>   66
                                       20

                            LEGEND PROPERTIES, INC.
                      (A Subsidiary of RGI Holdings, Inc.)
                                AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================
<TABLE>
           <S>                                                                                    <C>               <C>  

           (G) Notes payable to banks, interest payable monthly
                     at the prime rate plus .5% to 1.5% (8.75% to 9.75%
                     at December 31, 1996); principal payments of
                     $200,000, $11,269,546 and $3,000,000 due in 1997,
                     1998 and 1999, respectively. Secured by first
                     mortgages on certain real estate inventory,
                     certain property and equipment and certificates of
                     deposit with balances totaling $5.9 million at
                     December 31, 1996                                                            $14,469,546                -

           (H) Construction revolving line of credit, interest                                                                
                     payable monthly at the prime rate plus 1% (9.25%                                                         
                     at December 31, 1996); due June 1998. Secured by                                                         
                     first mortgages on certain real estate inventory,                                                        
                     certain property and equipment, and a certificate                                                        
                     of deposit with a balance of $5.6 million at                                                             
                     December 31, 1996. Total advances are not to                                                             
                     exceed $16,000,000                                                             1,975,203                -

           (I) Notes payable to bank, interest payable monthly at                                                             
                     the bank's cost of funds rate (not to exceed the                                                         
                     LIBOR rate plus .50%) plus 2.25% to 2.75% (8.0625%                                                       
                     to 8.5625% at December 31, 1996); principal                                                              
                     payments of $630,228, $1,000,000 and $10,000,000                                                         
                     due in 1998, 1999 and 2000, respectively. Secured                                                        
                     by first and second mortgages on certain real                                                            
                     estate inventory plus 50% of membership equity                                                           
                     payments                                                                      11,630,228       10,687,273

           (J) Construction notes payable to banks, interest payable 
                     monthly at the bank's cost of funds rate (not to 
                     exceed the LIBOR rate plus .25%) plus 2.5%, (8.25% 
                     at December 31, 1996); principal of $3,000,000 and 
                     $4,309,479 due in 1997 and 1998, respectively. 
                     Secured by a first mortgage on the club facilities,
                     certain real estate inventory and 50% of membership
                     equity payments                                                                7,309,479                -

           (K) Notes payable to banks, interest payable monthly                                                               
                     at the prime rate plus .75% to 1.0% (9.00% to                                                            
                     9.25% at December 31, 1996); principal due in                                                            
                     1997. Secured by a first mortgage on certain                                                             
                     property. Total advances are not to exceed                                                               
                     $4,500,000                                                                     2,645,870                -

           (L) Notes payable to banks, interest payable monthly                                                               
                     at the prime rate plus .5% to .75% (8.75% to 9.0%                                                        
                     at December 31, 1996); principal payments ranging                                                        
                     from $507,000 to $1,744,000 due from 1997 to 2000                              4,468,508                -

           (M) Construction revolving lines of credit payable to
                     banks, interest payable monthly at the prime rate
                     plus .50% to .75% (8.75% to 9.0% at December 31,
                     1996). Secured by a first mortgage on certain
                     property. Total advances are not to exceed
                     $11,000,000                                                                    2,012,591                -
</TABLE>



                                                                     (Continued)
<PAGE>   67
                                       21




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================

<TABLE>
           <S>                                                                                    <C>               <C>  

           (N) Revolving line of credit payable to bank, due on
                     demand, with interest payable at the prime rate
                     plus .75% (9.00% at December 31, 1996); secured by
                     certain property. Total advances are not to exceed
                     $3,000,000                                                                   $ 2,401,600                -

           (O) Notes payable, interest at 8.25% to 9.0%; principal and interest due
                     during 1997.  Secured by a first mortgage on certain real estate
                     inventory                                                                        235,850                -

           (P) Other                                                                                    5,096                -
                                                                                                  ----------------------------

                                                                                                  $86,700,617       23,288,065
                                                                                                  ============================
</TABLE>

          Certain of Legend's loan agreements prohibit the payment of dividends.

          In conjunction with the acquisition of Royal Palm Convalescent Center
          by OHPH in June 1994, an irrevocable trust consisting of three
          annuities was established, the sole purpose of which is to provide
          security for payment on the note payable to Henry L. Block. The
          annuity contracts totaled $5,031,220 at December 31, 1996 plus accrued
          interest receivable of approximately $176,500, and will fully satisfy
          the note through annual principal and interest payments of $600,000
          through July 1, 2009.

          Scheduled principal maturities of notes payable to banks and others at
          December 31, 1996 are as follows:


<TABLE>
             <S>                                <C>        
             1997                               $26,203,656
             1998                                22,310,338
             1999                                15,083,514
             2000                                19,081,807
             2001                                   345,049
             Thereafter                           3,676,253
                                                -----------
                                                $86,700,617
                                                ===========
</TABLE>


                                                                     (Continued)
<PAGE>   68
                                       22

                            LEGEND PROPERTIES, INC.
                      (A Subsidiary of RGI Holdings, Inc.)
                                AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================

          Included in 1997 scheduled principal maturities is $14,437,813
          relating to the Lynnwood Center as Legend expects to sell it by
          December 31, 1997. In the event the Lynnwood Center is not sold by
          December 31, 1997, scheduled principal maturities would be $11,933,808
          and $36,580,186 for 1997 and 1998, respectively.

    (8)   LEASES

          Legend leases space to tenants in the Lynwood Center under
          noncancelable operating leases with terms ranging from 1 to 30 years.
          Generally, the tenants are charged a minimum rental and contingent
          rentals based on tenant revenues and are also obligated to reimburse
          Legend for certain operating expenses. Approximate future minimum
          rentals under noncancelable leases in effect at December 31, 1996 are
          as follows:

<TABLE>
              <S>                              <C>
              1997                             $2,005,000
              1998                              1,964,000
              1999                              1,910,000
              2000                              1,897,000
              2001                              1,815,000
              Thereafter                       23,715,000
                                              -----------
                                              $33,306,000
                                              ===========
</TABLE>

          Three tenants comprised approximately 76%, 62% and 54% of rental
          income in 1996, 1995 and 1994, respectively. Contingent rentals were
          insignificant in 1996, 1995 and 1994.

    (9)   INCOME TAXES

          There was no current income tax benefit or expense in 1996, 1995 or
          1994 and deferred tax expense or benefit was offset by changes in the
          allowances for deferred tax assets.



                                                                     (Continued)
<PAGE>   69
                                       23


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================

          The approximate tax effects of temporary differences and carryforwards
          that give rise to significant portions of deferred tax assets and
          liabilities as of December 31 are as follows:


<TABLE>
<CAPTION>
                                                                                  1996         1995
                                                                              -----------------------
                  <S>                                                         <C>           <C>
                  Deferred tax assets:
                        Real estate inventory and assets held for sale        $24,301,000     725,000
                        Deferred income                                           655,000     220,000
                        Investments                                                   -       810,000
                        Net operating loss carryforwards                        4,809,000     500,000
                        Other                                                     109,000         -
                                                                              -----------------------
                                       Total gross deferred tax assets         29,874,000   2,255,000
                        Less valuation allowance                               29,330,000   2,100,000
                                                                              -----------------------
                                       Net deferred tax assets                    544,000     155,000
                                                                              -----------------------
                  Deferred tax liabilities:
                        Deferred rent                                                 -       150,000
                        Organization and loan fees                                294,000         -
                        Property and equipment                                    116,000         -
                        Inventory                                                 122,000         -
                        Other                                                      12,000       5,000
                                                                              -----------------------
                                       Total gross deferred tax liabilities       544,000     155,000
                                                                              -----------------------
                                       Net deferred tax liability             $       -           -
                                                                              =======================
</TABLE>

          The valuation allowance increased by $27,230,000 and $1,570,000 in
          1996 and 1995, respectively.

          As of December 31, 1996, Legend has net operating loss carryforwards
          of approximately $13,740,000 which expire in 2011. This excludes
          losses of Banyan which because of certain
<PAGE>   70
                                       24

                            LEGEND PROPERTIES, INC.
                      (A Subsidiary of RGI Holdings, Inc.)
                                AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



================================================================================

           tax regulations are not realizable because of the change in
           ownership. Additionally, certain deductible temporary differences
           which existed at the time of the merger may be limited under current
           tax regulations should they be realized during the five years ended
           December 31, 2001.

   (10)   FAIR VALUE OF FINANCIAL INSTRUMENTS

          Legend's financial instruments include cash, restricted cash,
          receivables, accounts payable, and short- and long-term borrowings. In
          general, Legend believes that the fair value of these financial
          instruments approximates their carrying amounts based upon their
          short-term nature or upon current market indicators, such as
          prevailing interest rates.

          Legend's financial instruments also include restricted investments,
          consisting of an irrevocable trust fund containing three annuities,
          established to provide the annual payments required on the note
          payable to Henry L. Block. The annual distributions from the annuities
          fully satisfy the interest and principal payments of the note payable.
          These annuities cannot be surrendered and, therefore, have no cash
          value. Because the restricted investments and the note payable are
          inextricably linked, the fair value of each is considered to be the
          carrying amounts reported in the balance sheet.

   (11)   CONCENTRATION OF ASSETS

          The majority of Legend's assets are real estate holdings which are
          subject to possible fluctuating economic conditions. Such fluctuations
          can have a significant impact on the market values, which could limit
          the potential recovery of the properties' carrying values.

   (12)   CONTINGENCIES

          (a)   FINANCING

                Legend has significant indebtedness maturing in 1997 and will
                not be able to satisfy these obligations without restructuring
                of refinancing. However, due to the uncertainty related to the
                litigation described in note 12(b), Legend is unable to
                negotiate such transactions.  Management believes that if the
                litigation is satisfactorily resolved in the near term, Legend's
                debt can be refinanced or restructured to enable its obligations
                to be met.

          (b)   LITIGATION - DELAWARE

                On October 31, 1996, a lawsuit was filed in Delaware State court
                by two of Legend's stockholders on behalf of themselves and all
                of the non-defendant stockholders of Legend, against Legend and
                certain of its directors and officers.

                The plaintiffs have alleged, among other things, that Legend's
                board of directors breached its fiduciary duties by failing to
                seek alternative change of control transactions, other than the
                merger with RGI/US, or appropriately evaluate the alternative of
                liquidating Legend.  Plaintiffs further alleged that the merger
                unfairly diluted the voting and equity interest of Legend's
                stockholders since Holdings, the parent of RGI/US, ended up
                owning approximately 79% of Legend's common stock.  In addition,
                the plaintiffs alleged that the proxy statement circulated by
                Legend in connection with the annual meeting held to consider
                and vote upon the merger was misleading and failed to disclose
                certain material information.  Among other remedies, the
                plaintiffs sought to enjoin the merger and require the
                defendants to undertake additional activities to maximize
                stockholder value and disclose certain additional information to
                Legend's stockholders in connection with considering the merger.

                On November 13, 1996, another Banyan stockholder filed an action
                asserting allegations substantially similar to those in the
                action filed on October 31.  These two suits were ultimately
                consolidated by the Delaware Court of Chancery on December 11,
                1996 under the case number C.A. No. 15287.  The parties
                subsequently engaged in discovery, including producing and
                reviewing documents and taking depositions of certain of
                Legend's former officers, as well as that of one of Legend's
                directors. Plaintiffs filed a motion for preliminary injunction
                and an opening brief in support of that motion on November 15,
                1996. On December 24, 1996, the plaintiffs served and filed a
                consolidated amended and supplemental complaint repeating the
                allegations made in the initial complaint and adding additional
                factual allegations that Legend had failed to properly consider
                acquisition proposals submitted by third parties to acquire
<PAGE>   71



                                   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.

LEGEND PROPERTIES, INC.



By:/s/ Kenneth L. Uptain                                   Date:  April 15, 1997
       Kenneth L. Uptain, President,
       Chief Executive Officer and Director

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

By:/s/ Kenneth L. Uptain                                   Date: April 15, 1997
       Kenneth L. Uptain, President,
       Chief Executive Officer and Director

By:/s/Raymond J. Whitty                                    Date: April 15, 1997
      Raymond J. Whitty,
      Chief Financial Officer, and
      Treasurer and Secretary

By:/s/Walter E. Auch, Sr.                                  Date: April 15, 1997
      Walter E. Auch, Sr., Director

By:/s/Robert M. Ungerleider                                Date: April 15, 1997
      Robert M. Ungerleider, Director

By:/s/Fred E. Welker, III                                  Date: April 15, 1997
      Fred E. Welker, III, Director

By:/s/Olav Revhaug                                         Date: April 15, 1997
      Olav Revhaug, Director



<PAGE>   72
Item 14. Exhibits

(a)     Exhibits:

<TABLE>
<CAPTION>

Exhibit No.
-----------
<S>     <C>     <C>

 2.1    --      Agreement and Plan of Merger, dated as of April 12, 1996, as
                amended and restated as of May 20, 1996, by and among RGI/US,
                RGI Holdings, Inc. and the Registrant, together with Amendment
                to Agreement and Plan of Merger dated as of September 17,
                1996.(1)
    
 3.1    --      Amended and Restated Certificate of Incorporation of the
                Registrant.
    
 3.2    --      Bylaws of Registrant, as amended and restated as of July 1,
                1996.(2)

10.1    --      Second Amendment of Leonard G. Levine's Employment Contract
                dated December 31, 1992.(3)

10.2    --      Form of Director Stock Option Agreements dated July 1, 1993,
                July 24, 1994 and July 7, 1995.(3)

10.3    --      Form of Executive Stock Option Agreements dated July 1, 1993,
                January 12, 1994 and February 8, 1995.(3)

10.4    --      Credit Agreements, Notes and Warrants between Registrant and
                Morgans Waterfall, Vintiadis & Co. Inc.(4)

10.5    --      Loan Modification Agreement, dated as of May 20, 1996, by and
                between Registrant and RGI Holdings, Inc. (SoGen Loan)(5)

10.6    --      Modification to

10.7    --      Loan Modification Agreement, dated as of May 21, 1996, by and
                between Registrant and RGI Holdings, Inc. (Morgans Loan)(5)

10.8    --      Omitted

10.9    --      Registration Rights Agreement, dated as of May 21, 1996, by and
                between Registrant and RGI Holdings, Inc.(5)

10.10   --      Master Construction Contract dated as of June 28, 1991 by and
                among GHA Harbor Associates, GHA Grand Harbor, Ltd., GHA St.
                David's, Ltd., GHA Wood Duck, Ltd., GHA Harbor Ltd., GHA
                Newport, Ltd., GHA River Club, Ltd., GHA Coventry, Ltd. and
                Proctor Construction Company.(1)

10.11   --      Profit Sharing Agreement dated as of June 28, 1991 by and among
                Proctor Construction Company, Andlinger Properties Capital L.P.
                and Grand Harbor Associates, Inc.(1)

10.12   --      Omitted

10.13   --      Third Amendment to Administrative Services Agreement, dated
                March 31, 1997 by and between Banyan Management Corp. and Legend
                Properties, Inc. f/k/a Banyan Mortgage Investment Fund.

16      --      Letter from Coopers & Lybrand L.L.P. regarding change in
                Registrant's certifying accountant.(5)

21      --      Subsidiaries of the Registrant.

</TABLE>

                                      II-1
<PAGE>   73
<TABLE>
<S>     <C>     <C>

27      --      Financial Data Schedule.

</TABLE>

--------------
        (1)  Incorporated by reference to the Registrant's Registration
Statement on Form S-4 (Registration Number 333-12415) dated
_________________, 1996. 

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

        (3)  Incorporated by reference to the Registrant's Report on Form 10-K
for the year ended December 31, 1995.

        (4)  Incorporated by reference to Exhibits 10(a) through 10(n) to the
Registrant's Report on Form 10-K for the year ended December 31, 1994.

        (5)  Incorporated by reference to the Registrant's Report on Form 8-K
dated May 20, 1996.



                                      II-2