FORM 10-K
                                    UNITED STATES
                          SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C.  20549
          (Mark One)

          [ X ]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                    SECURITIES EXCHANGE ACT OF 1934
          FOR THE FISCAL YEAR ENDED    JANUARY 31, 1998                     
                                             

                                          OR

          [   ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                    THE SECURITIES EXCHANGE ACT OF 1934
          FOR THE TRANSITION PERIOD FROM               TO
                                         ------------     -------------

          COMMISSION FILE NUMBER: 0-21249

                             GRAND COURT LIFESTYLES, INC.
                (Exact name of registrant as specified in its charter)

                    Delaware                      22-3423087
               (State or other jurisdiction of    (I.R.S. Employer
               incorporation or organization)     Identification No.)

          2650 North Military Trail,                   33431
          Suite 350, Boca Raton, Florida          (Zip code)
          (Address of principal
          executive offices) 

          Registrant's telephone number, including area code  (561) 997-0323  

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

          Title of each class     Name of each exchange on which registered
          -------------------     -----------------------------------------

                None                               None

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

                             Common Stock, $.01 par value
                                   (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          No   X  .
                                                  ----        -----

               Indicate by check mark if disclosure of delinquent filers
          pursuant to Item 405 of Regulation S-K (<section>229.405 of this
          chapter) 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. [    ] 

          The aggregate market value of the common stock held by nonaffiliates
          of the registrant was $32,738,686.88 at April 29, 1998.

          On April 29, 1998, the Company had 17,800,000 shares of common
          stock outstanding.


     <PAGE>

                             GRAND COURT LIFESTYLES, INC.
                         INDEX TO ANNUAL REPORT ON FORM 10-K
                      FOR THE FISCAL YEAR ENDED January 31, 1998
           

                                                                       PAGE


          PART I  . . . . . . . . . . . . . . . . . . . . . . . . . . .   2

          Item 1.  Business . . . . . . . . . . . . . . . . . . . . . .   2
          Item 2.  Properties . . . . . . . . . . . . . . . . . . . . .  16
          Item 3.  Legal Proceedings  . . . . . . . . . . . . . . . . .  19
          Item 4.  Submission of Matters to a Vote of Security Holders   20

          PART II . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
          Item 5.  Market for Registrant's Common Equity and Related
                   Stockholder matters  . . . . . . . . . . . . . . . .  20
          Item 6.  Selected Financial Data  . . . . . . . . . . . . . .  21
          Item 7.  Management's Discussion and Analysis of Financial
                   Condition and Results of Operations  . . . . . . . .  23
          Item 8.  Financial Statements and Supplementary Data  . . . .  40
          Item 9.  Changes in and Disagreements with Accountants on
                   Accounting and Financial Disclosure  . . . . . . . .  60

          PART III  . . . . . . . . . . . . . . . . . . . . . . . . . .  60
          Item 10.  Directors and Executive Officers of the Registrant   60
          Item 11.  Executive Compensation  . . . . . . . . . . . . . .  63
          Item 12.  Security Ownership of Certain Beneficial Owners and
                    Management  . . . . . . . . . . . . . . . . . . . .  65
          Item 13.  Certain Relationships and Related Transactions  . .  66

          PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . .  67
          Item 14.  Exhibits, Financial Statement Schedules, and
                    Reports on Form 8-K . . . . . . . . . . . . . . . .  67


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     <PAGE>

                                        PART I

            This Form 10-K contains forward-looking statements within the
          meaning of Section 21E of the Securities Exchange Act of 1934. 
          Forward-looking statements should be read with the cautionary
          statements and important factors included in this Form 10-K at
          Item 7, "Management's Discussion and Analysis of Financial
          Conditions and Results of Operations - Safe Harbor for Forward-
          Looking Statements."  Forward-looking statements are all
          statements other than statements of historical fact, including
          without limitation those that are identified by the use of the
          words "anticipates", "estimates", "expects", "intends",
          "believes", and similar expressions.  Unless the context
          otherwise requires, (i) all references herein to a "Fiscal" year
          refer to the fiscal year beginning on February 1 of that year
          (for example, "Fiscal 1995" refers to the fiscal year beginning
          on February 1, 1995) and (ii) all references to the Company,
          include the Company, its subsidiaries and its predecessors taken
          as a whole.

          ITEM 1.  BUSINESS

          GENERAL

            Grand Court Lifestyles, Inc. (the "Company") is a Delaware
          corporation formed in 1996 to consolidate substantially all of
          the assets of its predecessors, J&B Management Company, Leisure
          Centers, Inc. and their affiliates.  The Company is a fully
          integrated provider of adult living accommodations and services
          which acquires, develops and manages adult living communities. 
          The Company's revenues have been and are expected to continue to
          be, primarily derived from sales of partnership interests
          ("Syndications") of partnerships it organizes to acquire existing
          adult living communities.  The Company has established a new
          development program pursuant to which it is building new adult
          living communities, which it owns directly or operates pursuant
          to long-term leases.  The Company does not intend to Syndicate
          the adult living communities constructed pursuant to its new
          development program.  To the extent the Company successfully
          implements its new development program for the construction of
          new adult living communities, it anticipates that the percentage
          of revenues derived therefrom will increase. The Company manages
          adult living communities which have been acquired utilizing
          Syndications.  The Company also manages adult living communities
          it directly owns or operates under long-term leases.  The Company
          is one of the largest managers of adult living communities in the
          United States, operating communities offering both independent-
          and assisted-living services.  

            The Company currently manages 37 Syndicated adult living
          communities containing 5,261 adult living apartment units in 12
          states in the Sun Belt and the Midwest.  The Company also manages
          one Syndicated nursing home containing 57 beds.  One of the
          Syndicated adult living communities the Company operates also
          contains 70 skilled nursing beds.  In addition, the Company
          manages (i) two newly developed adult living communities
          containing 268 units which it owns and (ii) two newly developed
          adult living communities containing 284 units which it operates
          under long-term leases. These four adult living communities were
          developed and constructed pursuant to the Company's development
          program.  The Company has approximately 1,900 employees and
          directly conducts the day-to-day operations of the adult living
          communities it manages.  At April 10, 1998 the Syndicated
          communities managed by the Company had an average occupancy rate
          of approximately 91%.  The four newly developed communities are
          all in their initial lease-up phase.  The Company's operating
          objective is to provide high-quality, personalized living
          services to senior residents, primarily persons over the age of
          75.  To the extent that the Company continues to successfully
          implement the development plan described below, the Company
          anticipates that the percentage of its revenues derived from
          Syndications would decrease and the percentage of revenues
          derived from newly constructed adult living communities would
          increase and, the Company believes, over time, become the primary
          source of the Company's revenues.

            Prior to 1986, the Company acquired, developed, arranged for
          the Syndication of, and in most cases managed, 170 multi-family
          properties containing approximately 20,000 apartment units,
          primarily in the Sun Belt and the Midwest.  The Company is no
          longer engaged in the acquisition, development, Syndication or
          management of multi-family properties and the Company does not
          presently intend to do so in the future.  The Company's only
          involvement with multi-family properties is as a holder of notes
          and receivables from the partnerships that own 128 multi-family
          properties containing 13,886 apartment units (the "Multi-Family
          Properties"), which notes and receivables are paid from the cash
          flow and sale or refinancing proceeds these properties generate.


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     <PAGE>


          As of January 31, 1998, the recorded value, net of deferred
          income, of these notes on the Company's Consolidated Balance
          Sheets was $107.3 million and the recorded amount of these
          receivables was $58.7 million.

            Historically, the Company has arranged for the acquisition of
          adult living properties by utilizing mortgage financing and by
          arranging Syndications of 41 limited partnerships ("Investing
          Partnerships") formed to acquire interests in the 37 other
          partnerships that own the Syndicated adult living communities and
          the Syndicated nursing home ("Owning Partnerships") managed by
          the Company.  These 37 Syndicated adult living communities and
          one nursing home are owned by the respective Owning Partnerships
          and not by the Company.  The Company is the managing general
          partner of all but one of the Owning Partnerships. The Company is
          also the general partner of 32 of the 41 Investing Partnerships.

            In a typical Syndication, the Company identifies an adult
          living community suitable for acquisition and forms an Owning
          Partnership (in which it is the managing general partner and
          initially owns all of the partnership interests) to acquire the
          property.  An Investing Partnership is also formed ( in which the
          Company is also the general partner with a 1% interest) to
          purchase from the Company a 99% partnership interest in the
          Owning Partnership (the "Purchased Interest"), leaving the
          Company with a 1% interest in each of the Owning Partnership and
          the Investing Partnership.  The purchase price for the Purchased
          Interest is paid in part in cash and in part by a note from the
          Investing Partnership with a term of approximately five years ( a
          "Purchase Note").  Limited partners purchase partnership
          interests in the Investing Partnership by agreeing to make
          capital contributions over approximately five years to the
          Investing Partnership, which allows the Investing Partnership to
          pay the purchase price for the Purchased Interest, including the
          Purchase Note.  Limited Partners are typically permitted to pre-
          pay their scheduled capital contributions.  The limited
          partnership agreement of the Investing Partnership provides that
          the limited partners are entitled to receive, for a period not to
          exceed five years, distributions equal to between 11% and 12% per
          annum of their then paid-in scheduled capital contributions. 
          Although the Company incurs certain costs in connection with
          acquiring the community and arranging for the Syndication of
          partnership interests in the Investing Partnership, the Company
          makes a profit on the sale of the Purchased Interest.  In
          addition, as part of the purchase price paid by the Investing
          Partnership for the Purchased Interest, the Company receives a
          40% interest in sale and refinancing proceeds after certain
          priority payments to the limited partners.  

            The Company also enters into a management contract with the
          Owning Partnership pursuant to which the Company agrees to manage
          the adult living community. As part of the management fee
          arrangements, the management contract requires the Company, for a
          period not to exceed five years, to pay to the Owning Partnership
          (to the extent that cash flows generated by the property are
          insufficient) amounts sufficient to fund (i) any operating cash
          deficiencies of such Owning Partnership and (ii) any part of the
          specified rate of return to limited partners not paid from cash
          flow from the related property (which the Owning Partnerships
          distribute to the Investing Partnerships for distribution to
          limited partners) (collectively, the "Management Contract
          Obligations").  The Company, therefore, has no direct obligation
          to pay specified returns to limited partners.  Rather, the
          Company is obligated pursuant to the management contract to pay
          to the Owning Partnership amounts sufficient to make the
          specified returns to the limited partners, to the extent the cash
          flows generated by the property are insufficient to do so.  The
          Owning Partnership then distributes these amounts to the
          Investing Partnership which, in turn, distributes these amounts
          to the limited partners.  As a result of the Management Contract
          Obligations, the Company essentially bears the risks of
          operations and financial viability of the related property for
          such five-year period.  The management contract, however, rewards
          the Company for successful management of the property by allowing
          the Company to retain as an incentive management fee any cash
          flow generated by the property in excess of the amount needed to
          satisfy the Management Contract Obligations.  After the initial
          five-year period, the limited partners are entitled to the same
          specified rate of return, but only to the extent there is
          sufficient cash flow from the property.  Any amounts of cash flow
          available after payment of the specified return to limited
          partners are shared as follows: 40% to the Company as an
          incentive management fee and 60% for distribution to the limited
          partners.  The management contract is not terminable during this
          five-year period and is terminable thereafter by either party
          upon thirty to sixty days notice. 

            The management contract with each Owning Partnership requires
          the Company to manage and operate the day-to-day operations of
          the adult living community.  Under each management contract, the
          Company acts as an independent contractor.  Required services
          performed by the Company for each community include marketing and
          advertising; renting apartment units and collecting rents and
          charges; providing independent and assisted living services
          (including providing meals, activities, transportation and, for


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          assisted-living residents, assistance with activities of daily
          living ("ADLs")); hiring, paying and supervising the on-site
          employees; maintaining the property; purchasing supplies; and
          preparing operating budgets and reports.  Although the Company
          has the right to sub-contract for such services, the Company
          directly performs such services utilizing employees of the
          Company.

            All Syndicated adult living communities and the Syndicated
          nursing home are managed by the Company in its capacity as
          property manager and, for all but one of the related Owning
          Partnerships, as managing general partner. Because the Company
          serves as both the managing general partner and the property
          manager, it receives partnership administration fees and property
          management fees. As the managing general partner of these
          partnerships, the Company generally has full authority and power
          to act for the partnerships as if it were the sole general
          partner. The Company has fiduciary responsibility for the
          management and administration of these partnerships and, subject
          to certain matters requiring the consent of the other partners
          such as a sale of the related property, may generally, on behalf
          of the partnerships, borrow money, execute contracts, employ
          persons and services, compromise and settle claims, determine and
          pay distributions, prepare and distribute reports, and take such
          other actions which are necessary or desirable with respect to
          matters affecting the partnerships or individual partners.

            The Company intends to continue to arrange for future
          acquisitions of existing adult living communities by utilizing
          mortgage financing and by arranging Syndications, and anticipates
          acquiring between six and twelve communities during the next two
          years.  The Company does not intend to Syndicate it's newly
          developed adult living communities, which it will own and operate
          or operate pursuant to long-term leases. 

            Current demographic trends suggest that demand for both
          independent-living and assisted-living services will continue to
          grow.  According to U.S. Bureau of Census data, the Company's
          target market, people over age 75, is one of the fastest growing
          segments of the U.S. population and is projected to increase by
          more than 24% to 16.3 million between 1990 and 2000.  While the
          population of seniors grows, other demographic trends suggest
          that an increasing number of them will choose adult living
          centers as their residences.  According to U.S. Bureau of Census
          data, the median net worth of householders over age 75 has
          increased to over $75,000.  At the same time, the Census shows
          that the number of seniors living alone has increased, while
          women, who have been the traditional care-givers, are more likely
          to be working and unable to provide care in the home.  The
          Company believes that many seniors find that adult living centers
          provide them with a number of services and features that
          increasingly they are unable to find at home, including security,
          good nutritious food and companionship.  Furthermore, the
          National Long Term Care Surveys, a Federal study that regularly
          surveys close to 20,000 people aged 65 and older, indicate that,
          despite the growth in the elderly population, the percentage of
          elderly that are disabled and need assistance with ADLs has
          decreased substantially and is expected to continue to decrease. 
          This suggests that demand for independent living communities will
          increase in the future.

            Assisted-living supplements independent-living services with
          assistance with ADLs in a cost effective manner while maintaining
          residents' independence, dignity and quality of life.  Such
          assistance consists of personalized support services and health
          care in a non-institutional setting designed to respond to the
          individual needs of the elderly who need assistance but who do
          not need the level of health care provided in a skilled nursing
          facility.

            The Company has instituted a development plan pursuant to which
          it has completed construction of four adult living communities,
          is nearing completion of the construction of three additional
          communities, has commenced construction on one additional
          community and intends to commence construction on between 30 and
          34 additional new adult living communities over the next two
          years. The Company plans to own or lease pursuant to long-term
          operating leases or similar arrangements the adult living
          communities that will be developed under the plan.  The Company
          will manage and operate each of the newly developed communities. 
          The Company does not intend to Syndicate any of its newly-
          developed adult living communities.  The Company estimates that
          the cost of developing each new adult living community (including
          reserves necessary to carry the community through its lease up
          period) utilizing mortgage financing will be approximately $9.5
          million and utilizing long-term lease financing will be
          approximately $10 million.  The Company expects to complete the
          construction of three of the four communities currently under
          construction by the end of the first quarter of fiscal 1998 and
          expects to complete the construction of the remaining community
          under construction by the end of fiscal 1998.  These four adult


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          living communities, along with the four communities whose
          construction is already completed pursuant to the development
          plan, contain an aggregate of approximately 1,150 adult living
          apartment units.  The 30 to 34 additional new communities which
          the Company intends to commence construction on over the next two
          years will contain between 4,260 and 4,828 additional adult
          living apartment units.  Each new community to be developed by
          the Company will offer both independent and assisted-living
          services.  

            The first new communities being constructed pursuant to the
          Company's development plan are in Texas.  The Company has
          obtained development financing from Capstone Capital Corporation
          ("Capstone") pursuant to which Capstone is providing up to $39
          million for development of four new adult living communities that
          will be operated by the Company pursuant to long-term leases with
          Capstone.  The Company has completed construction on two of these
          communities in El Paso and San Angelo, Texas, respectively, and
          is nearing completion of construction on the remaining two
          communities which are located in Wichita Falls, and Abilene,
          Texas, respectively.  The Company has completed construction with
          mortgage financing for up to $7 million on an adult living
          community in Corpus Christi, Texas, and has completed
          construction with mortgage financing for up to $7.3 million on an
          adult living community in Temple, Texas.  The Company is also
          nearing completion of construction, with mortgage financing for
          up to $7.6 million, of an adult living community in Round Rock,
          Texas.  The Company has commenced construction on one additional
          site in Tyler, Texas with mortgage financing of $7.1 million. The
          Corpus Christi and Temple communities are owned and operated
          directly by the Company and the Round Rock and Tyler facilities
          are owned and, upon completion, will be operated directly by the
          Company.  The Company has acquired additional sites in Amarillo
          and South Shore, Texas, holds options to acquire one additional
          site in Texas and one additional site in Kansas and is
          negotiating with several additional lenders to obtain financing
          to develop these four sites.

            Upon the completion of construction of each adult living
          community developed and constructed pursuant to the Capstone
          Development Agreement, and upon the satisfaction of certain other
          conditions, the Company will be the lessee under long-term lease
          arrangements with Capstone which provide financing for
          development of four of the newly developed adult living
          communities.  The initial term of each lease, which begins upon
          the completion of a facility and meeting of other criteria, is 15
          years with three five-year extension options.  Under the terms of
          each lease, the Company has the option to acquire the community
          after operating the community for four years.  The option price
          is equal to the sum of 100% of the cost incurred to develop the
          property and an additional 20% of such cost (which declines by 2
          percentage points per year but in no event declines below 10%). 
          The initial lease rate is 350 basis points in excess of the ten-
          year Treasury Bill yield (but in no event less than 9.75% per
          annum).  The lease rate has an annual upward adjustment equal to
          3% of the previous year's rent.  The four leases have cross-
          default provisions.  Each lease is a triple net lease, as the
          Company is responsible for all costs, including but not limited
          to maintenance, repair, insurance, taxes, utilities, and
          compliance with legal and regulatory requirements.  If a
          community is damaged or destroyed, the Company is required to
          restore the community to substantially the same condition it was
          in immediately before such damage or destruction, or acquire the
          facility for the option price described above.

            The Company generally plans to concentrate on developing
          projects in only a limited number of states at any given time. 
          The Company believes that this focus will allow it to realize
          certain efficiencies in the development and management of
          communities.  The effectuation of the development plan will
          expose the Company to additional risk.  These risks include, but
          are not limited to, the Company's anticipation that the
          construction of each community will require approximately 12
          months and that each newly constructed community will incur
          start-up losses for at least nine months after commencing
          operations.  In addition, there can be no assurance that newly
          constructed communities will generate positive cash flow or that
          the Company will not suffer delays or cost overruns in
          instituting its development plan.

            The Company's adult living communities offer personalized
          assistance, supportive services and selected health care services
          in a professionally managed group living environment.  Residents
          may receive individualized assistance which is available 24 hours
          a day, and is designed to meet their scheduled and unscheduled
          needs.  The services for independent- living generally include
          three restaurant-style meals per day served in a common dining
          room, weekly housekeeping and flat linen service, social and
          recreational activities, transportation to shopping and medical
          appointments, 24-hour security and emergency call systems in each
          unit.  The services for assisted-living residents generally
          include those provided to independent-living residents, as


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          supplemented by assistance with ADLs including eating, bathing,
          dressing, grooming, personal hygiene and ambulating; health
          monitoring; medication management; personal laundry services; and
          daily housekeeping services.

            The Company focuses exclusively on "private-pay" residents, who
          pay for housing or related services out of their own funds or
          through private insurance, rather than relying on the few states
          that have enacted legislation enabling assisted-living facilities
          to receive Medicare funding similar to funding generally provided
          to skilled nursing facilities.  The Company intends to continue
          its "private-pay" focus as it believes this market segment is,
          and will continue to be, the most profitable.  This focus will
          enable the Company to increase rental revenues as demographic
          pressure increases demand for adult living communities and avoid
          potential financial difficulties it might encounter if it were
          dependent on Medicare or other government reimbursement programs
          that may suffer from health care reform, budget deficit reduction
          or other pending or future government initiatives.

          PARTNERSHIP OFFERINGS

            The Company has arranged for the acquisition of the Syndicated
          adult living communities and one Syndicated nursing home that it
          manages by utilizing mortgage financing and Syndications of the
          Investing Partnerships formed to acquire investments in the
          Owning Partnerships that own these properties. The Company is the
          managing general partner of all but one of the Owning
          Partnerships that own the Syndicated adult living communities and
          one Syndicated nursing home.  The Company manages all of the
          Syndicated adult living communities and the one Syndicated
          nursing home in its portfolio.  The Company is also the general
          partner of 32 of the 41 Investing Partnerships. The Company has a
          participation in the cash flow, sale proceeds and refinancing
          proceeds of the Syndicated adult living communities after certain
          priority payments to the limited partners.  In a typical
          Syndication, an Owning Partnership is organized by the Company to
          acquire a property which the Company has identified and selected
          based on a broad range of factors.  Generally, 99% to 100% of the
          partnership interests in an Owning Partnership initially are
          owned by the Company.  An Investing Partnership is formed as a
          limited partnership for the purpose of acquiring all or
          substantially all of the total partnership interests in the
          Owning Partnership owned by the Company (the "Purchased
          Interest").  Limited partnership interests in the Investing
          Partnership are sold to investors in exchange for (i) all cash or
          (ii) a cash down payment and full recourse promissory notes (an
          "Investor Note").  In the case of an investor that does not
          purchase a limited partnership interest for all cash, the
          investor's limited partnership interest (a "Limited Partnership
          Interest") serves as collateral security for that investor's
          Investor Note.  Under the terms of an agreement (a "Purchase
          Agreement"), the Investing Partnership purchases from the Company
          the Purchased Interest partially with cash raised from the cash
          down payment made by its investors and the balance by the
          delivery of the Investing Partnership's promissory note (a
          "Purchase Note").  The Purchase Notes executed by Investing
          Partnerships prior to 1986 have balloon payments of principal due
          on maturity.  The Purchase Notes executed since January 1, 1987
          are self-liquidating (without balloon payments).  The Investing
          Partnership, as collateral security for its Purchase Note,
          pledges to the Company the Investor Notes received from its
          investors, its interest in the Limited Partnership Interests
          securing the Investor Notes, as well as the entire Purchased
          Interest it holds in the Owning Partnership which it purchased
          from the Company.  In addition, each Purchase Agreement provides
          that the Investing Partnership shall pay the Company an amount
          equal to a specified percentage of the Investing Partnership's
          share of the net proceeds from capital transactions (such as the
          sale or refinancing of the underlying property) in excess of
          certain amounts.

            The limited partners purchase partnership interests in the
          Investing Partnerships by agreeing to make capital contributions
          over approximately five years to the Investing Partnership, which
          allows the Investing Partnership to pay the purchase price for
          the Purchased Interest, including the Purchase Note.  Limited
          partners are typically permitted to pre-pay their scheduled
          capital contributions.  The limited partnership agreement of the
          Investing Partnership provides that the limited partners are
          entitled to receive for a period not to exceed five years
          distributions equal to between 11% and 12% per annum of their
          then paid-in scheduled capital contributions.  Pursuant to the
          management contracts with the Owning Partnerships, the Company is
          required to pay the Management Contract Obligations which support
          the property's operations and the payment of such returns to the
          limited partners.  As a result of the Management Contract
          Obligations, the Company essentially bears the risks of
          operations and financial viability of the related property for
          such five-year period.  The management contract, however, rewards
          the Company for successful management of the property by allowing
          the Company to retain as an incentive management fee any cash
          flow generated by the property in excess of the amount needed to


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          satisfy the Management Contract Obligations.  After the initial
          five-year period, the limited partners are still entitled to the
          same specified rate of return on their investment, but only to
          the extent there are sufficient cash flows from the related adult
          living communities.  To the extent property cash flows are not
          sufficient to pay the limited partners their specified return,
          the right to receive this shortfall accrues until proceeds are
          available from a sale or refinancing of the property.  After the
          initial five-year period, the Company's incentive management fee
          is 40% of the excess of cash flow over the amount necessary to
          make the specified rate of return to the limited partners.  The
          remaining 60% of cash flows are to be distributed by the Owning
          Partnerships to the Investing Partnerships for distribution to
          limited partners.

            The initial five-year term of the management contracts and the
          related Management Contract Obligations have expired for 10
          Owning Partnerships and their fourteen related Investing
          Partnerships.  Although the Company has no obligation to fund
          operating shortfalls after the five-year term of the management
          contract, as of January 31, 1998, the Company has advanced an
          aggregate of approximately $500,000 to two of these Owning
          Partnerships to fund operating shortfalls. In both cases, the
          Company had arranged for Syndications involving multi-family
          properties that the Company acquired from third parties and
          believed could be successfully converted to adult living
          communities.  The Company experienced difficulties in obtaining a
          sufficient number of adult living tenants in these converted
          properties.  One of these conversion attempts was unsuccessful
          and the property is now being operated as a multi-family property
          by a third-party managing agent.  The other property has
          experienced difficulties in its conversion to an adult living
          community, but the conversion process is continuing.  These
          advances are recorded as "Other Partnership Receivables" on the
          Company's Consolidated Balance Sheet.  The Company has no present
          intention to attempt other conversions of multi-family properties
          to adult living properties.  The Company intends to structure
          future Syndications to minimize the likelihood that it will be
          required to utilize the cash it generates to make payments
          pursuant to the management contracts. From time to time, the
          Company has also made discretionary payments to Owning
          Partnerships beyond the Management Contract Obligations period
          for the purpose of making distributions to limited partners.

            In the past, limited partners have been allowed to prepay
          capital contributions.  Prepayments of capital contributions do
          not result in the prepayment of the related Purchase Notes. 
          Instead, such amounts are loaned to the Company by the Investing
          Partnership.  Loans made prior to the reorganization of the
          Company in 1996 were made to J&B Management Company and, as part
          of the reorganization, were assumed by the Company.  The purchase
          agreements provide that, should any failure to repay any such
          loan occur, the Company must credit to the Investing Partnership
          the amounts loaned at the time such amount would be required to
          be paid by the Investing Partnership to meet its obligations then
          due under the Purchase Note.  As a result of such loans and such
          provisions of the purchase agreements, the Company records the
          notes receivable corresponding to the Purchase Notes net of such
          loans.  Therefore, these prepayments act to reduce the recorded
          value of the Company's notes receivable and reduce interest
          income received by the Company.  Pursuant to the terms of its
          Syndications, the Company has the option not to accept future
          prepayments by limited partners of capital contributions.  The
          Company has not determined whether it will continue to accept
          prepayments by limited partners of capital contributions.

            All of the Syndicated adult living communities and the
          Syndicated nursing home are managed by the Company pursuant to
          written management contracts, which generally have a five year
          term coterminous with the Company's Management Contract
          Obligations.  After the initial five-year term, the Management
          Contract Obligations terminate and the management contracts are
          automatically renewed each year, but are cancelable on 30 to 60
          days notice at the election of either the Company or the related
          Owning Partnership.  The termination of any management contracts
          would result in the loss of fee income, if any, under those
          contracts.  In general, under the terms of the Investing
          Partnerships' partnership agreements, limited partners have only
          limited rights to take part in the conduct or operation of the
          partnerships.  The partnership agreements for the Investing
          Partnerships for which the Company is the general partner provide
          that a majority in ownership interests of the limited partners
          can remove the Company as the general partner at any time.  It is
          anticipated that all future Investing Partnership agreements will
          contain the same right to remove the Company as a general
          partner.  In addition, the consent of a majority in ownership
          interests of limited partners in such Investing Partnerships is
          required to be obtained in connection with any sale or
          disposition of the underlying property.

            The Company intends to continue to arrange for acquisitions of
          existing adult living communities by utilizing mortgage financing
          and by arranging Syndications. The Company plans to acquire
          between six and twelve existing adult living communities over the
          next two years.  However, competition to acquire such communities
          has intensified, and there can be no assurance that the Company
          will be able to acquire such communities on terms favorable
          enough to offset the start-up losses associated with newly
          developed communities and the costs and cash requirements arising


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     <PAGE>


          from the Company's overhead and existing debt and Management
          Contract Obligations.  The Company is, and will continue to be,
          the managing general partner of the partnerships that own
          acquired communities.  The Company does not intend to Syndicate
          any of its newly-developed adult living communities.

            In addition, the Company arranged for the sale of limited
          partnership interests in two partnerships organized to make
          second mortgage loans to the Company to fund approximately 20% of
          the costs of developing three new adult living communities.

          STRATEGY

            Growth.  The Company's growth strategy focuses on the
          development of communities offering both independent and
          assisted-living apartment units and on continued intensive
          communities management.  The Company believes that there are
          numerous markets that are not served or are underserved by
          existing adult living communities and intends to take advantage
          of these circumstances, plus the present availability of
          construction financing on favorable terms, to develop new
          communities of its own design in desirable markets. 
          Historically, the Company has expanded by the acquisition and
          Syndication of existing adult living communities.  The Company
          has taken advantage of the inexperience and operating
          inefficiencies of the previous owners of these communities and
          has improved the financial performance of these properties by
          implementing its own management and marketing techniques.  The
          Company's sophistication in management and marketing is evidenced
          by its approximate 91% occupancy rate at April 10, 1998 at the
          existing Syndicated adult living communities managed by the
          Company.  The newly developed communities are in their initial
          lease-up phases.

            The Company will continue to acquire existing communities and
          intends to arrange for these acquisitions, in part, by
          Syndications.  The Company believes that its continuing the
          practice of arranging for the acquisition of adult living
          communities through Syndications will provide additional cash
          flow to help the Company pursue its development program. 
          Competition to acquire existing adult living communities has
          intensified, and the Company anticipates that, at least through
          Fiscal 1998, it will not be able to acquire such communities on
          terms favorable enough to offset the startup losses associated
          with newly developed communities and the costs and cash
          requirements arising from the Company's overhead and existing
          debt and Management Contract Obligations.  The Company also
          believes its established ability to privately place equity and
          debt securities could enhance its ability to pursue its
          development plan.

            New Development.  While the acquisition of existing adult
          living communities utilizing Syndications will continue to play a
          significant role in the Company's expansion program, the primary
          focus of the expansion program is the development of new adult
          living communities.  The Company's development plan emphasizes a
          "prototype" adult living community that it has designed.  The
          Company designed the prototype based upon its experience
          operating its existing portfolio of communities.  Because each of
          its adult living communities has a different design, and due to
          the Company's experience in operating such communities, the
          Company believes it has been able to identify certain
          characteristics of the communities it operates which are
          beneficial.  In addition to incorporating the characteristics
          which the Company believes are beneficial, the Company has
          incorporated the following features into the prototype which it
          believes are innovative and make the prototype a "state of the
          art" community.

            The prototype contains 142 adult living apartment units and
          will be located on sites of up to seven acres.  The Company
          believes that its development prototype is larger than many
          independent-living and most assisted-living communities, which
          typically range from 40 to 80 units.  The Company believes that
          the greater number of units will allow the Company to achieve
          economies of scale in operations, resulting in lower operating
          costs per unit, without sacrificing quality of service.  These
          savings primarily are achieved through lower staffing,
          maintenance and food preparation costs per unit, without
          sacrificing quality of service.  In that the time and effort
          required to develop a community (including site selection, land
          acquisition, zoning approvals, financing, and construction) do
          not vary materially for a larger community than for a smaller
          one, developmental economies of scale also are realized in that
          more apartment units are being produced for each community that
          is developed.

            Common areas will include recreation areas, dining rooms, a
          kitchen, administrative offices, an arts and crafts room, a
          multi-purpose room, laundry rooms for each floor, a beauty
          salon/barber shop, a library reading area, card rooms, a
          billiards room, a health center to monitor residents' medical
          needs and assigned parking.  The Company believes that the common


                                      8
     <PAGE>


          areas and amenities offered by its prototype represent the state
          of the art for independent-living communities and are superior to
          those offered by smaller independent-living communities or by
          most communities that offer only assisted living services.  The
          Company believes that such substantial common areas, which would
          often be unaffordable in smaller communities, will provide the
          Company's prototype communities with a competitive advantage over
          smaller communities.  The Company believes that these common
          areas will attract residents and promote continued stable
          occupancy of its prototype communities.  Unit sizes range from
          368 square feet for a studio to 871 square feet for a two
          bedroom/two bath unit.  The Company's prototype contains 46
          studio apartments, 92 one bedroom/one bathroom apartments and 4
          two bedroom/two bathroom apartments, encompassing approximately
          108,000 square feet.  Each apartment unit will be a full
          apartment, including a kitchen or kitchenette.

            The Company anticipates that it will rent apartment units in
          its prototype communities pursuant to annual leases on a strictly
          "private pay" basis.  The Company believes this "private pay"
          focus will allow it to increase rental revenues as demographic
          pressure increases demand for adult living communities and avoid
          potential financial difficulties it might encounter if it were
          dependent on Medicare or other government reimbursement programs
          that may suffer from health care reform, budget deficit reduction
          or other pending or future government initiatives.  The prototype
          community is targeted to the "middle to upper-middle income"
          segment of the elderly population, which is the broadest segment
          of the elderly population, and will allow the Company to provide
          a high-quality level of service.

            Each community will offer residents a choice between
          independent-living and assisted-living services.  As a result,
          the market for each community will be broader than for
          communities that offer only either independent-living or
          assisted-living services.  Although the licensing requirements
          and the expense and difficulty of converting between existing
          independent-living units and assisted-living units typically make
          it impractical to accomplish such conversions, the Company's
          prototype is designed to allow, at any time, for conversion of
          units, at minimum expense, for use as either independent-living
          or assisted-living units.  Each community therefore may adjust
          its mix of independent-living and assisted-living units as the
          market or existing residents demand.  The Company believes that
          this innovative feature distinguishes its prototype community. 
          The Company believes that part of the appeal of this type of
          community is that residents will be able to "age in place" with
          the knowledge that they need not move to another community if
          they require assistance with ADLs.  The Company believes that the
          ability to retain residents by offering them higher levels of
          services will result in stable occupancy with enhanced revenue
          streams.

            The Company's prototype also incorporates two interior
          courtyards, from which the Company's "Grand Court"<registered
          trademark> name originates.  These courtyards allow residents to
          enjoy the outdoors while remaining in a secure environment.  The
          Company believes that this feature distinguishes its prototype
          community.

            In summary, the Company believes that the size, design and
          target markets of its prototype and the convertibility of its
          apartments to either independent or assisted-living units will
          result in "state of the art" communities that will provide an
          excellent vehicle for economic growth.

            Market Selection Process.  In selecting geographic markets for
          potential expansion, the Company considers such factors as a
          potential market's population, demographics and income levels,
          including the existing and anticipated future population of
          seniors who may benefit from the Company's services, the number
          of existing and anticipated long-term care communities in the
          market area and the income level of the target population.  While
          the Company does not apply its market selection criteria
          mechanically or inflexibly, it generally seeks to select adult
          living community locations that are non-urban with populations of
          no more than 100,000 people and containing 3,000 elderly
          households within a 20-mile radius with an annual income of at
          least $35,000, and have a regulatory climate that the Company
          considers favorable toward development.  Communities with these
          characteristics are referred to as secondary markets as opposed
          to primary markets, which are major urban centers, or tertiary
          markets, which are smaller rural communities.  The Company has
          found that secondary markets generally have a receptive
          population of seniors who desire and can afford the services
          offered in the Company's adult living communities.  The Company
          believes that it can obtain zoning and other necessary approvals
          in secondary markets more quickly and easily than would be the
          case in primary markets.  In focusing on secondary markets, the


                                      9
     <PAGE>


          Company believes it will avoid overdevelopment to which primary
          markets are prone and obtain the benefit of demographic
          concentrations that do not exist in yet smaller markets.  The
          Company believes that high-quality, affordable employees are
          easier to attract and retain in secondary markets than in primary
          markets.

            Centralized Management.  The adult living business is highly
          management intensive.  While the location of a community and its
          physical layout are extremely important, another key to the
          success of an adult living community lies in the ability to
          maximize its financial potential through sophisticated,
          experienced management.  Such success requires the establishment
          and supervision of programs involving the numerous facets of an
          adult living community, including menu planning, food and supply
          purchasing, meal preparation and service, assistance with
          "activities of daily living," recreational activities, social
          events, health care services, housekeeping, maintenance and
          security. The Company's strategy emphasizes centralized
          management in order to achieve operational efficiencies and
          ensure consistent quality of services.  The Company has
          established standardized policies and procedures governing, among
          other things, social activities, maintenance and housekeeping,
          health care services, and food services.  An annual budget is
          established by the Company for each community against which
          performance is tested each month.

            Marketing.  Marketing is critical to the rent up and continued
          high occupancy of a community.  The Company's marketing strategy
          focuses on enhancing the reputation of the Company's communities
          and creating awareness of the Company and its services among
          potential referral sources.  The Company's experience is that
          satisfied residents and their families are an important source of
          referrals for the Company.  In addition, the Company plans to use
          its common community design and its "The Grand Court"<registered
          trademark> trademarked name to promote national brand-name
          recognition.  The Company has adopted the trademarked name. 
          Historically, adult living communities have generally been
          independently owned and operated and there has been little
          national brand-name recognition.  The Company believes that
          national recognition will be increasingly important in the adult
          living business.  The Company intends to continuously use its
          trademarked name in its business activities, and the life of this
          trademark will extend for the duration of its use.  The Company
          considers this trademark to be a valuable intangible intellectual
          property asset.

          THE LONG-TERM CARE MARKET

            The long-term care services industry encompasses a broad range
          of accommodations and healthcare services that are provided
          primarily to seniors.  Independent-living communities attract
          seniors who desire to be freed from the burdens and expense of
          home ownership, food shopping and meal preparation and who are
          interested in the companionship and social and recreational
          opportunities offered by such communities.  As a senior's need
          for assistance increases, the provision of assisted-living
          services in a community setting is more cost-effective than care
          in a nursing home. A community which offers its residents
          assisted-living services can provide assistance with various ADLs
          (such as bathing, dressing, personal hygiene, grooming,
          ambulating and eating), support services (such as housekeeping
          and laundry services) and health-related services (such as
          medication supervision and health monitoring), while allowing
          seniors to preserve a high degree of autonomy.  Generally,
          residents of assisted-living communities require higher levels of
          care than residents of independent-living facilities, but require
          lower levels of care than residents of skilled-nursing
          facilities.

          INDUSTRY TRENDS

            The Company believes its business benefits from significant
          trends affecting the long-term care industry.  The first is an
          increase in the demand for elder care resulting from the
          continued aging of the U.S. population.  U.S. Bureau of Census
          shows that the average age of the Company's residents (83 years
          old) places them within one of the fastest growing segments of
          the U.S. population.  While increasing numbers of Americans are
          living longer and healthier lives, many choose community living
          as a cost-effective method of obtaining the services and life-
          style they desire.  Adult living facilities that offer both
          independent and assisted-living services give seniors the comfort
          of knowing that they will be able to "age in place" -- something
          they are increasingly unable to do at home.


                                      10
     <PAGE>


            The primary consumers of long-term care services are persons
          over the age of 65.  This group represents one of the fastest
          growing segments of the population.  According to U.S. Bureau of
          the Census data, the number of people in the U.S. age 65 and
          older increased by more than 27% from 1981 to 1994, growing from
          26.2 million to 33.2 million.  Such census data also shows that
          the segment of the population over 85 years of age, which
          comprises the largest percentage of residents at long-term care
          facilities, is projected to increase by more than 37% between the
          years 1990 and 2000, growing from 3.0 million to 4.1 million. 
          The Company believes that these trends depicted in the graph
          below will contribute to continued strong demand for adult living
          communities.


          Projected Percentage Change in the Elderly Population of the U.S.

                     1981     1990     1995     2000     2005     2010
                     ----     ----     ----     ----     ----     ----
          65-84       0       17.5%    25.2%    26.2%    27.3%    34.6%
          85+         0       28.4%    54.3%    76.3%    94.1%   112.7%

                         SOURCE:  U.S. BUREAU OF THE CENSUS

            A trend benefiting the Company, and especially its provision of
          independent-living services, is that as the population of seniors
          swells, the percentage of seniors that are disabled and need
          assistance with ADLs has steadily declined.  According to the
          National Long Term Care Surveys, a federal study, disability
          rates for persons aged 65 and older have declined by 1 to 2
          percent each year since 1982, the year the study was commenced. 
          In 1982, approximately 21% of the 65 and over population was
          disabled and in 1995 only 10% was disabled.  This trend suggests
          that demand for independent living services will increase in the
          future.

            Other trends benefiting the Company include the increased
          financial net worth of the elderly population, the changing role
          of women and the increase in the population of individuals living
          alone.  As the number of elderly in need of assistance has
          increased, so too has the number of the elderly able to afford
          residences in communities which offer independent and/or
          assisted-living services.  According to U.S. Bureau of the Census
          data, the median net worth of householders age 75 or older has
          increased from $55,178 in 1984 and $61,491 in 1988 to $76,541 in
          1991.  Furthermore, according to the same source, the percentage
          of people 65 years and older below the poverty line has decreased
          from 24.6% in 1970 to 15.7% in 1980 to 12.2% in 1990. 
          Historically, unpaid women (mostly daughters or daughters-in-law)
          represented a large portion of the care givers of the non-
          institutionalized elderly.  The increased number of women in the
          labor force, however, has reduced the supply of care givers, and
          led many seniors to choose adult living communities as an
          alternative.  Since 1970, the population of individuals living
          alone has increased significantly as a percentage of the total
          elderly population.  This increase has been the result of an
          aging population in which women outlive men by an average of 6.9
          years, rising divorce rates, and an increase in the number of
          unmarried individuals.  The increase in the number of the elderly
          living alone has also led many seniors to choose to live in adult
          living communities.


                                      11
     <PAGE>


            The increased financial net worth of the elderly population is
          illustrated by the following chart:

                               Median Net Worth

                                                1988       1991
                                                ----       ----
            45-54                              57,466     56,250

            55-64                              80,032     83,041

            65+                                73,471     88,192

          SOURCE:  U.S. BUREAU OF THE CENSUS

            Another trend benefiting the Company, and especially its
          provision of assisted-living services, is the effort by the
          government, private insurers and managed care organizations to
          contain health care costs by limiting lengths of stay, services,
          and reimbursement amounts.  This has resulted in hospitals
          discharging patients earlier and referring them to nursing homes. 
          At the same time, nursing home operators continue to focus on
          providing services to sub-acute patients requiring significantly
          higher levels of skilled nursing care.  The Company believes that
          this "push down" effect has and will continue to increase demand
          for assisted-living facilities that offer the appropriate levels
          of care in a non-institutional setting in a more cost-effective
          manner.  The Company believes that all of these trends have, and
          will continue to, result in an increasing demand for adult living
          facilities which provide both independent and assisted-living
          services.

          SERVICES

            It is important to identify the specific tastes and needs of
          the residents of an adult living community, which can vary from
          region to region and from one age group to the next.  Residents
          who are 70 years old have different needs than those who are 85. 
          The Company has retained a gerontologist to insure that programs
          and activities are suitable for all of the residents in a
          community and that they are adjusted as these residents "age in
          place".  Both independent and assisted-living services will be
          offered at all of the Company's newly, developed communities.

            Basic Service and Care Package.  The Company provides three
          levels of service at its adult-living communities:

            Level I, Independent Living, includes three meals per day,
          weekly housekeeping, activities program, 24-hour security and
          transportation for shopping and medical appointments.

            Level II, Catered Living, offers all of the amenities of Level
          I in addition to all utilities, personal laundry and daily
          housekeeping.

            Level III, Assisted Living, provides three meals per day, daily
          housekeeping, 24-hour security, all utilities, medication
          management, activities and nurse's aides to assist the residents
          with any ADLs which they might require.  Rehabilitative services
          such as physical and speech therapy are also provided by licensed
          third party home health care providers.  Each resident can design
          a package of services that will be monitored by his or her own


                                      12
     <PAGE>


          physician.  Several of the Company's Syndicated communities are
          designed to meet the needs of assisted living residents who
          suffer from the early stages of Alzheimer's or dementia.

            The Company charges an average fee of $1,400 per month for
          Level I services, $1,700 per month for Level II services, and
          $2,000 per month for Level III services, but the fee levels vary
          from community to community. Residents at the communities which
          offer services for early stages of Alzheimer's or dementia pay an
          average of an additional $500 per month for such services.  As
          the residents of the communities managed by the Company continue
          to age, the Company expects that an increasing number of
          residents will utilize Level III services.  The Company's
          internal growth plan is focused on increasing revenue by
          continuing to expand the number and diversity of its tiered
          additional assisted-living services and the number of residents
          using these services.

          OPERATIONS

            Corporate.  Over the past ten years the Company has developed
          extensive policies, procedures and systems for the operation of
          its adult-living communities.  The Company also has adopted a
          formal quality assurance program. In connection with this program
          the Company conducts a minimum of two full-day annual quality
          assurance reviews at each community. The entire regional staff
          team participates in the review which thoroughly examines all
          aspects of the long-term care community from the provision of
          services to the maintenance of the physical buildings. The
          reports generated from these quality assurance reviews are then
          implemented by the community administrator. Corporate
          headquarters also provides human resources services, a licensing
          facilitator, and in-house accounting and legal support systems.

            Regional. The Company has nine regional administrators: Two
          responsible for nine Florida communities, one responsible for two
          communities in Tennessee and one community in Virginia and one
          community in Illinois; one responsible for two communities in
          Arizona and four communities in Texas; one responsible for four
          communities in Michigan and one community in Texas and one
          community in Nevada and New Mexico; one responsible for three
          communities in Texas, including the nursing home operated by the
          Company, and one community in Tennessee; on responsible for one
          community in Tennessee and one community in Kansas and one
          community in Missouri and three communities in Texas; one
          responsible for four communities in Ohio and one community in
          Kansas and one community in Missouri.  The Company also has a
          regional administrator and a registered dietician who oversee the
          food division.  Each regional administrator is reported to by the
          manager of those communities he oversees.

            Community.  The management team at each community consists of
          an administrator, who has overall responsibility for the
          operation of the community, an activity director, a marketing
          director and, at certain larger communities, one or two assistant
          administrators. Each community which offers assisted-living
          services has a staff responsible for the assisted-living care
          giving services.  This staff consists of a lead resident aide, a
          medication room aide, certified nurse aides and trained aides,
          and, in those states which so require, registered nurses. At
          least one staff member is on duty 24 hours per day to respond to
          the emergency or scheduled 24-hour assisted-living services
          available to the residents. Each community has a kitchen staff, a
          housekeeping staff and a maintenance staff. The average community
          currently operated by the Company has 40 to 50 full-time
          employees depending on the size of the community and the extent
          of services provided in that community.  Based upon its
          experience in operating adult living communities in both primary
          and secondary markets, the Company believes that its secondary
          market focus will make it easier for the Company to attract and
          retain high-quality, affordable staff.

            The Company places emphasis on diet and nutrition, as well as
          preparing attractively presented healthy meals which can be
          enjoyed by the residents. The Company's in-house food service
          program is led by a regional administrator who reviews all menus
          and recipes for each community. The menus and recipes are
          reviewed and changed based on consultation with the food director
          and input from the residents. The Company provides special meals
          for residents who require special diets.

            Employees.  The Company emphasizes maximizing each employee's
          potential through support and training. The Company's training
          program is conducted on three levels. Approximately six times per
          year, corporate headquarters staff conduct training sessions for
          the management staff in the areas of supervision and management
          skills, and caring for the needs of an aging population. At the
          regional level, regional staff train the community staff on


                                      13
     <PAGE>


          issues such as policies, procedures and systems, activities for
          the elderly, the administration and provision of specific
          services, food service, maintenance, reporting systems and other
          operational areas of the business.  At the community level, the
          administrators of each community conduct training sessions on at
          least a monthly basis relating to various practical areas of
          care-giving at the community.  These monthly sessions cover, on
          an annual basis, all phases of the community's operations,
          including special areas such as safety, fire and disaster
          procedures, resident care, and policies and procedures.

          COMPETITION

            The senior housing and health care industries are highly
          competitive and the Company expects that both the independent-
          living business, and assisted-living businesses in particular,
          will become more competitive in the future.  The Company will
          continue to face competition from numerous local, regional and
          national providers of long-term care whose communities and
          services are on either end of the senior care continuum.  The
          Company will compete in providing independent-living services
          with home health care providers and other providers of
          independent-living services, primarily on the basis of quality
          and cost of communities and services offered.  The Company will
          compete in providing assisted-living with other providers of
          assisted-living services, skilled nursing communities and acute
          care hospitals primarily on the bases of cost, quality of care,
          array of services provided and physician referrals.  The Company
          also will compete with companies providing home based health
          care, and even family members, based on those factors as well as
          the reputation, geographic location, physical appearance of
          communities and family preferences.  In addition, the Company
          expects that as the provision of long-term care receives
          increased attention, competition from new market entrants,
          including, in particular, companies focused on independent and
          assisted-living, will grow.  Some of the Company's competitors
          operate on a not-for-profit basis or as charitable organizations,
          while others have, or may obtain, greater financial resources
          than those of the Company.  However, the Company anticipates that
          its most significant competition will come from other adult
          living communities within the same geographic area as the
          Company's communities because management's experience indicates
          that senior citizens frequently elect to move into communities
          near their homes.

            Moreover, in the implementation of the Company's expansion
          program, the Company expects to face competition for the
          development of adult living communities.  Some of the Company's
          present and potential competitors are significantly larger or
          have, or may obtain, greater financial resources than those of
          the Company.  Consequently, there can be no assurance that the
          Company will not encounter increased competition in the future
          which could limit its ability to attract residents or expand its
          business and could have a material adverse effect on the
          Company's financial condition, results of operations and
          prospects.  In addition, if the development of new adult living
          communities outpaces demand for those communities in certain
          markets, such markets may become saturated.  Such an oversupply
          of facilities could cause the Company to experience decreased
          occupancy, depressed margins and lower operating results.

          COMPANY HISTORY

            In April, 1996, John Luciani and Bernard M. Rodin, the
          principal stockholders of the Company (the "Principal
          Stockholders") reorganized their businesses by consolidating them
          into the Company.  Pursuant to the reorganization, substantially
          all of the assets and liabilities of such businesses were
          transferred to the Company in exchange for shares of the
          Company's Common Stock.  See "Certain Transactions".  The primary
          predecessors of Grand Court Lifestyles, Inc. are J&B Management
          Company, and Leisure Centers, Inc.  J&B Management Company is a
          private partnership founded in 1969 with a successful history in
          the development and management of multi-family real estate and
          adult living communities.  J&B is located at the Company's
          offices in Fort Lee, New Jersey.  Prior to the formation of the
          Company in April, 1996, the Company's property development and
          management operations were conducted through its affiliate,
          Leisure Centers, Inc., located in Boca Raton, Florida.   Leisure
          Centers, Inc. was merged with and into the Company.  Grand Court
          Lifestyles, Inc., its subsidiaries, J&B Management Company and
          Leisure Centers, Inc. and their affiliates are collectively
          referred to as the "Company".

            Through the 1970's and early 1980's, the Company's primary
          focus was on the acquisition, development, and management of
          multi-family properties.  Senior management, collectively, has
          over 80 years of experience in multi-family housing, having had
          interests in 170 properties containing approximately 20,000
          apartment units located in 22 states, primarily in the sun-belt. 
          Beginning in the mid-1980's, the Company's sole focus has been on
          the acquisition, and management of adult living communities


                                      14
     <PAGE>


          building one of the largest operating portfolios of adult living
          communities in the nation, encompassing the entire spectrum of
          the long-term care industry, from independent-living to assisted-
          living, with a limited involvement in nursing homes.  Senior
          management, collectively, has over 40 years of experience in the
          adult living field. 

            J&B Management Company managed certain multi-family properties
          for which the United States Department of Housing and Urban
          Development ("HUD") provided mortgage insurance.  In 1990 and
          1991, J&B Management Company was the subject of an audit and
          investigation by HUD during 1990 and 1991.  Pending the
          conclusion of the inquiry, J&B Management Company, its partners
          and key employees were suspended by HUD from the management of
          such multi-family properties.  On April 10, 1991, HUD and J&B
          Management Company entered into a Settlement Agreement which
          provided, among other things, that HUD vacate the suspension
          retroactively.  Certain conditions were imposed in the Settlement
          Agreement, including that J&B Management Company and such
          principals and employees not engage in the management of HUD-
          insured properties for an indefinite period of time.  Pursuant to
          a letter agreement dated January 11, 1994, (i) J & B Management
          Company agreed to reimburse various properties for certain
          expenses, aggregating approximately $445,000, deemed not eligible
          by HUD, (ii) J & B Management Company agreed to pay HUD's costs
          for the audit, and to reimburse HUD for certain subsidy
          overpayments, aggregating approximately $861,000, and (iii) all
          issues relating to the audit and investigation were concluded and
          fully resolved.

          GOVERNMENT REGULATION

            Regulations applicable to the Company's operations vary among
          the types of communities operated by the Company and from state
          to state.  Independent-living communities generally do not have
          any licensing requirements.  Assisted-living communities are
          subject to less regulation than other licensed health care
          providers but more regulation than independent-living
          communities.  However, the Company anticipates that additional
          regulations and licensing requirements will likely be imposed by
          the states and the federal government.  Currently, all states
          except South Dakota require licenses to provide the assisted-
          living services.  The licensing statutes typically establish
          physical plant specifications, resident care policies and
          services, administration and staffing requirements, financial
          requirements and emergency service procedures.  The licensing
          process can take from two months to one year.  New Jersey
          requires Certificates of Need for assisted-living communities. 
          The Company's communities also must comply with the requirements
          of the ADA and are subject to various local building codes and
          other ordinances, including fire safety codes.  While the Company
          relies almost exclusively on private pay residents, the Company
          operates a Syndicated nursing home and one Syndicated adult
          living community operated by the Company contains nursing home
          beds in which some residents rely on Medicare.  As a provider of
          services under the Medicare program, the Company is subject to
          Medicare regulations designed to limit fraud and abuse,
          violations of which could result in civil and criminal penalties
          and exclusion from participation in the Medicare program. 
          Revenues derived from Medicare comprise less than 1% of the
          revenues of the communities operated by the Company. The Company
          does not intend to expand its nursing home activities and intends
          to pursue an exclusively "private-pay" clientele.  The Company
          believes it is in substantial compliance with all applicable
          regulatory requirements.  No actions are pending against the
          Company for non-compliance with any regulatory requirement.

            Under various federal, state and local environmental laws,
          ordinances and regulations, a current or previous owner or
          operator of real property may be held liable for the costs of
          removal or remediation of certain hazardous or toxic substances,
          including, without limitation, asbestos-containing materials,
          that could be located on, in or under such property.  Such laws
          and regulations often impose liability whether or not the owner
          or operator knows of, or was responsible for, the presence of the
          hazardous or toxic substances.  The costs of any required
          remediation or removal of these substances could be substantial
          and the liability of an owner or operator as to any property is
          generally not limited under such laws and regulations, and could
          exceed the property's value and the aggregate assets of the owner
          or operator.  The presence of these substances or failure to
          remediate such substances properly may also adversely affect the
          owner's ability to sell or rent the property, or to borrow using
          the property as collateral.  Under these laws and regulations, an
          owner, operator or any entity who arranges for the disposal of
          hazardous or toxic substances, such as asbestos-containing
          materials, at a disposal site may also be liable for these costs,
          as well as certain other costs, including governmental fines and
          injuries to persons or properties.  As a result, the presence,
          with or without the Company's knowledge, of hazardous or toxic
          substances at any property held or operated by the Company could
          have an adverse effect on the Company's business, operating


                                      15
     <PAGE>


          results and financial condition. Although the Company has not
          incurred any material costs for removal or remediation of
          hazardous or toxic substances, there can be no assurance that
          this will remain the case in the future.

            Under the ADA, all places of public accommodation are required
          to meet certain federal requirements related to access and use by
          disabled persons.  A number of additional federal, state and
          local laws exist which also may require modifications to existing
          and planned properties to create access to the properties by
          disabled persons.  While the Company believes that its properties
          are substantially in compliance with present requirements or are
          exempt therefrom, if required changes involve a greater
          expenditure than anticipated or must be made on a more
          accelerated basis than anticipated, additional costs would be
          incurred by the Company.  Further legislation may impose
          additional burdens or restrictions with respect to access by
          disabled persons, the costs of compliance with which could be
          substantial.

          EMPLOYEES

            As of April 24, 1998, the Company employed approximately 1,900
          persons, including 38 in the Company's principal executive
          offices.  None of the Company's employees is covered by
          collective bargaining agreements. The Company believes its
          employee relations are good.

          ITEM 2.  PROPERTIES

          SYNDICATED COMMUNITIES

            The Company currently manages 37 Syndicated adult living
          communities containing 5,261 adult living apartment units and one
          Syndicated nursing home containing 57 beds.  One of the Company's
          Syndicated adult living communities contains 70 nursing home
          beds.  Such communities are owned by Owning Partnerships and not
          by the Company.  The Company generally has a 1% interest in the
          Owning Partnerships and a 1% interest in the Investing
          Partnerships which are formed to purchase a 99% partnership
          interest in the Owning Partnership.  The following chart sets
          forth information regarding the Syndicated adult living
          communities managed by the Company:

                                                                 AVERAGE 
                                                                 OCCUPANCY
                                             NUMBER     YEAR      % AS OF
                                               OF     ACQUIRED   APRIL 10,
           COMMUNITY (1)         STATE        UNITS      (2)      1998(8)
           --------------------  ---------   ------   --------   ---------

           The Grand Court Mesa  Arizona     174        1997      99%

           The Grand Court       Arizona     136        1991      99%   
            Phoenix

           The Grand Court Fort  Florida     184        1989      94%   
            Myers

           The Grand Court       Florida     126        1996      74%   
            Lakeland

           The Grand Court Lake  Florida     170        1992      84%   
            Worth

           The Grand Court       Florida     189        1995      69%   
            North Miami

           The Grand Court       Florida      60        1993      96%   
            Pensacola

           The Grand Court I     Florida      72        1994      93%   
            Pompano Beach(3)

           The Grand Court II    Florida      42        1994      73%(7)
            Pompano Beach(3)

           The Grand Court       Florida     164        1997      99%   
            Tampa

           The Grand Court       Florida      94        1995      99%   
            Tavares


                                      16
     <PAGE>

                                                                 AVERAGE 
                                                                 OCCUPANCY
                                             NUMBER     YEAR      % AS OF
                                               OF     ACQUIRED   APRIL 10,
           COMMUNITY (1)         STATE        UNITS      (2)      1998(8)
           --------------------  ---------   ------   --------   ---------

           The Grand Court       Florida     133        1997      92%   
            Winterhaven

           The Grand Court       Illinois     76        1993      99%   
            Belleville

           The Grand Court II    Kansas      127        1994      99%   
            Kansas City
            
           The Grand Court       Kansas      275        1997      100%(7)
            Overland Park

           The Grand Court       Michigan    73         1998      100%   
            Adrian

           The Grand Court       Michigan    164        1993      100%   
            Farmington Hills

           The Grand Court Novi  Michigan    114        1994      100%

           The Grand Court       Michigan    153        1997      100%   
            Westland

           The Grand Court I     Missouri    173        1989      100%   
            Kansas City

           The Grand Court III   Missouri    217        1989      81%(7)
           Kansas City(4)

           The Grand Court Las   Nevada      152        1991      97%   
            Vegas

           The Grand Court       New         140        1997      93%   
            Albuquerque          Mexico

           The Grand Court       Ohio        120        1994      96%   
            Columbus

           The Grand Court       Ohio        185        1994      100%   
            Dayton

           The Grand Court       Ohio         73        1992      90%   
            Findlay

           The Grand Court       Ohio         77        1992      91%   
            Springfield

           The Grand Court I     Tennessee   143(5)     1995      82%   
            Chattanooga

           The Grand Court II    Tennessee   146        1995      98%   
            Chattanooga

           The Grand Court       Tennessee   197        1992      96%   
            Memphis

           The Grand Court       Tennessee   197        1996      69%(7)
            Morristown

           The Grand Court       Texas       180        1992      95%   
            Bryan

           The Grand Court       Texas       112        1997      83%(7)
            Garland

           The Grand Court       Texas       132        1990      95%   
            Longview

           The Grand Court       Texas       139        1991      94%   
            Lubbock

           The Grand Court I     Texas       198        1993      97%   
            San Antonio

           The Grand Court II    Texas        57(6)     1995      85%   
            San Antonio

           The Grand Court       Texas        60        1996      87%   
            Weatherford

           The Grand Court       Virginia     98        1995      100%   
            Bristol


                                      17
     <PAGE>


          --------------
          (1)  In certain cases, more than one Investing Partnership owns
               an interest in one Owning Partnership.  There are
               therefore, more Investing Partnerships than there are
               Owning Partnership.  One of the Owning Partnerships owns
               two adult living communities and another Owning Partnership
               owns one adult living community and one nursing home.  In
               addition, the Company's communities in Pompano Beach,
               Florida are adjacent to one another and are counted as one
               property.  As a result, there are 39 properties listed, but
               only 37 Owning Partnerships. 

          (2)  Represents year in which the Owning Partnership acquired
               the community.

          (3)  These are adjacent properties and are counted as one adult
               living community.

          (4)  A portion of the units at The Grand Court III Kansas City
               are currently rented as residential apartment units.

          (5)  Grand Court I Chattanooga's unit count includes a 70-bed
               nursing wing.

          (6)  Grand Court II San Antonio is a 57-bed licensed nursing
               facility.

          (7)  Occupancy percentage includes 1-2 units occupied by staff.

          (8)  The average occupancy percentage of each individual
               community was determined by adding the average occupancy
               percentages as of the end of each month in which the
               individual community was managed by the Company and
               dividing that number by the total number of months the
               community was managed by the Company during the periods
               April 1997 through March 1998.  The average monthly
               occupancy percentage for each individual community was
               determined by dividing the number of occupied units in the
               individual community as of the end of the month by the
               total number of apartment units in the individual
               community.

               The Syndicated adult living communities currently operated
          by the Company are generally encumbered with mortgage financing. 
          While these mortgage loans are obligations of the Owning
          Partnerships rather than direct obligations of the Company, the
          Company typically provides a guaranty of certain obligations
          under the mortgages including, for example, any costs incurred
          for the correction of hazardous environmental conditions.  To
          date, the Company has incurred no material costs or expenses
          relating to the correction of hazardous environmental conditions.
          Although most of the mortgage loans are non-recourse, as of
          January 31, 1998, (i) the Company is liable as a general partner
          for approximately $10.9 million in principal amount of mortgage
          debt relating to five Syndicated adult living communities and
          (ii) wholly-owned entities are liable as general partners for
          approximately $25.7 million in principal amount of mortgage debt
          relating to five syndicated adult living communities and one
          syndicated nursing home managed by the Company as of January 31,
          1998.  In the case of the general partner liabilities of the
          wholly-owned entities, the only assets of the Company at risk of
          loss are the general partner interests in the specific
          properties.  As of January 31, 1998, the aggregate principal
          amount of the mortgage debt of the Owning Partnerships was
          approximately $192.0 million and the aggregate annual debt
          service obligations, excluding any balloon amounts payable at
          maturity, was approximately $18.0 million.  Most of this debt
          contains provisions which limit the ability of the respective
          Owning Partnerships to further encumber the property.  Through
          January 31, 2002, approximately $178.7 million of balloon
          payments under the mortgages will become due and payable.  The
          Company anticipates that it will continue to arrange for future
          acquisitions of existing adult living communities through
          mortgage financing and Syndications.

          OWNED OR LEASED COMMUNITIES

               The Company currently manages four newly developed adult
          living communities containing 552 adult living apartment units
          which were constructed pursuant to the Company's development
          plan.  Two of these four adult living communities are owned by
          the Company and two are operated by the Company pursuant to long-
          term leases.  The following chart sets forth information
          regarding such adult living communities:


                                      18
     <PAGE>

                                                                 AVERAGE 
                                        NUMBER OF     YEAR      OCCUPANCY
           COMMUNITY           STATE      UNITS     BUILT (1)      (2)
           -----------------   -------  ---------  ----------   ----------

           The Grand Court     Texas       142        1998          --
            Corpus Christi
            (3)

           The Grand Court El  Texas       142        1998          --
            Paso (4)

           The Grand Court     Texas       142        1998          --
            San Angelo (4)

           The Grand Court     Texas       126        1998          --
            Temple (3)


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

          (1)  Represents the year in which the property was placed into
               service.
          (2)  There is no occupancy percentage calculated as yet due to
               the properties being in the early stages of their initial
               lease-up period.
          (3)  Represents newly developed properties which are owned by the
               Company.
          (4)  Represents newly developed properties which are operated by
               the Company pursuant to long-term leases.

               The adult living communities owned by the Company were
          developed through mortgage financing.  The Company intends to
          finance its future development of new adult living communities
          primarily through mortgage financing and other types of
          financing, including long-term operating leases arising through
          sale/leaseback transactions and may issue additional debt or
          equity securities, to the extent necessary.  The financing of
          Company-developed communities will be direct obligations of the
          Company and, accordingly, the amount of mortgage indebtedness is
          expected to increase and the Company expects to have substantial
          debt service, and may have substantial annual lease payment,
          requirements in the future as the Company pursues its growth
          strategy.

          ITEM 3.  LEGAL PROCEEDINGS

               On November 14, 1997, an investor in a limited partnership
          (the "First Partnership") which was formed to invest in a second
          partnership which was formed to develop and own an adult living

          community (the "Second Partnership"), filed a lawsuit, Palmer v.
                                                                 ---------
           Country Estates Associates Limited Partnership, et.al., in the
          -------------------------------------------------------
          United States District Court, District of New Jersey.  The
          Company has never managed the property owned by the Second
          Partnership and is not a general partner in the Second
          Partnership or the First Partnership.  A predecessor of the
          Company was a general partner of the Second Partnership.  The
          Company has never been a general partner of the First
          Partnership.  The defendants in the suits are the First
          Partnership, the general partners of the First Partnership, the
          Second Partnership, two affiliates of the Company, and the
          Company (collectively the "Defendants").  The Plaintiff is
          alleging a breach of the First Partnership's partnership
          agreement, negligent misrepresentation, fraud, negligence, breach
          of guarantee and mail fraud.  The plaintiff is seeking (i) the
          return of his original investment ($100,000), (ii) market
          interest on such investment for the period 1987-1997 and (iii)
          unspecified damages.  The Company believes the lawsuit is without
          merit and intends to vigorously contest the case.

               The Company is involved in various lawsuits and other
          matters arising in the normal course of business, including
          employment-related claims.  In the opinion of management of the
          Company, although the outcomes of these claims and suits are
          uncertain, in the aggregate they should not have a material
          adverse effect on the Company's financial position or results of
          operations.  The Company business entails an inherent risk of
          liability.  In recent years, participants in the long-term care
          industry have become subject to an increasing number of lawsuits
          alleging malpractice or related legal claims, many of which seek
          large amounts and result in significant legal costs.  The Company
          expects that from time to time it may be subject to such suits as
          a result of the nature of its business.  The Company currently
          maintains insurance policies in amounts and with such coverage
          and deductibles as it deems appropriate, based on the nature and
          risks of its business, historical experience and industry
          standards.  There can be no assurance, however, that claims in
          excess of the Company's insurance coverage or claims not covered
          by the Company's insurance coverage will not arise.  A successful
          claim against the Company not covered by, or in excess of, the


                                      19
     <PAGE>


          Company's insurance could have a material adverse effect on the
          Company's operating results and financial condition.  Claims
          against the Company, regardless of their merit or eventual
          outcome, may also have a material adverse effect on the Company's
          ability to attract residents or expand its business and would
          require management to devote time to matters unrelated to the
          operation of the Company's business.  In addition, the Company's
          insurance policies must be renewed annually, and there can be no
          assurance that the Company will be able to obtain liability
          insurance coverage in the future or, if available, that such
          coverage will be on acceptable terms.


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

               There were no matters submitted to a vote of security
          holders, through the solicitation of proxies or otherwise, during
          the fourth quarter of the fiscal year ended January 31, 1998.

                                       PART II

          ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS

               The Company's common stock (the "Common Stock") is traded on
          the National Market tier of the Nasdaq Stock Market, which
          reports the daily high, low and closing transaction prices, as
          well as volume data, under the symbol "GCLI".  Trading in the
          Common Stock began on March 16, 1998.  The high and low bid
          prices of the Common Stock since March 16, 1998 through April 29,
          1998 have been $11.00 per share and $10.00 per share,
          respectively.  As of April 29, 1998, there are approximately 10
          holders of record of the Common Stock.

               The Company has not declared and paid cash dividends and it
          does not anticipate paying future dividends on its Common Stock. 
          It is the present policy of the Board of Directors to retain
          earnings, if any, to finance the expansion of the Company's
          business.  The payment of dividends on its Common Stock in the
          future will depend on the results of operations, financial
          condition, capital expenditure plans and other cash obligations
          of the Company and will be at the sole discretion of the Board of
          Directors.  In addition, certain provisions of future
          indebtedness of the Company may prohibit or limit the Company's
          ability to pay dividends.

               In March 1998, the Company sold to the public 2,800,000
          shares of its common stock at an initial offering price of $9.50
          per share.  The net proceeds that the Company received as a
          result of this offering were $24.0 million. The Company intends
          to use approximately $21.0 million of the net proceeds to finance
          the development of new adult living communities and the remainder
          for working capital.  The Company has purchased a series of 30
          day, 90 day and 180 day treasury bills with the entire net
          proceeds pending application of such funds.




                                      20
     <PAGE>


          ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA
                   (in thousands, except per share data and other data)

               The following selected consolidated financial statement of
          operations and balance sheet data have been derived from the
          Company's consolidated financial statements and should be read in
          conjunction with the consolidated financial statements and the
          related notes thereto included herein.  All references herein to
          a "fiscal" year refer to the fiscal year beginning on February 1
          of that year (for example, "fiscal 1995" refers to the fiscal
          year beginning on February 1, 1995). See "Management's Discussion
          and Analysis of Financial Condition and Results of Operations."


                                       YEARS ENDED JANUARY 31
                       -----------------------------------------------------
                          1994       1995        1996        1997      1998
                          ----       ----        ----        ----      ----
     STATEMENT OF
     OPERATIONS DATA:
     Revenues:
       Sales . . . .   $ 20,973   $ 22,532    $ 31,973    $ 36,021  $ 38,135
       Syndication
         fee income.      7,654      5,587       8,603       7,690     7,923
       Deferred
        income
        earned . . .      7,502      4,399       9,971       5,037     7,254
       Interest
         income  . .     13,315      9,503      12,689      13,773    12,051
       Property
         management
         fees from
         related
         parties . .      3,854      4,351       4,057       2,093     3,684
       Equity in
         earnings
         from
         partnerships       206        276         356         423       541
       Other income          --         --       1,013          --     4,683
                       --------   --------    --------    --------  --------
     Total Revenues      53,504     46,648      68,662      65,037    74,271
                       ========   ========    ========    ========  ========
     Costs and
        expenses:
       Cost of sales     26,876     21,743      27,688      34,019    33,635
       Selling . . .      6,706      6,002       7,664       7,176     7,602
       Interest  . .     10,991     13,610      15,808      16,394    19,409
       General and
         administra-
         tive  . . .      5,226      6,450       7,871       7,796     8,437
       Loss on
         impairment
         of notes
         and
         receivables         --         --          --      18,442        --
       Write-off of
         registration
         costs . . .         --         --          --          --     3,107
       Officers'
         compen-
         sation(1) .      1,200      1,200       1,200       1,200     1,200
       Depreciation
         and
         amortization     1,433      2,290       2,620       3,331     3,340
                       --------   --------    --------    --------  --------
     Total Costs and
      Expenses           52,432     51,295      62,851      88,358    76,730
                       ========   ========    ========    ========  ========
     Net income
        (loss) . . .      1,072     (4,647)      5,811     (23,321)   (2,459)
     Pro-forma income
        tax provision
        (benefit)(2)        429     (1,859)      2,324          --        --
                       --------  ---------    --------    --------  --------
     Pro-forma net
       income
       (loss)(2) . .   $    643   $ (2,788)   $  3,487    $(23,321) $ (2,459)
                       ========   ========    ========    ========  ========
     Pro-forma
       earnings
       (loss) per
       common share
       (basic and
       diluted)(2)     $    .04    $   (.19)  $    .23    $  (1.55) $   (.16)
                       ========    ========   ========    ========  ========
     Pro-forma
       weighted
       average
       common shares
       used  . . . .     15,000     15,000      15,000      15,000    15,000
                       ========   ========    ========    ========  ========

     OTHER DATA:
       Adult living
        communities
        operated (end
        of period) .         18         24          28          31        37
                       ========   ========    ========    ========  ========
       Number of
         units
         (end of
         period). .       2,834      3,683       4,164       4,480     5,261
                       ========   ========    ========    ========  ========
       Average                    
        occupancy
        percentage(3)     90.4%       89.3%      94.7%       91.3%     93.3%
                       ========    ========   ========     =======  ========


                                      21
     <PAGE>

                                               AS OF JANUARY 31, 
                              ------------------------------------------------

                                 1994      1995      1996      1997      1998
                                 ----      ----      ----      ----      ----
     BALANCE SHEET DATA:
       Cash and
        cash equivalents . .  $  9,335  $ 10,950  $ 17,961  $ 14,111  $ 11,964

       Notes and
        receivables-net  . .   227,879   220,482   224,204   222,399   231,140

       Total assets  . . . .   248,854   248,553   260,023   261,661   295,799

       Total liabilities . .   211,647   217,879   225,238   229,658   269,387

       Stockholders' equity     37,207    30,674    34,785    32,003    26,412


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

          (1)       John Luciani and Bernard M. Rodin, the Chairman of the
                    Board and President, respectively, of the Company
                    received dividends and distributions from the Company's
                    predecessors but did not receive compensation. 
                    Officers' Compensation is based upon the aggregate
                    compensation currently received by such officers,
                    $600,000 a year for each such officer.  Amounts
                    received by such officers in excess of such amounts are
                    treated as distributions for purposes of the Company's
                    financial statements.  In fiscal 1993 through fiscal
                    1997, such officers also received $5,496; $943; $850,
                    $397 and $1,566 each respectively as a distribution. 
                    See "Management."

          (2)       The Company's predecessors were Sub-chapter S
                    corporations and a partnership.  The pro forma
                    statement of operations data reflects provisions for
                    federal and state income taxes as if the Company had
                    been subject to federal and state income taxation as a
                    C corporation during the years ended January 31, 1993
                    through January 31, 1996.

          (3)       Average occupancy percentages were determined by adding
                    all of the occupancy percentages of the individual
                    communities  and dividing that number by the total
                    number of communities.  The average occupancy
                    percentage for each particular community was determined
                    by dividing the number of occupied apartment units in
                    the particular community on the given date by the total
                    number of apartment units in the particular community.




                                      22
     <PAGE>


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

          SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

               The Company is including the following cautionary statements
          to make applicable and take advantage of the safe harbor
          provisions of the Private Securities Litigation Reform Act of
          1995 for any forward-looking statements made by, or on behalf, of
          the Company in this Annual Report on Form 10-K.  Forward-looking
          statements include statements concerning plans, objectives,
          goals, strategies, future events or performance and underlying
          assumptions and other statements which are other than statements
          of historical facts.  Such forward-looking statements may be
          identified, without limitation, by the use of the words
          "anticipates", "estimates", "expects", "intends", "believes" and
          similar expressions.  From time to time, the Company or one of
          its subsidiaries individually may publish or otherwise make
          available forward-looking statements of this nature.  All such
          forward-looking statements, whether written or oral, and whether
          made by or on behalf of the Company or its subsidiaries, are
          expressly qualified by these cautionary statements and any other
          cautionary statements which may accompany the forward-looking
          statements.  In addition, the Company disclaims any obligation to
          update any forward-looking statements to reflect events or
          circumstances after the date hereof.

               Forward-looking statements made by the Company are subject
          to risks and uncertainties that could cause actual results or
          events to differ materially from those expressed in, or implied
          by, the forward-looking statements.  These forward-looking
          statements include, among others, statements concerning the
          Company's revenue and cost and expense, trends, the number and
          economic impact of anticipated acquisitions and new developments,
          planned capital expenditures and financing needs and
          availability.  Investors or other users of the forward-looking
          statements are cautioned that such statements are not a guarantee
          of future performance by the Company and that such forward-
          looking statements are subject to risks and uncertainties that
          could cause actual results to differ materially from those
          expressed in, or implied by, such statements.  Some, but not all,
          of the risks and uncertainties include recent net losses and
          anticipated operating losses, general economic and real estate
          risks in the areas in which the Company has operations,
          competitive factors in the long-term care services industry,
          potential increases in operating costs (including staffing and
          labor costs), complying with and potential changes in government
          regulation, the substantial debt obligations of the Company,
          Management Contract Obligations and prepayment rights of limited
          partners, the need for additional financing, potential
          development delays and cost overruns relating to the Company's
          development plan, possible defaults and/or bankruptcies relating
          to Multi-Family Properties, liabilities arising from general
          partner status, difficulties of managing rapid expansion, the
          Company's dependence on senior management and skilled personnel,
          the dependence on attracting seniors with sufficient resources to
          pay for the Company's services, possible environmental
          liabilities, restrictions imposed by laws benefiting disabled
          persons, liability and insurance risk, tax rates and policies,
          rates of interest and changes in accounting principles or the
          application of such principals to the Company.

          OVERVIEW

               The Company is a fully integrated provider of adult living
          accommodations and services which acquires, develops and manages
          adult living communities.  The Company's revenues have been, and
          are expected to continue to be, primarily derived from
          Syndications of partnerships it organizes to acquire existing
          adult living communities.  To the extent that the development
          plan to construct new adult living communities is successfully
          implemented, the Company anticipates that the percentage of its
          revenues derived from Syndications would decrease and the
          percentage of its revenues derived from newly constructed adult
          living communities would increase and, the Company believes, over
          time, become the primary source of the Company's revenues. 

               The Company was formed pursuant to the merger of various
          Sub-Chapter S corporations which were wholly owned by the
          Principal Stockholders and the transfer of certain assets by and
          assumption of certain liabilities of (i) a partnership that was
          wholly owned by the Principal Stockholders and (ii) the Principal
          Stockholders individually.  In exchange for the transfer of such
          stock and assets, the Principal Stockholders received shares of
          the Company's Common Stock.  These transactions are collectively
          called the "reorganization".  All of the assets and liabilities
          of the reorganization were transferred at historical cost.  The
          reorganization was effective as of April 1, 1996.  Prior to the


                                      23
     <PAGE>


          reorganization, the various Sub-chapter S corporations and the
          partnership, which were wholly-owned by the Principal
          Stockholders, were historically reported on a combined basis.

               Historically, the Company has arranged for the acquisition
          and development of adult living and multi-family communities by
          utilizing mortgage financing and Syndications.  These Syndicated
          adult living communities and the one Syndicated nursing home are
          managed by the Company but are owned by the respective Owning
          Partnerships and not by the Company.

               The Company enters into a management contract with each
          Owning Partnership pursuant to which the Company agrees to manage
          the Syndicated adult living community owned by such Owning
          Partnership.  As part of the management fee arrangements, the
          management contract requires the Company, for a period not to
          exceed five years, to pay to the Owning Partnership (to the
          extent that cash flows generated by the property are not
          sufficient) amounts sufficient to fund the Management Contract
          Obligations.  The Company, therefore, has no direct obligation to
          pay specified returns to limited partners.  Rather, the Company
          is obligated pursuant to the management contract to pay to the
          Owning Partnership amounts sufficient to make the specified
          returns to the limited partners, to the extent the cash flows
          generated by the property are insufficient to do so.  The Owning
          Partnership then distributes these amounts to the Investing
          Partnership which, in turn, distributes these amounts to the
          limited partners.  As a result of the Management Contract
          Obligations, the Company essentially bears the risks of
          operations and financial viability of the related property for
          such five-year period.  The management contract, however, rewards
          the Company for successful management of the property by allowing
          the Company to retain as an incentive management fee any cash
          flow generated by the property in excess of the amount needed to
          satisfy the Management Contract Obligations.  After the initial
          five-year period, the limited partners are entitled to the same
          rate of return they were entitled to during the initial five-year
          period, but only to the extent there is sufficient cash flow from
          the property, and any amounts of cash flow available after
          payment of the specified return to limited partners are shared as
          follows: 40% to the Company as an incentive management fee and
          60% for distribution to the limited partners.  The management
          contract is not terminable during this five-year period and is
          terminable thereafter by either party upon thirty to sixty days
          notice. As part of the purchase price for the Purchased Interest
          paid by the Investing Partnership to the Company, the Company
          receives a 40% interest in sale and refinancing proceeds after
          certain priority payments to the limited partners. 

               Future revenues, if any, of the Company relating to
          previously Syndicated adult living communities would primarily
          arise in the form of (i) deferred income earned on sales of the
          Purchased Interest in the related Owning Partnership, (ii)
          management fees, (iii) amounts payable by the Investing
          Partnerships to the Company in the event of the subsequent sale
          or refinancing of such communities, (iv) interest income on
          purchase notes receivable, and (v) earnings derived from the
          Company's equity interests in Owning Partnerships and Investing
          Partnerships.  Future revenues, if any, of the Company relating
          to future Syndications of adult living communities would
          primarily arise from any initial profit recognized upon
          completion of the Syndication and from the same items listed in
          the previous sentence.  

               The Company intends to continue to arrange for future
          acquisitions of existing adult living communities by utilizing
          mortgage financing and Syndications, and anticipates that between
          six and twelve communities will be acquired in this manner during
          the next two years.  Future Syndications will require the
          allocation of funds generated by the Company to cover the
          Company's initial costs relating to the Syndication transactions
          (primarily any funds required to acquire the property above the
          amounts received from the mortgage financing obtained, the costs
          of any improvements to the property deemed necessary and the
          costs associated with arranging for the sale of the partnership
          interests).  The Company typically pays these costs from the
          proceeds it receives from its sale of the Purchased Interests to
          the Investing Partnership.  In addition, future Syndications may
          require the allocation of the Company's funds to satisfy any
          associated Management Contract Obligations (including payment of
          required returns for distribution to limited partners) that are
          not funded from the respective property's operations.  

               The Company continually seeks adult living communities which
          it deems are good acquisition prospects.  In deciding which
          properties it has and will acquire, the Company's senior
          management exercises its business judgement to determine which
          properties are good acquisition candidates and what constitutes
          an acceptable purchase price.  There are no fixed criteria for
          these decisions, but rather, a number of factors are considered,


                                      24
     <PAGE>

  
          including the size, location, occupancy history, physical
          condition, current income and expenses, quality of current
          management, local demographic and market conditions, existing
          competition and proposed entrants to the market.  

               In Fiscal 1996 and 1997, the Company resyndicated three
          previously Syndicated adult living communities (each a
          "Resyndication") by acquiring them from the original Owning
          Partnerships, which acquisitions were arranged by utilizing
          mortgage financing and by arranging for the ownership of the
          properties by new Owning Partnerships and the Syndication of
          interests in new Investing Partnerships.  Since two of these
          Resyndications occurred after the termination of the Management
          Contract Obligations for the respective properties, and the third
          Resyndication occurred towards the end of the Management Contract
          Obligations period for such property, the Resyndications have
          generally had the same impact on current and future revenues and
          expenses (i.e. an opportunity for new earnings and a new set of
          Management Contract Obligations) as the Syndication of a property
          acquired from an unaffiliated third party.  The consent of the
          original limited partners is required and obtained for the sale
          of any Syndicated adult living community, including a sale
          accomplished through a Resyndication.  In obtaining the consent
          of the limited partners to the Resyndications, the Company waived
          its rights to participate in the proceeds of sale received by the
          original Owning Partnerships.  The Company does, however,
          recognize sales revenues and related cost of sales resulting in a
          net profit from the Resyndications.  Each of the management
          contracts with the original Owning Partnerships was terminated. 
          The Company manages the Resyndicated communities pursuant to new
          management contracts and has Management Contract Obligations
          thereunder.  As the general partner of the original Owning
          Partnership and, in many cases, general partner of the original
          Investing Partnership, the Company had a fiduciary duty to make
          sure that the original limited partners received a fair price for
          the purchase of the property.  Potential conflicts of interest
          regarding Resyndications may have existed because of the
          Company's roles as general partner of:  each of the selling and
          acquiring Owning Partnerships; each of the acquiring Investing
          Partnerships; and, in some cases, the selling Investing
          Partnerships. The Company will not engage in Resyndication
          transactions in the future.  

               The Company has instituted a development plan pursuant to
          which it has completed construction of four adult living
          communities, is nearing completion of the construction of three
          additional communities, has commenced construction on one
          additional community and intends to commence construction on
          between 30 and 34 additional new adult living communities over
          the next two years. The Company plans to own or lease pursuant to
          long-term operating leases or similar arrangements the adult
          living communities that are being developed under the plan.  The
          Company will manage and operate each of the newly developed
          communities.  The Company does not intend to Syndicate any of its
          newly developed adult living communities.  The Company estimates
          that the cost of developing each new adult living community
          (including reserves necessary to carry the community through its
          lease-up period) utilizing mortgage financing will be
          approximately $9.5 million and utilizing long-term lease
          financing will be approximately $10 million.  The Company expects
          to complete the construction of three of the four communities
          currently under construction by the end of the first quarter of
          fiscal 1998 and expects to complete construction of the remaining
          community under construction by the end of fiscal 1998.  These
          four adult living communities, along with the four communities
          already completed pursuant to the development plan, contain an
          aggregate of approximately 1,150 adult living apartment units. 
          The 30 to 34 additional new communities which the Company intends
          to commence construction on over the next two years will contain
          between 4,260 and 4,828 additional adult living apartment units.
          The Company will use a substantial portion of the proceeds of the
          Company's initial public offering which occurred in March, 1998,
          funds generated by its business operations, mortgage construction
          financing, the proceeds of anticipated refinancings of
          construction financing on, and/or sale-leasebacks of, stabilized,
          newly constructed communities, and may complete additional
          issuances of debt or equity securities to finance the
          development, construction and initial operating costs of
          additional new adult living communities.  Two of the completed
          adult living communities and two of the adult living communities
          currently under construction are being financed, and will be
          operated, by the Company pursuant to long-term leases.  The
          Company may use additional long-term leases or similar
          arrangements which require the investment of little or no capital
          on the part of the Company, to the extent necessary to proceed
          with this development plan.

               The Company derives its revenues from sales of general
          partnership interests in Owning Partnerships to Investing
          Partnerships, recognition of deferred income with respect to such
          sales of general partnerships interests, interest on notes
          received by the Company from such Investing Partnerships as part
          of the purchase price for the sale of such general partnership
          interests, and property management fees received by the Company:


                                      25
     <PAGE>


          .  Sales.  Income from sales of general partnership interests in
          Owning Partnerships is recognized when the profit on the
          transaction is determinable, that is, the collectibility of the
          sales price is reasonably assured and the earnings process is
          virtually complete.  The Company determines the collectibility of
          the sales price by evidence supporting the buyers' substantial
          initial and continuing investment in the Syndicated adult living
          communities as well as other factors such as age, location and
          cash flow of the underlying property.

          .  Syndication Fee Income.  The Company earns Syndication fee
          income equal to the expenses of the Syndication which include
          commissions.

          .  Deferred Income Earned.  The Company has deferred income on
          sales to Investing Partnerships of interests in Owning
          Partnerships.  The Company has arranged for the Syndications of
          Investing Partnerships which were formed to acquire controlling
          interests in Owning Partnerships which own adult living
          properties ("Adult Living Owning Partnerships").  In a typical
          Syndication, the Company enters into a management contract with
          the Adult Living Owning Partnership, pursuant to which the
          Company is required to pay, for a five-year period, any
          Management Contract Obligations not paid from cash flow from the
          related property.  The amount of deferred income for each
          property is calculated in a multi-step process.  First, based on
          the property's cash flow in the previous fiscal year, the
          probable cash flow for the property for the current fiscal year
          is determined and that amount is initially assumed to be constant
          for each remaining year of the Management Contract Obligations
          period (the "Initial Cash Flow").  The Initial Cash Flow is then
          compared to the Management Contract Obligations for the property
          for each remaining year of the five-year period.  If the Initial
          Cash Flow exceeds the Management Contract Obligations for any
          fiscal year, the excess Initial Cash Flow is added to the assumed
          Initial Cash Flow for the following fiscal year and this adjusted
          Initial Cash Flow is then compared to the Management Contract
          Obligations for said following fiscal year.  If the Initial Cash
          Flow is less than the Management Contract Obligations for any
          fiscal year, a deferred income liability is created in an amount
          equal to such shortfall and no adjustment is made to the Initial
          Cash Flow for the following year.  As this process is performed
          for each property on a quarterly basis, changes in a property's
          actual cash flow will result in changes to the assumed Initial
          Cash Flow utilized in this process and will result in increases
          or decreases to the deferred income liability for the property. 
          Any deferred income liability created in the year the interest in
          the Owning Partnership is sold increases the cost of sales for
          that period.  The payment of the Management Contract Obligations,
          however, will generally not result in the recognition of expense
          unless the property's actual cash flow for the year is less than
          the Initial Cash Flow for the year, as adjusted, and as a result
          thereof, the amount paid by the Company in respect of the
          Management Contract Obligations is greater than the amount
          assumed in establishing the deferred income liability (such
          excess amount is included as a component of cost of sales).  If,
          however, the property's actual cash flow is greater than the
          Initial Cash Flow for the year, as adjusted, the Company's
          earnings will be enhanced by the recognition of deferred income
          earned and, to the extent cash flow exceeds Management Contract
          Obligations, incentive management fees.  The Company recognized
          such incentive management fees in the amount of $3.3 million,
          $1.2 million and $2.8 million for the years ended January 31,
          1996, 1997 and 1998, respectively.  The Company accounts for the
          Syndication of Investing Partnerships which were formed to
          acquire controlling interests in Owning Partnerships which own
          Multi-Family Properties ("Multi-Family Owning Partnerships")
          under the installment method.  Under the installment method the
          gross profit is determined at the time of sale.  The revenue
          recorded in any given year would equal the cash collections
          multiplied by the gross profit percentage.  At the time of the
          sale, the Company deferred all future income to be recognized on
          each of these transactions.  Losses on these properties are
          recognized immediately upon sale.  Syndications relating to
          Multi-Family Owning Partnerships account for 87% of the Company's
          deferred income.

          .  Interest Income.  The Company has notes receivable with
          respect to Purchase Notes arising from the Syndication of adult
          living communities ("Adult Living Notes").  Such Adult Living
          Notes have stated interest rates ranging from 11% to 13.875% per
          annum and are due in installments over five years from the date
          the Investing Partnership acquired its interest in the Adult
          Living Owning Partnership.  Each Adult Living Note represents
          senior indebtedness of the related Investing Partnership and is
          collateralized by the Investing Partnership's interest in the
          Adult Living Owning Partnership that owns the related adult
          living community.  These properties generally are encumbered by
          mortgages.  The mortgages generally bear interest at rates
          ranging from 8% to 9.5% per annum.  The mortgages generally are
          collateralized by a mortgage lien on the related adult living
          communities. Principal and interest payments on each Adult Living
          Note also are collateralized by the investor notes payable to the
          Investing Partnership to which the limited partners are admitted.


                                      26
     <PAGE>


               The Company also has notes receivable with respect to
          Purchase Notes arising from the Syndication of multi-family
          properties (" Multi-Family Notes").  Such Multi-Family Notes have
          maturity dates ranging from ten to fifteen years from the date
          the partnership interests were sold.  Fifty-one of the 169 Multi-
          Family Notes have reached their final maturity dates and, due to
          the inability, in view of the current cash flows of the
          properties, to maximize the value of the underlying property at
          such maturity dates, either through a sale or refinancing, these
          final maturity dates have been extended by the Company.  The
          underlying property relating to one extended Multi-Family Note
          was refinanced in Fiscal 1996 and such refinancing generated an
          approximate $800,000 payment to the Company under such Multi-
          Family Note.  In addition, the Company anticipates that two more
          Multi-Family Properties relating to two other extended Multi-
          Family Notes will be refinanced in the first quarter of fiscal
          1998.  There can be no assurance that such refinancings will
          actually close.  During the period such notes are extended, the
          Company will continue to receive the cash flow and sale or
          refinancing proceeds, if any, generated by the underlying
          properties.  The Company expects that it may need to extend
          maturities of other Multi-Family Notes.  The notes represent
          senior indebtedness of the related Investing Partnership and
          typically are collateralized by a 99% partnership interest in the
          Multi-Family Owning Partnership that owns the related Multi-
          Family Property.  These properties are encumbered by mortgages,
          which generally bear interest at rates ranging from 7% to 12% per
          annum.  The mortgages are typically collateralized by a mortgage
          lien on the related Multi-Family Property.  Interest payments on
          each Multi-Family Note also are collateralized by the related
          investor notes.

          .  Property Management Fees.  Property management fees earned
          for services provided to related parties are recognized as
          revenue when related services have been performed.

          .  Equity in Earnings from Partnerships.  The Company accounts
          for its interest in limited partnerships under the equity method
          of accounting.  Under this method the Company records its share
          of income and loss of the entity based upon its general
          partnership interest.

          .  Existing Defaults and Bankruptcies of Owning Partnerships.  
          As described in "Liquidity and Capital Resources", fifteen of the
          Multi-Family Owning Partnerships are currently in default on
          their mortgages.  Nine other Multi-Family Owning Partnerships,
          previously  filed petitions seeking protection from foreclosure
          under Chapter 11 of the U.S. Bankruptcy Code.  In addition, one
          Multi-Family Owning Partnership surrendered its property pursuant
          to an uncontested foreclosure sale of such property (this Multi-
          Family Owning Partnership along with the nine Multi-Family Owning
          Partnerships that filed bankruptcy petitions, are referred to
          herein as the "Protected Partnerships").  Seven of the Chapter 11
          Petitions resulted in the respective Protected Partnerships
          losing their properties through foreclosure or voluntary
          conveyances of their properties.  The remaining two Protected
          Partnerships successfully emerged from their bankruptcy
          proceedings by paying off their mortgages at a discount with the
          proceeds of new mortgage financings, resulting in these
          properties having current, fully performing mortgages.  It is
          possible that the fifteen Multi-Family Owning Partnerships
          currently in default on their mortgages will also file Chapter 11
          Petitions or lose their properties through foreclosure.  In
          addition, there can be no assurance that other Multi-Family
          Owning Partnerships will not default on their mortgages, file
          Chapter 11 Petitions, and/or lose their properties through
          foreclosure.  The Company neither owns nor manages these
          properties, nor is it the general partner of any Multi-Family
          Owning Partnerships, including the Protected Partnerships, but
          rather merely holds the related Multi-Family Notes and other
          receivables relating to Multi-Family Properties as receivables. 
          The Company, therefore, has no liability in connection with these
          mortgage defaults or bankruptcy proceedings.  Any such future
          mortgage defaults, however, could, and any such future filings of
          Chapter 11 Petitions or the loss of any such property through
          foreclosure would, cause the Company to realize a non-cash loss
          of up to the recorded value for such Multi-Family Note plus any
          related receivables, net of any deferred income recorded for such
          Multi-Family Note and any reserve for said note previously
          established by the Company (which would reduce such loss).


                                      27
     <PAGE>


          RESULTS OF OPERATION

          . Revenues

               Total revenues for year ended January 31, 1998 ("Fiscal
          1997") were $74.3 million as compared to $65.0 million for the
          year ended January 31, 1997 ("Fiscal 1996"), representing an
          increase of $9.3 million or 14.3%.  Total revenues for Fiscal
          1996 were $65.0 million compared to $68.7 million for the year
          ending January 31, 1996 ("Fiscal 1995"), representing a decrease
          of $3.7 million or 5.4%. 

               Sales (income from the sale of partnership interests) for
          Fiscal 1997 were $38.1 million as compared to $36.0 million for
          Fiscal 1996, representing an increase of $2.1 million, or 5.8%. 
          The increase in sales was attributable to more favorable
          Syndication terms in Fiscal 1997 as compared to Syndications
          completed in Fiscal 1996, as partially offset by the Syndication
          of properties with less initial cash flow in Fiscal 1997 as
          compared to the Syndications in Fiscal 1996.  The terms of a
          Syndication become more favorable for the Company if there is an
          increase in the ratio of (a) the purchase price paid to the
          Company by the Investing Partnership for its interest in the
          Operating Partnership, to (b) the initial cash flow of the
          community.  Sales for Fiscal 1996 were $36.0 million compared to
          $32.0 million for Fiscal 1995, representing an increase of $4.0
          million or 12.5%.   The increase in sales was attributable to the
          Syndication of properties with greater initial cash flow as
          compared to the Syndications in the prior period, as partially
          offset by less favorable Syndication terms as compared to
          Syndications completed in the earlier period. 

               Syndication fee income for Fiscal 1997 was $7.9 million as
          compared to $7.7 million, representing an increase of $200,000 or
          2.6%.  The increase is attributable to higher total commissions
          paid relating to a greater sales volume in Fiscal 1997 as
          compared to Fiscal 1996.  Syndication fee income for Fiscal 1996
          was $7.7 million compared to $8.6 million for Fiscal 1995, a
          decrease of $900,000 or 10.5%.  The decrease is attributable to a
          slightly lower commission rate for the Syndication of six
          Investing Partnerships during Fiscal 1996 as compared to the
          commission rate for the Syndication of six Investing Partnerships
          during Fiscal 1995. 

               Deferred income earned for Fiscal 1997 was $7.3 million as
          compared to $5.0 million for Fiscal 1996, representing an
          increase of $2.3 million or 46%.  The increase is attributable to
          the cash flows generated by adult living communities during
          Fiscal 1997 exceeding the estimates used to establish deferred
          income liabilities in Fiscal 1997 to a greater degree than such
          cash flow exceeded estimates in Fiscal 1996.  Deferred income
          realized for Fiscal 1996 was $5.0 million as compared to $10.0
          million for the Fiscal 1995, representing a decrease of $5.0
          million or 50.0%.  The decrease is attributable to (i) the cash
          flows generated by adult living communities in Fiscal 1995
          exceeding the estimates used to establish deferred income
          liabilities for Fiscal 1995 to a greater degree than such cash
          flow in Fiscal 1996 exceeded estimates used to establish deferred
          income liabilities for Fiscal 1996; and (ii) the refinancing of a
          number of adult living communities during March 1996 which
          resulted in additional deferred income being earned in Fiscal
          1995.  In March 1996, the Company arranged for the refinancing of
          existing mortgages on seven adult living communities and initial
          mortgage financing on four adult living communities which had
          previously been acquired on an all cash basis, which resulted in
          the return of over $43.0 million of capital to limited partners
          and which reduced the Company's Management Contract Obligations
          with respect to such limited partners.  Because the refinancings
          were committed to in Fiscal 1995 and closed before the completion
          of the Company's financial statements for Fiscal 1995, the
          Company recognized the effect on deferred income with respect to
          such refinanced properties in Fiscal 1995 rather than Fiscal
          1996. 

               Interest income for Fiscal 1997 was $12.1 million as
          compared to $13.8 million for Fiscal 1996, representing a
          decrease of $1.7 million or 12.3%.  The decrease is attributable
          to (i) the accelerated receipt of interest payments in Fiscal
          1996 due to the refinancing of a number of adult living
          communities (which includes the initial mortgage financing of
          certain adult living communities that has been previously
          acquired without a mortgage) in March 1996, which reduced
          interest payments that otherwise would have been received in
          Fiscal 1997, and (ii) a reduction of interest income due to the
          refinancings of the adult living communities which resulted in
          the prepayment of mortgages which were previously assets of the
          Company as partially offset by interest payments realized on
          Multi-Family notes as a result of excess refinancing proceeds
          received as a result of mortgage debt restructurings on four
          Multi-Family Properties.  Interest income for Fiscal 1996 was
          $13.8 million compared to $12.7 million for Fiscal 1995, an


                                      28
    <PAGE>  


          increase of $1.1 million or 8.7%.  The refinancing of a number of
          adult living communities in March 1996 resulted in the return of
          over $43.0 million of capital to limited partners, thereby
          accelerating the receipt of scheduled interest payments received
          by the Company in the three months ending April 30, 1996. This
          accelerated receipt of scheduled interest payments in the three
          months ended April 30, 1996 caused interest income for Fiscal
          1996 to be greater than interest income for Fiscal 1995, but was
          partially offset by a reduction of interest income due to the
          prepayment of mortgages held by the Company, which resulted from
          the adult living refinancings.  In addition, this increase in
          interest income was partially offset by a decrease in Fiscal 1996
          of the cash flow generated by various Multi-Family Properties,
          which the Company receives as interest income, as compared to
          such cash flows generated in Fiscal 1995. 

               Property management fees from related parties for Fiscal
          1997 was $3.7 million as compared to $2.1 million for Fiscal
          1996, representing an increase of $1.6 million or 76.2%.  The
          increase is primarily attributable to the cash flows from the
          underlying Owning Partnerships exceeding the specified rate of
          return to the limited partners in Fiscal 1997 to an extent
          greater than in Fiscal 1996.  Property management fees from
          related parties was $2.1 million in Fiscal 1996 as compared to
          $4.1 million in Fiscal 1995, representing a decrease of $2.0
          million or 48.8%.  This decrease is attributable to (i) operating
          expenses (including maintenance and repair expenses) increasing
          at a rate greater than historically, as partially offset by
          increases in rental revenues, (ii) a decrease in the average
          occupancy of the Company's portfolio of adult living communities,
          (iii) the increased debt service on various adult living
          communities due to the refinancing of such properties (which
          include the initial mortgage financing of certain properties that
          had been previously acquired without mortgage financing) in March
          1996, which reduced the cash flow produced by such properties and
          the incentive management fees these properties generate to a
          greater extent than the resulting reduction of the Company's
          Management Contract Obligations in Fiscal 1996 due to said
          refinancing, and (iv) the establishment of capital improvement
          reserves pursuant to the terms of the newly refinanced loans,
          which reserves reduce the cash flow and incentive management fees
          these properties generate. 

               Equity in earnings from partnerships was $500,000 in Fiscal
          1997 as compared to $400,000 in Fiscal 1996, representing an
          increase of $100,000 or 25%.  The increase is attributable to the
          Syndication of additional properties in which the Company retains
          a general partnership interest.  Equity in earnings from
          partnerships was $400,000 for Fiscal 1996 and Fiscal 1995,
          representing no change. 

               The Company realized other income of $4.7 million in Fiscal
          1997.  Two Protected Partnerships successfully emerged from their
          bankruptcy proceedings in January, 1998 by paying off their
          mortgages at a discount with the proceeds of new mortgage
          financings, resulting in these properties having current, fully
          performing mortgages.  This allowed the Company to recognize non-
          cash other income of $3.1 million see "Liquidity and Capital
          Resources".  Approximately $1.0 million of this non-cash income
          resulted from the reduction of certain previously established
          reserves associated with the Company's notes and receivables. 
          The remaining $600,000 of this non-cash income resulted from the
          write-off of liabilities which are no longer required. The
          Company recognized other income for Fiscal 1995 of $1.0 million
          which resulted from the restructuring and reduction of a
          development fee obligation of the Company.  There was no other
          income in Fiscal 1996.

          . Cost of Sales

               Cost of sales (which includes (i) the cash portion of the
          purchase price for Syndicated adult living communities plus
          related transaction costs and expenses and (ii) any payments in
          respect of Management Contract Obligations) for Fiscal 1997 was
          $33.6 million as compared to $34.0 million for Fiscal 1996,
          representing a decrease of $400,000 or 1.0%.  The decrease is
          primarily attributable to the lesser aggregate cash portion of
          the purchase prices of the adult living communities acquired and
          Syndicated in Fiscal 1997 as compared to the cash portion of the
          purchase prices of the adult living communities acquired and
          Syndicated in Fiscal 1996 as partially offset by increased
          funding due to Management Contract Obligations in Fiscal 1997 as
          compared to Fiscal 1996.  Cost of sales as a percentage of sales
          and syndication fee income was 73.0% in Fiscal 1997 as compared
          to 77.8% in Fiscal 1996.  The decrease is attributable to the
          ability to obtain more favorable mortgage financings for the
          acquisitions as partially offset by (i) less favorable terms when
          acquiring adult living communities (in view of the relationship
          between the initial cash flow generated by the properties and
          their purchase prices), and (ii) increased funding due to
          Management Contract Obligations.  Cost of sales for Fiscal 1996
          was $34.0 million as compared to $27.7 million for Fiscal 1995,


                                      29
     <PAGE>


          representing an increase of $6.3 million or 22.7%. The increase
          is attributable to increased funding due to Management Contract
          Obligations in Fiscal 1996 as compared to Fiscal 1995.  Cost of
          sales as a percentage of sales and syndication fee income was
          77.8% in Fiscal 1996 as compared to 68.2% in Fiscal 1995.  The
          increase is attributable to increased funding due to Management
          Contract Obligations, as partially offset by the Company's
          ability to acquire properties on more favorable terms and to
          obtain more favorable mortgage financings for its acquisitions
          (i.e.higher loan-to-value ratios which reduces the cash portion
          of the purchase prices and preferred interest rates) in Fiscal
          1996 as compared to Fiscal 1995.

               Several factors, including the decline of the real estate
          market in the late 1980's and early 1990's, which resulted in a
          number of distressed property sales and limited competition from
          other prospective purchasers, allowed the Company to acquire
          existing adult living communities at such time on relatively
          favorable terms.  Mortgage financing, however, was generally
          either not available or available only on relatively unattractive
          terms during this period, which made acquisitions more difficult
          because they either required large outlays of cash or the use of
          mortgage financing on relatively unfavorable terms.  During the
          last several years, several factors have contributed towards a
          trend to less favorable terms for acquisitions of adult living
          communities, including a recovery in the market for adult living
          communities and increased competition from other prospective
          purchasers of adult living communities.  The Company, however,
          has been able to obtain mortgage financing on increasingly
          favorable terms (i.e. the Company has obtained mortgages for a
          greater percentage of the purchase price and at preferred
          interest rates).  These factors, combined with an overall
          reduction of interest rates, have partially offset the factors
          that have led to more unfavorable acquisition terms.  A
          significant change in these or other factors (including, in
          particular, a significant rise in interest rates) could prevent
          the Company from acquiring communities on terms favorable enough
          to offset the start-up losses of newly-developed communities as
          well as the Company's debt service obligations, Management
          Contract Obligations and the Company's selling, and general and
          administrative expenses. 

          . Selling Expenses

               Selling expenses for Fiscal 1997 was $7.6 million as
          compared to $7.2 million for Fiscal 1996 representing an increase
          of $400,000 or 5.6%.  The increase is attributable to higher
          commissions paid on a greater sales volume for Syndications
          completed in Fiscal 1997 as compared to Fiscal 1996.  Selling
          expenses for Fiscal 1996 was $7.2 million as compared to $7.7
          million for Fiscal 1995, representing a decrease of $500,000 or
          6.5%.  The decrease is attributable to a lower commission rate
          paid on a higher sales volume for Syndications completed in
          Fiscal 1996 as compared to the commission rate and sales volume
          for Syndications completed in Fiscal 1995.  

          . Interest Expense

               Interest expense for Fiscal 1997 was $19.4 million as
          compared to $16.4 million for Fiscal 1996, representing an
          increase of $3.0 million or 18.3%.  The increase is attributable
          to an increase in the principal amount of debt and an increase in
          interest rates for such debt during Fiscal 1997 as compared to
          Fiscal 1996, as partially offset by the elimination of certain of
          the Company's mortgage debt due to the refinancing of two adult
          living communities in March 1996 and the refinancing of a third
          adult living community in July 1996.  Interest expense for Fiscal
          1996 was $16.4 million as compared to $15.8 million in Fiscal
          1995, representing an increase of $600,000 or 3.8%.  The increase
          can be primarily attributed to increases in debt and related
          interest rates on such debt during the period as partially offset
          by decreases in debt due to the refinancing of two adult living
          communities in March 1996.  Until the refinancings, the mortgages
          on the two communities were direct obligations of the Company and
          the corresponding interest payments were included in the
          Company's interest expense.  These mortgages are now direct
          obligations of the Owning Partnerships that own these properties
          and the corresponding interest payments are no longer included in
          the Company's interest expense.  Interest Expense included
          interest payments on Debenture Debt which had an average interest
          rate of 12.05% per annum in Fiscal 1996 and 1997 and was secured
          by the Purchase Note Collateral.  During Fiscal 1996 and 1997,
          total interest expense with respect to Debenture Debt was
          approximately $9.2 million and $8.4 million respectively and the
          $3.0 million respectively of interest and related payments to the
          Company, which was $6.9 million and $5.4 million respectively
          less than the amount required to pay interest on the Debenture
          Debt. 


                                      30
      <PAGE>

          . General and Administrative Expenses

               General and administrative expenses were $8.4 million in
          Fiscal 1997 as compared to $7.8 million in Fiscal 1996,
          representing an increase of $600,000 or 7.7%.  The increase is
          attributable to increases in professional fees, salary cost and
          other office expenses in managing and arranging for the
          acquisition of the Company's portfolio of Syndicated adult living
          communities which increased by six in Fiscal 1997, as partially
          offset by the capitalization of expenses relating to the
          implementation of the Company's development program.  General and
          administrative expenses for Fiscal 1996 was $7.8 million as
          compared to $7.9 million in Fiscal 1995, representing a decrease
          of $100,000 or 1.3%.  The decrease is attributable to the
          capitalization of expenses relating to the implementation of the
          Company's development program, which became significant during
          the year, as partially offset by increases in salary costs and
          other office expenses in implementing the Company's development
          program and in managing and arranging for the acquisition of the
          Company's adult living communities portfolio which increased by
          four adult living communities in Fiscal 1996. 

          . Loss on Impairment of Notes and Receivables

               The Company realized a non-cash loss on impairment of notes
          and receivables of $18.4 million in Fiscal 1996 as compared to no
          such loss for Fiscal 1997, Fiscal 1995 or Fiscal 1994.  These
          losses equal the recorded value, net of deferred income and
          reserves, of Multi-Family Notes and the related "Other
          Partnership Receivables" relating to nine Multi-Family Owning
          Partnerships which filed petitions under Chapter 11 of the U.S.
          Bankruptcy Code seeking protection from foreclosure actions and
          one Multi-Family Owning Partnership that surrendered its property
          pursuant to an uncontested foreclosure sale of such property.  As
          a result of the related transfers by the Principal Stockholders
          and one of their affiliates of additional assets to the Investing
          Partnerships which issued such Multi-Family Notes, the Company
          recorded a contribution to capital of $21.3 million.  See --
          "Liquidity and Capital Resources."

          . Write-off of Registration Costs

               The Company expensed approximately $3.1 million of costs
          relating to its proposed initial public offering of equity
          securities in Fiscal 1997.  Such costs were incurred prior to
          April 30, 1997.

          . Officers' Compensation

               Officers' compensation was $1.2 million for Fiscal 1997,
          Fiscal 1996 and Fiscal 1995.

          . Depreciation and Amortization

               Depreciation and amortization consists of amortization of
          deferred debt expense incurred in connection with debt issuance.
          Depreciation and amortization for Fiscal 1997 was $3.3 million as
          compared to $3.3 million for Fiscal 1996, representing no change. 
          Depreciation and amortization was $3.3 million in Fiscal 1996 as
          compared to $2.6 million in Fiscal 1995, representing an increase
          of $700,000 or 26.9%.  The increase is attributable primarily to
          the prepayment of debt which resulted in the acceleration of the
          unamortized portion of the related costs and also to the issuance
          of additional Debenture Debt and Unsecured Debt in Fiscal 1995
          which had its full amortization impact in Fiscal 1996. 

          LIQUIDITY AND CAPITAL RESOURCES

               The Company historically has financed operations through
          cash flow generated by operations, Syndications and borrowings
          consisting of Investor Note Debt, Unsecured Debt, Mortgage Debt
          and Debenture Debt.  Now that the Company has completed
          development of four newly-developed adult living communities, the
          ownership and operation of these communities is an additional
          source of cash flow.  The Company's principal liquidity
          requirements are for payment of operating expenses, costs
          associated with development of new adult living communities, debt
          service obligations, and Management Contract Obligations.


                                      31
     <PAGE>



               Cash flows used by operating activities for Fiscal 1997 were
          $11.3 million and were comprised of (i) net loss of $2.5 million
          less (ii) adjustments for non-cash items of $5.0 million less
          (iii) the net change in operating assets and liabilities of $3.9
          million.  The adjustments for non-cash items is comprised of
          depreciation and amortization of $3.3 million, plus write-off of
          registration costs of $3.1 million, offset by deferred income
          earned of $7.3 million reduction of impairment reserves on notes
          and receivables of $1.0 million and non-cash other income of $3.1
          million. The net change in operating assets and liabilities of
          $3.9 million was primarily attributable to an increase in notes
          and receivables and accrued interest on notes and receivables of
          $7.7 million.  Approximately 27% of the increase in notes and
          receivables was attributable to an increase in Adult Living Notes
          due to new Syndications as offset by principal reductions on
          Adult Living Notes relating to previous Syndications,
          approximately 65% of the increase in notes and receivables were
          attributable to an increase in other partnership receivables
          primarily due to advances made to Multi-Family Owning
          Partnerships, and approximately 8% of the increase in notes and
          receivables was attributable to an increase in accrued interest
          receivable, which represents the accrual of interest on the
          Multi-Family Notes.  The Multi-Family Notes accrue interest based
          on the collectibility of such interest.  The proceeds from the
          collection of the investor notes pay interest on the related
          Multi-Family Notes.  The investors make one annual payment on
          their investor notes every January.  Interest on the Multi-Family
          Notes accrues during each fiscal year as the annual collection
          date for the related investor notes draws nearer.  The increase
          in accrued interest on Multi-Family Notes, therefore, is not
          reflective of any impairment of Multi-Family Notes.  Cash flows
          provided by  operating activities for Fiscal 1996 were $2.5
          million and were comprised of: (i) net loss of $23.3 million plus
          (ii) adjustments for non-cash items of $16.7 million plus (iii)
          the net change in operating assets and liabilities of $9.1
          million.  The adjustments for non-cash items is comprised of
          depreciation and amortization of $3.3 million and loss on
          impairment of receivables of $18.4 million less deferred income
          earned of $5.0 million.  Cash flows provided by operating
          activities for Fiscal 1995 were $1.0 million and were comprised
          of: (i) net income of $5.8 million less (ii) adjustments for non-
          cash items of $7.4 million plus (iii) the net change in operating
          assets and liabilities of $2.6 million.  The adjustments for non-
          cash items is comprised of depreciation and amortization of $2.6
          million offset by deferred income earned of $10.0 million. 

               Net cash used by investing activities for Fiscal 1997 of
          $20.4 million was comprised of the increase in the investment in
          the adult living communities the Company is currently
          constructing and the increase in investments in general partner
          interests in adult living communities.  Net cash used by
          investing activities for Fiscal 1996 of $7.2 million was
          comprised of the increase in the investment in the adult living
          communities the Company is currently constructing and the
          increase in investments and general partner interests in
          Syndicated adult living communities for the period offset by a
          decrease in investments due to the distribution of refinancing
          proceeds due to the Company's portion of general partner
          interests in adult living communities.  Net cash used by
          investing activities for Fiscal 1995 of $567,000 was comprised of
          the increase in investments in general partner interests in adult
          living communities. 

               Net cash provided by financing activities for Fiscal 1997 of
          $29.5 million was comprised of (i) proceeds from the issuance of
          new debt of $63.4 million less debt repayments of $44.2 million
          plus (ii) proceeds from construction mortgage financing of $19.8
          million less (iii) payments of notes payable of $400,000 plus
          (iv) increase in notes payable of $4.5 million less (v) the
          increase in other assets of $13.6 million.  Net cash used by
          financing activities for Fiscal 1996 of $900,000 was comprised
          of: (i) proceeds from the issuance of new debt of $57.8 million
          less debt repayments of $55.3 million plus (ii) proceeds from
          construction mortgage financing of $2.8 million less (iii)
          payments of notes payable of $200,000 less (iv) distributions
          paid of $800,000 and less (v) the increase in other assets of
          $3.4 million due to the capitalization of costs relating to the
          development and construction of new properties and the issuance
          of new debt offset by the amortization of loan costs primarily in
          connection with Debenture Debt.  Net cash provided by financing
          activities for Fiscal 1995 of $6.6 million was comprised of: (i)
          proceeds from the issuance of new debt of $52.0 million less debt
          repayments of $39.3 million less (ii) payments of notes payable
          of $1.6 million less (iii) distributions paid of $1.7 million and
          less (iv) the increase in other assets of $2.8 million due to the
          capitalization of loan costs primarily in connection with
          Debenture Debt.

               At January 31, 1998, the Company had total indebtedness,
          excluding accrued interest, of $160.9 million, consisting of
          $65.5 million of Debenture Debt, $66.2 million of Unsecured Debt,
          $5.0 million of Mortgage Debt and $24.2 million of Investor Note
          Debt, and the Company had cash and cash equivalents at January
          31, 1998 of $12.3 million.


                                      32
     <PAGE>


               Of the principal amount of total indebtedness at January 31,
          1998, $25.5 million becomes due in the fiscal year ending January
          31, 1999; $38.6 million becomes due in the fiscal year ending
          January 31, 2000; $25.6 million becomes due in the fiscal year
          ending January 31, 2001; $32.4 million becomes due in the fiscal
          year ending January 31, 2002; $15.1 million becomes due in the
          fiscal year ending January 31, 2003, and the balance of $23.7
          million becomes due thereafter.  Of the amount maturing in the
          fiscal year ending January 31, 1999, $2.3 million is Investor
          Note Debt which the Company expects to repay through the
          collection of investor notes.  The balance, approximately $23.2
          million, includes $2.4 million of Debenture Debt and $20.8
          million of Unsecured Debt, a portion of which the Company expects
          to repay through funds generated by the Company's business
          operations and the balance of which the Company expects to
          refinance by the issuance of new debt. 

               The Company's debt obligations contain various covenants and
          default provisions, including provisions relating to, in some
          obligations, certain Investing Partnerships, Owning Partnerships
          or affiliates of the Company.  Under the Capstone agreements the
          Company is required to maintain a net worth in an amount no less
          than 75% of the net worth of the Company immediately after the
          close of the Company's initial public offering, which took place
          in March 1998.  The Company has experienced fluctuations in its
          net worth over the last several years.  At January 31, 1995, the
          Company had a net worth of $30.7 million, at January 31, 1996,
          the Company had a net worth of $34.8 million, at January 31,
          1997, the Company had a net worth of $32.0 million, and at
          January 31, 1998, the Company had a net worth of $26.4 million. 
          On a pro forma basis, after giving effect to the initial public
          offering which closed in March 1998, the Company would have had a
          net worth of $50.0 million at January 31, 1998.  Pursuant to the
          Capstone Agreement, the Company is required to maintain a net
          worth of no less than $37.6 million.  Certain obligations of the
          Company contain covenants requiring the Company to maintain
          maximum ratios of the Company's liabilities to its net worth. 
          The most restrictive covenant requires that the Company maintain
          a ratio of "loans and accrued interest payable" to consolidated
          net worth of no more than 7 to 1.  At January 31, 1997 and 1998,
          the Company's loan and accrued interest to consolidated net worth
          ratio was 4.5 to 1 and 6.1 to 1, respectively and would have been
          3.2 to 1 on January 31, 1998 on a pro forma basis, after giving
          effect to the initial public offering which closed in March 1998. 
          In addition, certain obligations of the Company provide that an
          event of default will arise upon the occurrence of a material
          adverse change in the financial condition of the Company or upon
          a default in other obligations of the Company.

               The Company has utilized mortgage financing and Syndications
          to arrange for the acquisitions of the adult living communities
          it operates and intends to continue this practice for future
          acquisitions of existing adult living communities.  The Company
          does not intend to Syndicate its newly developed communities. 
          The limited partnership agreements of the Investing Partnerships
          provide that the limited partners are entitled to receive for a
          period not to exceed five-years specified distributions equal to
          11% to 12% per annum of their then paid-in scheduled capital
          contributions.  Pursuant to the management contracts with the
          Owning Partnerships, for such five-year period, the Company has
          Management Contract Obligations.  During Fiscal 1996 and 1997,
          the adult living communities with respect to which the Company
          had such Management Contract Obligations distributed to the
          Company, after payment of all operating expenses and debt
          service, an aggregate of $9.7 million and $11.0 million,
          respectively, for application to the Company's Management
          Contract Obligations.  During such periods, the Company's
          Management Contract Obligations exceeded such distributions by an
          aggregate of  $5.6 million and $6.4 million, respectively.  Of
          the $5.6 million the Company paid in respect to Management
          Contract Obligations for Fiscal 1996 (i) approximately 64% was
          attributable to difficulties the Company experienced in renting a
          sufficient number of adult living units relating to two
          Syndications involving multi-family properties that the Company
          acquired from third parties and believed could successfully be
          converted to adult living communities (the conversion of one of
          these properties to an adult living community is continuing and
          is currently 80% occupied by adult living residents, and the
          conversion of the other property was unsuccessful and the
          property is being operated as a multi-family property by a third-
          party managing agent) and one underperforming adult living
          community, (ii) approximately 27% was attributable to operating
          expenses (including maintenance repairs and costs) increasing at
          a greater rate than historically, as partially offset by
          increases in rental revenues, and (iii) approximately 9% was
          attributable to the increased debt service, including the
          establishment of capital improvement reserves, on certain adult
          living communities due to the refinancing of such adult living
          communities (which includes the initial mortgage financing of
          certain adult living communities that had been previously
          acquired without a mortgage), which refinancings reduced the cash
          flow generated by such adult living communities to a greater
          extent than the resulting reduction of the Company's Management
          Contract Obligations relating to such properties.  As a result of


                                      33
     <PAGE>


          the refinancings, $43 million was distributed to limited partners
          as a return of capital.  This return of capital reduced the
          amount of capital upon which the Company has Management Contract
          Obligations.  Of the $6.4 million the Company paid in respect to
          Management Contract Obligations for Fiscal 1997 (i) approximately
          45% was attributable to operating expenses (including maintenance
          and repair costs) increasing at a greater rate than historically,
          as partially offset by increases in rental revenues, (ii)
          approximately 33% was attributable to the decrease in the average
          occupancy of the Company's portfolio of adult living communities,
          and (iii) approximately 22% was attributable to difficulties the
          Company experienced in renting adult living units relating to one
          Syndicated adult living community which had been converted from a
          multi-family property (which community is currently 80% occupied
          by adult living residents) and one underperforming adult living
          community. 

               The aggregate amount of Management Contract Obligations
          relating solely to returns to limited partners based on existing
          management contracts is $15.4 million for Fiscal 1998, which will
          increase to $17.4 in Fiscal 1999, and decrease to $16.4 million
          in Fiscal 2000, decrease to $11.2 million in Fiscal 2001 and
          decrease to $2.4 million in Fiscal 2002.  Such amounts of
          Management Contract Obligations are calculated based upon all
          remaining scheduled capital contributions with respect to fiscal
          years 1998 through 2002.  Actual amounts of Management Contract
          Obligations in respect of such contracts will vary based upon the
          timing and amount of such capital contributions.  Furthermore,
          such amounts of Management Contract Obligations are calculated
          without regard to any cash flow the related properties may
          generate, which would reduce such obligations, and are calculated
          without regard to the Management Contract Obligations and
          property cash flows relating to future Syndications. 

               The Company anticipates that for at least the next two
          years, the aggregate Management Contract Obligations with respect
          to existing and future Syndications will exceed the aggregate
          cash flow generated by the related properties, which will result
          in the need to utilize cash generated by the Company from sources
          other than the operations of the Syndicated adult living
          communities to meet its Management Contract Obligations
          (including payment of required returns for distribution to
          limited partners) for these periods.  In general, the payment of
          expenses arising from obligations of the Company, including
          Management Contract Obligations, have priority over  earnings
          that might otherwise be available for distribution to
          stockholders.

               The initial five-year term of the management contracts and
          the related Management Contract Obligations have expired for 10
          Owning Partnerships and their fourteen related Investing
          Partnerships. Although the Company has no obligation to fund
          operating shortfalls after the five-year term of the management
          contracts, as of January 31, 1998, the Company had advanced an
          aggregate of approximately  $500,000 to two of these Owning
          Partnerships to fund operating shortfalls.  In both cases, the
          Company had arranged for Syndications involving multi-family
          properties that the Company  acquired from third parties and
          believed could be successfully converted to adult living
          communities.  One of these conversion attempts was unsuccessful
          and the property is now being operated as a multi-family property
          by a third-party managing agent.  The other property has
          experienced difficulties in its conversion to an adult living
          community, but the conversion process is continuing.  These
          advances are recorded as "Other Partnership Receivables" on the
          Company's Consolidated Balance Sheet.  The Company has no present
          intention to attempt other conversions of multi-family properties
          to adult living communities.  From time to time, the Company has
          also made discretionary payments to Owning Partnerships beyond
          the Management Contract Obligations period for the purpose of
          making distributions to limited partners.

               The refinancings of a number of adult living communities in
          Fiscal 1996 resulted in over $43 million being returned to
          limited partners, which reduced the amount of capital upon which
          the Company is obligated to make payments in respect of the
          Management Contract Obligations.  The amount paid by the Company
          with respect to its Management Contract Obligations for Fiscal
          1996 was partially offset by an increase in interest income
          received by the Company for Fiscal 1996, which was also the
          result of the refinancings.  While the refinancings increased the
          Company's funding of Management Contract Obligations in the short
          term, the long term effect will be a reduction of the Company's
          Management Contract Obligations relating to the refinanced
          properties.  The capital that was returned to the limited
          partners (which causes the reduction in the Company's Management
          Contract Obligations) was applied first to the later years in
          which their capital contributions are due and then to the earlier
          years.  The refinancings, therefore, reduce the Company's
          Management Contract Obligations more in future years than in the
          current year and the following year.  The aggregate amount of the
          Company's Management Contract Obligations will depend upon a
          number of factors, including, among others, the expiration of


                                      34
    <PAGE>


          such obligations for certain partnerships, the cash flow
          generated by the properties and the terms of future Syndications. 
          The Company anticipates that for at least two years the
          Management Contract Obligations with respect to existing and
          future  Syndications will exceed the cash flow generated by the
          related properties, which will result in the need to utilize
          funds generated by the Company from sources other than the
          operations of the Syndicated adult living communities to make
          Management Contract Obligations payments.  The Company intends to
          structure future Syndications to minimize the likelihood that it
          will be required to utilize the cash it generates to pay amounts
          utilized to pay Management Contract Obligations, but there can be
          no assurance that this will be the case.

               In the past, limited partners have been allowed to prepay
          capital contributions.  The percentage of the prepayments
          received upon the closings of the sales of limited partnership
          interests in Investing Partnerships averaged 60.9% in Fiscal
          1995, 65.7% in Fiscal 1996 and 78.8% for Fiscal 1997. 
          Prepayments of capital contributions do not result in the
          prepayment of the related Purchase Notes held by the Company. 
          Instead, such amounts are loaned to the Company by the Investing
          Partnership.  As a result of such loans and crediting provisions
          of the related purchase agreements, the Company records the
          Purchase Notes net of such loans.  Therefore, these prepayments
          act to reduce the recorded value of the Company's note
          receivables and reduce interest income received by the Company. 
          Pursuant to the terms of the offerings, the Company has the
          option not to accept future prepayments by limited partners of
          capital contributions.  The Company has not determined whether it
          will continue to accept prepayments by limited partners of
          capital contributions.

               The Company holds 169 Multi-Family Notes which are secured
          by controlling interests in Multi-Family Owning Partnerships
          which own 128 Multi-Family Properties. Although it has no
          obligation to do so, the Company has also made advances to
          various Multi-Family Owning Partnerships to support the operation
          of their properties, which advances are recorded as "Other
          Partnership Receivables" on the Company's Consolidated Balance
          Sheet. The Multi-Family Notes and the Other Partnership
          Receivables  entitle the Company to receive all cash flow and
          sale or refinancing proceeds generated by the respective Multi-
          Family Property until the Multi-Family Note and Other Partnership
          Receivables are satisfied.  As of January 31, 1998, the recorded
          value, net of deferred income, of Multi-Family Notes was $107.3
          million.  All but approximately $1.6 million of the $60.3 million
          of "Other Partnership Receivables" recorded on the Company's
          Consolidated Balance Sheet as of January 31, 1998 relate to
          advances to Multi-Family Owning Partnerships.  (See Note 4 of
          Notes to the Company's Consolidated Financial Statements.)

               The Multi-Family Notes relating to the Protected
          Partnerships were first deemed impaired when the mortgages on
          their respective properties went into default, which defaults
          occurred between August 1989 and June 1994.  Once in default, the
          holders of these mortgages assigned them to the United States
          Department of Housing and Urban Development ("HUD").  The
          Protected Partnerships then attempted to negotiate, and in some
          cases obtained, workout agreements with HUD.  Although it could
          temporarily lower or suspend debt service payments during the
          term of a workout agreement, HUD, unlike a conventional lender,
          did not have the legal authority to restructure the defaulted
          mortgages it holds by permanently lowering interest rates or
          reducing the principal amount of such mortgages.  HUD then sold
          the mortgages (subject to those workout agreements which were in
          place) at auctions in September 1995 and June 1996.  Since the
          new mortgage holders did not  have HUD's legal constraints as to
          the restructuring of mortgages they hold, the Protected
          Partnerships began negotiations with the new holders to
          restructure their mortgages or purchase them at a discount.  The
          Protected Partnerships could not reach agreement with the new
          mortgage holders and such new mortgage holders began to threaten
          and institute foreclosure proceedings.  In July 1996, the
          Principal Stockholders and one of their affiliates assigned 
          partnership interests in 12 partnerships that own 12 multi-family
          properties located in various towns and cities in Georgia and
          South Carolina (the "Assigned Interests") to the Investing
          Partnerships that own interests in the Protected Partnerships,
          which Assigned Interests were owned personally by the Principal
          Stockholders and their affiliate and provided additional assets
          at the Investing Partnership level and, as a result, additional
          security for the related Multi-Family Notes.   Seven of the
          Protected Partnerships filed Chapter 11 Petitions in August 1996,
          two of the Protected Partnerships filed Chapter 11 Petitions in
          February 1997, and one of the Protected Partnerships did not file
          a Chapter 11 Petition and allowed the holder of the mortgage to
          foreclose on its property due to the unlikelihood of confirming a
          plan of reorganization.  The Company neither owns nor manages
          these properties, nor is it the general partner of any Multi-
          Family Owning Partnerships, including the Protected Partnerships,
          but rather, merely holds the related Multi-Family Notes and Other
          Partnership Receivables as receivables.  The Company, therefore,
          has no liability in connection with these mortgage defaults or
          bankruptcy proceedings.


                                      35
     <PAGE>


               The Company established appropriate reserves during these
          time periods to reflect the varying extent of impairment of the
          applicable Multi-Family Notes in view of the state of facts at
          such times.  The bankruptcy petitions and risk of loss faced by
          the Protected Partnerships caused  the related Multi-Family Notes
          and receivables to be deemed  fully impaired.  As a result, the
          Company  recorded a non-cash loss in Fiscal 1996 in the amount of
          $18.4 million (representing the recorded value of these Multi-
          Family Notes and receivables, net of deferred income and any
          previously established reserves).  In that the Principal
          Stockholders transferred the Assigned Interests in July 1996, the
          Company recorded a $21.3 million capital contribution in Fiscal
          1996. As a result of the transfer by the Principal Stockholders
          and their affiliate of the Assigned Interests and the additional
          security provided thereby, the Company believes that the outcome
          of the bankruptcy proceedings has not affected its ability to
          collect on those Multi-Family Notes and receivables.  

               Seven of the Chapter 11 Petitions resulted in the respective
          Protected Partnerships losing their properties through
          foreclosure or voluntary conveyances of their properties.  The
          remaining two Protected Partnerships successfully emerged from
          their bankruptcy proceedings in January 1998 by paying off their
          mortgages at a discount with the proceeds of new mortgage
          financings, resulting in these properties having current, fully
          performing mortgages.  This allowed the Company to recognize non-
          cash other income of $3.1 million.  The two Investing Partnerships
          related to these two Protected Partnerships have transferred the
          respective Assigned Interests back to the Principal Stockholders
          and their affiliate.  This transfer is recorded as a non-cash
          distribution to the Principal Stockholders for the release of the
          previously assigned collateral of $3.1 million in Fiscal 1997.

               Fifteen of the Multi-Family Owning Partnerships remain in
          default on their  respective mortgages.  As of January 31, 1998,
          the recorded value, net of deferred income, of the Multi-Family
          Notes and "Other Partnership Receivables" held by the Company
          relating to these fifteen Multi-Family Owning Partnerships was
          $32.7 million.  The Company has established reserves of $10.1
          million to address the possibility that these notes and
          receivables may not be collected in full.  It is possible that
          other Multi-Family  Owning Partnerships which are in default of
          their mortgages will file bankruptcy petitions or take similar
          actions seeking protection from their creditors.

               In addition, many of the Multi-Family Properties are
          dependent to varying degrees on housing assistance payment
          contracts with the United States government, most of which will
          expire over the next few years.  In view of the foregoing, there
          can be no assurance that other Multi-Family Owning Partnerships
          will not default on their mortgages, file bankruptcy petitions,
          and/or lose their properties through foreclosure.  The Company
          neither owns nor manages these properties, nor is it the general
          partner of these Multi-Family Owning Partnerships, but rather,
          holds the related Multi-Family Notes and Other Partnership
          Receivables as receivables.  Any such future mortgage defaults
          could, and any such future filings of Chapter 11 Petitions or the
          loss of any such property through foreclosure would, cause the
          Company to realize a non-cash  loss equal to the recorded value
          of the applicable Multi-Family Note plus any related Other
          Partnership Receivables, net of any deferred income recorded for
          such Multi-Family Note and any reserves for such Multi-Family
          Note and Other Partnership Receivables previously established by
          the Company, which would reduce such loss.  In addition, the
          Company could be required to realize such a non-cash loss even in
          the absence of mortgage defaults, Chapter 11 Petitions or the
          loss of any such property through foreclosure if, at any time in
          which the Company's financial statements are issued, such note is
          considered impaired.  Such impairment would be measured under
          applicable accounting rules.  Such losses, if any, while non-cash
          in nature, could adversely affect the Company's business,
          operating results and financial condition.

               The Multi-Family Properties were typically built or acquired
          with the assistance of programs administered by HUD that provide
          mortgage insurance, favorable financing terms and/or rental
          assistance payments to the owners.  As a condition to the receipt
          of assistance under these and other HUD programs, the properties
          must comply with various HUD requirements, including limiting
          rents on these properties to amounts approved by HUD.  Most of
          the rental assistance payment contracts relating to the Multi-
          Family Properties will expire over the next few years.  HUD has
          introduced various initiatives to restructure its housing subsidy
          programs by increasing reliance on prevailing market rents, and
          by reducing spending on future rental assistance payment
          contracts by, among other things, not renewing expiring contracts
          and by restructuring mortgage debt on those properties where a
          decline in rental revenues is anticipated.  Due to uncertainty
          regarding the final policies that will result from these
          initiatives and numerous other factors that affect each property
          which can change over time (including the local real estate
          market, the provisions of the mortgage debt encumbering the     
          property, prevailing interest rates and the general state of the


                                      36
     <PAGE>


          economy) it is impossible for the Company to determine whether
          these initiatives will have an impact on the  Multi-Family
          Properties and, if there is an impact, whether the impact will be
          positive or negative.

               Certain of the Multi-Family Owning Partnerships intend to
          take advantage of the new HUD initiatives and/or improving market
          conditions to either refinance their HUD-insured mortgages with
          conventional mortgage financing or restructure their HUD-insured
          mortgage debt.  In some cases, the Multi-Family Owning
          Partnerships will make certain improvements to the properties and
          may not renew rental assistance contracts as part of a strategy
          to reposition those Multi-Family Properties as market-rate, non-
          subsidized properties. Six of such Multi-Family Owning
          Partnerships refinanced their HUD-insured mortgages with
          conventional mortgage financing and a number of others have
          applications for commitments pending.  To the extent that any of
          these Multi-Family Owning Partnerships complete such actions, the
          Company believes that the ability of the Multi-Family Investing
          Partnerships to make payments to the Company on their respective
          Multi-Family Notes will be enhanced and accelerated.  However,
          there can be no assurance that the Multi-Family Owning
          Partnership will be able to refinance their mortgages or will be
          able to successfully reposition any of the Multi-Family
          Properties.

               As previously described, the Protected Partnerships (and the
          other defaulting Multi-Family Owning Partnerships) have generated
          little or no cash flow and, therefore, the related Multi-Family
          Notes have contributed little or no interest income in the
          periods covered in the Consolidated Financial Statements of the
          Company.  The Assigned Interests have, prior to their assignment
          to the Investing Partnerships, generated positive cash flows.  To
          the extent the Assigned Interests  continue to generate positive
          cash flows, the Company will be entitled to receive such amounts
          as interest income on the related Multi-Family Notes.

               The future growth of the Company will be based upon the
          continued acquisition and Syndication of existing adult living
          communities and the development of newly-constructed adult living
          communities, which the Company does not intend to Syndicate.  The
          Company anticipates that it will acquire between six and twelve
          existing adult living communities over the next two years. It is
          anticipated that acquisitions of existing adult living
          communities will be arranged by utilizing a combination of
          mortgage financing and Syndications.  In February, 1998, the
          Company entered into a contract to acquire an adult living
          community in Sacramento, California containing 88 apartment
          units.  The Company regularly obtains  acquisition mortgage
          financing from three different commercial mortgage lenders and,
          in view of its ready access to such mortgage financing, has not
          sought any specific commitments or letters of intent with regard
          to future, unidentified acquisitions.  Similarly, the Company
          believes that it has sufficient ability to arrange for
          acquisitions of existing adult living communities in part by
          Syndications.  In Fiscal 1996 and 1997, the Company acquired
          three previously Syndicated adult living communities (the
          "Resyndicated Communities") from the original Owning
          Partnerships, which acquisitions were arranged by utilizing
          mortgage financing and Resyndications. The Company manages the
          Resyndicated Communities pursuant to new management contracts and
          has Management Contract Obligations thereunder.  The Company will
          not engage in other Resyndication transactions in the future.

               In a typical Syndication, limited partners  agree to pay
          their capital contributions over a five-year period, and deliver
          notes representing the portion of their capital contribution that
          has not been paid in cash.   The Company borrows against  the
          notes delivered by limited partners to generate cash when needed,
          including to pursue its plan for the development of new adult
          living communities and to repay debt.  The Company's present
          Investor Note Debt lenders do not have sufficient lending
          capacity to meet all of the Company's future requirements.
          However, the Company currently is negotiating with several new
          Investor Note Debt lenders which the Company believes will have
          sufficient lending capacity to meet all of the Company's
          foreseeable Investor Note Debt borrowing requirements on
          acceptable terms.

               The Company has instituted a development plan pursuant to
          which it has completed construction of four adult living
          communities, is nearing completion of the construction of three
          additional communities, has commenced construction on one
          additional community and intends to commence construction on
          between 30 and 34 additional new adult living communities over
          the next two years. The Company plans to own or lease pursuant to
          long-term operating leases or similar arrangements the adult
          living communities that will be developed under the plan.  The
          Company will manage and operate each of the newly developed
          communities.   The Company estimates that the cost of developing
          each new adult living community  (including reserves necessary to
          carry the community through its lease up period) utilizing
          mortgage financing will be approximately $9.5 million and
          utilizing long-term lease financing will be approximately $10
          million.  The Company expects to complete the construction of
          three of the four communities currently under construction by the


                                      37
     <PAGE>


          end of the first quarter of fiscal 1998.  The Company expects to
          complete construction of the remaining community currently under
          construction by the end of fiscal 1998.   These four adult living
          communities, along with the four communities already completed
          pursuant to the development plan, contain an aggregate of
          approximately 1,150 adult living apartment units.  The 30 to 34
          additional new communities which the Company intends to commence
          construction on over the next two years will contain between
          4,260 and 4,828 additional adult living apartment units. The
          Company anticipates that the proceeds of the Company's recently
          completed initial public offering, funds generated by its
          business operations and construction mortgage financing will
          provide sufficient funds to pursue its development plan for at
          least 12 months at the projected rate of development.  The
          Company will use the proceeds of anticipated refinancings of
          construction financing on, and/or sale-leasebacks of, stabilized,
          newly constructed communities at higher principal amounts than
          the original construction financing, additional long-term leases
          or similar forms of financing which require the investment of
          little or no capital on the part of the Company, or may use funds
          raised through the issuance of additional debt or equity
          securities, to continue with its development plan for more than
          the next 12 months at its projected rate of development.  There
          can be no assurance that funds generated by these potential
          sources will be available or sufficient to complete the Company's
          development plan.  In addition, there are a number of
          circumstances beyond the Company's control and which the Company
          cannot predict that may result in the Company's financial
          resources being inadequate to meet its needs.  A lack of
          available funds may require the Company to delay, scale back or
          eliminate some of the adult living communities that are currently
          contemplated in its development plan.  

               The first new communities being constructed pursuant to the
          Company's development plan are in Texas. The Company completed
          construction with mortgage financing for up to $7.0 million on an
          adult living community in Corpus Christi, Texas, for up to $7.3
          million on an adult living community in Temple, Texas and is
          nearing the completion of construction on a site in Round Rock,
          Texas, with mortgage financing for up to $7.6 million,
          respectively.  The Company has commenced construction with
          construction financing for $7.1 million on an adult living
          community in Tyler, Texas.  The Company has acquired additional
          sites in Amarillo and South Shore, Texas, holds options to
          acquire one additional site in Texas and one additional site in
          Kansas and is negotiating with several additional lenders to
          obtain financing to develop these sites.

               The Company has, and may in the future, utilize long-term
          lease financing arrangements to develop and operate new
          communities.  The Company has obtained up to $39 million of
          financing from Capstone for 100% of the development cost of four
          adult living communities that will be operated by the Company
          pursuant to long-term leases with Capstone.  The Company has
          completed construction on two of these communities in San Angelo
          and El Paso, Texas, and is nearing completion of construction on
          the two remaining communities which are located in Wichita Falls
          and Abilene, Texas, respectively.  Pursuant to this financing
          arrangement, Capstone acquired the properties and entered into a
          development agreement and a lease agreement with the Company with
          respect to each property.  Each development agreement required
          that construction commence within 30 days after the acquisition
          of the property and be complete within 15 months of commencement. 
          Each lease agreement will have a term of 15 years with three
          optional five-year renewal periods.  The agreement requires a
          covenant that each community financed by Capstone maintain
          annualized earnings before certain deductions of at least 1.25
          times the rent from the respective adult living community.  The
          obligations under the development agreements are, and the
          obligations under the leases will be, direct obligations of the
          Company.  The Company will be granted a right of first refusal
          and an option to purchase the properties. 

               The Company is actively engaged in negotiations with other
          mortgage and long-term lease lenders to provide additional
          construction financing. The Company anticipates that most of the
          construction mortgage loans it obtains to finance the development
          and lease-up costs of new adult living communities will contain
          terms where the lender will fund approximately 80% of such costs,
          requiring the Company to contribute approximately 20% of such
          costs.  The Company arranged for the sale of limited partnership
          interests in two partnerships organized to make second mortgage
          loans to the Company to fund approximately 20% of the costs of
          developing three new adult living communities. 

          . Impact of the Year 2000 on Computer Systems and Applications 

               The Company has assessed the potential for its computer
          systems and applications to fail and create erroneous results by
          or at the year 2000 and has modified, and plans to continue to
          test and modify as necessary, its computer systems and
          applications to permit proper functioning in and after the year
          2000.  The Company believes that most such required modifications
          have been made and does not expect to have any material year 2000
          problems.  The costs incurred to date for such modifications have
          been, and it is expected that any future costs will be,
          immaterial.


                                      38
     <PAGE>


               The Company's assessment of the adult living communities
          which it manages has led it to believe that such communities will
          not be affected by year 2000 issues to any material extent. 
          Since the computer systems of the Company and the adult living
          communities managed by it are not linked to those of any other
          party, the Company does not believe that year 2000 problems of
          third parties will create the potential for system failures for
          the Company or the adult living communities that it manages.  The
          Company does not believe that year 2000 problems, if any, faced
          by its suppliers, creditors or others will have any material
          impact on the Company, although there can be no assurance that
          this will be the case.

          . New Accounting Pronouncements

               Statement No. 130, "Reporting Comprehensive Income"
          establishes standards for reporting and display of comprehensive
          income and its components, and is effective for fiscal years
          beginning after December 15, 1997.  Statement No. 131,
          "Disclosures about Segments of an Enterprise and Related
          Information" establishes standards for the way that public
          business enterprises report information about operating segments
          in annual financial statements and requires that those
          enterprises report selected information about operating segments
          in interim financial reports issued to shareholders.  It also
          establishes standards for related disclosures about products and
          services, geographic areas, and major customers, and is effective
          for financial statements for periods beginning after December 15,
          1997.  The Company believes that its future adoption of these
          standards will not have a material effect on the Company's
          financial position or results of operations.




                                      39
     <PAGE>


          ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA


                      INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                      ----------


                                                                       Page
                                                                       ----

          Independent Auditors' Report                                   41

          Consolidated Balance Sheets as of January 31, 1997 and 1998    42

          Consolidated Statements of Operations for the Years
            Ended January 31, 1996, 1997 and 1998                        43

          Consolidated Statements of Changes in Stockholders'
            Equity for the Years Ended January 31, 1996,
            1997 and 1998                                                44

          Consolidated Statements of Cash Flows for the Years Ended
            January 31, 1996, 1997 and 1998                              45

          Notes to Consolidated Financial Statements                     47




                                      40
     <PAGE>


          INDEPENDENT AUDITORS' REPORT


          To the Board of Directors and Stockholders of
          Grand Court Lifestyles, Inc.
          Boca Raton, Florida

          We have audited the accompanying consolidated balance sheets of
          Grand Court Lifestyles, Inc. and subsidiaries as of January 31,
          1998 and 1997 and the related consolidated statements of
          operations, stockholders' equity and cash flows for each of the
          three years in the period ended January 31, 1998.  These
          consolidated financial statements are the responsibility of the
          Company's management.  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 opinion.

          In our opinion, the consolidated financial statements referred to
          above present fairly, in all material respects, the financial
          position of Grand Court Lifestyles, Inc. and subsidiaries as of
          January 31, 1998 and 1997, and the results of their operations
          and their cash flows for each of the three years in the period
          ended January 31, 1998 in conformity with generally accepted
          accounting principles.



          DELOITTE & TOUCHE LLP
          New York, New York
          April 27, 1998


                                      41
     <PAGE>


          GRAND COURT LIFESTYLES, INC. AND SUBSIDIARIES

          CONSOLIDATED BALANCE SHEETS
          (In Thousands, except per share data)
          -----------------------------------------------------------------



                                                       January 31, 
                                                -------------------------
                                                  1997             1998
                                                  ----             ----
           ASSETS

           Cash and cash equivalents          $ 14,111         $ 11,964

           Notes and receivables -
            net  . . . . . . . . . .           222,399          231,140

           Investments in
            partnerships . . . . . .             3,056            3,924

           Construction in progress              6,742           26,241

           Other assets - net  . . .            15,353           22,530
                                              --------         --------

           Total assets  . . . . . .          $261,661         $295,799
                                              ========         ========

           LIABILITIES AND STOCKHOLDERS' EQUITY

           Loans and accrued
            interest payable . . . .          $142,628         $161,850

           Construction loan payable             2,750           22,595

           Notes and commissions
            payable  . . . . . . . .             1,716            5,299

           Other liabilities . . . .             4,393            3,531

           Deferred income . . . . .            78,171           76,112
                                              --------         --------

           Total liabilities . . . .           229,658          269,387
                                              ========         ========

           Commitments and
            contingencies

           Stockholders' equity

           Preferred Stock, $.001
            par value - authorized,
            15,000,000 shares; none
            issued and outstanding .                --               --

           Common Stock, $.01 par
            value - authorized,
            40,000,000 shares;
            issued and outstanding,
            15,000,000 shares  . . .               150              150

           Paid-in capital                      54,321           51,189

           Accumulated deficit                 (22,468)         (24,927)
                                              --------         --------

           TOTAL STOCKHOLDERS' EQUITY . .       32,003           26,412
                                              --------         --------

           Total liabilities and
            stockholders' equity . .          $261,661         $295,799
                                              ========         ========

          See Notes to Consolidated Financial Statements.


                                      42
     <PAGE>

                                      
          GRAND COURT LIFESTYLES, INC. AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF OPERATIONS
          (In Thousands, except per share data)
          ----------------------------------------------------------------


                                             Years ended January 31         
                                     ----------------------------------



                                       1996          1997        1998
                                       ----          ----        ----
          Revenues:
            Sales . . . . . .        $31,973       $36,021     $38,135
            Syndication fee
             income . . . . .          8,603         7,690       7,923
            Deferred income
             earned . . . . .          9,971         5,037       7,254
            Interest income .         12,689        13,773      12,051
            Property
             management fees
             from related
             parties  . . . .          4,057         2,093       3,684
            Equity in
             earnings from
             partnerships . .            356           423         541
            Other income  . .          1,013            --       4,683
                                     -------       -------     -------
                                      68,662        65,037      74,271
                                     -------       -------     -------
                    
          Cost and Expenses:
            Cost of sales . .         27,688        34,019      33,635
            Selling . . . . .          7,664         7,176       7,602
            Interest  . . . .         15,808        16,394      19,409
            General and
             administrative .          7,871         7,796       8,437
            Loss on
             impairment of
             notes and
             receivables  . .             --        18,442          --
           Write-off of
            registration
            costs . . . . . .             --            --       3,107
            Officers'
             compensation . .          1,200         1,200       1,200
            Depreciation and
             amortization . .          2,620         3,331       3,340
                                     -------       -------     -------
                                      62,851        88,358      76,730
                                     -------       -------     -------
          Net income (loss) .          5,811       (23,321)     (2,459)
          Pro forma income
           tax provision
           (benefit)  . . . .          2,324            --          --
                                     -------       -------     -------
          Pro forma net
           income (loss)  . .       $  3,487      $(23,321)   $ (2,459)
                                     =======       =======     =======
          Pro forma earnings
           (loss) per common
           share (basic and
           diluted) . . . . .       $   0.23      $  (1.55)   $  (0.16)
                                     =======       =======     =======
          Pro forma weighted
           average common
           shares used  . . .         15,000        15,000      15,000
                                     =======       =======     =======

          See Notes to Consolidated Financial Statements.


                                      43
     <PAGE>


          GRAND COURT LIFESTYLES, INC. AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
          YEARS ENDED January 31, 1996, 1997 AND 1998
          (In Thousands)
          -----------------------------------------------------------------

          Stockholders' equity, January                 
           31, 1995   . . . . . . . . . .                30,674

            Net income  . . . . . . . . .                 5,811

            Distributions . . . . . . . .                (1,700)
                                                        -------

          Stockholders' equity, January             
           31, 1996   . . . . . . . . . .                34,785

            Net loss  . . . . . . . . . .               (23,321)

            Capital Contribution  . . . .                21,333

            Distributions   . . . . . . .                  (794)
                                                        -------
          Stockholders' equity, January     
           31, 1997   . . . . . . . . . .                32,003

            Net loss  . . . . . . . . . .                (2,459)

            Distributions . . . . . . . .                (3,132)
                                                        -------

          Stockholders' equity, January                 
           31, 1998  .  . . . . . . .                   $26,412
                                                        =======

          See Notes to Consolidated Financial Statements.




                                      44
     <PAGE>


          GRAND COURT LIFESTYLES, INC. AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF CASH FLOWS
          (In Thousands)
          -----------------------------------------------------------------
                                                YEARS ENDED JANUARY 31,
                                        -----------------------------------

                                            1996         1997         1998
                                            ----         ----         ----
          Cash flows provided
           (used) from operating
           activities:
            Net income (loss) . . .     $   5,811   $  (23,321)   $  (2,459)
                                          -------     --------      -------
            Adjustments to
             reconcile net income
             to net cash provided
             by operating
             activities:
              Depreciation and
               amortization . . . .         2,620        3,331        3,340
              Loss on impairment of
               notes and
               receivables  . . . .            --       18,442           --
              Reduction to
               allowance for
               uncollectible                             
               notes receivable . .            --           --       (1,023)
              Deferred income
               earned . . . . . . .        (9,971)      (5,037)      (7,254)
              Write-off of
               registration costs .            --           --        3,107
              Other Income (non
               -cash) . . . . . . .            --           --       (3,132)
            Adjustment for changes
             in assets and
             liabilities:
              (Increase) decrease
               in accrued interest
               on notes and
               receivables  . . . .        (2,560)         715       (3,611)
              (Increase) decrease
               in notes and
               receivables  . . . .        (1,162)       3,981       (4,107)
              Increase (decrease)
               in commissions 
               payable  . . . . . .          (244)         211         (503)
              Increase (decrease)
               in other liabilities         2,018          375         (862)
              Decrease in deferred
               income . . . . . . .         4,458        3,766        5,195
                                          -------     --------      -------
                                           (4,841)      25,784       (8,850)
                                          -------     --------      -------
                Net cash provided
                 (used) by
                 operating
                 activities . . . .           970        2,463      (11,309)
                                          -------     --------      -------
          Cash flows from investing
           activities:

            Increase in investments          (567)        (449)        (868)
            Increase in
             Construction in
             progress . . . . .                --       (6,742)     (19,499)
                                          -------     --------      -------
                Net cash used by
                 investing
                 activities . . . .          (567)      (7,191)     (20,367)
                                          -------     --------      -------
          Cash flows from financing
           activities:
            Payments on loans
             payable  . . . . . . .       (39,326)     (55,340)     (44,178)
            Proceeds from loans
             payable  . . . . . . .        52,065       57,874       63,400
            Proceeds from
             construction loan
             payable  . . . . . . .            --        2,750       19,845
            Increase in other
             assets . . . . . . . .        (2,790)      (3,433)     (13,624)
            Payments of notes
             payable  . . . . . . .        (1,641)        (179)        (434)
            Proceeds from notes
             payable  . . . . . . .            --           --        4,520
            Distributions . . . . .        (1,700)        (794)          --
                                          -------     --------      -------
                Net cash provided
                 in financing
                 activities . . . .         6,608          878       29,529
                                          -------     --------      -------
          Increase (decrease) in
           cash and cash
           equivalents  . . . . . .         7,011       (3,850)      (2,147)


                                      45
     <PAGE>

          GRAND COURT LIFESTYLES, INC. AND SUBSIDIARIES



          Cash and cash
           equivalents, beginning
           of period  . . . . . . .        10,950       17,961       14,111
                                          -------     --------      -------
          Cash and cash
           equivalents, end of
           period . . . . . . . . .     $  17,961   $   14,111    $  11,964
                                          =======     ========      =======
          Supplemental information:

            Interest paid . . . . .     $  16,922   $   16,739    $  19,396
                                          =======     ========      =======
            Non cash capital
             contribution . . . . .            --   $   21,333           --
                                          =======     ========      =======

          See Notes to Consolidated Financial Statements.




                                      46
     <PAGE>


          GRAND COURT LIFESTYLES, INC. AND SUBSIDIARIES
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEARS ENDED January 31, 1996, 1997, and 1998
          (In Thousands, except per share data)
          -----------------------------------------------------------------


          1.   ORGANIZATION AND BASIS OF PRESENTATION

               Grand Court Lifestyles, Inc. (the "Company") was formed
               pursuant to the merger of various Sub-chapter S corporations
               which were wholly-owned by certain principal stockholders of
               the Company (the "Principal Stockholders") and the transfer
               of certain assets by and assumption of certain liabilities
               of (i) a partnership that was wholly-owned by the Principal
               Stockholders and (ii) the Principal Stockholders
               individually.  In exchange for the transfer of such stock,
               assets and liabilities, the Principal Stockholders received
               shares of the Company's common stock.  These transactions
               are collectively called the "reorganization".  All of the
               assets and liabilities were transferred at historical cost. 
               The reorganization was effective as of April 1, 1996 and
               accordingly, accumulated deficit represents results of
               operations subsequent to that date.  Prior to the
               reorganization, the various Sub-chapter S corporations and
               the partnership, which were wholly-owned by the Principal
               Stockholders, were historically reported on a combined
               basis.

               The Company (i) filed a Restated Certificate of
               Incorporation on March 13, 1997 that provides for, among
               other things, the authorization of 40,000,000 shares of
               Common Stock and 15,000,000 shares of Preferred Stock, (ii)
               on March 13, 1997 effected an approximate 1,626.19-for-1
               stock split of the issued and outstanding Common Stock (all
               shares have been restated for prior periods) and (iii)
               adopted a Stock Option Plan reserving for issuance up to
               2,500,000 shares of Common Stock pursuant to stock options
               and other stock awards.  No stock options have been granted
               to date.

               LINES OF BUSINESS - The Company, a fully integrated provider
               of adult living accommodations and services, acquires,
               develops and manages adult living communities in 12 states
               in the Sun Belt and the Midwest.  The Company's revenues
               have been and are expected to continue to be primarily
               derived from sales of partnership interests ("Syndications")
               in partnerships it organizes to acquire existing adult
               living communities.  As a result of the Company's
               Syndication activities, limited partnerships ("Investing
               Partnerships") are formed whereby the Company retains a 1%
               to 1.5% general partnership interest.  Investing
               Partnerships generally own a 98.5% to 99% interest in
               partnerships that own adult living communities ("Owning
               Partnerships").  The Company also arranges for the mortgage
               financing of the adult living communities and is involved in
               the development and management of adult living communities. 
               The Company has also instituted a development plan pursuant
               to which it has substantially completed construction of four
               adult living communities and is also nearing completion of
               three additional adult living communities, all of which are
               in Texas.  The Company plans to own or lease pursuant to
               long-term operating leases or similar arrangements each of
               the newly developed communities.  Another source of income
               is interest income on notes receivable.

          2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

               CASH AND CASH EQUIVALENTS - The Company considers cash and
               cash equivalents to include cash on hand, demand deposits
               and highly liquid investments with maturities of three
               months or less.

               REVENUE RECOGNITION - Revenue from sales of interests in
               partnerships, is recognized under the full accrual method of
               accounting when the profit on the transaction is
               determinable, that is, the collectibility of the sales price
               is reasonably assured and the earnings process is virtually
               complete.  The profit recognized has been reduced by the
               estimated maximum reasonably possible exposure to loss. 
               Revenue from sales of interests in Syndicated partnerships
               includes any syndication fees earned by the Company.  The
               Company determines the collectibility of the sales price by
               evidence supporting the buyers' substantial initial and
               continuing investment in the adult living communities as
               well as other factors such as age, location and cash flow of
               the underlying property.


                                      47
        <PAGE>


               The Company has deferred income on sales to Investing
               Partnerships of interests in Owning Partnerships.  The
               Company has arranged for the private placement of limited
               partnership interests in Investing Partnerships.  Offerings
               of interests in Investing Partnerships which were formed to
               acquire controlling interests in Owning Partnerships which
               own adult living properties ("Adult Living Owning
               Partnerships") provide that the limited partners are
               entitled to receive for a period not to exceed five years
               distributions equal to between 11% and 12% of their then
               paid-in scheduled capital contributions.  Pursuant to
               management contracts with the Adult Living Owning
               Partnerships, for such five-year period, the Company is
               required to pay to the Adult Living Owning Partnerships,
               amounts sufficient to fund (i) any operating cash
               deficiencies of such adult living Owning Partnership and
               (ii) any part of such 11% and 12% return not paid from cash
               flow from the related property (which the Adult Living
               Owning Partnerships distribute to the Investing Partnerships
               for distribution to limited partners) (collectively,
               "Management Contract Obligations").  The amount of deferred
               income for each property is calculated in a multi-step
               process.  First, based on the property's cash flow in the
               previous fiscal year, the probable cash flow for the
               property for the current fiscal year is determined and that
               amount is initially assumed to be constant for each
               remaining year of the Management Contract Obligations period
               (the "Initial Cash Flow").  The Initial Cash Flow is then
               compared to the Management Contract Obligations for the
               property for each remaining year of the five-year period. 
               If the Initial Cash Flow exceeds the Management Contract
               Obligations for any fiscal year, the excess Initial Cash
               Flow is added to the assumed Initial Cash Flow for the
               following fiscal year and this adjusted Initial Cash Flow is
               then compared to the Management Contract Obligations for
               said following fiscal year.  If the Initial Cash Flow is
               less than the Management Contract Obligations for any fiscal
               year, a deferred income liability is created in an amount
               equal to such shortfall and no adjustment is made to the
               Initial Cash Flow for the following year.  Such deferred
               income liability represents the estimated maximum reasonably
               possible exposure to loss as discussed above.  As this
               process is performed for each property on a quarterly basis,
               changes in a property's actual cash flow will result in
               changes to the assumed Initial Cash Flow utilized in this
               process and will result in increases or decreases to the
               deferred income liability for an individual property.  Any
               deferred income liability created in the year the interest
               in the Owning Partnership is sold increases the cost of
               sales relating to the sale.  The payment of the Management
               Contract Obligations, however, will generally not result in
               the recognition of expense unless the property's actual cash
               flow for the year is less than the expected Initial Cash
               Flow for that year, as adjusted, and as a result thereof,
               the amount paid by the Company in respect of the Management
               Contract Obligations is greater than the amount assumed in
               establishing the deferred income liability.  Such expense
               amounted to $282, $2,500 and $5,900 for the years ended
               January 31, 1996, 1997, 1998, respectively, and such expense
               is included as a component of cost of sales.  From time to
               time, the Company has also made discretionary payments to
               Owning Partnerships beyond the Management Contract
               Obligations period for the purpose of making distributions
               to limited partners.  If, however, the property's actual
               cash flow is greater than the Initial Cash Flow for the
               year, as adjusted, the Company's earnings will be enhanced
               by the recognition of deferred income earned and, to the
               extent cash flow exceeds Management Contract Obligations,
               incentive management fees.  The Company recognized such
               incentive management fees in the amount of $3,300, $1,200
               and $2,800 for the years ended January 31, 1996, 1997 and
               1998 respectively.

               The Company accounted for the sales of interests in Owning
               Partnerships which own multi-family properties ("Multi-
               Family Owning Partnerships") under the installment method. 
               Under the installment method the gross profit is determined
               at the time of sale.  The revenue recorded in any given year
               would equal the cash collections multiplied by the gross
               profit percentage.  At the time of sale, the Company
               deferred all future income to be recognized on these
               transactions until cash is received.  Losses on these
               projects were recognized immediately upon sale.

               ALLOWANCE ON NOTES RECEIVABLE - In the event that the facts
               and circumstances indicate that the collectibility of a note
               may be impaired, an evaluation of recoverability is
               performed. If an evaluation is performed, the Company
               compares the recorded value of the note and other
               partnership receivables, if any, to the value of the
               underlying property less any encumbrances to determine if an
               allowance is required for impairment.  A significant portion
               of the interest income on multi-family notes is recognized
               as cash is collected.

               ACCOUNTING ESTIMATES - The preparation of financial
               statements in accordance with generally accepted accounting
               principles requires management to make significant estimates
               and assumptions that affect the reported amount of assets
               and liabilities at the date of the financial statements and
               the reported amount of revenues and expenses during the
               reported period.  Actual results could differ from those
               estimates.


                                      48
     <PAGE>


               PRINCIPLES OF CONSOLIDATION - The consolidated financial
               statements include those of the Company and its
               subsidiaries.  The effects of all significant intercompany
               transactions have been eliminated.

               DEFERRED LOAN COSTS - Costs incurred in connection with
               obtaining long-term financing have been deferred and are
               amortized over the term of the financing.

               CONSTRUCTION IN PROGRESS - Costs incurred in connection with
               the construction and development of adult living communities
               the Company intends to build are capitalized.  Such costs
               include the capitalization of interest during the
               construction period.  If a project is discontinued or
               capitalized costs are deemed not recoverable, the applicable
               capitalized project costs are expensed.

               INVESTMENTS - The Company accounts for its interests in
               Syndicated adult living limited partnerships under the
               equity method of accounting.  The Company uses this method
               because as the general partner it can exercise significant
               influence over the operating and financial policies of such
               partnerships.  Under this method the Company records its
               share of income and loss of the entity as well as any
               distributions or contributions as an increase or decrease to
               the investment account.  The carrying amount of the
               investments in limited partnerships differs from the
               Company's underlying equity interest based upon its stated
               ownership percentages.  Such differences are attributable to
               the disproportionate amount of money and notes invested in
               the entities by the Company for its equity interest as
               compared to the other investors.  This difference is being
               amortized over the estimated life of the underlying
               partnership.  The unamortized portion of such difference is
               $2,044 and $2,515 as of January 31, 1997 and 1998
               respectively.

               PROPERTY MANAGEMENT FEES  - Property management fees earned
               for services provided to related parties are recognized as
               revenue when related services have been performed.

               PRO FORMA INCOME TAXES - Income tax provisions at a combined
               Federal and state tax rate of 40% have been provided on a
               pro forma basis.  The various Sub-chapter S corporations
               which were either merged into or acquired by the Company and
               the partnership which transferred assets to the Company were
               not required to pay taxes because any taxes were the
               responsibility of the Principal Stockholders who were the
               sole shareholders and partners of those entities.

               RECLASSIFICATION - Certain amounts in prior years have been
               reclassified to conform with current year presentation.

               EARNINGS PER SHARE - In February, 1997, the Financial
               Accounting Standards Board (FASB) issued Statement of
               Financial Accounting No. 128, Earnings Per Share (SFAS No.
               128), which requires dual presentation of Basic EPS and
               Diluted EPS on the face of the income statement for all
               entities with complex capital structures and the restatement
               of all prior period earnings per share data presented.  SFAS
               No. 128 also requires a reconciliation of the numerator and
               denominator of Basic EPS and Diluted EPS computation. 

               NEW ACCOUNTING PRONOUNCEMENTS - The Financial Accounting
               Standards Board has recently issued several new accounting
               pronouncements.  Statement No. 130, "Reporting Comprehensive
               Income" establishes standards for reporting and  display of
               comprehensive income and its components, and is effective
               for fiscal years beginning after December 15, 1997. 
               Statement No. 131, "Disclosures about Segments of an
               Enterprise and Related Information" establishes standards
               for the way that public business enterprises report
               information about operating segments in annual financial
               statements and requires that those enterprises report
               selected information about operating segments in interim
               financial reports issued to shareholders.   It also
               establishes standards for related disclosures about products
               and services, geographic areas, and major customers, and is
               effective for financial statements for periods beginning
               after December 15, 1997.  The Company believes that its
               future adoption of these standards will not have a material
               effect on the Company's financial position or results of
               operations.

          3.   FAIR VALUE OF FINANCIAL INSTRUMENTS

               The Company is unable to determine the fair value of its
               notes and receivables as such instruments do not have a
               ready market.  Other financial instruments are believed to
               be stated at approximately their fair value.


                                      49
     <PAGE>


          4.   NOTES AND RECEIVABLES

               Notes and other receivables are from related parties and
               consist of the following:
                                                        JANUARY 31,
                                                  ---------------------

                                                     1997         1998
                                                  --------     --------
               Notes receivable -- multi-
                 family(a)(e)  . . . . . . . .    $174,164     $173,598

               Notes and accrued interest
                 receivable  -- adult
                 living(b) . . . . . . . . . .       3,906        5,955

               Other partnership
                 receivables(c)(e) . . . . . .      54,645       60,265
                                                
               Accrued interest receivable . .         816        1,431
                                                  --------     --------

                                                   233,531      241,249

               Less allowance for uncollectible
                 receivables(d)  . . . . . . .      11,132       10,109
                                                  --------     --------

                                                  $222,399     $231,140
                                                  ========     ========

               At January 31, 1997 and 1998 the carrying value of impaired
               notes receivable, net of related deferred income, was
               approximately $34,742 and $41,106, respectively.  Interest
               income on impaired notes is recognized on the cash basis. 
               Such income recognized was $2,272, $1,261 and $1,342 for the
               years ended January 31, 1996, 1997 and 1998 respectively.

               (a)  The Company has notes receivable from the Syndicated
                    Investing Partnerships which were formed to acquire
                    controlling interests in Owning Partnerships which own
                    multi-family properties.  The notes have maturity dates
                    ranging from ten to fifteen years from the date of the
                    acquisition of the respective partnership interests. 
                    At January 31, 1998, 51 of the 169 notes (approximate
                    face value $29,600) have reached their final maturity
                    dates and these final maturity dates have been extended
                    by the Company.  The underlying property relating to
                    one extended Multi-Family Note was refinanced in Fiscal
                    1996 and such refinancing generated an approximate $800
                    payment to the Company under such Multi-Family Note. In
                    addition, the Company anticipates that two more multi-
                    family properties relating to two other extended Multi-
                    Family Notes will be refinanced in the second quarter
                    of Fiscal 1998.  There can be no assurance that such
                    refinancings will actually close.  It is the Company's
                    intention to collect the principal and interest
                    payments on the aforementioned notes from the cash
                    flows distributed by the related multi-family
                    properties and the proceeds in the event of a sale or
                    refinancing.  The Company expects to extend maturities
                    of other multi-family notes.  Interest income on all of
                    the Multi-Family Notes amounted to $6,764, $6,949, and
                    $7,481 for the years ended January 31, 1996, 1997 and
                    1998, respectively.

               (b)  The Company has notes receivable from the Syndicated
                    Investing Partnerships which were formed to acquire
                    controlling interests in Owning Partnerships which own
                    adult living communities.  Such notes generally have
                    interest rates ranging from 11% to 13.875% and are due
                    in installments over five years from the date of
                    acquisition of the respective partnership interests. 
                    The notes represent senior indebtedness of the related
                    Investing Partnerships, and are collateralized by the
                    respective interests in the Owning Partnerships. 
                    Principal and interest payments on each note are also
                    collateralized by the investor notes payable to the
                    Investing Partnerships to which the investors are
                    admitted.  Limited Partners are allowed to prepay their
                    capital contributions.  These prepayments of capital
                    contributions do not result in the prepayment of the
                    related purchase notes held by the Company.  Instead,
                    such amounts are loaned to the Company at a rate of
                    between 11% and 12% by the Investing Partnerships.  As
                    a result of such loans and the crediting provisions of
                    the related purchase agreements, the Company records
                    the notes receivable corresponding to the purchase
                    notes net of such loans.  Therefore, these prepayments
                    act to reduce the recorded value of the Company's notes
                    receivable.


                                      50
      <PAGE>


               (c)  Other partnership receivables substantially represent
                    reimbursable expenses and advances made to the multi-
                    family partnerships.  These amounts do not bear
                    interest and have no specific repayment date.  It is
                    the Company's intention to collect these notes from the
                    excess cash flows distributed by the related multi-
                    family properties and  the proceeds in the event of a
                    sale or refinancing.

               (d)  Allowance for Uncollectible Notes Receivable:


                                    Balance    Charged               Balance
                                    -------    -------               -------
                                       at     to Costs   Reductions    at
                                       --     --------   ----------    --
                                   Beginning    and         to        End of
                                   ---------    ---         --        ------
                                   of Period  Expenses   Allowance    Period
                                   ---------  --------   ---------    ------

      Year Ended January 31, 1997
      Allowance for notes
      receivable  . . . . . . . .   $14,023    18,442      21,333    $11,132

      Year Ended January 31, 1998
      Allowance for notes
      receivable  . . . . . . . .   $11,132      --        1,023     $10,109

                    The multi-family notes receivable relating to nine
                    Owning Partnerships that filed petitions under Chapter
                    11 of the U.S. Bankruptcy Code (the "Chapter 11
                    Petitions") and the one Owning Partnership which lost
                    its property pursuant to an uncontested foreclosure
                    sale of its property (said ten Owning Partnerships are,
                    collectively, the "Protected Partnerships") were first
                    deemed impaired when the mortgages on their respective
                    properties went into default, which defaults occurred
                    between August 1989 and June 1994.  Once in default,
                    the holders of these mortgages assigned them to the
                    United States Department of Housing and Urban
                    Development ("HUD").  The Protected Partnerships then
                    attempted to negotiate, and in some cases obtained,
                    workout agreements with HUD.  Although it could
                    temporarily lower or suspend debt service payments
                    during the term of a workout agreement, HUD, unlike a
                    conventional lender, did not have the legal authority
                    to restructure the defaulted mortgages it holds by
                    permanently lowering interest rates or reducing the
                    principal amount of such mortgages.  HUD then sold the
                    mortgages (subject to those workout agreements which
                    were in place) at auctions in September 1995 and June
                    1996.  Since the new mortgage holders did not have
                    HUD's legal constraints as to the restructuring of
                    mortgages they hold, the Protected Partnerships began
                    negotiations with the new holders to restructure their
                    mortgages or purchase them at a discount.  The
                    Protected Partnerships could not reach an agreement
                    with the new mortgage holders and the new mortgage
                    holders began to threaten and institute foreclosure
                    proceedings.  The Principal Stockholders and one of
                    their affiliates transferred the partnership interests
                    they owned personally in various partnerships that own
                    multi-family properties (the "Assigned Interests") to
                    the Investing Partnerships that owned interests in the
                    Protected Partnerships in July 1996.  Seven of the
                    Protected Partnerships filed Chapter 11 Petitions in
                    August 1996, two of the Protected Partnerships filed
                    Chapter 11 Petitions in February  1997, and one of the
                    Protected Partnerships did not file a Chapter 11
                    Petition and allowed the holder of the mortgage to
                    foreclose on its property due to the unlikelihood of
                    confirming a plan of reorganization.  The Company
                    established appropriate reserves during these time
                    periods to reflect the varying extent of impairment of
                    these Multi-Family Notes in view of the state of facts
                    at such time.  In that the Principal Stockholders
                    transferred the Assigned Interests in July 1996, the
                    Company recorded a $21,300  capital contribution in
                    Fiscal 1996. The bankruptcy petitions and risk of loss
                    faced by the Protected Partnerships resulted in the
                    Company recording a non-cash loss of $18,400 in the
                    year ending January 31, 1997 (representing the recorded
                    value of the notes receivable relating to the Protected
                    Partnerships, net of deferred income and net of any
                    previously established reserves) due to the deemed full
                    impairment of these notes receivable.  Seven of the
                    Chapter 11 petitions resulted in the respective
                    Protected Partnerships losing their properties through
                    foreclosure or voluntary conveyances of their
                    properties.  The remaining two Protected Partnerships
                    successfully emerged from their bankruptcy proceedings
                    in January, 1998 by paying off their mortgages at a
                    discount with the proceeds of new mortgage financings,
                    resulting in these properties having current, fully
                    performing mortgages. This allowed the Company to
                    recognize non-cash other income of $3,100.  The two
                    Investing Partnerships related to these Protected
                    Partnerships have transferred the respective Assigned
                    Interests back to the Principal Stockholders and their
                    affiliate.  This transfer is recorded as a non-cash
                    distribution to the Principal Stockholders for the


                                      51
     <PAGE>


                    release of the previously assigned collateral of
                    $3,100.  The Company neither owns nor manages these
                    properties, nor is the general partner of these Owning
                    Partnerships, but, rather, holds the related Multi-
                    Family Notes as receivables.  The Company, therefore,
                    has no liability in connection with these mortgage
                    defaults or bankruptcy proceedings.

                    Fifteen of the Multi-Family Owning Partnerships remain
                    in default on their respective mortgages.  These Multi-
                    Family Owning Partnerships have been negotiating with
                    the respective mortgage lenders and, in some cases,
                    have obtained workout agreements pursuant to which the
                    lenders generally agree during the term of the
                    agreement not to take any action regarding the mortgage
                    default and to accept reduced debt service payments for
                    a period of time, with the goal of increasing property
                    cash flow to enable the property to fully service its
                    mortgage.  As of January 31, 1998, the recorded value,
                    net of deferred income, of the Multi-Family Notes and
                    "Other Partnership Receivables" held by the Company
                    relating to these fifteen Multi-Family Owning
                    Partnerships was $32,700.  The Company has established
                    reserves of $10,100 to address the possibility that
                    these notes and receivables may not be collected in
                    full.

               (e)  The Multi-Family properties were typically built or
                    acquired with the assistance of programs administered
                    by HUD that provide mortgage insurance, favorable
                    financing terms and/or rental assistance payments to
                    the owners.  As a condition to the receipt of
                    assistance under these and other HUD programs, the
                    properties must comply with various HUD requirements
                    including limiting rents on these properties to amounts
                    approved by HUD.  Various proposals are pending before
                    Congress proposing reorganization of HUD and a
                    restructuring of certain of its housing assistance
                    programs.  It is too early in the legislative process
                    to predict which, if any, changes might be implemented. 
                    Further, there can be no assurance that changes in
                    federal subsidies will not be more restrictive than
                    those currently proposed or that other changes in
                    policy will not occur.  Any such changes could have an
                    adverse effect on the Company's ability to collect its
                    receivables from the partnerships owning multi-family
                    properties.

          5.   CONSTRUCTION IN PROGRESS

               The Company has capitalized costs which include interest
               associated with its construction and development of
               properties it is building.  If a project is discontinued,
               all capitalized project costs are expensed.  Such interest
               capitalized for years ended January 31, 1997 and 1998 was
               $1,200 and $1,600, respectively.

               In March 1998, the Company announced the grand openings of
               two of its newly constructed adult living communities.  The
               two communities, which are located in Corpus Christi and
               Temple, Texas, respectively contain a total of 268 apartment
               units offering both independent and assisted living
               services.  Such communities are owned and operated by the
               Company.


                                      52
     <PAGE>


          6.   OTHER ASSETS

               Other assets are comprised as follows:

                                                         JANUARY 31,
                                                    -------------------

                                                      1997       1998
                                                    --------   --------

           Deferred loan costs(a)  . . . . . . .    $ 7,452     $ 9,681

           Investment in cooperative apartment
           building(b) . . . . . . . . . . . . .      1,782       1,782

           Unsold subscription units(c)  . . . .      1,176         111

           Deferred registration costs(d)  . . .      2,357         397

           Investment held for resale(e) . . . .         --       7,140

           Other assets  . . . . . . . . . . . .      2,586       3,419
                                                    -------     -------

                                                    $15,353     $22,530
                                                    =======     =======

          (a)  Financing costs of $2,588 and $5,325 were deferred during
               the years ended January 31, 1997 and 1998, respectively.
               These costs are being amortized over the term of the related
               debt using the straight-line method over periods ranging
               from one to ten years.

          (b)  The Company owns shares in a cooperative apartment building
               and owns interests in a second mortgage collateralized by
               such cooperative apartment building.

          (c)  The Company has deferred $1,176 and $111 of remaining costs
               associated with the financing of the acquisition of adult
               living communities by arranging for the sale of partnership
               interests, which were substantially sold at January 31, 1997
               and 1998, respectively.  Upon completion of these
               transactions such costs will be charged to cost of sales.

          (d)  The Company has capitalized costs relating to the initial
               public offering.  These costs were charged against
               additional paid-in capital upon the close of the initial
               public offering in March, 1998.  Prior to March, 1998, the
               Company had expensed approximately $3,100 of registration
               costs which were incurred prior to April 30, 1997, due to a
               previous postponement of the initial public offering by the
               Company.

          (e)  The Company purchased an adult living community in December
               1997 for Syndication which will be sold in the first and
               second quarters of Fiscal 1998.

          7.   LOANS AND ACCRUED INTEREST PAYABLE

               Loans payable consists of the following:


                                                       JANUARY 31,
                                                  --------------------

                                                     1997         1998
                                                     ----         ----

           Banks (including mortgages)(a)(b) .    $ 32,044     $ 35,706

           Other, principally debentures(c)  .     110,584      126,144
                                                  --------     --------

                                                  $142,628     $161,850
                                                  ========     ========


                                      53
     <PAGE>


          (a)  The bank loans bear interest per annum at the banks' prime
               rate plus 1% to 3%.  The bank loans generally have terms of
               at least one year, but in the event a particular bank elects
               not to renew or extend the credit, the entire unpaid balance
               is converted to a term loan which is payable in four to five
               years.  Generally the bank loans are collateralized by the
               Company's entitlement to the assigned limited partner
               investor notes which serve as collateral for the respective
               purchase notes.  The prime interest rate at January 31, 1997
               and 1998 was 8.25% and 8.5%, respectively.

          (b)  The Company's debt obligations contain various covenants and
               default provisions, including provisions relating to, in the
               case of certain of such obligations, certain Investing
               Partnerships, Owning Partnerships or affiliates of the
               Company.  The Company has renegotiated, as of April 1998,
               certain of its most restrictive covenants.  Certain
               obligations contain provisions requiring the Company to
               maintain a net worth of, in the most restrictive case,
               $26,250,000, except that, under the Capstone agreements the
               Company will be required to maintain a net worth in an
               amount no less than 75% of the net worth of the Company
               immediately after the closing of the public offering. 
               Certain obligations of the Company contain covenants
               requiring the Company to maintain maximum ratios of the
               Company's liabilities to its net worth.  The most
               restrictive covenant requires that the Company maintain a
               ratio of "loans and accrued interest payable" to
               stockholders' equity of no more than 7 to 1.

          (c)  Debentures are collateralized by various purchase notes and
               investor notes related to multi-family property financing. 
               All loans mature in 1999 through 2004 and bear interest
               rates of 11% to 15% per annum.

          Future annual maturities of all of the Company's loans payable,
          excluding interest, over the next five years and thereafter, are
          as follows:


          Year Ending
          January 31
          -----------
          1999  . . . . . . . . . .               $ 25,515
          2000  . . . . . . . . . .                 38,592
          2001  . . . . . . . . . .                 25,557
          2002  . . . . . . . . . .                 32,396
          2003  . . . . . . . . . .                 15,131
          Thereafter  . . . . . . .                 23,679
                                                  --------
                                                   160,870
          Accrued interest  . . . .                    980
                                                  --------
                                                  $161,850
                                                  ========


                                      54
     <PAGE>


          8.   CONSTRUCTION LOAN PAYABLE

               During the year ended January 31, 1998, pursuant to the
               Company's development program, first mortgage loans were
               obtained to finance approximately 80% of the costs of
               developing four new adult living communities.  The interest
               rate on three of the loans equals the 30 day LIBOR plus 2
               3/4% per annum.  The fourth loan bears interest at the rate
               of the prime rate plus 1.5% per annum.  These loans mature
               between November, 1999 and January, 2001.  As of January 31,
               1998, total funding under such first mortgage loans amounted
               to $13,345.

               Pursuant to the Company's development program, two limited
               partnerships, in each of which the Company holds a 1%
               general partnership interest, have issued limited
               partnership interests for aggregate capital contributions of
               $9,250, the net proceeds of which have been used to make
               second mortgage loans to the Company to fund approximately
               20% of the costs of developing three new adult living
               communities.  Such second mortgage loans bear interest at
               the rate of 13.125% per annum.  These second mortgage loans
               mature between November 2001 and March 2002.

          9.   OTHER LIABILITIES

               Other liabilities include unearned income of $1,888 and $205
               representing the amount of unsubscribed partnership
               interests in adult living communities financed during the
               year ended January 31, 1997 and 1998, respectively.  Upon
               full subscription these amounts will be recognized as
               income.

          10.  DEFERRED INCOME

               Deferred income is comprised of:


                                                   January 31,
                                             ----------------------

                                               1997           1998
                                               ----           ----

               Multi-family  . . . . . .     $67,453        $66,342

               Adult living(a) . . . . .      10,718          9,770
                                             -------        -------

                                             $78,171        $76,112
                                             =======        =======

               a.   The aggregate amount of Management Contract Obligations
                    relating solely to returns to limited partners for each
                    of the fiscal years 1998 through 2002 based on existing
                    management contracts is $15,400, $17,400, $16,400,
                    $11,200 and $2,400, respectively. Such amounts of
                    Management Contract Obligations are calculated based
                    upon scheduled capital contributions with respect to
                    fiscal years 1998 through 2002. Actual amounts of
                    Management Contract Obligations in respect of such
                    contracts will vary based upon the timing and amount of
                    such capital contributions.  Furthermore, such amounts
                    of Management Contract Obligations are calculated
                    without regard to the cash flow the related properties
                    generate.  The cash flow generated by the related
                    properties is applied against the total Management
                    Contract Obligations and any remaining balance is
                    established as deferred income at year end.

          11.  INCOME TAXES

               The Company became a taxable entity as of April 1, 1996,
               therefore the prior years tax provisions (benefit) is
               presented on a pro forma basis at an effective tax rate of
               approximately 40%.  The Company has increased the valuation
               allowance from $4,540 to $11,340, because it was more likely
               than not that such deferred tax assets in excess of deferred
               tax liabilities would not be realizable in future years. 
               Deferred income taxes reflect the net tax effects of
               temporary differences between the carrying amount of assets
               and liabilities for financial reporting purposes and the
               amount used for income taxes purposes.  The tax effects of
               temporary differences that give rise to significant portions
               of the deferred tax assets and deferred tax liabilities are
               presented below:


                                      55
     <PAGE>

                                                          January 31,
                                                    ----------------------
          Deferred tax assets:                         1997          1998
                                                       ----          ----
            Notes and receivables . . . . . . .     $ 8,904       $ 6,092
            Loans payable . . . . . . . . . . .          --         2,000
            Investment in partnerships  . . . .       1,337         5,045
            Net operating loss carryforward . .       1,339         3,847
            Other   . . . . . . . . . . . . . .          89           147
                                                    -------       -------
            Total gross deferred tax assets . .      11,669        17,131
          Less valuation allowance  . . . . . .       4,540        11,340
                                                    -------       -------
          Deferred tax assets net of valuation
            allowance . . . . . . . . . . . . .       7,129         5,791
                                                    -------       -------
          Deferred tax liabilities:
            Deferred income . . . . . . . . . .       4,272         4,562
            Other   . . . . . . . . . . . . . .       2,857         1,229
                                                    -------       -------
          Total gross deferred tax liabilities        7,129         5,791
                                                    -------       -------
          Net deferred tax assets (liabilities)     $    --       $    --
                                                    =======       =======

          The net operating loss carry forward as of January 31, 1998 was
          approximately $9,600.  A substantial portion of such loss 
          carryforward will expire January 31, 2013 and the remainder
          thereof will expire through January 31, 2018.


          12.  COMMITMENTS AND CONTINGENCIES

               The Company rents office space under a lease expiring
               February 2000.  Annual base rent under such lease is
               approximately $197.  The Company entered into a ten year
               lease for additional office space, commencing September 1,
               1991.  The annual base rent is approximately $150 and will
               increase 5% each year for ten years.

               On November 14, 1997, an investor in a limited partnership
               (the "First Partnership") which was formed to invest in a
               second partnership which was formed to develop and own an
               adult living community (the "Second Partnership"), filed a
               lawsuit, Palmer v. Country Estates Associates Limited 
                        --------------------------------------------
               Partnership, et.al., in the United States District Court, 
               -------------------
               District of New Jersey.  The Company has never managed the
               property owned by the Second Partnership and is not a
               general partner in the Second Partnership or the First
               Partnership.  A predecessor of the Company was a general
               partner of the Second Partnership. The Company has never
               been a general partner of the First Partnership. The
               defendants in the suits are the First Partnership, the
               general partners of the First Partnership, the Second
               Partnership, two affiliates of the Company, and the Company
               (collectively the "Defendants").   The Plaintiff is alleging
               a breach of the First Partnership's partnership agreement,
               negligent misrepresentation, fraud, negligence, breach of
               guarantee and mail fraud. The plaintiff is seeking (i) the
               return of his original investment ($100,000), (ii) market
               interest on such investment for the period 1987-1997 and
               (iii) unspecified damages.  The Company believes the lawsuit
               is without merit and intends to vigorously contest the case. 
               It is anticipated that the outcome of the lawsuit will not
               have a material effect on the financial statements.

               The Company is involved in other legal proceedings which
               have arisen in the ordinary course of business.  The Company
               intends to vigorously defend itself in these matters and
               does not believe that the outcome of these matters will have
               a material effect on its financial statements.

               The Company is a general partner of all but one of the Adult
               Living Owning Partnerships and the general partner of 32 of
               41 adult living Investing Partnerships.  The mortgage
               financing of the Syndicated adult living communities and
               other Syndicated properties are generally without recourse
               to the general credit or assets of the Company except with


                                      56
     <PAGE>

               respect to certain specified obligations, including, for
               example, costs incurred for the correction of hazardous
               environmental conditions.  However, except for such non-
               recourse obligations, as a general partner, the Company, or
               a wholly-owned entity formed solely to be the general
               partner, is fully liable for all partnership obligations,
               including those presently unknown or unobserved, and unknown
               or future environmental liabilities.  The cost of any such
               obligations or claims, if partially or wholly borne by the
               Company, could adversely affect the Company's business,
               operating results and financial condition.  Although most of
               the mortgage loans are non-recourse, (i) the Company is
               liable as a general partner for approximately $10.9 million
               in principal amount of mortgage debt relating to five
               Syndicated adult living communities  and (ii) wholly-owned
               entities are liable as general partners for approximately
               $25.7 million in principal amount of mortgage debt relating
               to five Syndicated adult living communities and the one
               Syndicated nursing home managed by the Company as of January
               31, 1998.  In the case of the general partner liabilities of
               the wholly-owned entities, the only assets of the Company at
               risk of loss are the general partner interests in the
               specific properties.

               Pursuant to the Company's development program, on September
               18, 1996 the Company entered into a master development
               agreement with Capstone for 100% of the development cost of
               four adult living communities.  The maximum amount Capstone
               will fund per such agreement is approximately $37,764 of
               which $27,283 has been funded as of January 31, 1998.  The
               interest rate during the construction period is 1% above the
               prime rate.  Pursuant to the terms of the development
               agreement, the Company was responsible for identifying up to
               four proposed adult living community sites and submitting a
               plan which includes plans, specifications, drawings, details
               and pro forma budgets necessary for the acquisition of such
               site, and the construction, and operation of an assisted and
               independent living community.  Upon the acquisition of a
               site by Capstone, the Company was required to enter into an
               agreement relating specifically to the development of such
               site.  The dates of the four site specific development
               agreements are December 5, 1996, January 7, 1997, January
               28, 1997 and January 29, 1997.  Pursuant to each site
               specific agreement, the Company (i) agreed to develop and
               construct the community for an agreed upon cost, (ii) was
               required to obtain or execute a construction contract for
               such community, (iii) commence construction and (iv)
               complete construction within 15 months after the
               commencement of construction.  The Company is in compliance
               with its responsibilities under the master development
               agreement and the four site specific agreements.

               In March 1998, the Company announced the grand openings of
               two newly constructed adult living communities developed
               pursuant to its development program with Capstone.  The two
               communities, which are located in El Paso and San Angelo,
               Texas, respectively, contain a total of 284 apartment units
               offering both independent and assisted living services.  The
               Company has entered into long-term lease arrangements with
               Capstone which provides financing for the development of
               four of the newly developed adult living communities,
               including two of the completed newly developed adult living
               communities described above.  The initial term of each
               lease, which begins upon the completion of a facility and
               meeting of other criteria, is 15 years with three five-year
               extension options.  Under the terms of each lease, the
               Company has the option to acquire the community after
               operating the community for four years.  The option price is
               equal to the sum of 100% of the cost incurred to develop the
               property and an additional 20% of such cost (which declines
               by 2 percentage points per year but in no event declines
               below 10%).  The initial lease rate is 350 basis points in
               excess of the ten-year Treasury Bill yield (but in no event
               less than 9.75% per annum).  The lease rate has an annual
               upward adjustment equal to 3% of the previous year's rent. 
               The four leases have cross-default provisions.  Each lease
               is a triple net lease, as the Company is responsible for all
               costs, including but not limited to maintenance, repair,
               insurance, taxes, utilities, and compliance with legal and
               regulatory requirements.  If a community is damaged or
               destroyed, the Company is required to restore the community
               to substantially the same condition it was in immediately
               before such damage or destruction, or acquire the facility
               for the option price described above.

          13.  RELATED PARTY TRANSACTIONS

               The Company has transactions with related parties that are
               unconsolidated affiliates of the Company.  The Company
               provides management, accounting and bookkeeping services to
               such affiliates. The Company receives a monthly fee in
               return for such  management services rendered on behalf of
               its affiliates for each of their adult living communities.  

               In addition, the Company has amounts due from unconsolidated
               affiliates of $262 and $1,600 as of January 31, 1997 and
               1998, respectively.


                                      57
     <PAGE>


               The Chairman of the Board and President of the Company and
               entities controlled by them serve as general partners of
               partnerships directly and indirectly owning multi-family
               properties and on account of such general partner status
               have personal liability for recourse partnership obligations
               and own small equity ownership interests in the
               partnerships.  The Company held notes receivable,
               aggregating $107,300 net of deferred income, at January 31,
               1998 that were collateralized by the equity interests in
               such partnerships.  These individuals have provided personal
               guarantees in certain circumstances to obtain mortgage
               financing for certain adult living properties operated by
               the Company and for certain of the Company's Investor Note
               Debt and Unsecured Debt, and the obligations thereunder may
               continue.  The aggregate amount of such debt personally
               guaranteed by each is approximately $51,400.  In addition,
               such officers and certain employees will devote a portion of
               their time to overseeing the third-party managers of multi-
               family properties and one adult living community in which
               the Company has financial interests in that it holds the
               related Multi-Family Notes, but in which such officers have
               equity interests and the Company does not.  These
               activities, ownership interests and general partner
               interests create actual or potential conflicts of interest
               on the part of these officers.

               The Company is the managing general partner for 36 of the 37
               Owning Partnerships which own the 37 Syndicated adult living
               communities and one Syndicated nursing home managed by the
               Company.  The Company also is the general partner for 32 of
               the 41 adult living Investing Partnerships that own equity
               interests in these 37 Owning Partnerships.  In addition, the
               Company was the managing agent for all of the 37 Syndicated
               adult living communities and one Syndicated nursing home in
               the Company's portfolio.  The Company has arranged for the
               acquisition of adult living communities and other properties
               through the sales of limited partnership interests in the
               Investing Partnerships.  By serving in all of these
               capacities, the Company may have conflicts of interest in
               that it has both a duty to act in the best interests of
               partners of various partnerships, including the limited
               partners of the Investing Partnerships, and the desire to
               maximize earnings for the Company's stockholders in the
               operation of such adult living communities and one nursing
               home.

               During years ended January 31, 1997 and 1998, the Company
               paid to Francine Rodin, the wife of Bernard M. Rodin, the
               Company's Chief Operating Officer, President and a Director,
               $154 and $133, respectively, as fees for introducing to the
               Company broker/dealers that have assisted the Company in its
               Syndications of partnership interests and in placing other
               securities offered by the Company.  Mrs. Rodin will receive
               a fee with respect to any future sales through such
               broker/dealers of such Syndicated partnership interests and
               other securities offered by the Company. During Fiscal 1996,
               Mrs. Rodin received consulting fees of $49 in connection
               with coordinating the Company's marketing efforts and travel
               arrangements.  Mrs. Rodin has been an employee of the
               Company for the year ended January 31, 1998 and performs
               similar services.

               The Company has loans receivable of $464 from the Chairman
               of the Board and the President of the Company as of January
               31, 1998.


                                      58
     <PAGE>


          14.  SUBSEQUENT EVENTS

               In March 1998, the Company sold to the public 2,800,000
               shares of its common stock at an initial offering price of
               $9.50 per share.  The net proceeds that the Company received
               as a result of this offering was $23,990.  The Company
               intends to use approximately $20,900 of the net proceeds to
               finance the development of new adult living communities and
               the remainder for working capital.  The Company has
               purchased a series of 30 day, 90 day and 180 day treasury
               bills with the entire net proceeds pending application of
               such funds to the new development program. Also, included in
               the "Other Assets" category on the Company's balance sheet
               at January 31, 1998 is $397 of deferred registration costs
               which the Company will charge against paid-in capital.

               The following pro forma consolidated balance sheet is
               presented to reflect the effect of this transaction as if it
               occurred on January 31, 1998:

                                                    ACTUAL     PRO FORMA
                                                  --------    -----------

           Cash  . . . . . . . . . . . . . . .    $ 11,964     $ 35,954

           Notes and receivables - net . . . .     231,140      231,140

           Investments in partnerships . . . .       3,924        3,924

           Construction in progress  . . . . .      26,241       26,241

           Other assets - net  . . . . . . . .      22,530       22,133
                                                  --------     --------

           Total assets  . . . . . . . . . . .    $295,799     $319,392
                                                  ========     ========

           Total liabilities . . . . . . . .      $269,387     $269,387

           Stockholders' equity

           Preferred Stock, $.001 par value - 
           authorized, 15,000,000 shares; none
           issued and outstanding  . . . . . .          --           --

           Common Stock, $.01 par value -
           authorized, 40,000,000 shares;
           15,000,000 issued and outstanding, 
           17,800,000 shares issued and
           outstanding as adjusted . . . . . .         150          178

           Paid-in capital                          51,189       74,754

           Accumulated deficit                     (24,927)     (24,927)
                                                  --------     --------

           TOTAL STOCKHOLDERS' EQUITY  . . . .      26,412       50,005
                                                  --------     --------

           Total liabilities and stockholders'
           equity  . . . . . . . . . . . . . .    $295,799     $319,392
                                                  ========     ========


                                      59
     <PAGE>


          ITEM 9.   DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

                  None


                                       PART III


          ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

               The directors and executive officers of the Company are as
          follows: 


           Name                     Age    Position
           ----                     ---    --------

           John Luciani(1)          65     Chairman of the Board and
                                           Chief Executive Officer

           Bernard M. Rodin(2)      67     Chief Operating Officer,
                                           President and Director

           John W. Luciani III      45     Executive Vice President and
                                           Director

           Paul Jawin               42     General Counsel and Senior
                                           Vice President

           Dorian Luciani           42     Senior Vice President -
                                           Acquisition and Construction

           Deborah Luciani          41     Vice President - New Business
                                           Development and Acquisitions

           Catherine V. Merlino     33     Chief Financial Officer and
                                           Vice President

           Edward J. Glatz          55     Vice President - Construction

           Keith Marlowe            35     Secretary

           Walter Feldesman(1)(2)   80     Director

           Leslie E. Goodman(1)(2)  53     Director


          --------------------------
          (1)  Member of the Compensation Committee
          (2)  Member of the Audit Committee

               JOHN LUCIANI, Chief Executive Officer and Chairman of the
          Board of Directors since January 1996, founded the earliest
          predecessor of the Company in 1969 and has been engaged in a
          number of business activities and investments since 1952. 
          Commencing in 1960, he entered into the real estate development
          and construction business, concentrating initially on the
          development, construction and sale of residential high-rise
          apartment buildings and single-family homes and subsequently on
          the acquisition and development of multi-family rental housing
          complexes.  Since 1986, he has concentrated on the acquisition,
          development and financing of adult living communities for the
          elderly.  Mr. Luciani founded the earliest predecessor of the
          Company with Bernard M. Rodin in 1969.  Mr. Luciani was a general
          partner of three Protected Partnerships, but withdrew as a
          general partner prior to their filing the respective Chapter 11
          Petitions.

               BERNARD M. RODIN, Chief Operating Officer, President and
          Director since January 1996, has been engaged, since the
          formation of the earliest predecessor of the Company in 1969, in
          the financing of property acquisitions by arranging for the sale
          of partnership interests and in property management.  This
          activity initially focused on the Company's multi-family housing
          portfolio and, since 1986, on the Company's adult living
          communities.  Mr. Rodin has a bachelor of science degree from the
          City University of New York.   Mr. Rodin is a certified public


                                      60
     <PAGE>

 
          accountant and was actively engaged in the practice of public
          accounting prior to founding the earliest predecessor of the
          Company with John Luciani in 1969.  Mr. Rodin was a general
          partner of three Protected Partnerships, but withdrew as a
          general partner prior to their filing the respective Chapter 11
          Petitions.

               JOHN W. LUCIANI III, Executive Vice President and Director
          since June, 1996, a son of John Luciani, joined the Company in
          1975 and has since been actively involved in the management and
          operation of the Company's property portfolios, initially
          focusing on multi-family housing and later on the Company's
          adult-living communities. Mr. Luciani graduated from Fairleigh
          Dickinson University with both a bachelor of science and a master
          of business administration degree.

               PAUL JAWIN, General Counsel and Senior Vice President since
          November, 1997, a son-in-law of Bernard M. Rodin, joined the
          Company in May 1991.  His activities primarily involve the
          various legal and financial aspects of the Company's business
          including its debt financing and matters involving the Company's
          equity and debt securities.  Mr. Jawin is an attorney and was
          actively engaged in a real estate/corporate practice prior to
          joining the Company.  Mr. Jawin graduated from Ithaca College
          with a bachelor of science degree in history and earned a juris
          doctor degree from Syracuse University School of Law.

               DORIAN LUCIANI, Senior Vice President - Acquisition and
          Construction since June, 1996, a son of John Luciani, joined the
          Company in 1977 and was initially involved in the acquisition,
          development and management of the Company's multi-family housing
          portfolio.  Later, Mr. Luciani focused exclusively on the
          acquisition and development of the Company's adult living
          communities. Mr. Luciani graduated from Fairleigh Dickinson
          University with a bachelor of science degree in business.

               DEBORAH LUCIANI, Vice President - New Business Development
          and Acquisitions since June, 1996, a daughter of John Luciani,
          joined the Company in January 1992.  Ms. Luciani is primarily
          involved in new business development, acquisitions,  obtaining
          financing and various marketing responsibilities for the
          Company's existing and new adult living communities.  Prior to
          joining the Company, Ms. Luciani worked for Prudential Bache
          Securities as an oil futures trader from November 1988 to
          December 1991. Ms. Luciani graduated from Boston University with
          a bachelor of science degree, a master of political science
          degree and a master of economics degree.

               CATHERINE V. MERLINO, Chief Financial Officer and Vice
          President since November, 1997, joined the Company in September
          1993, and has since been actively involved in the financial
          reporting and analysis needs of the Company.  Prior to joining
          the Company, Mrs. Merlino was a Senior Accountant from June 1989
          through June 1993 and a Supervisor from June 1993 through
          September 1993 at Feldman Radin & Co., P.C., a public accounting
          firm located in New York City.  Mrs. Merlino graduated from Long
          Island University in May 1987 with a bachelor of science degree
          in Accounting and became a certified public accountant in
          February  1992.

               EDWARD J. GLATZ, Vice President - Construction since June,
          1996, joined the Company in September 1992 and has been actively
          involved in the design, site selection and construction for the
          new "Grand Court" adult living communities.  Additionally, Mr.
          Glatz supervises the capital improvements of the Company's real
          estate holdings.  Prior to joining the Company,  Mr. Glatz
          performed asset management duties for Kovens Enterprises, a real
          estate development company, from June 1988 until September 1992.

               KEITH MARLOWE, Secretary of the Company since June, 1996,
          joined the Company in August 1994.  From 1987 through August
          1994, Mr. Marlowe, an attorney, was an associate in the tax
          department at the law firm of Reid & Priest LLP where he was
          involved in a general transactional tax practice.  His activities
          primarily involve the various legal and financial aspects of  the
          Company's business.  Mr. Marlowe graduated from the University of
          Virginia with a bachelor of science degree in economics.  Mr.
          Marlowe earned a juris doctor degree from University of
          California Los Angeles School of Law and an LLM in Taxation from
          New York University School of Law.


                                     61
     <PAGE>


               WALTER FELDESMAN, Director since June, 1996, has been Of
          Counsel to the law firm of Baer Marks & Upham LLP since  March
          1993 and for more than five years prior thereto was a partner of
          Summit, Rovins and Feldesman.  Mr. Feldesman is currently a
          Director and Chairman of the Audit Committee of Sterling Bancorp
          and a Director of its subsidiary, Sterling National Bank & Trust
          Co.  Mr. Feldesman is a member of the National Institute on
          Financial Services for Elders, the National Academy of Elder Law
          Attorneys, the American Association of Homes for the Aging, the
          National Council on the Aging and American Society on Aging.  Mr.
          Feldesman is also special counsel on elderlaw to United Senior
          Health Cooperative.  He has authored an article entitled "Long-
          Term Care Insurance Helps Preserve an Estate," and a recently
          published work entitled the "Dictionary of Eldercare
          Terminology".  He has written another book "New Medicare Choices"
          which is expected to be published in February, 1998.  Mr.
          Feldesman has a bachelor's degree in economics from New York
          University.  Mr. Feldesman earned an LLB from Harvard Law School.

               LESLIE E. GOODMAN, Director since June, 1996.  Until
          December 1996 Mr. Goodman was the Area President for the North
          Jersey Region for First Union National Bank and a Senior
          Executive Vice President of First Union Corporation.  From
          September 1990 through January 1994, he served as President and
          Chief Executive Officer of First Fidelity Bank, N.A., New Jersey.
          From January 1994 to December 1995, Mr. Goodman served as a
          Senior  Executive Vice President and a Director of First Fidelity
          Bank, National Association until it was merged into First Union. 
          From January 1990 until December 1995, he also served as Senior
          Executive Vice President, member of the Office of the Chairman
          and a Director of First Fidelity Bancorporation.  Mr. Goodman
          served as the Chairman of the New Jersey Bankers Association from
          March 1995 to March 1996.  He is a member of the Board of
          Directors and Chairman of the Audit Committee of Wawa Inc. and a
          member of the Board of Directors of Tear Drop Golf Company, Inc.
          and a director of Admiralty Bank Corporation.  In addition, Mr.
          Goodman is on the Board of Trustees of Rutgers University.

          AUDIT COMMITTEE

               The Board of Directors established an Audit Committee in
          June 1996.  The Audit Committee is currently composed of Messrs.
          Rodin, Feldesman and Goodman.  The Audit Committee's duties
          include reviewing internal financial information, monitoring cash
          flow, budget variances and credit arrangements, reviewing the
          audit program of the Company, reviewing with the Company's
          independent accountants the results of all audits upon their
          completion, annually selecting and recommending independent
          accountants, overseeing the quarterly unaudited reporting process
          and taking such other action as may be necessary to assure the
          adequacy and integrity of all financial information distributed
          by the Company.

          COMPENSATION COMMITTEE

               The Board of Directors established a Compensation Committee
          in June 1996.  The Compensation Committee is currently composed
          of Messrs. John Luciani, Feldesman and Goodman.  The Compensation
          Committee recommends compensation levels of senior management and
          works with senior management on benefit and compensation programs
          for Company employees.


                                      62
     <PAGE>


          ITEM 11.  EXECUTIVE COMPENSATION

               The following table shows, as to the Chief Executive Officer
          and each of the four other most highly compensated executive
          officers information concerning compensation accrued for services
          to the Company in all capacities during Fiscal 1996 and Fiscal
          1997, respectively.


                              SUMMARY COMPENSATION TABLE


                                        ANNUAL COMPENSATION
                                      -----------------------

                                                        OTHER        ALL
                                                       ANNUAL       OTHER
                                                       COMPEN-     COMPEN-
     NAME AND                         SALARY    BONUS  SATION       SATION
     PRINCIPAL POSITION      YEAR       ($)      ($)     ($)         ($)
     ------------------      ----     ------    -----  -------     -------

     John Luciani,
     Chairman
     of the Board
     and Chief              
     Executive              Fiscal
     Officer(1) . . . . .   1995        --       --     --        $1,450,000

                            Fiscal
                             1996     $500,000    --     --         $497,000

                            Fiscal
                             1997     $600,000                     1,566,000


     Bernard M. Rodin,
     Chief Operating
     Officer, President     Fiscal
     and Director(1). . .    1995       --        --     --       $1,450,000

                            Fiscal
                             1996     $500,000    --     --         $497,000

                            Fiscal
                             1997     $600,000    --     --        1,566,000


     John W. Luciani, III,
     Executive Vice         
     President and          Fiscal
     Director . . . . . .    1995     $315,000    --     --             --

                            Fiscal
                             1996     $350,000    --     --             --

                            Fiscal
                             1997     $353,846    --     --             --


     Dorian Luciani,
     Senior Vice            Fiscal
     President  . . . . .    1995     $315,000    --     --             --

                            Fiscal
                             1996     $350,000    --     --             --

                            Fiscal
                             1997     $353,846    --     --             --


                                      63
     <PAGE>


                                         ANNUAL COMPENSATION
                                       -----------------------

                                                        OTHER        ALL
                                                       ANNUAL       OTHER
                                                       COMPEN-     COMPEN-
     NAME AND                         SALARY    BONUS  SATION       SATION
     PRINCIPAL POSITION      YEAR       ($)      ($)     ($)         ($)
     ------------------      ----     ------    -----  -------     -------

     Paul Jawin,
     General Counsel
     and Senior Vice        Fiscal
     President  . . . . .    1995     $289,050    --     --             --

                            Fiscal
                             1996     $325,000    --     --             --

                            Fiscal
                             1997     $344,327    --     --             --

          ----------------
          (1)  Messrs. Luciani and Rodin received dividends and
               distributions from the Company's predecessors but did not
               receive salaries.  As of April 1, 1996 a salary for each of
               Messrs. Luciani and Rodin was established at the rate of
               $600,000 per year.  In fiscal 1996 such officers also
               received $397,000 each as a dividend and $100,000 each for
               the period from February 1, 1996 until April 1, 1996, which
               was in the form of a dividend but which is classified as
               officers' compensation for financial statement purposes.  In
               January 1998, such officers received a non-cash distribution
               for the release of previously assigned collateral of $1,566
               each.

          COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

               The Board of Directors established a Compensation Committee
          in June 1996.  The Compensation Committee currently consists of
          Messrs. John Luciani, Feldesman and Goodman.  None of the
          executive officers of the Company currently serves on the
          compensation committee of another entity or on any other
          committee of the board of directors of another entity performing
          similar functions.  For a description of transactions between the
          Company and members of the Compensation Committee or their
          affiliates, see "Certain Transactions."

          DIRECTOR COMPENSATION

               The Company will pay each Director who is not an employee of
          the Company $1,000 per Board meeting attended and $500 per
          Committee meeting attended.  All Directors are reimbursed by the
          Company for their out-of-pocket expenses incurred in connection
          with attendance at meetings of, and other activities related to
          service on, the Board of Directors or any Board Committee.

          STOCK PLANS

               1996 Stock Option and Performance Award Plan
               
               The Company has adopted the 1996 Stock Option and
          Performance Award Plan (the "Plan"), which authorizes the grant
          to officers, key employees and directors of the Company and any
          parent or subsidiary of the Company of incentive or non-qualified
          stock options, stock appreciation rights, performance shares,
          restricted shares and performance units.  Under the Plan,
          directors who are not employees of the Company may not be granted
          incentive stock options.  The Company plans to reserve 2,500,000
          shares of Common Stock for issuance pursuant to the Plan.  Shares
          issued pursuant to the Plan will be subject to the Transfer
          Restrictions.  As of the date hereof, no options had been granted
          under the Plan.

               The Plan will be administered by the Board of Directors. 
          The Board of Directors will determine the prices and  terms at
          which options may be granted.  Options may be exercisable in
          installments over the option period, but no options may be


                                      64
     <PAGE>


          exercised after ten years from the date of grant.  Stock
          appreciation rights may be granted in tandem with options or
          separately.

               The exercise price of any incentive stock option granted to
          an eligible employee may not be less than 100% of the fair market
          value of the shares underlying such option on the date of grant,
          unless such employee owns more than 10% of the outstanding Common
          Stock or stock of any subsidiary or parent of the Company, in
          which case the exercise price of any incentive stock option may
          not be less than 110% of such fair market value.  No option may
          be exercisable more than ten years after the date of grant and,
          in the case of an incentive stock option granted to an eligible
          employee owning more than 10% of the outstanding Common Stock or
          stock of any subsidiary or parent of the Company, no more than
          five years from its date of grant.  Incentive stock options are
          not transferable, except upon the death of the optionee.  In
          general, upon termination of employment of an optionee (other
          than due to death or disability), all options granted to such
          person which are not exercisable on the date of such termination
          immediately expire, and any options that are so exercisable will
          expire three months following termination of employment in the
          case of incentive stock options, but not until the date the
          options otherwise would expire in the case of non-qualified stock
          options.  However, all options will be forfeited immediately upon
          an optionee's termination of employment for good cause and upon
          an optionee's voluntary termination of employment without the
          consent of the Board of Directors.

               Upon an optionee's death or termination of employment due to
          disability, all options will become 100% vested and will be
          exercisable (i) in the case of death, by the estate or other
          beneficiary of the optionee at any time prior to the date the
          option otherwise would expire and (ii) in the case of the
          disability of the optionee, by the optionee within one year of
          the date of such termination of employment in the case of
          incentive stock options, or at any time prior to the date the
          option otherwise would expire in the case of non-qualified stock
          options.

               At the time each grant of restricted shares or performance
          shares or units or stock appreciation rights is made, the Board
          of Directors will determine the duration of the performance or
          restriction period, if any, the performance targets, if any, for
          earning performance shares or units, and the times at which
          restrictions placed on restricted shares shall lapse.


          ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

               The following table sets forth certain information as of
          April 29, 1998, regarding the beneficial ownership of the
          Company's Common Stock by (i) each executive officer and director
          of the Company, (ii) each stockholder known by the Company to
          beneficially own 5% or more of such Common Stock, and (iii) all
          directors and officers as a group.  Except as otherwise
          indicated, the address of each beneficial holder of 5% or more of
          such Common Stock is the same as the Company.



                                           AMOUNT OF
          NAME OF                          BENEFICIAL        PERCENT OF
          BENEFICIAL OWNER                   OWNER              CLASS
          ----------------                 ----------        ----------
                                                  
          John Luciani  . . . . . . . .    7,326,970           41.16

          Bernard M. Rodin  . . . . . .    7,326,970           41.16

          All directors and officers
             as a group . . . . . . . .   14,653,940           82.32

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


                                      65
     <PAGE>


          ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

               In the first quarter of fiscal 1996, the Principal
          Stockholders reorganized their businesses by consolidating them
          into the Company.  The Principal Stockholders transferred all of
          the issued and outstanding stock of each of 16 Sub-chapter S
          corporations along with various other assets and liabilities to
          the Company in exchange for 3,252,380 shares of the Company's
          Common Stock.  A partnership in which the Principal Stockholders
          are the sole partners transferred to the Company substantially
          all of its assets, subject to substantially all of its
          liabilities, in exchange for 1,626,190 shares of the Company's
          Common Stock.  The partnership distributed the shares received to
          the Principal Stockholders.  Six Sub-chapter S corporations which
          were wholly-owned by the Principal Stockholders were merged into
          the Company.  Pursuant to the mergers the shares of the six
          merged companies were converted into an aggregate of 10,121,430
          shares of the Company's Common Stock.  After the reorganization
          was complete, the Principal Stockholders owned an aggregate of
          15,000,000  shares of the Company's Common Stock.

               Prior to the reorganization discussed above, the business of
          the Principal Stockholders was conducted through a partnership
          and various Sub-chapter S corporations.  These entities and the
          Company paid distributions and other distributions to each of the
          Principal Stockholders of $850,000 and $397,000 in Fiscal 1995
          and 1996, respectively, exclusive of amounts reflected as
          officers' compensation.

               Messrs. Luciani and Rodin, the Chairman of the Board and
          President of the Company, respectively, and entities controlled
          by them serve as general partners (with interests ranging between
          1% and 2%) of partnerships directly and indirectly owning Multi-
          Family Properties and on account of such general partner status
          have personal liability for recourse partnership obligations and
          own small equity ownership interests in the partnerships.  The
          Company holds (i) notes, aggregating $107.3 million, net of
          deferred income, as of January 31, 1998, that are secured by the
          limited partnership interests in such partnerships and (ii) other
          partnership receivables aggregating $58.7 million from such
          partnerships at January 31, 1998.  Messrs. Luciani and Rodin have
          provided personal guarantees in certain circumstances to obtain 
          mortgage financing for certain adult living communities operated
          by the Company and for certain of the Company's Investor Note
          Debt and Unsecured Debt, and the obligations thereunder may
          continue.  The aggregate amount of such debt personally
          guaranteed by each of Messrs. Luciani and Rodin is approximately
          $51.4 million.  In addition, Messrs. Luciani and Rodin and
          certain employees will devote a limited portion of their time to
          overseeing the third-party managers of Multi-Family Properties
          and one adult living community in which the Company has financial
          interests in that it holds the related Multi-Family Notes, but in
          which Messrs. Luciani and Rodin have equity interests and the
          Company does not.

               Subsequent to the reorganization, the Principal Stockholders
          and one of their affiliates transferred the Assigned Interests to
          the Investing Partnerships that own interests in the Protected
          Partnerships.  The Assigned Interests were owned personally by
          the Principal Stockholders and their affiliate and provide
          additional assets at the Investing Partnership level and, as a
          result, additional security for the related Multi-Family Notes. 
          Two Investing Partnerships related to these Protected
          Partnerships transferred the respective Assigned Interests back
          to the Principal Stockholders and their affiliate after these
          Protected Partnerships successfully emerged from their bankruptcy
          proceedings. In that the Principal Stockholders transferred the
          Assigned Interests in July 1996, the Company recorded a $21.3
          million capital contribution in Fiscal 1996.  The bankruptcy
          petitions and risk of loss faced by the Protected Partnerships
          resulted in the Company recording a non-cash loss for Fiscal 1996
          in the amount of $18.4 million (representing the recorded value
          of these Multi-Family Notes, net of deferred income and net of
          any previously established reserves) due to the deemed full
          impairment of the Multi-Family Notes.  The transfer of the
          Assigned Interest back to the Principal Stockholders caused the
          Company to recognize non-cash other income of $3.1 million and to
          record a non-cash dividend to the Principal Stockholders for the
          release of the previously assigned interest of $3.1 million in
          Fiscal 1997.  Each of the Principal Stockholders was a general
          partner of three of the Protected Partnerships, but withdrew as a
          general partner prior to such partnerships' filings of the
          respective Chapter 11 Petitions.

               During Fiscal 1996 and 1997 the Company paid to Francine
          Rodin, the wife  of Bernard M. Rodin, the Company's Chief
          Operating Officer, President and a Director, $154,875 and
          $132,885, respectively, as fees for introducing to the Company
          broker/dealers that have assisted the Company in its Syndications


                                      66
    <PAGE>


          of partnership interests and in placing other securities offered
          by the Company.  Mrs. Rodin will receive a fee with respect to
          any future sales through such broker/dealers of such Syndicated
          partnership interests and other securities offered by the
          Company.  During Fiscal 1996, Mrs. Rodin received consulting fees
          of $49,435 in connection with coordinating the Company's
          marketing efforts and travel arrangements.  Mrs. Rodin has been
          an employee of the Company for the entire year ended January 31,
          1998 and performs similar services.

               Walter Feldesman, a Director of the Company, is Of Counsel
          to the law firm of Baer Marks & Upham LLP, which acts as counsel
          to the Company from time to time. In addition, Mr. Feldesman is a
          director of Sterling National Bank & Trust Co. which has entered
          into a revolving credit agreement with the Company which permits
          the Company to borrow up to $8,000,000, of which $3,761,274 was
          outstanding at January 31, 1998.

               Michele R. Jawin, the daughter of Mr. Rodin and wife of Paul
          Jawin, the Company's General Counsel and a Senior Vice President,
          is Of Counsel to Reid & Priest LLP, which acts as securities
          counsel to the Company.


                                       PART IV

          ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
          FORM 8-K

          (a)  Please refer to Item 8, "Financial Statements and
               Supplementary Data" for a complete listing of all
               consolidated financial statements and financial statement
               schedules.

          (b)  The Company filed the following reports on Form 8-K: No
               current reports on Form 8-K were filed during the quarter
               ended January 31, 1998.

          (c)  Exhibits:  Reference is made to the Exhibit Index commencing
               on page 69.




                                      67
      <PAGE>


                                      SIGNATURES

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

                              GRAND COURT LIFESTYLES, INC.

                              /s/ Catherine V. Merlino
                              ----------------------------
                              Catherine V. Merlino
                              Chief Financial Officer and Vice President

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

                  Signature                  Title               Date
                  ---------                  -----               ----

          /s/ John Luciani          Chairman of the Board   April 30, 1998
          ------------------------  of Directors and 
          John Luciani              Chief Executive
                                    Officer (Principal
                                    Executive Officer)


          /s/ Bernard M. Rodin      President and Chief     April 30, 1998
          ------------------------  Operating Officer and
          Bernard M. Rodin          Director (Principal
                                    Executive Officer)


          /s/ John W. Luciani, III  Executive Vice          April 30, 1998
          ------------------------  President and Director
          John W. Luciani, III

          
          /s/ Catherine V. Merlino  Chief Financial         April 30, 1998
          ------------------------  Officer and Vice
          Catherine V. Merlino      President (Principal
                                    Financial Officer and
                                    Principal Accounting
                                    Officer)


          /s/ Walter Feldesman      Director                April 30, 1998
          ------------------------
          Walter Feldesman


                                    Director                April 30, 1998
          ------------------------
          Leslie E. Goodman


                                      68
      <PAGE>


                                    EXHIBIT INDEX


               *2.1     --  Consolidation Agreement dated as of April 1,
                            1996 among John Luciani, Bernard M. Rodin, J&B
                            Management Company and the Company.
               *2.1(a)  --  First Amendment dated as of April 1, 1996 to
                            Consolidation Agreement dated as of April 1,
                            1996 among John Luciani, Bernard M. Rodin, J&B
                            Management Company and the Company.
               *2.1(b)  --  Second Amendment dated as of April 1, 1996 to
                            Consolidation Agreement dated as of April 1,
                            1996 among John Luciani, Bernard M. Rodin, J&B
                            Management Company and the Company.
               *2.1(c)  --  Third Amendment dated as of April 1, 1996 to
                            Consolidation Agreement dated as of April 1,
                            1996 among John Luciani, Bernard M. Rodin, J&B
                            Management Company and the Company.
               *2.1(d)  --  Fourth Amendment dated as of April 1, 1996 to
                            Consolidation Agreement dated as of April 1,
                            1996 among John Luciani, Bernard M. Rodin, J&B
                            Management Company and the Company.
               *2.1(e)  --  Fifth Amendment dated as of April 1, 1996 to
                            Consolidation Agreement dated as of April 1,
                            1996 among John Luciani, Bernard M. Rodin, J&B
                            Management Company and the Company.
               *2.1(f)  --  Sixth Amendment dated as of April 1, 1996 to
                            Consolidation Agreement dated as of April 1,
                            1996 among John Luciani, Bernard M. Rodin, J&B
                            Management Company and the Company.
               *2.2(a)  --  Merger Agreement dated as of April 1, 1996
                            between Leisure Centers, Inc. and the Company.
               *2.2(b)  --  Merger Agreement dated as of April 1, 1996
                            between Leisure Centers Development, Inc. and
                            the Company.
               *2.2(c)  --  Merger Agreement dated as of April 1, 1996
                            between J&B Management Corp. and the Company.
               *2.2(d)  --  Merger Agreement dated as of April 1, 1996
                            between Wilmart Development Corp. and the
                            Company.
               *2.2(e)  --  Merger Agreement dated as of April 1, 1996
                            between Sulgrave Realty Corporation and the
                            Company.
               *2.2(f)  --  Merger Agreement dated as of April 1, 1996
                            between Riv Development Inc. and the Company.
               *3.1     --  Restated Certificate of Incorporation of the
                            Company.
               *3.2     --  By-Laws of the Company.
             +*10.1     --  1996 Stock Option and Performance Award Plan.
              *10.2(a)  --  Loan Agreements dated as of November 25, 1996,
                            by and between Leisure Centers LLC-1 and Bank
                            United relating to financing of the Corpus
                            Christi, Texas property.
              *10.2(b)  --  Guaranty Agreement, dated as of November 25,
                            1996, between the Company and Bank United
                            relating to financing of the Corpus Christi,
                            Texas property.
              *10.2(c)  --  Loan Agreement, dated as of January 29, 1997,
                            by and between Leisure Centers LLC-1 and Bank
                            United relating to financing of the Temple,
                            Texas property.
              *10.2(d)  --  Guaranty Agreement, dated as of January 29,
                            1997, between the Company and Bank United
                            relating to the financing of the Temple, Texas
                            property.
              *10.3     --  Master Development Agreement dated September
                            18, 1996 between Capstone Capital Corp. and
                            the Company.
              *10.4(a)  --  Form of 12% Debenture due June 16, 2000 -
                            Series 1.
              *10.4(b)  --  Form of 12% Debenture due April 15, 1999 -
                            Series 2.
              *10.4(c)  --  Form of 11% Debenture due December 31, 1996 -
                            Series 3.
              *10.4(d)  --  Form of 11.5% Debenture due April 15, 2000 -
                            Series 4.


                                      69
      <PAGE>

                             EXHIBIT INDEX (Continued)


              *10.4(e)  --  Form of 12% Debenture due January 15, 2003 -
                            Series 5.
              *10.4(f)  --  Form of 12% Debenture due April 15, 2003 -
                            Series 6.
              *10.4(g)  --  Form of 11% Debenture due January 15, 2002 -
                            Series 7.
              *10.4(h)  --  Form of 11% Debenture due January 15, 2002 -
                            Series 8.
              *10.4(i)  --  Form of 12% Debenture due September 15, 2001 -
                            Series 9.
              *10.4(j)  --  Form of 12% Debenture due January 15, 2004 -
                            Series 10.
              *10.4(k)  --  Form of 12% Debenture due June 30, 2004 -
                            Series 11.
              *10.5(a)  --  Bank Agreement dated August 14, 1990 between
                            The Bank of New York and the Company with
                            respect to 12% Debentures, Series 1.
              *10.5(b)  --  First Amendment dated as of August 21, 1992 to
                            Bank Agreement dated August 14, 1990 between
                            The Bank of New York and the Company with
                            respect to 12% Debentures, Series 1.
              *10.5(c)  --  Bank Agreement dated October 11, 1991 between
                            The Bank of New York and the Company with
                            respect to 12% Debentures, Series 2.
              *10.5(d)  --  Bank Agreement dated October 17, 1991 between
                            The Bank of New York and the Company with
                            respect to 11% Debentures, Series 3.
              *10.5(e)  --  Bank Agreement dated April 1, 1992 between The
                            Bank of New York and the Company with respect
                            to 11.5% Debentures, Series 4.
              *10.5(f)  --  Bank Agreement dated October 30, 1992 between
                            The Bank of New York and the Company with
                            respect to 12% Debentures, Series 5.
              *10.5(g)  --  Bank Agreement dated May 24, 1993 between The
                            Bank of New York and the Company with respect
                            to 12% Debentures, Series 6.
              *10.5(h)  --  Bank Agreement dated October 27, 1993 between
                            The Bank of New York and the Company with
                            respect to 11% Debentures, Series 7.
              *10.5(i)  --  First Amendment dated November 29, 1993 to
                            Bank Agreement dated October 27, 1993 between
                            The Bank of New York and the Company with
                            respect to 11% Debentures, Series 7.
              *10.5(j)  --  Bank Agreement dated November 29, 1993 between
                            The Bank of New York and the Company with
                            respect to 11% Debentures, Series 8.
              *10.5(k)  --  Bank Agreement dated September 12, 1994
                            between The Bank of New York and the Company
                            with respect to 12% Debentures, Series 9.
              *10.5(l)  --  Bank Agreement dated July 12, 1995 between The
                            Bank of New York and the Company with respect
                            to 12% Debentures, Series 10.
              *10.5(m)  --  Bank Agreement dated July 25, 1997 between the
                            Bank of New York and the Company with respect
                            to 12% Debentures, Series 11.
              *10.6(a)  --  Form of Short-term Step-up Bond due March 15,
                            2001 - Series 1.
              *10.6(b)  --  Form of 12.375% Bond due April 15, 2003 -
                            Series 2.
              *10.7(a)  --  Bank Agreement between The Bank of New York
                            and the Company with respect to Short-term
                            Step-up Bonds - Series 1.
              *10.7(b)  --  Bank Agreement between The Bank of New York
                            and the Company with respect to 12.375% Bonds
                            -Series 2.
              *10.8     --  Revolving Credit Agreement dated as of May 7,
                            1985 between Sterling National Bank & Trust
                            Company and the Company.
              *10.9     --  Assumption Agreement dated as of September 10,
                            1996 among Sterling National Bank & Trust, the
                            Company, Bernard M. Rodin and John Luciani.
              *10.9(a)  --  First Amendment to Assumption Agreement dated
                            as of September 10, 1996 among Sterling
                            National Bank & Trust, the Company, Bernard M.
                            Rodin and John Luciani.


                                      70
     <PAGE>

                             EXHIBIT INDEX (Continued)


              *10.9(b)  --  Second Amendment to Assumption Agreement among
                            Sterling National Bank, formerly known as
                            Sterling National Bank & Trust Company, the
                            Company, Bernard M. Rodin and John Luciani
              *10.10(a) --  Form of 13.125% Retirement Financing Notes -
                            III, due October 31, 2001.
              *10.10(b) --  Form of 13.125% Retirement Financing Notes -
                            IV, due March 31, 2002.
              *10.10(c) --  Form of 13.125% Retirement Financing Notes -
                            V, due June 30, 2003.
              *10.10(d) --  Form of 13.125% Retirement Financing Notes -
                            VI, due April 15, 2001.
              *10.10(e) --  Form of 13.125% Retirement Financing Notes -
                            VII, due October 15, 2002.
              *10.11(a) --  Bank Agreement dated as of September 6, 1996
                            between the Bank of New York and the Company
                            with respect to 13.125% Retirement Financing
                            Notes - III.
              *10.11(b) --  Bank Agreement dated as of October 22, 1996
                            between the Bank of New York and the Company
                            with respect to 13.125% Retirement Financing
                            Notes - IV.
              *10.11(c) --  Bank Agreement dated as of May 14, 1997
                            between the Bank of New York and the Company
                            with respect to 13.125% Retirement Financing
                            Notes - V.
              *10.11(d) --  Bank Agreement dated as of November 6, 1997
                            between the Bank of New York and the Company
                            with respect to 13.125% Retirement Financing
                            Notes - VI.
              *10.11(e) --  Bank Agreement dated as of November 20, 1997
                            between Bank of New York and the Company with
                            respect to 13.125% Retirement Financing Notes
                            - VII.
              *10.12    --  Warrant Agreement
               21       --  List of Subsidiaries of the Company.
               27.1     --  Financial Data Schedules for the periods ended
                            January 31, 1996 and 1997 and January 31,
                            1998.

          ---------------
           *   Previously filed in Registration Statement No. 333-05955.
          (+)  Management contracts or compensatory plans or arrangements
               required to be filed as exhibits to this Form 10-K by item
               601(b)(10)(iii) of Regulation S-K.





                                      71