UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)
[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
       EXCHANGE ACT OF 1934.

For the fiscal year ended  December 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    0-22253   
                          -------

                       BROOKDALE LIVING COMMUNITIES, INC.
             (Exact name of registrant as specified in its charter)

               Delaware                             36-4103821
---------------------------------------------------------------------------
   (State or other jurisdiction of      (I.R.S. Employer Identification No.)
    incorporation or organization)
   

               77 West Wacker Drive, Suite 4400, Chicago, IL 60601
              (Address of principal executive offices and zip code)

                                 (312) 977-3700
              (Registrant's telephone number, including area code)

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


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

                    Common Stock, par value $0.01 per share
--------------------------------------------------------------------------------
                                (Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

Yes   X   No    
    -----    -----

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  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 [ ].

As of March 25, 1999, there were 11,572,082  shares of the  Registrant's  common
stock outstanding. The aggregate market value of the Registrant's shares held on
such  date by  non-affiliates  of the  Registrant,  based on the  closing  price
($14.94  per share) of the  Registrant's  common  stock on the  Nasdaq  National
Market  on  such  date,  was   $172,886,905.   

                       DOCUMENTS INCORPORATED BY REFERENCE

Part III: Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 20, 1999.

<PAGE>
<TABLE>
<CAPTION>
                                                              

                      BROOKDALE LIVING COMMUNITIES, INC.

                                    Form 10-K

                                December 31, 1998

                                TABLE OF CONTENTS
                                -----------------
Part I                                                                                   Page
------                                                                                   ----
<S>       <C>                                                                             <C>
Item 1.   Business ..................................................................       1
Item 2.   Properties ................................................................       9
Item 3.   Legal Proceedings .........................................................      10
Item 4.   Submission of Matters to a Vote of Security Holders .......................      10

Part II
-------
Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters .....      10
Item 6.   Selected Financial Data ...................................................      10
Item 7.   Management's Discussion and Analysis of Financial Condition and 
          Results of Operations .....................................................      12
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk ................      17
Item 8.   Financial Statements and Supplementary Data ...............................      17
Item 9.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure ......................................................      35

Part III
--------
Item 10.  Directors and Executive Officers of the Registrant ........................      35
Item 11.  Executive Compensation ....................................................      35
Item 12.  Security Ownership of Certain Beneficial Owners and Management ............      35
Item 13.  Certain Relationships and Related Transactions ............................      35

Part IV
-------
Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K ..........      35

Signatures ..........................................................................      45

</TABLE>


<PAGE>
                                     PART I


ITEM 1.   BUSINESS.

The Company

     Brookdale Living Communities, Inc. and its subsidiaries (collectively,  the
"Company"  or  "Brookdale")  provide  senior  independent  and  assisted  living
services to the elderly through their  facilities  located in urban and suburban
areas of major  metropolitan  markets.  As of  December  31,  1998,  the Company
operated 18 senior  independent  and  assisted  living  facilities  in 11 states
containing  a total of 3,903 units  which,  as of December  31,  1998,  were 95%
occupied.  The  Company  owns 4 of such  facilities,  leases 12  facilities  and
manages 2 facilities  pursuant to management  contracts.  With  facilities  that
contained an average of approximately 217 units, the Company believes it is able
to  achieve  economies  of  scale  within  its  facilities  and  provide  senior
independent and assisted living services in a more  cost-effective  manner.  The
Company  plans to  acquire or lease  approximately  4 to 6  facilities  per year
containing  an aggregate of  approximately  800 to 1,200 units,  and to commence
development of 2 to 3 new facilities per year containing approximately 220 units
each.

     Brookdale's  facilities  are designed for middle to upper income  residents
who desire an upscale  residential  environment  providing  the highest level of
quality,  care and value.  The Company's  objective is to allow its residents to
age-in-place  by  providing  them with a  continuum  of senior  independent  and
assisted living services. The residents in a Brookdale facility have the ability
to maintain their  residency in such facility for an extended period of time due
to the range of service  options  available  to such  residents  as their  needs
change. An individual can move into a Brookdale facility while the individual is
able  to  live  independently,  requiring  little  or  no  assistance  with  the
activities  of daily living.  As the resident ages and requires more  assistance
with the activities of daily living, the resident is able to receive an enhanced
level of services at the Brookdale facility and does not have to move to another
facility to receive  such level of services.  The ability to allow  residents to
age-in-place  is beneficial to  Brookdale's  residents as well as their families
who are burdened  with care option  decisions for their  elderly  relatives.  In
addition to studio,  one-bedroom and two-bedroom units, the Company provides all
residents with basic services, such as meal service, 24-hour emergency response,
housekeeping,  concierge services,  transportation and recreational  activities.
For residents who require  additional  supplemental  care services,  the Company
provides  assistance with  activities of daily living.  As of December 31, 1998,
the average age of  Brookdale's  residents was  approximately  82 years old, and
many of these residents  require some level of assistance with their  activities
of daily  living.  The  Company  intends  to bring  "in-house"  as many of these
services as practicable and has established a program  providing  various levels
and combinations of these services called  "Personally  Yours"SM.  The levels of
care  provided  by the  Company to  residents  vary from  facility  to  facility
depending upon the licensing  requirements of the state in which the facility is
located.

     The  Company  was  incorporated  in  Delaware  on  September  4, 1996 by an
affiliate of The Prime Group, Inc. The Company was formed to continue and expand
the business  and  operations  of the senior  independent  and  assisted  living
division of The Prime Group,  Inc. and certain of its affiliates  (collectively,
"PGI"),  which, since 1985, had been involved in the development,  construction,
marketing and operation of senior independent and assisted living facilities for
the elderly.  

     At the completion of the Company's  initial  public  offering of its common
stock on May 7, 1997  (the  "IPO"),  the  shares  of the  Company  owned by such
affiliate were  repurchased by the Company at a nominal price in accordance with
a subscription  agreement between the Company and such affiliate.  In connection
with the  completion  of the  IPO,  PGI and  senior  management  of the  Company
contributed  their  interests  in the senior  independent  and  assisted  living
division of PGI to the Company in exchange for 2,000,000 shares of the Company's
common stock. PGI also purchased 2,500,000 shares of the 4,500,000 shares of the
Company's  common stock sold in the IPO. Since the IPO, the Company has managed,
and continues to manage, The Island on Lake Travis facility,  which continues to
be owned by PGI. The  Company's  principal  executive  offices are located at 77
West Wacker Drive, Suite 4400, Chicago, Illinois 60601, and its telephone number
is (312) 977-3700.

Cautionary Statements

     This  annual  report on Form  10-K  contains  "forward-looking  statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. When
used in this report, the words "believes," "expects," "anticipates," "estimates"
and  similar  words  and   expressions   are  generally   intended  to  identify
forward-looking  statements.  Statements  that  describe  the  Company's  future
strategic  plans,  goals  or  objectives  are also  forward-looking  statements.
Readers of this report are cautioned that forward-looking statements,  including
those regarding the intent,  belief,  or current  expectations of the Company or
management,  are not  guarantees  of future  performance,  results or events and
involve risks and  uncertainties,  and that actual results and events may differ
materially from those in the  forward-looking  statements as a result of various
factors,  including,  but not limited to (i) general economic  conditions in the
markets in which the Company  operates,  (ii)  competitive  pressures within the
industry and/or the markets in which the Company  operates,  (iii) the effect of
future  legislation or regulatory  changes on the Company's  operations and (iv)
other  factors  described  from time to time in the  Company's  filings with the
Securities and Exchange Commission.  The forward-looking  statements included in
this report are made only as of the date hereof.  Except as required by law, the
Company  undertakes no obligation to update such  forward-looking  statements to
reflect subsequent events or circumstances.

The Senior Independent and Assisted Living Industry

     The senior  independent  and assisted  living industry is a rapidly growing
component  of the  non-acute  health  care  system for the  elderly.  The senior
independent  and assisted  living  industry  serves the needs of the elderly who
benefit  from  living in a  supportive  environment  and may  require  or prefer
occasional  assistance  with the  activities of daily living,  and who no longer
desire, or cannot live alone. It is estimated that 35% of the people over age 85
require assistance with more than one activity of daily living, such as bathing,
eating, personal hygiene, grooming and dressing.


                                      -1-
<PAGE>


     The rapid growth of the senior  independent and assisted living industry is
supported by several significant trends, including the following:

     Favorable  Demographics.  The primary  consumers of senior  independent and
assisted living  services are persons over age 65. This group  represents one of
the fastest growing segments of the U.S. 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.  The
segment of the  population  over 85 years of age,  which  comprises  the largest
percentage of residents at senior care  facilities,  is projected to increase by
more than 40% between  the years 1990 and 2000.  Brookdale  believes  that these
trends will  contribute to continued  strong demand for senior  independent  and
assisted living services.

     Consumer  Preference.  The Company  believes  that senior  independent  and
assisted living facilities provide prospective residents and their families with
an  attractive   alternative  to  home  care  or  skilled  nursing   facilities,
particularly those prospective residents who do not require the level of care or
institutional setting provided by skilled nursing facilities. Senior independent
and assisted living facilities allow residents,  who typically furnish their own
units, to  age-in-place  and preserve their  independence in a more  residential
setting.  The Company  believes these factors result in a higher quality of life
than that experienced in the more institutional or clinical settings.

     Cost-Effective  Alternative.  The  annual  per  resident  cost  for  senior
independent and assisted living care is  significantly  less than the annual per
resident cost for skilled  nursing care.  The Company  believes that the cost of
senior  independent and assisted  living care (which  includes  housing and meal
preparation)  compares favorably with home health care when the costs associated
with  housing and meal  preparation  are added to the costs of home health care.
Pricing pressure is also forcing skilled nursing facilities to shift their focus
toward  providing  more intense  levels of care  enabling  them to charge higher
fees,  thus adding to the shortage of facilities  providing less intensive care.
The rapid growth of the elderly population  coupled with continuing  constraints
on the supply and  availability of long-term care beds is leading to a continued
shortage of long-term care beds for the elderly.

     Increasing Awareness of Benefits of Congregate Living. The Company believes
that consumers and their adult children are becoming  increasingly  aware of the
benefits of living in senior  independent or congregate  living facilities which
provide  assisted  living  services.  For  the  potential  resident  who may not
necessarily   require  assistance  with  activities  of  daily  living,   senior
independent  living  facilities  can  provide  significant  benefits  to improve
quality of life.  By  receiving  proper  nutrition  and the  enhanced  physical,
mental,  and social  stimulation,  which are provided in a senior independent or
congregate  living  facility,  residents  may realize such  improved  quality of
living.  In  facilities,  such as the Company's  facilities,  which also provide
assistance with  activities of daily living,  residents and their adult children
can take  comfort in knowing  that such  residents  can  age-in-place  in a more
secure and structured environment than typically available in the home.

     Changing Family  Dynamics.  As a result of the growing number of two-income
families,  many  children are not able to care for elderly  parents in their own
homes.  Two-income  families  are,  however,  better  able to provide  financial
support for elderly parents. In addition,  other factors,  such as the growth in
the  divorce  rate  and  single-parent  households,  as well  as the  increasing
geographic dispersion of families,  have contributed to the growing inability of
children to care for aging parents in the home.

Business and Growth Strategy

     The  Company's  business and growth  strategy is based on the following key
elements:

     Purchase  and  Lease  Existing  Senior   Independent  and  Assisted  Living
Facilities.  The Company believes that significant  opportunities  exist to take
advantage of the fragmented  senior  independent and assisted living industry by
selectively purchasing or leasing existing facilities. The Company's acquisition
and leasing  strategy  has  focused,  and will  continue to focus,  primarily on
facilities that are designed or can be repositioned by the Company, by improving
or  enhancing  available  services  and  amenities,  for middle to  upper-income
private pay residents. Facilities which the Company expects to purchase or lease
will primarily  consist of large  facilities,  similar to the Company's  current
facilities that contain an average of approximately 217 units,  located in urban
and suburban areas of major metropolitan  markets. See  "--Acquisitions,  Leases
and Development."

     Develop the Brookdale  Prototype Facility in Targeted Markets.  The Company
intends to continue to leverage its  development  expertise  and  construct  its
prototype  facility on selected  sites  located in urban and  suburban  areas of
major metropolitan markets. The Company's prototype facility,  which is flexible
and can be adapted to the specific  requirements of individual  markets and site
requirements,  contains 220 units, but can be constructed to accommodate between
150 and 250  units.  The  prototype  offers  a mix of  studio,  one-bedroom  and
two-bedroom  units and common areas  providing  premium  amenities.  The Company
intends to begin  development  of at least 2 to 3 facilities  on behalf of third
parties in each of the next 5 years and anticipates  that each  development will
require approximately 22 to 24 months to complete.  See "--Acquisitions,  Leases
and Development."

     Provide  Access to a Full  Continuum  of Senior  Independent  and  Assisted
Living Services. The Company's strategy is to provide access to a full continuum
of senior  independent and assisted living services that allows its residents to
age-in-place.  These  services are provided  either by the Company or by outside
agencies.  It  is  the  Company's  strategy  to  increase  the  availability  of
additional  services  and  to  capture  the  incremental  revenue  generated  by
providing  these  services  through  Company  employees.  In  addition,  one  of
Brookdale's goals is to establish  hospital or health care network  affiliations
for each of its  facilities.  Hospital  and  health  care  network  affiliations
provide for on-site  physician and nursing services and facilitate the provision
of health care  services and wellness  programs to the 

                                      -2-
<PAGE>

Company's residents.  In addition, the Company is presently developing an 82-bed
skilled  nursing  facility on the campus of The Devonshire  facility  located in
Lisle, Illinois. The Company does not currently intend to pursue the development
of additional skilled nursing facilities at its other facilities. See "--Company
Operations -- Hospital and Health Care Network Affiliations."

     Utilize Sophisticated  Marketing Programs to Maintain High Occupancy Rates.
The Company utilizes sophisticated  marketing programs to achieve high occupancy
rates. As of December 31, 1998, the Company's facilities were 95% occupied.  The
Company believes that its marketing programs will improve the occupancy rates of
facilities  that the Company  purchases or leases in the future.  The  Company's
marketing  programs are designed to create  community  awareness of the Company,
its facilities and its services,  and to cultivate  relationships  with referral
sources such as health care providers, physicians, clergy, area agencies for the
elderly,  home  health  agencies  and  social  workers.  In  addition,  hospital
affiliations have been successfully implemented by the Company at certain of its
facilities,  which  provide  referrals  of  prospective  residents.  The Company
believes that the success of its marketing  programs is demonstrated not only by
its high occupancy rates, but also by the Company's  ability to maintain waiting
lists at its facilities for prospective  residents who pay a deposit in order to
be included on such lists. See "--Company Operations--Marketing and Sales."

     Utilize  Operational  Expertise to Enhance  Profitability.  The Company has
developed and implemented  sophisticated  management and operational  procedures
resulting in strong  operating  margins and occupancy  rates.  These  procedures
include  securing  national vendor  contracts to ensure  consistent low pricing,
implementing sophisticated budgeting and financial controls at each facility and
establishing  standardized  training  and  operations  procedures.  Although the
Company's  business is not  dependent on its  national  vendor  contracts,  such
contracts provide the Company with better pricing on required goods and services
due to high volume purchases from a few national  vendors.  There are,  however,
several other vendors from whom the Company  could  purchase its required  goods
and services if the national  vendor  contracts were to be terminated or were to
expire.  The  Company  believes  that  the  systematic   implementation  of  its
management  and  operating  policies  will  enable the  Company  to enhance  the
financial performance of its existing and future facilities and will continue to
improve the profitability of its stabilized facilities.

     Expand Facilities Where  Economically  Advantageous.  The Company has found
that  certain  of  its  facilities  with  stabilized  occupancies  benefit  from
additions and  expansions  offering  increased  capacity,  as well as additional
levels of service for residents  requiring  higher levels of care.  Furthermore,
the expansion of existing facilities allows the Company to enhance its economies
of scale by  increasing  the revenue base at a facility  while  leveraging  such
facility's  existing  infrastructure  such  as the  laundry  equipment  and  the
kitchen.  In addition  to the planned  82-bed  skilled  nursing  facility on the
campus of The  Devonshire  facility,  the  Company is  currently  expanding  its
Hawthorn Lakes facility located in Vernon Hills,  Illinois with an additional 54
assisted living units.

Services

     The Company's  senior  independent  and assisted  living  facilities  offer
residents  personal support  services and assistance with certain  activities of
daily living in a  supportive,  home-like  setting.  Residents of the  Company's
facilities are typically  unable or choose not to live alone, but do not require
the 24-hour nursing care provided in skilled nursing  facilities.  The Company's
service options are designed to meet residents'  changing needs and to achieve a
continuity of care,  enabling seniors to age-in-place and thereby maintain their
residency for a longer time period.

   Basic Care Program

     The basic care package,  which is received by all residents,  includes meal
service,   housekeeping   services  within  the  resident's  unit,   social  and
recreational  activities,   scheduled  transportation  to  medical  centers  and
shopping,  security, emergency call response, access to on-site medical services
and medical education and wellness programs.

   Supplemental Care Services

     In addition to the basic care program,  the Company offers custom  tailored
supplemental  care  services  for  residents  who desire or need such  services.
Optional  supplemental  care services include  check-in  services and escort and
companion  services.  Residents with cognitive or physical  frailties and higher
level service needs are either accommodated with supplemental  services in their
own units or, in  certain  facilities,  are cared for in a more  structured  and
supervised  environment  on a  separate  wing or  floor of the  facility  with a
dedicated staff and with separate dining room and activity areas.

     Depending on the  particular  facility  and as dictated by state  licensing
requirements,  the Company also  provides  assistance  with  activities of daily
living such as dressing and bathing and medication  administration or reminders.
The Company plans to expand its supplemental service offerings,  as permitted by
licensing,  in order to capture  incremental revenue and enable its residents to
remain in its facilities  longer. In addition,  where  practicable,  the Company
intends to obtain  licensing to provide home health  services to  residents.  At
present,  many residents receive  supplemental health care services from outside
third parties.  The Company's ability to provide certain services depends on the
licensing  requirements of particular  states.  However,  the Company's  general
strategy is to provide  assistance with  activities of daily living,  subject to
states licensing limitations.

     Certain services,  such as physician care, infusion therapy, which includes
intravenous  delivery of medication,  physical and speech therapy and other more
intensive  home  health  care  services,  are  provided  to many of  Brookdale's
residents by third parties.  The Company assists residents in locating qualified
providers for such health care services.

                                      -3-
<PAGE>

Company Operations

   Overview

     The  Company  continually  reviews  opportunities  to expand  the amount of
services  it provides to its  residents.  To date,  the Company has been able to
increase  its  monthly  service  fees on an  annual  basis  and has  experienced
increasing   facility   operating   margins   through  a   combination   of  the
implementation  of efficient  operating  procedures  and the  economies of scale
associated with the size of its facilities.  The Company's operating  procedures
include securing  national vendor contracts to obtain consistent low pricing for
certain  services  such as food and energy,  implementing  strict  budgeting and
financial controls at each facility and establishing  standardized  training and
operations  procedures.  The Company believes that successful senior independent
and assisted living operators must effectively combine the business  disciplines
of hospitality, health care, marketing, finance and real estate expertise.

     Brookdale has implemented intensive standards,  policies and procedures and
systems,  including  detailed  staff  manuals,  which the Company  believes have
contributed  to  Brookdale's   facility  operating  margins.   The  Company  has
centralized  accounting  controls,  finance and other operating functions at its
corporate  headquarters  so  that,  consistent  with its  operating  philosophy,
facility-based  personnel can focus on resident  care and efficient  operations.
Headquarters staff in Chicago, Illinois are responsible for the establishment of
Company-wide  policies and procedures relating to, among other things,  resident
care,  facility  design  and  facility  operations;  billings  and  collections;
accounts  payable;  finance and  accounting;  development  of employee  training
materials  and  programs;  marketing  activities;  the  hiring and  training  of
management and other facility-based personnel;  compliance with applicable local
and  state  regulatory   requirements;   and  implementation  of  the  Company's
acquisition, development and leasing plans.

   Facility Staffing and Training

     Each  facility has an Executive  Director  responsible  for the  day-to-day
operations  of the  facility,  including  quality of care,  social  services and
financial  performance.  Each Executive Director receives  specialized  training
from  the  Company.  In  addition,   a  portion  of  each  Executive  Director's
compensation  is directly tied to the operating  performance of the facility and
to the  maintenance  of high  occupancy  levels.  The Company  believes that the
quality and size of its facilities,  coupled with its  competitive  compensation
philosophy,   have   enabled   it   to   attract   high-quality,    professional
administrators.  Each  Executive  Director is supported  by a Resident  Services
Director who is directly  responsible for day-to-day care of the residents and a
Marketing Director who oversees the facility's  marketing and community outreach
programs.  Other  key  positions  at each  facility  include  the  Food  Service
Director,  the Activities Director,  the Housekeeping  Director, the Engineering
Director and the Business Manager.

     The Company  believes that quality of care and operating  efficiency can be
maximized by direct resident and staff contact.  Employees  involved in resident
care,  including the  administrative  staff, are trained in the support and care
needs of the  residents  and  emergency  response  techniques.  The  Company has
adopted formal  training and  evaluation  procedures to help ensure quality care
for its residents.  The Company has extensive  policy and procedure  manuals for
each department and holds frequent training sessions for management and staff at
each site.

   Quality Assurance

     The Company maintains quality assurance  programs at each of its facilities
through its  corporate  headquarters  staff.  The  Company's  quality  assurance
program is  designed  to achieve a high  degree of  resident  and family  member
satisfaction with the care and services  provided by the Company.  The Company's
quality  control  measures  include,  among other things,  facility  inspections
conducted  by corporate  staff on at least a monthly  basis.  These  inspections
cover the appearance of the exterior and grounds; the appearance and cleanliness
of the interior;  the professionalism  and friendliness of staff;  resident care
plans; the quality of activities and the dining program; observance of residents
in their daily living activities; and compliance with government regulations.

     The Company's quality control measures also include the survey of residents
and  family  members  on a regular  basis to monitor  the  quality  of  services
provided to residents.  The survey process  begins with a visitor's  survey sent
one week following a potential  resident's  visit to a facility to ascertain his
or her opinions and initial  impressions.  Detailed  annual written  surveys and
exit  surveys are used to appraise  and  monitor  the level of  satisfaction  of
residents and their families with facility operations and services.

     In order to foster a sense of community as well as to respond to residents'
desires,  the Company has  established at each facility a resident  council,  an
advisory  committee  elected  by the  residents,  that  meets  monthly  with the
Executive Director of the facility.  Separate resident  committees also exist or
are being  initiated for food service,  activities,  marketing and  hospitality.
These  committees  promote  resident  involvement  and  satisfaction  and enable
facility management to be more responsive to the residents' needs and desires.

   Marketing and Sales

     The  Company's  marketing  strategy is intended to create  awareness of the
Company,  its facilities and its services  among  potential  residents and their
family members and among referral sources,  such as hospital discharge planners,
physicians,  clergy, area agencies for the elderly,  skilled nursing facilities,
home health  agencies and social workers.  Brookdale's  marketing staff develops
overall  strategies  for  promoting the  Company's  properties  and monitors the
success of the  Company's  marketing  efforts.  Each  facility has a Director of

                                      -4-
<PAGE>

Marketing  who  oversees the  facility's  marketing  and  outreach  programs and
supervises the on-site marketing staff and move-in coordinators.  Besides direct
contacts with  prospective  referral  sources,  the Company also relies on print
advertising,  yellow pages advertising, direct mail, signage and special events,
such  as  grand  openings  for  new  facilities,   health  fairs  and  community
receptions.  In addition,  resident  referral programs have been established and
are promoted at each facility.

   Hospital and Health Care Network Affiliations

     Another key element in the  Company's  operating  strategy is to  establish
affiliations  between  Brookdale's  facilities  and  hospitals  and health  care
networks.  Hospital  and health care  network  affiliations  provide for on-site
physician  and nursing  services  and  facilitate  the  provision of health care
services  and  wellness  programs  to the  Company's  residents  and provide the
Company with a referral source.  Such  affiliations  exist at various  Brookdale
facilities.  As examples,  The Hallmark  (located in Chicago,  Illinois) and The
Heritage (located in Des Plaines, Illinois) facilities are affiliated with Saint
Joseph  Health  Centers and  Hospital  and Holy Family  Hospital,  respectively,
pursuant  to  agreements   with  the   respective   hospitals.   The  agreements
establishing  the  affiliations  typically  grant the  hospital  or health  care
network the right to lease space at a Brookdale  facility  and provide  that the
hospital or health care  network will  maintain  centers in the facility to make
services  available to facility  residents.  The hospital or health care network
pays rent for its leased space and is  compensated  for making the services they
render  available at the  facility.  The annual  amounts paid by the hospital or
health care network  approximate  the annual  amounts  paid to such  hospital or
health  care  network.  The  Company  intends  to  establish  affiliations  with
hospitals  and health care networks if the Company  believes  such  affiliations
would be  beneficial  to the  residents  of the facility and if the facility can
accommodate such affiliations.

Acquisitions, Leases and Development

     The  Company  evaluates  markets  for  acquisition,  lease and  development
opportunities   based  on  demographics   and  market  studies.   The  Company's
acquisition,  lease and development  strategy  focuses on the urban and suburban
areas of major metropolitan markets.

   Acquisitions and Leases

     The Company  currently  expects to purchase or lease 4 to 6 facilities  per
year containing an aggregate of approximately 800 to 1,200 units. In some cases,
the  purchase  contract  for a facility  may be  assigned to a third party which
would  acquire the  facility  and in turn enter into an  operating  lease with a
wholly-owned   subsidiary  of  the  Company,   with  the  subsidiary   obtaining
substantially  all of the benefits and risks of ownership.  The Company utilizes
an  operating  lease  structure  for its  acquisitions  in order to minimize its
overall cost of capital.

     The Company may acquire facilities as a means of entry into new markets and
may also  attempt to  increase  its market  share in  existing  markets  through
selected  acquisitions  based on its  experience  in and  knowledge  of existing
markets. Acquisitions are expected to consist primarily of large facilities that
are similar to the Company's current facilities, which average approximately 217
units  per  facility.  In  reviewing  acquisition  opportunities,   the  Company
considers, among other things, underlying demographics, facility location within
its  neighborhood  or community,  the current  reputation of the facility in the
marketplace  and the ability of the  Company to improve or enhance a  facility's
available services and amenities. Further, the Company evaluates the opportunity
to improve or enhance services and operating results through the  implementation
of the Company's standard operating procedures.

   Development

     It is the Company's  development  strategy to commence the  development and
construction of 2 to 3 facilities per year on behalf of third party owners.  The
Company's flexible prototype facility contains  approximately 220 units, but can
be constructed to accommodate between 150 to 250 units. The size of a particular
facility will depend on site size, zoning and underlying market characteristics.
The Company's 220-unit prototype contains approximately 220,000 square feet in a
four-story  building and contains a mix of studio,  one-bedroom  and two-bedroom
units. In addition to the living units, the Company's  prototype contains common
areas for residents,  including a living room, library, lounges, billiards room,
multi-purpose  room,  arts and crafts room,  exercise room,  convenience  store,
beauty/barber  shop, mail room,  common dining room and private dining room. The
Company  anticipates  that new  developments  will  require 8 to 10  months  for
pre-construction development, 12 to 14 months for construction and approximately
12 months after opening to achieve stabilized occupancy.  The total construction
costs for the 220-unit prototype,  including construction period financing costs
and  operating  deficits  during  the  lease-up  period,  are  estimated  to  be
approximately $35.0 million, or approximately $159,000 per unit.

     The Company  evaluates markets in which to develop its prototype based on a
number of factors,  including  demographic  profiles of both potential residents
and their adult children,  existing competitors and the foreseeable level of new
entrants in the  market,  estimated  market  demand and zoning  prospects.  Site
selection is based on established  criteria relating to land cost and condition,
visibility,  accessibility,  immediate  adjacencies,  community  perception  and
zoning prospects.  Full market feasibility studies, which include evaluations of
all potential competitors, extensive interviews with key municipal officials and
health care providers, and demographic studies are conducted for each site.


                                      -5-
<PAGE>


     The table set forth below  summarizes  certain  information  related to the
Company's operating lease transactions and developments during 1998:
 
<TABLE>
<CAPTION>

                                            Operating Leases
                                            ----------------
         Property                  Location                           Units         Date Acquired
         --------                  --------                           -----         -------------
         <S>                       <C>                                  <C>         <C>    
         Harbor Village            Chicago, Illinois                    276         March 6, 1998
         The Atrium                San Jose, California                 292         May 12, 1998
         The Chatfield             West Hartford, Connecticut           120         July 2, 1998
         The Ponce de Leon         Santa Fe, New Mexico                 144         October 21, 1998
         Woodside Terrace          Redwood City, California             270         December 22, 1998
                                                                      -----
                                        Total Units                   1,102
                                                                      =====
</TABLE>

     On January 19, 1999,  the Company  entered into an operating  lease for The
River  Bay  Club,  a  285-unit  senior  living   facility   located  in  Quincy,
Massachusetts.

<TABLE>
<CAPTION>

                                         Third Party Developments
                                         ------------------------ 
                                                                                      Projected
         Development                    Location                      Units         Completion Date
         -----------                    --------                      -----         ---------------
         <S>                            <C>                             <C>         <C> 
         The Heritage at Austin         Austin, Texas                   209         June, 1999
         The Heritage at Southfield     Southfield, Michigan            219         June, 1999
         The Meadows of Glen Ellyn      Glen Ellyn, Illinois            233         January, 2000
         The Heritage at Raleigh        Raleigh, North Carolina         219         May, 2000
         The Hallmark at Battery Park   New York, New York              218         June, 2000
         The Heritage at Mt. Lebanon    Pittsburgh, Pennsylvania        233         February, 2001
                                                                      -----
                                            Total Units               1,331
                                                                      =====
</TABLE>

Competition

     The senior independent and assisted living industry is highly  competitive,
and the Company expects that it will become more competitive in the future.  The
Company will  continue to face  competition  from numerous  local,  regional and
national  providers of senior  independent  and assisted  living  services.  The
Company will compete with such providers primarily on the basis of cost, quality
of care and the array of services  provided.  The Company will also compete with
companies providing home based health care based on those factors as well as the
reputation, geographic location and physical appearance of facilities and family
preferences. Some of the Company's competitors operate on a not-for-profit basis
or as  charitable  organizations  or  have,  or may  obtain,  greater  financial
resources than those of the Company.

     Moreover,  in the  implementation  of the  Company's  business  and  growth
strategy,  the  Company  expects to face  competition  for the  acquisition  and
development of senior independent and assisted living facilities.  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.

Governmental Regulation

     Senior  independent and assisted  living  facilities are subject to varying
degrees of federal,  state and local regulation and licensing by local and state
health and social  service  agencies  and other  regulatory  authorities.  While
regulations and licensing  requirements  often vary  significantly from state to
state, they typically address, among other things, personnel education, training
and records;  facility services;  physical plant  specifications;  furnishing of
resident units; food and housekeeping services;  emergency evacuation plans; and
resident rights and  responsibilities.  In many states,  senior  independent and
assisted  living  facilities  also are subject to state or local building codes,
fire codes and food service  licensing or certification  requirements.  Assisted
living   facilities  may  be  subject  to  periodic   survey  or  inspection  by
governmental  authorities.  To date,  state  regulation  has not had a  material
adverse  effect on the  Company's  ability  to offer  services  or  conduct  its
business. In certain states where the Company operates and where the Company may
operate in the  future,  the  Company  may be unable to provide  certain  higher
levels of assisted living services without  obtaining the appropriate  licenses.
The  Company's  success  will  depend in part on its  ability  to  satisfy  such
regulations and requirements and to acquire and maintain required licenses.  The
Company's  operations  could also be adversely  affected by, among other things,
regulatory  developments  such  as  revisions  in  licensing  and  certification
standards.

     Some states have adopted  certificate of need or similar laws applicable to
assisted  living  and  nursing  facilities  which  generally  require  that  the
appropriate  state agency approve certain  acquisitions or capital  expenditures
and determine whether a need exists for certain new unit or bed additions or new
services.  Certain states have placed a moratorium on granting  certificates  of
need or otherwise  stated  their  intent not to grant  approval for such capital
expenditures.  To the extent certificates of need or other similar approvals are
required for expansion of Company operations,  such expansion could be adversely
affected  by the  failure or  inability  to obtain the  necessary  approvals  or
possible delays in obtaining such approvals.


                                      -6-
<PAGE>
     Although  the Company  currently  does not  participate  in the Medicare or
Medicaid  programs,  the hospitals and other health care providers with which it
has  affiliations  do  participate  in  those  programs,  and  the  Company  may
participate  in the  Medicare  program at the  skilled  nursing  facility  to be
constructed at The Devonshire facility.  As of December 31, 1998, the Company is
paid for services it provides to 12 residents in the state of  Washington by the
Department of Social and Health Services. Some portion of such funds are derived
by such agency from the federal  Medicaid  program.  Also,  all of the Company's
residents are eligible for Medicare benefits.  Therefore, certain aspects of the
Company's  business  are and will be  subject  to  federal  and  state  laws and
regulations  which govern  financial  and other  arrangements  between and among
health care providers, suppliers and vendors. These laws prohibit certain direct
and  indirect  payments  and  fee-splitting  arrangements  designed to induce or
encourage  the referral of patients to, or the  recommendation  of, a particular
provider or other entity or person for medical products and services. These laws
include,  but  are  not  limited  to,  the  federal  "anti-kickback  law"  which
prohibits,  among other things, the offer,  payment,  solicitation or receipt of
any form of  remuneration  in return for the  referral of Medicare  and Medicaid
patients.  The Office of the Inspector  General of the  Department of Health and
Human Services,  the Department of Justice and other federal agencies  interpret
these  statutes  liberally  and enforce  them  aggressively.  Congress and state
legislatures  have  proposed  legislation  that would  significantly  expand the
government's involvement in curtailing fraud and abuse and increase the monetary
penalties for violation of these provisions.  Violation of these laws can result
in, among other  things,  loss of  licensing,  civil and criminal  penalties for
individuals  and  entities and  exclusion of health care  providers or suppliers
from participation in the Medicare and/or Medicaid programs.

     In addition, although the Company is not a Medicare or Medicaid provider or
supplier, it is subject to these laws because (i) the state laws typically apply
regardless  of whether  Medicare or  Medicaid  payments  are at issue,  (ii) the
Company plans to build and operate a skilled nursing  facility at its Devonshire
facility and may establish  licensed home health  agencies which are intended to
participate  in the  Medicare  program  and (iii) as  required  under some state
licensing laws, or for the  convenience of its residents,  some of the Company's
senior  independent and assisted living  facilities  maintain  affiliations with
hospitals and other health care  providers,  including  pharmacies,  home health
agencies and hospices, through which the health care providers make their health
care items or services  (some of which may be covered by  Medicare or  Medicaid)
available to facility  residents.  There can be no assurance that such laws will
be interpreted in a manner consistent with the practices of the Company.

     Under the Americans  with  Disabilities  Act of 1990,  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  facilities  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.

     The  Company and its  activities  are subject to zoning and other state and
local government regulations. Zoning variances or use permits are often required
for construction.  Severely restrictive  regulations could impair the ability of
the Company to open additional  facilities at desired  locations or could result
in delays,  which  could  adversely  affect the  Company's  business  and growth
strategy and results of operations.

Environmental Matters

     Under various federal,  state and local laws and  regulations,  an owner of
real  estate is liable  for the  costs of  removal  or  remediation  of  certain
hazardous  substances on its property.  Such laws often impose liability without
regard to whether the owner knew of, or was responsible for, the presence of the
hazardous  substances.  The costs of remediation or removal may be  substantial,
and the  presence  of the  hazardous  substances,  or the  failure  to  promptly
remediate them, may adversely affect the owner's ability to sell the real estate
or to  borrow  using the real  estate  as  collateral.  In  connection  with its
ownership and operation of its facilities, the Company may be potentially liable
for the costs of removal or remediation of hazardous substances.

     The Company has no  knowledge,  nor has the  Company  been  notified by any
governmental  authority,  of any  material  noncompliance,  liability  or  claim
relating to hazardous  substances in connection with any properties in which any
of such entities now has or heretofore had an interest.  However,  no assurances
can be given that (i) future laws, ordinances or regulations will not impose any
material environmental  liability or (ii) the current environmental condition of
its  facilities  will not be affected by the condition of the  properties in the
vicinity of its facilities  (such as the presence of underground  storage tanks)
or by third parties unrelated to the Company.

Employees

     As of December 31, 1998, the Company had approximately 1,700 employees,  of
which 78 were  employed at the  Company's  headquarters.  The  Company  believes
employee relations are good.

Insurance

     The provision of personal and health care services entails an inherent risk
of liability.  Compared to more institutional long-term care facilities,  senior
independent and assisted living  residences  offer residents a greater degree of
independence  in their  daily  lives.  This  


                                      -7-
<PAGE>

increased  level of  independence,  however,  may subject the  resident  and the
Company  to  certain  risks  that  would be  reduced  in more  institutionalized
settings.  The Company currently maintains liability insurance intended to cover
such claims,  in addition to fire,  flood, and property  insurance.  The Company
believes its  insurance  coverage is adequate  based on the nature of the risks,
its historical experience and industry standards.

Executive Officers

     The following table sets forth certain  information  concerning each of the
Company's executive officers:

<TABLE>
<CAPTION>

Name                          Age     Position with the Company
----                          ---     -------------------------
<S>                           <C>     <C>                               
Michael W. Reschke .........  43      Chairman of the Board, Director
Mark J. Schulte ............  45      President and Chief Executive Officer, Director
Darryl W. Copeland, Jr. ....  39      Executive Vice President and Chief Financial Officer, Director
Robert J. Rudnik ...........  44      Executive Vice President, General Counsel and Secretary
R. Stanley Young ...........  46      Senior Vice President - Finance and Treasurer
David J. Schaus ............  43      Senior Vice President - Human Services
Matthew F. Whitlock ........  34      Vice President - Acquisitions
Stephan T. Beck ............  43      Vice President - Operations
Sheryl A. Wolf .............  36      Controller

</TABLE>

     Michael W. Reschke has served as Chairman of the Board and as a Director of
the Company  since May 1997.  Mr.  Reschke  founded PGI in 1981 and,  since that
time, has served as PGI's Chairman,  Chief Executive Officer and President.  For
the last 18 years,  Mr.  Reschke  has  directed  and  managed  the  development,
finance, construction,  leasing, marketing, acquisition, renovation and property
management  activities  of PGI. Mr.  Reschke is also Chairman of the Board and a
Director  of Prime  Retail,  Inc.  (NYSE:PRT),  a publicly  traded  real  estate
investment  trust  involved  in  the  ownership,  acquisition,  development  and
management of factory outlet centers and the successor in interest to the former
retail  division  of PGI,  and is  Chairman of the Board and a Director of Prime
Group Realty Trust  (NYSE:PGE),  a publicly traded real estate  investment trust
involved in the ownership, acquisition, development and management of office and
industrial  buildings  and the  successor  in interest to the former  office and
industrial  divisions  of PGI.  Mr.  Reschke  is also a member  of the  Board of
Directors of Horizon Group  Properties,  Inc.  (NASDAQ:HPGI),  a publicly traded
real  estate   investment   trust  involved  in  the   ownership,   acquisition,
redevelopment and management of factory outlet centers.  Mr. Reschke is licensed
to practice law in the State of Illinois and is a certified  public  accountant.
Mr. Reschke is a member of the Chairman's Roundtable and the Executive Committee
of the  National  Realty  Committee,  as well as a full member of the Urban Land
Institute. Mr. Reschke also serves on the Board of Visitors of the University of
Illinois Law School.

     Mark J. Schulte has served as President and Chief  Executive  Officer and a
director of the  Company  since May 1997.  From  January  1991 to May 1997,  Mr.
Schulte  was  employed  by PGI in its Senior  Housing  Division,  most  recently
serving as Executive Vice President,  with primary responsibility for overseeing
all aspects of PGI's Senior Housing Division.  Prior to joining PGI, Mr. Schulte
had 13 years of experience  in the  development  and  operation of  multi-family
housing,  senior housing, senior independent and assisted living and health care
facilities.  Mr.  Schulte is licensed to practice  law in the State of New York.
Mr. Schulte serves on the Executive  Committee of the American  Seniors  Housing
Association.

     Darryl W.  Copeland,  Jr.  has served as  Executive  Vice  President  and a
director of the Company since May 1997 and as the Chief Financial  Officer since
May,  1998.  From August 1989 to February  1997,  Mr.  Copeland  was employed by
Donaldson,  Lufkin & Jenrette  Securities  Corporation as an investment  banker,
most recently  serving as Senior Vice President in the Health Care and Leveraged
Finance groups.

     Robert J. Rudnik has served as Executive Vice  President,  General  Counsel
and  Secretary  of the  Company  since  July 1997.  Mr.  Rudnik  also  serves as
Executive Vice  President,  General Counsel and Secretary of PGI. Mr. Rudnik has
served in such  capacity for PGI since 1984.  Mr. Rudnik is licensed to practice
law in the State of Illinois and is a member of the bar in the State of Florida.

     R. Stanley Young has served as Senior Vice  President-Finance and Treasurer
of the Company  since  August 1998.  From 1977 to 1998,  Mr. Young was with KPMG
Peat Marwick LLP, and was admitted to the  partnership  in 1987.  Mr. Young is a
certified public accountant.

     David J. Schaus has served as Senior Vice  President-Human  Services of the
Company  since August 1998.  From January 1997 to August 1998,  Mr. Schaus was a
principal in the firm of Workplace Dynamics,  Inc., a human resources consulting
firm,  and from August 1989 to January  1997,  Mr.  Schaus served as Senior Vice
President  and  Managing  Director  of  Dain  Rauscher,   a  financial  services
broker-dealer.  Prior to joining Brookdale,  Mr. Schaus had over twenty years of
management experience.

     Matthew F.  Whitlock  has served as Vice  President -  Acquisitions  of the
Company since May 1997.  From August 1996 to May 1997, Mr. Whitlock was employed
by PGI in its Senior  Housing  Division as Director  of  Acquisitions.  Prior to
joining PGI, Mr. Whitlock was employed by the Forum Group, previously one of the
largest  operators of senior and assisted living  facilities,  as an acquisition
specialist  from August 1995 to July 1996.  Mr.  Whitlock  was a principal  with
Concordia Group, a senior and assisted living consulting firm, from June 1991 to
July 1995.


                                      -8-
<PAGE>

     Stephan T. Beck has served as Vice  President -  Operations  of the Company
since May 1997.  From  January  1993 to May 1997,  Mr. Beck was employed by PGI,
most recently serving as Corporate  Director of Operations of its Senior Housing
Division.  Prior to joining PGI,  Mr. Beck was employed by Classic  Residence by
Hyatt as Executive Director of The Hallmark facility,  which was then managed by
Classic Residence by Hyatt, from August 1990 to December 1992.

     Sheryl A. Wolf has served as Controller of the Company since May 1997. From
September 1991 to May 1997, Ms. Wolf was employed by PGI, most recently  serving
as Corporate Director of Finance of its Senior Housing Division.

ITEM 2.   PROPERTIES.

Facilities

     The following table sets forth certain information  regarding the Company's
facilities:

<TABLE>
<CAPTION>

                                                                           Year      Occupancy Rate at    Ownership
Facility                                       Location            Units  Opened      December 31, (1)  Status(2)(3)
--------                                       --------            -----  ------     -----------------  ------------
                                                                                     1998     1997
                                                                                     ----     ----
<S>                                         <C>                     <C>     <C>       <C>     <C>         <C>      
The Hallmark............................    Chicago, IL             341     1990      99%     100%        Leased
The Devonshire (4)......................    Lisle, IL               321     1990     100%     100%        Owned
The Classic at West Palm Beach..........    West Palm Beach, FL     301     1990      95%      92%        Leased
The Heritage............................    Des Plaines, IL         254     1993      98%     100%        Owned
The Park Place..........................    Spokane, WA             208     1992      95%      88%        Leased
Edina Park Plaza........................    Edina, MN               208     1987      94%      96%        Owned
The Island on Lake Travis...............    Lago Vista, TX          207     1988      90%      91%        Managed
Hawthorn Lakes (4)......................    Vernon Hills, IL        202     1987      98%     100%        Owned
The Springs of East Mesa................    Mesa, AZ                185     1986      95%     100%        Leased
The Gables at Farmington................    Farmington, CT          172     1984      94%      99%        Leased
The Kenwood.............................    Minneapolis, MN         154     1987     100%     100%        Managed
The Brendenwood Retirement Community....    Voorhees, NJ            145     1987      92%      88%        Leased
The Gables at Brighton..................    Brighton, NY            103     1988      78%      95%        Leased
                                                                 ------
  Total Units as of December 31, 1997 ..                          2,801
                                                                 ------

Harbor Village (5)......................    Chicago, IL             276     1954      82%      78%        Leased
The Atrium..............................    San Jose, CA            292     1987     100%     N/A         Leased
The Chatfield...........................    West Hartford, CT       120     1989      91%     N/A         Leased
The Ponce de Leon.......................    Santa Fe, NM            144     1985      97%     N/A         Leased
Woodside Terrace........................    Redwood City, CA        270     1988      96%     N/A         Leased
                                                                 ------
  Total Units as of December 31, 1998 ..                          3,903
                                                                 ======

The River Bay Club......................    Quincy, MA              285     1986      (6)       N/A       Leased
------------------

(1) Occupancy rate is calculated by dividing total occupied units by total units
    operated as of such date.
(2) All facilities indicated as "Owned" are 100% owned by Brookdale.
(3) The  operating  lease  terms vary from 1 to 5 years  (with 5 to 14  one-year
    extension options) to 23 years (with two 25-year extension options).
(4) Total units  exclude  the planned  82-bed  skilled  nursing  facility at The
    Devonshire facility and the 54-unit expansion at the Hawthorn Lakes facility
    currently under construction.
(5) This  facility was operated as an apartment  building  until 1991,  at which
    point the prior owner purchased, substantially renovated and began operating
    it as a senior independent and assisted living facility.
(6) This  facility  was 94% leased on January  19,  1999,  the date on which the
    Company began leasing this facility.

</TABLE>

    The following  table sets forth  certain  information  regarding  facilities
under development by the Company for third parties:

<TABLE>
<CAPTION>

                                                Estimated
         Location                                 Units              Status          Expected Opening
         --------                               --------             ------          ----------------
         <S>                                         <C>       <C>                      <C> 
         Austin, TX ..........................       209       Under Construction       June, 1999
         Southfield, MI ......................       219       Under Construction       June, 1999
         Glen Ellyn, IL ......................       233       Under Construction      January, 2000
         Raleigh, NC .........................       219       Under Construction        May, 2000
         New York (Battery Park City), NY ....       218       Under Construction      August, 2000
         Pittsburgh, PA ......................       233         In Development       February, 2001
                                                --------
             Total Estimated Units ...........     1,331
                                                ========

</TABLE>

                                      -9-
<PAGE>

Corporate Office Lease

     On September 25, 1997, the Company entered into a 5-year lease (the "Office
Lease"),  which commenced October 1, 1997, for its corporate office with 77 West
Wacker Limited  Partnership (the  "Landlord"),  a partnership which is currently
owned by Prime Group Realty  Trust,  an  affiliate  of PGI. The original  Office
Lease provided for the lease by the Company of approximately  13,500 square feet
of office  space on the 48th  floor,  with base rent of $18.50 per square  foot,
escalating  by $0.75 per square  foot at each  anniversary  of the  commencement
date. On October 2, 1997, in consideration  for the signing of the Office Lease,
the  Company  received a $404,000  cash  payment  from the  Landlord  for tenant
improvements which are amortized over the term of the Office Lease.

     On March 17, 1998,  the Company and the Landlord  amended the Office Lease,
pursuant  to which the  Company  and the  Landlord  agreed (i) to  relocate  the
Company's corporate office from the 48th floor to the 44th floor effective April
24,  1998,  (ii) to increase  the space  leased by the Company to  approximately
22,600  square feet and (iii) to extend the term of the Office Lease until April
30, 2005.  The base rent under the amended  Office Lease  continues to be $18.50
per square  foot,  escalating  $0.75 per  square  foot on each May 1 of the term
commencing  May 1, 1999.  In  consideration  for  executing the amendment of the
Office Lease,  which required the Company to relocate to another floor and lease
additional space, the Company received a $452,000 cash payment from the Landlord
for tenant  improvements which are amortized over the term of the amended Office
Lease.

    The Company's  corporate  office is located at 77 West Wacker  Drive,  Suite
4400, Chicago, Illinois 60601.

ITEM 3.   LEGAL PROCEEDINGS.

     The  Company is  involved  in various  lawsuits  and claims  arising in the
normal course of business. In the opinion of management of the Company, although
the  outcomes of these suits and claims are  uncertain,  in the  aggregate  they
should not have a material adverse effect on the Company's  business,  financial
condition and results of operations.

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

    No matters were submitted to a vote of the Company's security holders during
the quarter ended December 31, 1998.


                                     PART II

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

Price Range of Common Stock

     The  Company's  common  stock is listed and  traded on the Nasdaq  National
Market  ("Nasdaq")  under the symbol "BLCI." The following  table sets forth the
high and low closing prices for the common stock, as reported by Nasdaq, for the
periods indicated:

<TABLE>
<CAPTION>

                                                              1998                      1997 
                                                             ------                    ------
                                                         High      Low             High       Low
             <S>                                       <C>       <C>             <C>       <C>     
             First Quarter.....................        $ 25.25   $ 16.50         $    --   $    --
             Second Quarter (1)................          29.25     22.63           12.13     11.50
             Third Quarter.....................          25.63     17.44           19.00     11.88
             Fourth Quarter....................          21.59     13.25           20.63     16.50
------------------
(1) The common stock commenced trading on May 2, 1997.

</TABLE>

     On March 25, 1999,  the closing price for the common stock,  as reported by
Nasdaq was $14.94 per share.  At such date,  the Company had  approximately  860
holders of record of common stock.

Dividend Policy

     The Company has never  declared  or paid any cash  dividends  on its common
stock and  currently  plans to retain  future  earnings,  if any, to finance the
growth of the Company's business rather than to pay cash dividends.  Payments of
any cash dividends in the future will depend on the financial condition, results
of operations,  terms of debt covenants and capital  requirements of the Company
as well as  other  factors  deemed  to be  relevant  by the  Company's  Board of
Directors.

ITEM 6.   SELECTED FINANCIAL DATA.

     The following table presents selected  financial and operating data for the
Company.  The selected  financial  data as of December 31, 1998 and 1997 and for
the years ended  December  31,  1998,  1997 and 1996 have been  derived from the
consolidated  financial  statements  of the  Company  and the  audited  combined
financial statements of The Heritage, The Hallmark,  The Devonshire,  The Gables
of  Brighton,  and  The  Springs  of  East  Mesa  facilities  (the  "Predecessor
Properties")  included elsewhere in this Annual Report on Form 10-K which should
be read in conjunction  with those financial  statements and notes thereto.  The
selected financial data as of December 31, 1996, 1995 and 1994 and for the years
ended  December 31, 1995 and 1994 have been derived from the combined  financial
statements of the  Predecessor  


                                      -10-
<PAGE>

Properties  not included in this Annual Report on Form 10-K which should be read
in conjunction  with those financial  statements and notes thereto.  The Company
initiated  operations on May 7, 1997 in connection with the  consummation of the
IPO.

<TABLE>
<CAPTION>

                                                         Predecessor Properties 
                                               -------------------------------------------   
                                                 Years Ended December 31,                        Brookdale Living Communities, Inc.
                                                 ------------------------                       ----------------------------------
                                                                             January 1, to         May 7, to          Year Ended
                                                1994(1)  1995(1)  1996(1)    May 6, 1997(2)  December 31, 1997(2)  December 31, 1998
                                               -------   -------   -------   -------------    -----------------    -----------------
                                                              (in thousands, except per share and operating data)
<S>                                           <C>       <C>       <C>           <C>                   <C>                 <C>   
Statement of Operations Data:
  Revenues .................................. $ 15,122  $ 21,848  $ 23,221      $ 10,473              $ 30,237            $ 77,701
  Facility operating expenses(3) ............  (11,270)  (13,253)  (12,805)       (6,102)              (15,892)            (39,935)
  Lease expense .............................       --        --        --        (3,042)               (6,942)            (17,876)
  General and administrative expenses(3) ....       --        --        --            --                (2,187)             (4,878)
  Depreciation and amortization .............   (4,029)   (4,598)   (3,527)         (857)               (2,967)             (4,853)
                                               --------  --------  --------      --------              --------            --------
  Operating (loss) income ...................     (177)    3,997     6,889           472                 2,249              10,159
  Interest (expense) income, net ............   (3,227)   (5,421)   (4,524)         (762)               (2,326)                122
                                               --------  --------  --------      --------              --------            --------
  (Loss) income before minority interest,
    (provision)/benefit for income taxes
    and extraordinary item ..................   (3,404)   (1,424)    2,365          (290)                  (77)             10,281
  Loss (income) allocated to minority
     interest ...............................    1,178       802      (756)         (138)                   --                  --
                                               --------  --------  --------      --------              --------            --------
   (Loss) income before (provision)/benefit
     benefit for income taxes and
     extraordinary item .....................   (2,226)     (622)    1,609          (428)                  (77)             10,281
   (Provision)/benefit for income taxes .....       --        --        --          (236)                  558              (3,627)
   Extraordinary item (net of deferred tax
     benefit for income taxes of $24 for 1997)      --     3,274        --            --                   (36)                 --
                                               --------  --------  --------      --------              --------            --------
   Net (loss) income ........................ $ (2,226) $  2,652  $  1,609      $   (664)             $    445            $  6,654
                                               ========  ========  ========      ========              ========            ========

   Basic earnings per common share ..........       --        --        --            --              $   0.06            $    0.68
   Diluted earnings per common share ........       --        --        --            --              $   0.06            $    0.67
   Basic weighted average shares 
     outstanding ............................       --        --        --            --                 7,208                9,751
   Diluted weighted average shares
     outstanding ............................       --        --        --            --                 7,351                9,978
Selected Operating and Other Data:
   Number of facilities (at end of period)           3         3         5            (9)                   13                   18
   Total units operated (4) .................      916       916     1,204            (9)                2,801                3,903
   Occupancy rate (4)(6) ....................     95.6%     98.1%     99.7%           (9)                 96.4%                94.8%
   Average monthly revenue per unit (5)(6)     $ 1,732  $  2,015  $  2,050            (9)             $  1,965            $   2,046
Balance Sheet Data:
   Cash and cash equivalents ................  $ 4,127  $  5,086  $  4,230      $  1,915              $ 13,292            $   1,065
   Cash and investments-restricted (7) ......    2,047     1,733     1,089         2,269                 5,920                8,226
   Investment certificates - restricted .....       --        --        --            --                    --               15,951
   Letter of credit deposit (7) .............       --        --        --            --                12,138               13,919
   Lease security deposits (8) ..............       --        --        --            --                18,542               55,453
   Total assets .............................  102,579   100,325    57,836        55,982               183,169              244,633
   Total long-term debt .....................  101,242    99,627    65,000        65,000                96,167               95,880
   Total stockholders' equity and
     predecessor capital (deficit) ..........    1,852     3,597   (25,427)      (28,685)               57,920              101,316


</TABLE>

(1)  The  historical  financial and operating  data for the years ended December
     31, 1994, 1995 and 1996 represent  combined  historical  financial data for
     the Predecessor Properties.

(2)  The financial and operating data for year ended December 31, 1997 represent
     combined historical financial data for the Predecessor Properties until May
     7, 1997 and, thereafter, the operations of the Company.

(3)  Prior to May 7, 1997, general and administrative expenses were allocated to
     the then existing  facilities;  however,  following  such date, the Company
     began reporting general and administrative expenses as a separate item.

(4)  Total units  operated  represents the total units operated as of the end of
     the period.  Occupancy  rate is calculated by dividing total occupied units
     by total units operated as of the end of the period.

(5)  Average  monthly  revenue  per unit  represents  the  average  of the total
     monthly  revenues  divided  by  occupied  units  at the  end of the  period
     averaged over the respective period presented and for the period of time in
     operation during the period.

(6)  For the year ended December 31, 1996, all the properties of the Predecessor
     Properties have been included in the occupancy rate.  However,  the average
     monthly revenue per unit excludes The Gables at Brighton and The Springs of
     East Mesa which were leased for less than a full month in 1996.


                                      -11-
<PAGE>

(7)  Cash and  investments-restricted  represents  segregated amounts to be used
     for the payment of real estate  taxes and other  operating  activities  and
     deposits in accordance with  governmental and debt agreement  requirements.
     Letter of credit deposit  represents  cash  collateral  securing the credit
     enhancement  issued to secure the $65.0  million of  tax-exempt  bonds with
     respect to The Heritage and The  Devonshire  facilities.  The Company earns
     interest  income  on both  cash and  investments-restricted  and  letter of
     credit  deposits amounts.  See  Note 3 to  the  Consolidated  and  Combined
     Financial Statements included elsewhere in this Annual Report on Form 10-K.

(8)  Lease  security  deposits   represents   investments   collateralizing  the
     Company's lease obligations.  

(9)  All  Selected  Operating  and Other Data for 1997 is as of and for the year
     ended December 31, 1997.

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

     As of  December  31, 1998 and 1997,  the Company  operated 18 and 13 senior
independent and assisted living facilities, respectively,  containing a total of
3,903 units and 2,801 units, respectively.  Four of such facilities are owned by
the  Company,  12 (seven at  December  31,  1997)  facilities  are leased by the
Company  and 2  facilities  (one of which is  owned by PGI) are  managed  by the
Company pursuant to management  contracts.  The Company's senior independent and
assisted living facilities offer residents a supportive,  "home-like" setting as
well as assistance  with  activities of daily living.  By providing  residents a
range of service  options as their needs  change,  the Company  seeks to achieve
greater  continuity of care,  enabling senior  independents to age-in-place  and
thereby maintain their residency for a longer time period.  The ability to allow
residents to  age-in-place  is beneficial to the Company's  residents as well as
their families who are burdened with care decisions for their elderly relatives.

     The Company  derives its revenue from resident fees,  development  fees and
management  fees.  Resident fees typically are paid monthly by residents,  their
families or other  responsible  parties.  As of December 31, 1998 and 1997, over
99% of the Company's  resident fee revenue was derived from private pay sources.
Development  fees are earned for  developing  senior  independent  and  assisted
living  facilities for third parties.  Management  services  income  consists of
management fees, which typically range from 3.0% to 5.0% of a managed facility's
total gross revenues. All such fees are recognized as revenues when services are
provided.

     The  Company   classifies   its  operating   expenses  into  the  following
categories:  (i)  facility  operating  expenses,  which  includes  labor,  food,
marketing and other direct facility expenses and real estate taxes; (ii) general
and administrative  expenses, which primarily include corporate headquarters and
other  overhead  costs;   (iii)  lease  payments;   and  (iv)  depreciation  and
amortization.

<TABLE>
<CAPTION>

Results of Operations
                                                             Year Ended      January 1 to    May 7 to     Year Ended
                                                            December 31,        May 6,     December 31,   December 31,
                                                            ------------     ------------  -----------    ------------
                                                                 1996             1997         1997           1998 
                                                            -----------      ------------  -----------    ------------

<S>                                                             <C>               <C>          <C>             <C>   
Total revenue .............................................     100.0  %          100.0 %      100.0 %         100.0 %
Facility operating expenses (1) ...........................     (55.1)            (58.3)       (52.6)          (51.4)
Lease expense .............................................        --             (29.0        (23.0)          (23.0)
General and administrative expenses (1) ...................        --                --         (7.2)           (6.3)
Depreciation and amortization .............................     (15.2)             (8.2)        (9.8)           (6.2)
                                                            -----------      ------------  -----------    ------------
Operating income ..........................................      29.7               4.5          7.4            13.1
Interest income (expense), net ............................     (19.5)             (7.3)        (7.7)            0.2
                                                            -----------      ------------  -----------    ------------
Income (loss) before minority interest, (provision)/benefit
   for income taxes and extraordinary item ................      10.2              (2.8)        (0.3)           13.3
Income allocated to minority interest .....................      (3.3)             (1.3)          --              --
                                                            -----------      ------------  -----------    ------------
Income (loss) before (provision)/benefit for income taxes
   and extraordinary item .................................       6.9              (4.1)        (0.3)           13.3
(Provision)/benefit for income taxes ......................        --              (2.2)         1.8            (4.7)
Extraordinary item (net of deferred tax benefit for income
   taxes of 0.1% for 1997) ................................        --                --         (0.1)             --
                                                            -----------      ------------  -----------    ------------
Net income (loss) .........................................       6.9 %            (6.3)%        1.4 %           8.6 %
                                                            ===========      ============  ===========    ============
Selected Operating and Other Data:
     Number of facilities (at end of period) (5) ..........         5                --           13              18
     Total units operated (2)(5) ..........................     1,204                --        2,801           3,903
     Occupancy rate (2)(5) ................................      99.7 %              --         96.4 %          95.3 %
     Average monthly revenue per unit (3)(4)(5) ...........    $2,050                --       $1,965          $2,046

</TABLE>

------------------
(1)  Prior to May 7, 1997, general and administrative expenses were allocated to
     the then existing facilities;  however, following May 7, 1997, the Company,
     which commenced  operations as of such date,  began  reporting  general and
     administrative expenses as a separate item.


                                      -12-
<PAGE>


(2)  Total units  operated  represents the total units operated as of the end of
     the period.  Occupancy  rate is calculated by dividing total occupied units
     by total units operated as of the end of the period.

(3)  Average  monthly  revenue  per unit  represents  the  average  of the total
     monthly  resident  fees divided by occupied  units at the end of the period
     averaged over the respective period presented and for the period of time in
     operation during the period.

(4)  For the year ended  December 31, 1996,  The  Hallmark,  The  Heritage,  The
     Devonshire,  The  Springs  of East  Mesa and The  Gables at  Brighton  (The
     Springs of East Mesa and Gables of Brighton  beginning  December  26, 1996)
     (the  "Predecessor  Properties")  have been included in the occupancy rate.
     However,  the  average  monthly  revenue  per unit  excludes  The Gables at
     Brighton  and The  Springs of East Mesa  which were  leased for less than a
     full month in 1996.

(5)  All  Selected  Operating  and  Other  Data is as of and for the year  ended
     December 31, 1997.

Comparison of Year Ended December 31, 1998 to Year Ended December 31, 1997

     For the year ended  December 31, 1997,  results  reflect  operations of the
Predecessor  Properties  facilities through May 7, 1997 and all of the Company's
facilities thereafter.

     Revenue.  Total  revenue  increased by $37.0  million,  or 90.9%,  to $77.7
million for the year ended  December  31,  1998 when  compared to the year ended
December 31, 1997. Of this increase,  $31.2 million was from increased  resident
fees, $5.7 million was from development fees earned from third parties,  and $.1
million was from management fees.

     Of the increased  resident fees,  $1.4 million (an increase of 4%) was from
the five "same store" properties operated for the full year 1998 and 1997, $20.0
million was from the six properties purchased or leased during 1997 and operated
for the full year 1998, and $9.8 million was from the five properties  leased in
1998.

     Operating Expenses. Total operating expenses increased by $29.6 million, or
77.8%,  to $67.5  million for the year ended  December 31, 1998 when compared to
the year ended December 31, 1997.  Facility  operating  expenses increased $18.2
million,  or 83.5%;  general and administrative  increased $2.7 million, or 123%
(there  was no general  and  administrative  expense  prior to the IPO on May 7,
1997);  lease  expense  increased  $7.9  million,   or  79%;   depreciation  and
amortization  increased $1.0 million, or 26.9%; and property management fees for
the Predecessor  Properties  decreased $.2 million,  or 100%, as a result of the
Predecessor Properties contracting for outside management.

     Of the increased  facility operating  expenses,  $0 was from the five "same
store"  properties  operated from the full year 1998 and 1997, $11.8 million was
from the six  facilities  purchased  or leased  during 1997 and operated for the
full year 1998, and $6.4 million was from the five facilities leased in 1998.

     The increased  lease expense was due to the four  facilities  leased during
1997 and operated  for the full year 1998,  and the five  additional  facilities
leased in 1998.

     General and administrative expenses increased $2.7 million, or 123%, due to
a full year of  operations  subsequent to the formation of the Company on May 7,
1997.  Increased general and  administrative  costs were partially offset by the
$.2 million decrease in property management fees for the Predecessor  Properties
prior to the formation of the Company on May 7, 1997.

     Depreciation and amortization  increased $1.0 million primarily due to full
year's  depreciation  of the  Hawthorn  Lakes and Edina  Park  Plaza  facilities
purchased on May 7, 1997, and depreciation of additional furniture, fixtures and
equipment at the Company's corporate office.

     Interest  income  increased  $3.5  million,  or 461.0%,  for the year ended
December  31, 1998 when  compared to December  31,  1997,  due  primarily to the
increase of restricted  deposits in connection with the leased facilities,  cash
investments  collateralizing  The Devonshire and The Heritage  letters of credit
and investment certificates acquired by the Company in 1998.

     Interest expense increased $.3 million for the year ended December 31, 1998
when  compared to December  31, 1997  primarily  due to the full year in 1998 of
mortgage  interest for the Hawthorn Lakes and Edina Park Plaza  facilities which
was  partially  offset by the lower  interest  rates on The  Devonshire  and The
Heritage facilities' variable rate tax-exempt bonds.

     Net Income. Net income of $6.7 million for the year ended December 31, 1998
increased  from the  combined  net loss of the  Predecessor  Properties  and the
Company for the year ended December 31, 1997 due to improved  operations for the
five "same store"  properties,  a full year's  operation of the seven facilities
purchased or leased in 1997 and the operation of five facilities leased in 1998.


                                      -13-
<PAGE>


Comparison of Year Ended December 31, 1997 to Year Ended December 31, 1996

     For the year ended  December 31, 1996,  results  reflect  operations of The
Hallmark,  The  Heritage  and The  Devonshire  facilities.  For the  year  ended
December 31, 1997,  results  reflect  operations of the  Predecessor  Properties
facilities through May 7, 1997 and all of the Company's facilities thereafter.

     Revenue.  Total  revenue  increased by $17.5  million,  or 75.3%,  to $40.7
million for the year ended  December  31,  1997 when  compared to the year ended
December 31, 1996. Of this increase,  approximately $1.6 million (or an increase
of 7.0%)  relates to increased  resident fees at the  properties  that have been
operated  during both  periods.  Approximately  $14.9  million of such  increase
relates  to revenue  from The  Springs  of East  Mesa,  The Gables at  Brighton,
Hawthorn  Lakes,  Edina  Park Plaza and The Park Place  facilities  acquired  or
leased in December 1996 or during 1997, and  approximately  $1.0 million of such
increase  relates to revenue from The Gables at Farmington,  The Classic at West
Palm  Beach  and The  Brendenwood  Retirement  Community  facilities  leased  in
November and December of 1997.

     Operating Expenses. Total operating expenses increased by $21.7 million, or
132.6%,  to $38.0 million for the year ended  December 31, 1997 when compared to
the year ended December 31, 1996.  Facility operating expenses increased by $9.9
million,  or 83.3%,  to $21.8  million  primarily  due to the  inclusion  of the
acquired or leased  facilities.  From the  commencement  of operations on May 7,
1997  through  December  31,  1997,  the  Company  managed its  facilities  and,
accordingly,  did not pay any property management fees, but incurred general and
administrative  expenses of approximately $2.2 million.  Lease expense increased
by $10.0 million due to the inclusion of The Springs of East Mesa, The Gables at
Brighton, The Hallmark, The Park Place, The Gables at Farmington, The Classic at
West Palm Beach and The Brendenwood Retirement Community facilities.

     Depreciation and amortization increased by approximately $297,000, or 8.4%,
to $3.8  million  for the  year  ended  December  31,  1997.  Of this  increase,
approximately  $182,000  relates to the depreciation of the step-up basis of The
Devonshire and The Heritage properties that resulted in connection with the IPO,
which totaled $130,000 and $52,000, respectively. The remainder of the increase,
or approximately $115,000, relates to the depreciation of the acquired or leased
facilities of $1.1 million offset by a decrease in  depreciation on The Hallmark
facility of $1.2 million due to the sale and  lease-back of this facility at the
end of 1996.

     Interest  expense  decreased by approximately  $890,000,  or 18.8%, to $3.9
million  for the year ended  December  31,  1997  primarily  due to the sale and
lease-back of The Hallmark  facility.  As a result of the sale and lease-back of
such  facility on December 27, 1996,  the facility was no longer  encumbered  by
debt.  This  decrease  was  slightly  offset  by the  assumption  of debt on the
Hawthorn Lakes and Edina Park Plaza  facilities in connection  with the purchase
of these  properties  during 1997.  Interest income  increased by  approximately
$546,000,  or 252.8%,  to $762,000 due to an increase in average cash  balances.
Property  management  fees decreased by  approximately  $700,000,  or 75.3%,  to
$230,000 due to the  elimination  of all  management fee expense with respect to
facilities owned or leased by the Company once the Company commenced  operations
on May 7, 1997.

     Net  Income.  For the year  ended  December  31,  1997,  net  income,  when
combining the Predecessor Properties and the Company, decreased by approximately
$1.8  million,  or 113.6%,  to a net loss of $219,000  when compared to the year
ended  December 31, 1996.  The net loss of $219,000 is composed of net income of
the Company of $445,000 for the period from May 7, 1997 to December 31, 1997 and
a net loss of the Predecessor Properties of $664,000 for the period from January
1, 1997 to May 6, 1997.  Net income for the year ended  December 31, 1997 (which
included the Predecessor Properties through May 7, 1997 and all of the Company's
facilities thereafter),  versus net income for the year ended December 31, 1996,
which included the Predecessor  Properties only, is not necessarily  comparable,
in the  opinion  of  management,  due to the  different  ownership  and  capital
structures for the respective years.

Liquidity and Capital Resources

     Since formation of the Company on May 7, 1997, the Company has financed its
growth  through  issuances of common  stock,  borrowings  under lines of credit,
entering into  operating  leases with third parties and cash  generated from the
operation of the facilities.

     Cash and cash equivalents  (which excludes cash and  investments-restricted
of $8.2  million,  letter  of  credit  deposits  of  $13.9  million,  investment
certificates  of $16.0 million,  and lease  security  deposits of $55.5 million)
decreased  by $12.2  million to $1.1  million at December  31, 1998  compared to
$13.3  million at December 31,  1997.  The  decrease  was  primarily  due to the
funding  of lease  security  deposits  in  connection  with the  leasing of five
facilities  in 1998,  earnest  money  deposits  for The River Bay Club  facility
leased in January,  1999,  development costs related to development  activities,
improvements at owned and leased facilities and general corporate purposes.

     Net cash provided by operating  activities  for the year ended December 31,
1998  increased to $10.3  million from $4.9 million for the year ended  December
31, 1997. The increase is primarily due to an additional five facilities  leased
in 1998, a full year's  operating  results for the six facilities  purchased and
leased  during  1997 and  improved  operating  results  for the five  facilities
operated for the full year 1998 and 1997.

     Net cash used in investing activities increased for the year ended December
31, 1998 to $66.8  million  from $61.8  million for the year ended  December 31,
1997 due to increased development activity for third parties which was partially
offset  by  the  decrease  in  cash  paid  for  lease   security   deposits  and
acquisitions.  In 1998,  the Company  leased five  facilities,  and in 1997, the
Company  leased four  facilities,  purchased  the Hawthorn  Lakes and Edina Park
Plaza  facilities and acquired a third party's  interest in The Heritage and The
Devonshire facilities.


                                      -14-
<PAGE>

     Net cash provided by financing  activities  for the year ended December 31,
1998  decreased to $44.3 million from $66.0 million for the year ended  December
31, 1997.  The decrease was  primarily  due to the decrease in proceeds from the
issuance of common stock from the follow-on offerings of $45.9 million offset by
increased  borrowings  under the line of credit of $11.0  million and  decreased
fundings in letter of credit  deposits of $10.4  million  related to  tax-exempt
bonds.

     In January,  1999 the Company  increased  its  unsecured  line of credit to
$25.0  million of which  approximately  $11.0  million was drawn at December 31,
1998.  The line of credit bears  interest at prime plus 1/2% per annum (8.25% at
December 31, 1998).  The Company  obtained an additional  line of credit of $5.0
million bearing interest at 12% per annum subsequent to December 31, 1998.

     As of  December  31,  1998 and  1997,  the  Company  had $65.0  million  of
long-term  indebtedness  in the form of  variable  rate  tax-exempt  bonds.  The
interest rates (exclusive of credit enhancement and other fees) on such debt was
4.1% and 3.8% at December 31, 1998 and 1997,  respectively (the average interest
rate was 3.5%,  3.7%, and 3.4% for the years ended  December 31, 1998,  1997 and
1996,  respectively).  Such  tax-exempt  bonds contain  covenants  requiring the
facilities to maintain a minimum number of units for income qualified residents.

     The Company  currently plans to acquire or lease 4 to 6 senior  independent
and assisted living facilities per year containing an aggregate of approximately
800 to 1,200 units,  and to commence  development  of 2 to 3 new  facilities per
year  containing  approximately  220 units.  The  Company  anticipates  that new
developments will require 8 to 10 months for pre-construction development, 12 to
14 months for construction and  approximately 12 months after opening to achieve
a stabilized  occupancy rate of approximately 95%. The total construction costs,
including  construction period financing costs and operating deficits during the
lease-up  period,  for the 220-unit  prototype are estimated to be approximately
$35.0  million,  or  approximately  $159,000 per unit.  At March 29,  1999,  the
Company  had 6  sites  under  development  for  third  parties  for  new  senior
independent and assisted living facilities,  5 of which were under construction.
The Company's estimated capital  expenditures related to sites under development
aggregate to approximately $10.8 million to $14.8 million.  Capital expenditures
related to the Company's existing facilities, including the 54-unit expansion at
the Hawthorn Lakes facility  currently under  construction,  are estimated to be
approximately $6.0 million to $7.0 million in 1999.

     The Company is  currently  negotiating  to increase  and extend its line of
credit. The Company has an effective "shelf" registration  statement pursuant to
which the Company may issue up to $200.0  million of equity or debt  securities.
In November  1998,  the Company  issued  $33.0  million of common  stock and may
consider  additional  financing  through the issuance of debt and/or equity.  In
order to achieve  its growth  plans,  the  Company  will be required to obtain a
substantial amount of additional financing.  The Company anticipates that it may
use a combination  of additional  equity  financing  and debt  financing,  lease
transactions  and cash generated  from  operations to fund its  acquisition  and
development activities. The Company presently has no commitment,  arrangement or
understanding  regarding  financing  to fund the debt  portion of the  Company's
acquisition and development plans other than the $100.0 million  commitment from
Capital  Corporation of America,  of which $51 million has been committed to the
Austin,  Texas and  Southfield,  Michigan  development  projects which are being
developed for third parties.  There can be no assurance that the Company will be
able to obtain the  financing  necessary  for its  acquisition  and  development
programs.

     The Company is dependent on third-party  financing for its  acquisition and
development  programs.  Some  financing  obtained  in the future is  expected to
contain  terms  and  conditions  and  representations  and  warranties  that are
customary  for  such  loans  and  may  contain  financing  covenants  and  other
restrictions  that (i) require the Company to meet certain  financial  tests and
maintain certain amounts of funds in escrow, (ii) limit, among other things, the
ability of the Company to borrow additional funds,  dispose of assets and engage
in mergers or other business  combinations and (iii) restrict the ability of the
Company to operate competing  facilities within certain distances from mortgaged
facilities.  There  can  be  no  assurance  that  financing  for  the  Company's
acquisition  and  development  program  will  be  available  to the  Company  on
acceptable  terms or at all. A lack of funds may require the Company to delay or
eliminate  all or some of its  development  projects and  acquisition  plans and
could therefore have a material adverse effect on the Company's growth plans and
its business plan, financial condition and results of operations.

     To date,  the Company's  ability to increase cash flow to meet rising costs
has not been  adversely  affected in any material way by existing,  or proposed,
rent control  ordinances.  Rent control  ordinances may not be applicable to the
Company's  facilities due to the services  provided for the monthly fees charged
to its  residents.  If the  Company's  facilities  were  subject to rent control
ordinances,  an imposed  limitation  on the  resident  fees that the Company may
charge at such facility  could impair the  Company's  ability to meet any rising
costs of operating the facility.

Impact of Inflation

     Resident fees from senior  independent and assisted living facilities owned
or leased by the  Company and  management  fees from  facilities  managed by the
Company for third parties are its primary sources of revenue. These revenues are
affected by monthly  resident fee rates and facility  occupancy rates. The rates
charged for senior independent and assisted living services are highly dependent
upon  local  market  conditions  and the  competitive  environment  in which the
facilities operate. Substantially all of the Company's resident agreements allow
for adjustments in the monthly fees payable  thereunder not less frequently than
every 13 months,  thereby enabling the Company to seek increases in monthly fees
due to inflation or other factors.  Any such increase would be subject to market
and  competitive  conditions  and could result in a decrease in occupancy at the
Company's  facilities.  The Company believes,  however,  that the ability of the
Company to  periodically  adjust the monthly fee generally  serves to reduce the
risk to the Company of the adverse  effect of inflation.  In addition,  employee
compensation  expense is a principal cost element of facility  operations and is
also  dependent  upon local market  conditions.  There can be no assurance  that
resident  fees will increase or that costs will not increase due to inflation or
other causes. In addition, as of December 31, 1998,  approximately $65.0 million
in principal  amount of the Company's  indebtedness  bore interest at tax-exempt
floating  rates  and  future  indebtedness  may  bear  floating  rate  interest.
Inflation, and its impact on floating interest rates, could affect the amount of
interest payments due on such indebtedness.


                                      -15-
<PAGE>


Readiness for Year 2000

     The Company has implemented a program to assess, remediate and mitigate the
potential  impact of the Year 2000 Issue  throughout the Company.  The Company's
program  has been  structured  to address  its  internal  computer  systems  and
applications, network services operations, facilities operations and third-party
vendors and  suppliers.  The Company  believes  that it is taking the  necessary
steps within its control to mitigate the potential impact of the Year 2000 Issue
on the Company.

Information Systems

     The Company is in the process of upgrading its accounting, human resources,
property  management  and marketing  systems prior to the assessment of its Year
2000 Issue.  The Company expects that the replacement of its current system will
mitigate  the impact of the Year 2000 Issue on its  accounting  operations.  The
corporate software selection has been completed,  a contract was executed in the
third quarter of 1998 and development and  implementation  were commenced in the
fourth quarter of 1998. The Company has one vendor software package that is used
to process property level  accounting  information at each facility which is not
Year 2000  compliant.  The vendor is  developing a conversion to ensure that the
software  package  is Year 2000  compliant.  The  Company  is in the  process of
selecting  replacement  software at the  facilities  it owns or operates  and is
expected  to do so in the second  quarter of 1999 in the event it is  determined
that the vendor of the current software is unable to ensure the software package
is Year 2000 compliant. The Company anticipates completing the corporate project
no later than the second  quarter of 1999 and the  facilities'  project no later
than the fourth quarter of 1999.

Facilities

     The Company has  commenced an  assessment  of each  facility,  including an
assessment  of  infrastructure  equipment  such as  elevator,  HVAC and security
systems,  and other critical  service  provider  readiness  issues.  The Company
completed its  preliminary  assessment by December 31, 1998. The vendor software
package at each facility is used for resident billing and payable processing. As
noted above, the Company is in the process of selecting  replacement software in
the  event the  vendor  of the  current  software  is unable to ensure  that the
existing  software is Year 2000  compliant.  During the first half of 1999,  the
Company  will  undertake  contingency  planning  for each of its  facilities  as
necessary.

Third-Party Vendors and Suppliers

     The Company's  approach to  third-party  suppliers  involves the process of
identification  and  prioritization of critical suppliers and communicating with
them about their  plans and  progress in  addressing  the Year 2000 Issue.  This
evaluation,  including  prioritization of critical suppliers, and the subsequent
contingency planning will be undertaken during the first half of calendar 1999.

Costs

     The  final  cost to  complete  the  project  has not yet  been  determined;
however,  the  estimated  total  cost,  including  capital  expenditures,   will
approximate  $2.5  million  to $3.0  million  through  December  31,  2000.  The
Company's  costs include  outside  consultants  and contractors and hardware and
software replacements and upgrades.

     The Company  anticipates  that cash on hand, cash generated from operations
and additional debt and equity  financings will provide  sufficient cash to fund
Year 2000 compliance  expenditures.  The Company's allocation of other personnel
resources  and planned  expenditures  has not  resulted  in the  deferral of any
information  technology  projects.  Remediation  costs,  other than the  planned
expenditures described above, are not expected to be material.

Risks

     The Company may face  potential  Year 2000 related risks and may experience
business  interruption to its operations as a result of third-party  vendors and
suppliers  failing to address their Year 2000 compliance  issues.  The Company's
plan  includes an assessment  of  third-party  vendors and suppliers to identify
Year 2000  compliance  issues and the potential  impact upon the Company and its
operations.

     Project  completion dates are based on management's  best estimates,  which
were derived  utilizing  numerous  assumptions of future  events,  including the
ability  of third  parties to modify the  Company's  systems on a timely  basis.
There can be no guarantee that the project will be completed in a timely manner.
Specific factors that might delay completion of the project include, but are not
limited to, the availability of qualified  personnel,  the ability to locate and
correct all relevant  computer codes,  and similar  uncertainties.  Although the
Company  intends to continue  preparations  for Year 2000, it is not possible to
quantify  potential indirect effects resulting from the lack of readiness of any
third party with whom the Company conducts its business.

     Readers are cautioned that forward-looking statements contained in the Year
2000 disclosure  should be read in conjunction with  "Cautionary  Statements" on
page 1.


                                      -16-
<PAGE>


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     The  Company  is  exposed  to  interest  rate risk  primarily  through  its
borrowing and leasing  activities.  There is inherent risk from  borrowings  and
leasing as they mature and are renewed at current  market  rates.  The extent of
this risk is not  quantifiable  or  predictable  because of the  variability  of
future  interest  rates and the Company's  future  financing  requirements.  The
Company does not enter into financial  instruments  transactions  for trading or
other speculative purposes.

     Long-term debt -- As of December 31, 1998,  the Company had  $95,880,000 of
long-term debt at a weighted  average interest rate of 4.16% of which $3,000,000
matures  May 1, 1999.  Mortgage  notes of  $27,880,000  bear  interest of 8.0 to
8.525% through maturity in 2027 when the loans are fully repaid.  Two facilities
are financed with variable rate tax-exempt  bonds of $33,000,000 and $32,000,000
which are payable  interest only until maturity in 2025 and 2019,  respectively.

     Line of credit -- As of December  31,  1998,  the  Company had  $10,997,000
outstanding  on its unsecured  line of credit which has a variable rate of prime
plus 1/2%. 

     The Company has entered into  interest  rate lock  agreements  on behalf of
third party owners of development  projects to limit their exposure to movements
in variable  interest rates.  The notional amount of the  construction  loans is
$103,689,000  and the  approximate  value of the  liability is  $2,092,000.  The
Company is to be reimbursed by the third party for any payments made pursuant to
the agreements.

     If interest rates on the Company's variable rate debt, including tax-exempt
bonds,  increased by 1  percentage  point,  the annual  interest  expense  would
increase by approximately $750,000.

     Lease expense -- The Company has entered into  operating  leases which have
fixed terms and are subject to renewal at the option of the Company. The Company
has an option to purchase  the  properties  prior to or at the end of the lease.
Four of the facilities'  lease requires the payment of additional rent of 10% of
the excess of each year's revenue compared to 1998.

     The Company  does not enter into  financial  instruments  transactions  for
trading or other speculative purposes.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

<TABLE>
<CAPTION>

      Financial Statements

          The  information  required  by this  Item is set  forth  at the  pages
      indicated below.

      <S>                                                                                                               <C>
      Report of Independent Auditors....................................................................................18

      Consolidated Balance Sheets of Brookdale Living Communities, Inc. as of December 31, 1998 and 1997................19

      Consolidated Statements of Operations of Brookdale Living Communities,  Inc. for the year ended December
      31, 1998 and for the period  from May 7, 1997  through  December  31, 1997 and  Combined  Statements  of
      Operations of Predecessor Properties (predecessor to Brookdale Living Communities,  Inc.) for the period
      from January 1, 1997 through May 6, 1997 and for the year ended December 31, 1996 ................................20

      Consolidated Statements of Stockholders' Equity of Brookdale Living Communities, Inc. for the year ended
      December 31, 1998 and for the period from May 7, 1997 through December 31, 1997 ..................................21

      Combined Statements of Changes in Partners' Capital (Deficit) of Predecessor Properties  (predecessor to
      Brookdale Living Communities,  Inc.) for the period from January 1, 1997 through May 6, 1997 and for the
      year ended December 31, 1996 .....................................................................................22

      Consolidated Statements of Cash Flows of Brookdale Living Communities,  Inc. for the year ended December
      31, 1998 and for the period from May 7, 1997 through  December 31, 1997 and Combined  Statements of Cash
      Flows of Predecessor Properties (predecessor to Brookdale Living Communities,  Inc.) for the period from
      January 1, 1997 through May 6, 1997 and for the year ended December 31, 1996 .....................................23

      Notes to Consolidated and Combined Financial  Statements of Brookdale Living  Communities,  Inc. and the
      Predecessor Properties (predecessor to Brookdale Living Communities, Inc.) .......................................25


      Financial Statement Schedules Not Filed:

          All schedules for which provision is made in the applicable accounting
      regulation  of the  Securities  and Exchange  Commission  are not required
      under the related  instruction or are inapplicable  and,  therefore,  have
      been omitted.

</TABLE>


                                      -17-
<PAGE>


                         REPORT OF INDEPENDENT AUDITORS


To the Board of Directors of
Brookdale Living Communities, Inc.


       We have audited the accompanying consolidated balance sheets of Brookdale
Living  Communities,   Inc.,  a  Delaware  corporation,  and  subsidiaries  (the
"Company")  as of  December  31,  1998 and 1997,  and the  related  consolidated
statements of operations, stockholders' equity and cash flows for the year ended
December  31,  1998 and for the  period  from May 7,  1997  (date of  formation)
through  December 31, 1997.  We have also  audited the  combined  statements  of
operations,  changes  in  partners'  capital  (deficit)  and  cash  flows of the
Predecessor Properties (predecessor to Brookdale Living Communities,  Inc.) (the
"Predecessor")  for the period from  January 1, 1997 through May 6, 1997 and for
the  year  ended  December  31,  1996.   These  financial   statements  are  the
responsibility   of  the  Company's  and  the  Predecessor's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

       In our  opinion,  the  financial  statements  referred  to above  present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Brookdale Living Communities,  Inc. and subsidiaries as of December 31, 1998 and
1997, and the consolidated  results of their operations and their cash flows for
the year ended  December  31, 1998 and for the period  from May 7, 1997  through
December 31, 1997, and the combined  results of operations and cash flows of the
Predecessor  Properties  for the period from January 1, 1997 through May 6, 1997
and for the year ended December 31, 1996, in conformity with generally  accepted
accounting principles.



                                                               ERNST & YOUNG LLP


Chicago, Illinois
March 4, 1999



                                      -18-
<PAGE>
<TABLE>
<CAPTION>


                                  BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY")

                                              CONSOLIDATED BALANCE SHEETS OF THE COMPANY
                                                      December 31, 1998 and 1997
                                               (In Thousands, Except Par Value Amounts)


Assets                                                                            1998                 1997
                                                                                  ----                 ----
<S>                                                                          <C>                  <C>
Current assets:
Cash and cash equivalents..............................................      $       1,065        $      13,292
Accounts receivable....................................................                379                  312
Notes receivable.......................................................              3,486                   --
Reimbursable development costs.........................................              9,815                  210
Prepaid expenses and other.............................................              4,752                2,769
                                                                             -------------        -------------
      Total current assets.............................................             19,497               16,583
                                                                             -------------        -------------

Property, plant and equipment..........................................            115,801              113,294
Accumulated depreciation...............................................             (5,689)              (2,164)
                                                                             -------------        -------------
Property, plant and equipment, net.....................................            110,112              111,130
                                                                             -------------        -------------

Property under development.............................................             11,221               11,427
Cash and investments - restricted......................................              8,226                5,920
Investment certificates - restricted...................................             15,951                   --
Letter of credit deposits..............................................             13,919               12,138
Lease security deposits................................................             55,453               18,542
Other..................................................................             10,254                7,429
                                                                             -------------        -------------
      Total assets.....................................................      $     244,633        $     183,169
                                                                             =============        =============

Liabilities and Stockholders' Equity

Current liabilities:
Current portion of long-term debt......................................      $       3,310        $         286
Unsecured line of credit...............................................             10,997                   --
Current portion of deferred gain on sale of property...................                806                  806
Accrued interest payable...............................................                968                  566
Accrued real estate taxes..............................................              1,485                1,284
Accounts payable and accrued expenses..................................              7,749                2,972
Tenant refundable entrance fees and security deposits..................              5,838                4,377
Other..................................................................                629                  344
                                                                             -------------        -------------
      Total current liabilities........................................             31,782               10,635
                                                                             -------------        -------------

Long-term debt, less current portion...................................             92,570               95,881
Deferred lease liability...............................................              2,849                1,811
Deferred gain on sale of property, less current portion................             16,116               16,922
                                                                             -------------        -------------
      Total liabilities................................................            143,317              125,249
                                                                             -------------        -------------
Commitments and contingencies

Stockholders' Equity:
Preferred stock, $.01 par value, 20,000 shares authorized, none issued.                 --                   --
Common stock,  $.01 par value,  75,000  shares  authorized,  11,572 and
    9,175 shares issued and  outstanding at December 31, 1998 and 1997,
    respectively ......................................................                116                   92
Additional paid-in-capital.............................................             94,101               57,383
Accumulated earnings...................................................              7,099                  445
                                                                             -------------        -------------
      Total stockholders' equity.......................................            101,316               57,920
                                                                             -------------        -------------
      Total liabilities and stockholders' equity.......................      $     244,633        $     183,169
                                                                             =============        =============
</TABLE>



See accompanying notes to consolidated and combined financial statements.


                                      -19-
<PAGE>
<TABLE>
<CAPTION>


                                BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY") AND
                                       PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)

                                   CONSOLIDATED STATEMENTS OF OPERATIONS OF THE COMPANY AND COMBINED
                                              STATEMENTS OF OPERATIONS OF THE PREDECESSOR
                                               (In Thousands, Except Per Share Amounts)


                                                        Brookdale Living Communities, Inc.          Predecessor Properties
                                                       ------------------------------------    --------------------------------- 
                                                                             Period from        Period from
                                                                             May 7, 1997      January 1, 1997
                                                         Year Ended           through             through         Year Ended
                                                       December 31, 1998  December 31, 1997     May 6, 1997    December 31, 1996
                                                       -----------------  -----------------    -------------   -----------------
<S>                                                     <C>                 <C>                   <C>             <C>      
Revenue
Resident fees .......................................   $      71,785       $    30,105           $ 10,473        $  23,221
Development fees ....................................           5,655                --                 --               --
Management fees .....................................             261               132                 --               --
                                                        -------------       -----------           --------        ---------
     Total revenue ..................................          77,701            30,237             10,473           23,221
                                                        -------------       -----------           --------        ---------

Expenses
Facility operating ..................................          39,935            15,892              5,872           11,875
General and administrative ..........................           4,878             2,187                 --               --
Lease expense .......................................          17,876             6,942              3,042               --
Depreciation and amortization .......................           4,853             2,967                857            3,527
Property management fees ............................              --                --                230              930
                                                        -------------       -----------           --------        ---------
     Total operating expenses .......................          67,542            27,988             10,001           16,332
                                                        -------------       -----------           --------        ---------
     Income from operations .........................          10,159             2,249                472            6,889
Interest income .....................................           4,275               694                 68              216
Interest expense ....................................          (4,153)           (3,020)              (830)          (4,740)
                                                        -------------       -----------           --------        ---------
    
     Income   (loss)   before   minority    interest,
       (provision)/benefit   for  income   taxes  and          
       extraordinary item ...........................          10,281               (77)              (290)           2,365
Minority interest ...................................              --                --               (138)            (756)
(Provision)/benefit for income taxes ................          (3,627)              558               (236)              --
                                                        -------------       -----------           --------        ---------
     Income (loss) from continuing operations
       before extraordinary item ....................           6,654               481               (664)           1,609
Extraordinary item (net of deferred tax
   benefit of $24 for 1997) .........................              --               (36)                --               --
                                                        -------------       -----------           --------        ---------
     Net income (loss) ..............................   $       6,654       $       445           $   (664)       $   1,609
                                                        =============       ===========           ========        =========

Basic earnings per common share:
   Income from continuing operations before
     extraordinary item .............................   $        0.68       $      0.07
   Extraordinary item ...............................              --             (0.01)
                                                        -------------       -----------
   Net income .......................................   $        0.68       $      0.06
                                                        =============       ===========

Diluted earnings per common share:
   Income from continuing operations before
     extraordinary item .............................   $       0.67        $      0.07
   Extraordinary item ...............................             --              (0.01)
                                                        ------------        -----------
   Net income .......................................   $       0.67        $      0.06
                                                        ============        ===========

   Weighted average shares used for
     computing basic earnings per share .............          9,751              7,208
                                                       =============       ============

   Weighted average shares used for
     computing diluted earnings per share ...........          9,978              7,351
                                                       =============       ============

</TABLE>


See accompanying notes to consolidated and combined financial statements.


                                      -20-
<PAGE>
<TABLE>
<CAPTION>


                                  BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY")

                                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY OF THE COMPANY

                                                   YEAR ENDED DECEMBER 31, 1998 AND
                                           PERIOD FROM MAY 7, 1997 THROUGH DECEMBER 31, 1997
                                                            (In Thousands)


                                                                                                          Brookdale Living
                                                              Common Stock                                Communities, Inc.
                                                        ------------------------       Additional            Accumulated
                                                        Shares           Amount      Paid-in Capital           Earnings 
                                                        ------------------------     ---------------      -----------------

<S>                                                     <C>            <C>             <C>                    <C>        
Balances at May 7, 1997 ..............................      --         $      --       $        --            $        --
Reclassification of net deficit of predecessor .......      --                --           (28,685)                    --
Deferred tax asset ...................................      --                --             4,002                     --
Issuance of common stock, net ........................   9,175                92            82,066                     --
Net income ...........................................      --                --                --                    445
                                                        ------------------------       -----------            -----------
Balances at December 31, 1997 ........................   9,175                92            57,383                    445
                                                        ------------------------       -----------            -----------

Issuance of common stock, net ........................   2,397                24            36,234                     --
Tax benefit on options ...............................      --                --               484                     --
Net income ...........................................      --                --                --                  6,654
                                                        ------------------------       -----------            -----------
Balances at December 31, 1998 .......................   11,572         $     116       $    94,101            $     7,099
                                                        ========================       ===========            ===========


</TABLE>

See accompanying notes to consolidated and combined financial statements.


                                      -21-
<PAGE>


              PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)

COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) OF THE PREDECESSOR

               PERIOD FROM JANUARY 1, 1997 THROUGH MAY 6, 1997 AND
                      FOR THE YEAR ENDED DECEMBER 31, 1996
                                 (In Thousands)


Balance at January 1, 1996 ....................  $       3,597
Contributions .................................             51
Distributions .................................        (26,152)
Advances made to general partners .............         (4,532)
Net income ....................................          1,609
                                                 -------------
Balance at December 31, 1996 ..................        (25,427)
Contributions .................................            813
Distributions .................................         (3,407)
Net loss ......................................           (664)
                                                 -------------
Balance at May 6, 1997 ........................  $     (28,685)
                                                 =============




See accompanying notes to consolidated and combined financial statements.


                                      -22-
<PAGE>
<TABLE>
<CAPTION>


                                BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY") AND
                                       PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)

                                   CONSOLIDATED STATEMENTS OF CASH FLOWS OF THE COMPANY AND COMBINED
                                              STATEMENTS OF CASH FLOWS OF THE PREDECESSOR
                                                            (In Thousands)


                                                          Brookdale Living Communities, Inc.          Predecessor Properties
                                                        ------------------------------------    ----------------------------------
                                                                               Period from       Period from
                                                                               May 7, 1997     January 1, 1997
                                                            Year Ended          through            through          Year Ended
                                                        December 31, 1998   December 31, 1997    May 6, 1997     December 31,1996 
                                                        -----------------   -----------------   -------------   ------------------
<S>                                                        <C>                  <C>               <C>                <C>      
Cash Flows from Operating Activities:
Net income (loss)                                          $    6,654           $     445         $    (664)         $   1,609
   Adjustments to reconcile net income (loss) to net 
   cash provided by operating activities:
     Depreciation and amortization .....................        4,853               2,967               857              3,527
     Minority interest .................................           --                  --               138                756
     Extraordinary item ................................           --                  36                --                 --
     Increase in deferred lease liability ..............        1,038               1,379               419                 13
     Deferred gain on sale of property .................         (806)               (525)             (281)                --
     Deferred income taxes .............................        2,628                (582)               --                 --
     Changes in:
       Accounts receivable .............................          (67)               (218)               (5)               (66)
       Prepaid expenses and other assets................       (7,719)             (1,120)              597             (1,114)
       Due from/to affiliates, net .....................           --                  53              (763)               531
       Accrued interest payable ........................          402                 273               111                (22)
       Accrued real estate taxes .......................           24                 199                54                 38
       Accounts payable and accrued expenses ...........        4,671               1,786               377                223
       Tenant refundable entrance fees and security     
        deposits .......................................           (8)                374                35                354
       Other liabilities................................       (1,381)             (2,101)            1,022                616
                                                        -----------------   -----------------   -------------   ------------------
         Net cash provided by operating activities .....       10,289               2,966             1,897              6,465
                                                        -----------------   -----------------   -------------   ------------------

Cash Flows from Investing Activities:
   Cash paid for lease security deposits and 
     acquisitions, net .................................      (35,203)            (47,705)               --                 --
   Proceeds from sale of property under development, net        5,550                  --                --                 --
   Changes in cash and investments-restricted ..........         (758)             (2,614)           (1,180)             1,529
   Increase in investment certificates-restricted ......      (15,951)                 --                --                 --
   Cash paid for property under development ............      (18,615)             (8,350)               (2)                (6)
   Proceeds from sale of property ......................           --                  --                --             24,152
   Payments received on notes receivable ...............        9,785                  --                --                 --
   Additions to property, plant and equipment and 
     reimbursable development costs ....................      (11,588)             (1,769)             (149)              (358)
                                                        -----------------   -----------------   -------------   ------------------
         Net cash (used in) provided by 
           investing activities ........................      (66,780)            (60,438)           (1,331)            25,317
                                                        -----------------   -----------------   -------------   -------------------

Cash Flows from Financing Activities:
   Repayment of long-term debt .........................         (286)               (178)               --               (306)
   Proceeds from unsecured line of credit ..............       46,946                  --                --                 --
   Repayment of unsecured line of credit ...............      (35,950)                 --                --                 --
   Increase in letter of credit deposit ................       (1,781)            (12,138)               --                 --
   Payment of deferred costs ...........................         (923)               (993)             (287)              (814)
   Proceeds from issuance of common stock, net .........       36,258              82,158                --                 --
   Net contributions, advances/distributions to partners           --                  --            (2,594)           (30,633)
                                                        -----------------   -----------------   -------------   -------------------
         Net cash provided by (used in) 
           financing activities ........................       44,264              68,849            (2,881)           (31,753)
                                                        -----------------   -----------------   -------------   -------------------
Net (decrease) increase in cash and cash equivalents ...      (12,227)             11,377            (2,315)                29
Cash and cash equivalents at beginning of period .......       13,292               1,915             4,230              4,201
                                                        -----------------   -----------------   -------------   -------------------
Cash and cash equivalents at end of period .............   $    1,065           $  13,292         $   1,915          $   4,230
                                                        =================   =================   =============   ====================


</TABLE>

See accompanying notes to consolidated and combined financial statements.


                                      -23-
<PAGE>

<TABLE>
<CAPTION>

                                BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY") AND
                                       PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)

                                   CONSOLIDATED STATEMENTS OF CASH FLOWS OF THE COMPANY AND COMBINED
                                        STATEMENTS OF CASH FLOWS OF THE PREDECESSOR (continued)
                                                            (In Thousands)


                                                          Brookdale Living Communities, Inc.          Predecessor Properties
                                                        ------------------------------------    ----------------------------------
                                                                               Period from       Period from
                                                                               May 7, 1997     January 1, 1997
                                                            Year Ended          through            through          Year Ended
                                                        December 31, 1998   December 31, 1997    May 6, 1997     December 31,1996 
                                                        -----------------   -----------------   -------------   ------------------

<S>                                                        <C>                  <C>               <C>                <C>            
Supplemental Disclosure of Cash Flow Information:       

Interest paid, net of amounts capitalized ..............   $    3,751           $   2,747         $     723          $   4,762
                                                        =================   =================   =============   ====================

Income taxes paid ......................................   $      661           $      --         $      --          $      --
                                                        =================   =================   =============   ====================

Supplemental Schedule of Noncash Investing and Financial
Activities:
   In connection with net lease  transactions and
   acquisitions, assets acquired and liabilities
   assumed were as follows -   
  Fair value of assets acquired ........................   $    35,151          $  87,260         $      --          $      --
  Less cash paid .......................................        31,591             47,643                --                 --
                                                        -----------------   -----------------   -------------   --------------------
  Liabilities assumed ..................................   $     3,560          $  39,617         $      --          $      --
                                                        =================   =================   =============   ====================

</TABLE>

The following  assets and liabilities were contributed by the Predecessor to the
Company on May 7, 1997:

Cash ...................................................   $    1,915
Cash-restricted ........................................        2,269
Accounts receivable ....................................           95
Prepaid rent ...........................................          396
Due from affiliates, net ...............................           53
Property, plant and equipment, net .....................       48,808
Property under development .............................           77
Deferred costs, net ....................................        1,710
Other assets ...........................................          421
                                                           ----------
     Total assets ......................................       55,744
Deferred gain on sale of property, current .............          806
Prepaid rent ...........................................        1,402
Accrued interest payable ...............................          293
Accrued real estate taxes ..............................        1,085
Accounts payable and accrued expenses ..................        1,190
Income taxes payable ...................................          236
Tenant refundable entrance fees and security deposits ..        2,649
Deferred lease liability ...............................          432
Bonds payable ..........................................       65,000
Deferred gain on sale of property, noncurrent ..........       17,447
                                                           ----------
     Total liabilities .................................       90,540
Minority interest  .....................................       (6,111)
                                                           ----------
Predecessor owners' deficit contributed ................   $  (28,685)
                                                           ==========




See accompanying notes to consolidated and combined financial statements.


                                      -24-
<PAGE>
       Brookdale Living Communities, Inc. AND SUBSIDIARIES (the "Company")
          and Predecessor Properties (the "Predecessor" to the Company)

             Notes to Consolidated and Combined Financial Statements
            (In Thousands, Except Per Share Amounts and Square Feet)

1.   Organization

     Brookdale  Living  Communities,   Inc.  was  incorporated  in  Delaware  on
September 4, 1996 and commenced operations upon completion of its initial public
offering (the "IPO") which closed on May 7, 1997.  Brookdale Living Communities,
Inc. and its subsidiaries (collectively,  "the Company") were formed in order to
create a company focused on senior independent and assisted living,  which would
succeed  to such  property  ownership  interests  and  operations  of the senior
independent and assisted living division of The Prime Group, Inc. and certain of
its affiliates (collectively, "PGI").

     In connection  with the IPO,  which closed on May 7, 1997, the Company sold
4,500  shares of its common  stock at $11.50 per share and received net proceeds
of $44,097.  PGI contributed its senior independent and assisted living property
ownership  interests and operations of the  Predecessor  Properties as described
below,  in exchange for 1,703  shares of common  stock of the  Company.  Mark J.
Schulte  (President and Chief Executive Officer of the Company)  contributed his
interests  in PGI's  senior  independent  and  assisted  living  division to the
Company in  exchange  for 297 shares of common  stock of the  Company.  PGI also
purchased  2,500 of the  4,500  shares  of  common  stock  sold in the  IPO.  In
connection  with the IPO,  the  Company  granted the  underwriters  an option to
purchase up to 675 additional shares of common stock for the purpose of covering
over-allotments.   On  June  3,   1997,   the   underwriters   exercised   their
over-allotment  option,  and the Company sold an additional 675 shares at $11.50
per share. The Company  received net proceeds of  approximately  $7,210 from the
sale of these  additional  shares.  On December 24,  1997,  January 21, 1998 and
November 18, 1998, the Company  completed  follow-on  public offerings of 2,000,
300 and 2,000 shares of its common  stock at  $16.6875,  $16.6875 and $16.50 per
share, respectively.

     In connection with the IPO, the Company  acquired a third party's  interest
in  two  of  the  Predecessor  Properties,   acquired  two  facilities  from  an
unaffiliated third party and entered into an agreement to lease another facility
from an unaffiliated third party.

     The consolidated financial statements of the Company include the properties
owned or  leased  by the  Company.  The  combined  financial  statements  of the
Predecessor  Properties  include  the  properties  owned or leased by the senior
independent  and  assisted  living  division  of PGI,  which  consisted  of five
properties  as indicated  in the table below (PGI owned or leased The  Heritage,
The  Devonshire  and The Hallmark  facilities  during the period from January 1,
1995  through  May 6, 1997 and leased The Springs of East Mesa and The Gables at
Brighton  facilities for the period from December 27, 1996 through May 6, 1997).
The Company operates in the senior independent and assisted living segment.  Its
properties, which are owned, leased, managed or under development by the Company
(collectively,  the  "Properties")  are located  throughout the United States as
indicated below:

<TABLE>

                        Property Name                             Date Owned or Leased                 Location
                        -------------                             --------------------                 --------
<S>                     <C>                                       <C>                                  <C>
Owned Facilities:       The Heritage (1)                          May 7, 1997                          Des Plaines, IL
----------------        The Devonshire (1)                        May 7, 1997                          Lisle, IL
                        Hawthorn Lakes                            May 7, 1997                          Vernon Hills, IL
                        Edina Park Plaza                          May 7, 1997                          Edina, MN

Leased Facilities:      The Hallmark (1)                          May 7, 1997                          Chicago, IL
-----------------       The Springs of East Mesa (1)              May 7, 1997                          Mesa, AZ
                        The Gables of Brighton (1)                May 7, 1997                          Rochester, NY
                        The Park Place                            May 7, 1997                          Spokane, WA
                        The Gables at Farmington                  November 24, 1997                    Farmington, CT
                        The Classic at West Palm Beach            December 18, 1997                    West Palm Beach, FL
                        The Brendenwood Retirement Community      December 22, 1997                    Vorhees, NJ
                        Harbor Village                            March 6, 1998                        Chicago, IL
                        The Atrium                                May 12, 1998                         San Jose, CA
                        The Chatfield                             July 2, 1998                         West Hartford, CT
                        The Ponce de Leon                         October 21, 1998                     Santa Fe, NM
                        Woodside Terrace                          December 22, 1998                    Redwood City, CA
                        The River Bay Club                        January 19, 1999 (See Note 18)       Quincy, MA
                        
Managed Facilities:     The Island on Lake Travis (2)                                                  Lago Vista, TX
------------------      The Kenwood (3)                                                                Minneapolis, MN

Development Projects Under Construction (4):
-------------------------------------------
Austin, Texas
Southfield, Michigan
Glen Ellyn, Illinois
Raleigh, North Carolina
New York (Battery Park City), New York
Pittsburgh, Pennsylvania

</TABLE>


(1)  Collectively referred to as "the Predecessor Properties"
(2)  Management services commenced May 7, 1997


                                      -25-
<PAGE>

(3)  Management services commenced July 1, 1997
(4)  The Company is developing these projects for third party owners

2.   Summary of Significant Accounting Policies

Basis of Presentation

         The consolidated and combined financial statements include the accounts
of the Company and the Predecessor Properties.

Principles of Consolidation

         The consolidated  financial statements include the financial statements
of  Brookdale  Living  Communities,  Inc.  and  its  wholly-owned  subsidiaries.
Significant  intercompany  accounts and  transactions  have been  eliminated  in
consolidation and combination.

Use of Estimates

         The preparation of the consolidated and combined  financial  statements
in accordance with generally accepted accounting  principles requires management
to  make  estimates  and  assumptions   that  affect  amounts  reported  in  the
consolidated and combined financial  statements and accompanying  notes.  Actual
results could differ from those estimates.

     Cash and Cash Equivalents

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

Resident Fee Revenue

         Resident  fee  revenue is  recorded  when  services  are  rendered  and
consists of fees for basic housing,  support  services and fees  associated with
additional  services  such as  personalized  health and  assisted  living  care.
Resident leases are generally for a term of one year.

Development Fees

         Development  fees  related  to  development   activities  provided  for
projects  owned by third  parties are earned  over the term of the  development.
Such fees are recognized as revenue as the development  services are provided to
the owner during the pre-construction and construction periods,  which typically
extend for 12 to 14 months.

Property, Plant and Equipment

         Property,  plant and  equipment  are  carried at cost less  accumulated
depreciation.  Expenditures for ordinary maintenance and repairs are expensed to
operations as incurred. Renovations and improvements which improve and/or extend
the useful life of the asset are capitalized and depreciated over the shorter of
their estimated useful life and the term of the operating lease.

         Depreciation is calculated on a straight-line  basis over the estimated
useful lives of assets, which are as follows:

               Buildings and improvements           40-45 years
               Leasehold improvements                5-23 years
               Furniture and equipment               3-12 years

Property Under Development

         Development  costs,  including  interest,  fees and costs  incurred  in
developing new  properties,  are  capitalized  to property under  development as
incurred. Upon completion of construction,  development costs are amortized over
the useful lives of the respective properties on a straight-line basis.

Deferred Costs

         Bond credit  enhancement  costs are amortized on a straight-line  basis
over the term of the letters of credit.  Deferred  financing costs are amortized
on a  straight-line  basis over the term of the long-term  debt.  Deferred lease
costs are amortized on a straight-line basis over the term of the lease.

Income Taxes

         Income taxes are accounted  for under the asset and  liability  method.
Deferred  tax  assets  and   liabilities  are  recognized  for  the  future  tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
basis and operating loss and tax credit  carryforwards.  Deferred tax assets and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered or settled.


                                      -26-
<PAGE>

     Prior to May 7, 1997,  certain PGI entities were partnerships and, as such,
were  not  taxable  entities.  The  income  or loss  from the  partnerships  was
includable on the respective federal income tax returns of the partners.

Stock Based Compensation

     The Company  accounts for stock option grants in accordance with Accounting
Principles  Board  Opinion  ("APB")  No.  25,  "Accounting  for Stock  Issued to
Employees" and related  interpretations,  in accounting for its fixed plan stock
options.  As such, no  compensation  expense is recognized  for the stock option
grants  because the exercise price of the options equals the market price of the
underlying stock at the date of grant.

Impact of Recently Issued Accounting Standards

     In June 1998, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards ("SFAS") No. 133,  "Accounting for
Derivative  Investments  and Hedging  Activities"  which is effective for fiscal
years  beginning  after June 15, 1999.  SFAS No. 133  provides  guidance for the
recognition and measurement of derivatives and hedging  activities.  Adoption of
SFAS  No.  133  is  not  anticipated  to  affect  the  consolidated  results  of
operations, financial position or cash flows of the Company.

Reclassifications

     Certain  prior period  amounts have been  reclassified  to conform with the
current financial statement presentation.

3.       Cash and Investments-Restricted

     Cash and investments-restricted consists of:
                                                            December 31,
                                                            ------------
                                                         1998         1997
                                                    ------------  -----------
      Life Care escrow deposits ................... $     3,033   $    2,899
      Tenant security deposits ....................       2,346        2,121
      Construction escrow deposit .................       1,150           --
      Real estate tax and insurance reserve .......       1,697          900
                                                    ------------  -----------

           Total cash and investments-restricted .. $     8,226   $    5,920
                                                    ============  ===========

     The  Heritage  and The  Hallmark  are  required  to make Life  Care  escrow
deposits under the Illinois Life Care Facility Act, Section 7(b) which have been
and will be funded from time to time in accordance  with a schedule  provided by
the Illinois Department of Public Health.

     Investment  certificates-restricted  in connection with certain development
related  activities  consist of long-term  investments which earn interest at 9%
per annum.

4.       Property, Plant and Equipment

         Property, plant and equipment consists of:
                                                            December 31,
                                                            ------------
                                                         1998         1997
                                                     -----------   ---------- 
       Land ........................................ $     9,988   $    9,988
       Buildings and improvements ..................      99,262       98,849
       Leasehold improvements ......................       1,361          349
       Furniture and equipment .....................       5,190        4,108
                                                     -----------   ----------
                                                         115,801      113,294
       Less accumulated depreciation ...............      (5,689)      (2,164)
                                                     -----------   ----------

       Net property, plant and equipment ........... $   110,112   $  111,130
                                                     ===========   ==========

     During 1998, the Company was reimbursed for leasehold  improvements of $187
and the related accumulated depreciation of $16 was written off.

                                      -27-
<PAGE>

5.   Deferred Costs

     Deferred costs,  included in other assets in the accompanying  consolidated
balance sheets, consist of the following:


                                                               December 31,
                                                           ------------------
                                                            1998        1997
                                                         ---------    ---------
 Bond credit enhancement and deferred financing costs .. $   3,631    $   2,642
 Lease costs ...........................................       179          787
                                                         ---------    ---------
                                                             3,810        3,429
 Less accumulated amortization .........................    (1,511)        (199)
                                                         ---------    ---------

 Net deferred costs .................................... $   2,299    $   3,230
                                                         =========    =========

6.   Credit Agreement

     During 1998, the Company obtained an original $15,000  unsecured  revolving
line of credit which was  increased to $25,000 in January 1999 and matures April
26, 1999.  Borrowings  under the line of credit bear interest at prime plus 1/2%
per annum  (8.25%  percent at December 31, 1998) and a fee of 1/4% on the unused
line of credit payable quarterly.  As of December 31, 1998, the Company had $903
of outstanding  letters of credit which reduces the amount  available  under the
line of  credit.  Pursuant  to the  terms of the  agreement,  the  Company  must
maintain certain facility operating margins,  and is required to repay a portion
or all of the loan if the  Company's  publicly  traded  stock is less than a per
share price all as defined (See note 18).

     During 1997,  the Company  obtained an  unsecured  $20,000  interim  credit
facility from a financial institution for working capital and acquisition needs.
Interest  accrued on the outstanding  principal  amount of the loan at the prime
plus 1% per annum and was payable  monthly.  The credit  facility was repaid and
terminated  on December 24, 1997,  which  resulted in an  extraordinary  loss on
extinguishment  of  debt,  net of a $24  tax  benefit,  of $36.  Otherwise,  the
maturity date was April 1998.

7.   Long-Term Debt

     Long-term debt consists of the following:
<TABLE>
<CAPTION>

                                                                   December 31,
                                                               --------------------
                                                                  1998        1997 
                                                              -----------   ---------
<S>                                                            <C>           <C>     
Mortgage notes payable, issued by local municipalities
    secured by the Edina Park Plaza and Hawthorn 
    Lakes facilities, bearing interest at 8.0% to 8.525%
    through maturity in 2027 ................................  $ 27,880      $ 28,167
Note payable bearing interest at 8% payable upon
    maturity on May 1, 1999 .................................     3,000         3,000
Variable rate tax-exempt bonds issued by state and
    local governmental authorities (a) ......................    65,000        65,000
                                                              -----------   ---------
Total debt ..................................................    95,880        96,167
Less current portion ........................................     3,310           286
                                                              -----------   ---------
Total long-term debt ........................................  $ 92,570      $ 95,881
                                                              ===========   =========
</TABLE>

       (a)   Permanent  financing for The Devonshire and The Heritage facilities
             has been  provided by an  aggregate  of $65,000  (The  Devonshire -
             $33,000,   The   Heritage  -  $32,000)  of   tax-exempt   Qualified
             Residential  Rental  Bonds  (the  "Bonds").  The  Bonds  mature  on
             December 15, 2025 and December 15, 2019, respectively.

             Under the terms of the bond loan agreement,  The Devonshire and The
             Heritage (the  "Partnerships")  are required to make  interest-only
             payments monthly, calculated using a floating rate that is adjusted
             weekly based upon the remarketing  rate of the Bonds.  The weighted
             average  interest  rate was  3.53%,  3.74%  and 3.43% for the years
             ended December 31, 1998, 1997 and 1996, respectively.  The interest
             rates for The Devonshire and The Heritage were 4.07% and 4.20%, and
             3.77% and 3.80% at December  31, 1998 and 1997,  respectively.  The
             annual  interest rate on the Bonds cannot exceed 15%. Under certain
             conditions,  the  interest  rate on the Bonds may be converted to a
             fixed rate at the request of the Company.

             Beginning May 7, 1997, the Bonds were  collateralized by letters of
             credit in the  stated  amount of $66,715  which were  issued by two
             financial  institutions  with a stated  termination date of May 18,
             2000.  The letters of credit are  collateralized,  in part,  by the
             $13,919 and $12,138  letter of credit  deposit  with the  financial
             institutions  at  December  31,  1998 and 1997,  respectively.  The
             Company  amortized  letter of credit and other  credit  enhancement
             fees of $1,205 and $549 during the year ended December 31, 1998 and
             the period from May 7, 1997 through December 31, 1997. Prior to May
             7, 1997, the Bonds were  collateralized  by irrevocable  letters of
             credit issued by various  financial  institutions.  The Predecessor
             Properties  amortized  letter of credit and the credit  enhancement
             fees of $250 and $581  during  the  period  from  January  1,  1997
             through  May 6,  1997 and for the year  ended  December  31,  1996,
             respectively.



                                      -28-
<PAGE>


     The annual aggregate scheduled  maturities of debt obligations for the five
     years subsequent to December 31, 1998 are as follows:

             Year ended December 31,
             1999 ........................ $   3,310
             2000 ........................       336
             2001 ........................       365
             2002 ........................       396
             2003 ........................       429
             Thereafter ..................    91,044
                                           ---------
                                           $  95,880
                                           =========

         The Company and the Predecessor  Properties  incurred interest cost for
the year ended December 31, 1998,  period from May 7, 1997 to December 31, 1997,
the period from  January 1, 1997 to May 6, 1997 and for the year ended  December
31, 1996 of $5,711, $3,211, $830 and $4,740,  respectively,  of which $1,558 and
$191 was  capitalized  for the year ended  December  31, 1998 and for the period
from May 7, 1997 to December 31, 1997, respectively.

     On  December  27,  1996,  The  Hallmark  facility  was  sold  by  PGI  in a
sale-leaseback  transaction and a portion of the sale proceeds was used to repay
a mortgage note secured by The Hallmark. In addition,  The Hallmark was required
to pay a prepayment fee of $2,723, which was netted against the deferred gain on
sale of property. The deferred gain on sale of property is being recognized over
the life of the lease as a reduction of the related lease expense.

8.   Developments

     At December 31, 1997, the Company had  development  sites in Austin,  Texas
and  Southfield,  Michigan,  and, in 1998,  sold these sites at cost,  including
expenses  incurred by the Company with respect to said sites.  During 1998,  the
Company sold certain of its rights and  interests in  development  sites in Glen
Ellyn,  Illinois;  Raleigh,  North Carolina;  and Pittsburgh,  Pennsylvania  and
Battery  Park City,  New York for a price  equal to the  Company's  cost and, in
connection with each of the sales,  entered development  agreements with respect
to such  sites.  The  aggregate  sales price for the  development  sites and the
Company's rights and interests therein,  was $18,821, all of which has been paid
in cash by December 31, 1998 with the  exception of  promissory  notes of $3,486
for three  projects  which  bear  interest  at 9% per annum and are due  through
September,  2001 of which one note  receivable of $1,903 was repaid in February,
1999. No gain or loss was  recognized  by the Company in  connection  with these
sales as the development sites were sold at cost.

     At December  31,  1998,  the  Company  had $2,467 of unbilled  reimbursable
development  costs.  Included  in  other  assets  at  December  31,  1998 in the
accompanying consolidated balance sheets, are development fees of $5,655 related
to development activities provided for projects owned by third parties.

     The Company has entered into  interest  rate lock  agreements  on behalf of
third party owners of  development  projects  with respect to interest  rates on
floating  rate  construction  debt.  The  agreements  are  designed to limit the
exposure to movements in floating interest rates on the development construction
project  loans and the  Company is to be  reimbursed  by the third party for any
payments  made  pursuant  to  the   agreements.   The  notional  amount  of  the
construction  loans  is  $103,689  and  the  approximate  current  value  of the
liability under such hedging contracts is $2,092.

9.   Stock Based Compensation Plan

     The Company has granted  stock  options to various  employees and directors
under its 1998 and 1997  Stock  Incentive  Plans.  Under the  provisions  of the
Company's  non-qualified  and incentive  stock option plans for officers and key
employees,  250 shares and 733 shares of common  stock are reserved for issuance
under the 1998 and 1997 Stock  Incentive  Plans,  respectively,  at December 31,
1998.  All  options  have 10 year terms and vest and become  exercisable  either
immediately or over a three to four year period at the date of grant. The prices
of all options  granted  were equal to the fair market  value at the date of the
grant.

     In November 1995, the FASB issued SFAS No. 123  "Accounting for Stock-Based
Compensation".  SFAS No. 123 allows entities to continue to apply the provisions
of APB Opinion  No. 25 and  provide pro forma net income and pro forma  earnings
per share  disclosures  for employee  stock option  grants as if the  fair-value
method  defined in SFAS No. 123 had been  applied.  The  Company  has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosures provisions of SFAS No. 123.

     The per share  weighted-average  fair value of stock options granted during
1998 and 1997 was $10.78 and $4.89 and is  estimated  on the date of grant using
the  Black-Scholes  option  pricing  model with the  following  weighted-average
assumptions used: 1998 - risk-free  interest rate 5.5%;  expected  volatility of
55.5%; expected life of 4 years and no expected dividend yield; 1997 - risk free
interest rate of 6.6%;  expected  volatility of 43.5%;  expected life of 4 years
and no expected dividend yield.

     The  Black-Scholes   option  valuation  model  was  developed  for  use  in
estimating the fair value of traded  options which have no vesting  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.  Because the Company's  employee stock options have  characteristics
significantly  different from those traded  options,  and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  in
management's  opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.



                                      -29-
<PAGE>


     Had compensation cost for these plans been determined  consistent with SFAS
123, the  Company's net income and earnings per share would have been reduced to
the following unaudited pro forma amounts:

                                                         Period from
                                                         May 7, 1997
                                   Year Ended              through
                                December 31, 1998     December 31, 1997
                                -----------------     -----------------
              Net income:
                 As reported ...   $  6,654                $    445
                 Pro forma .....   $  5,181                $     92
              Basic EPS:
                 As reported ...   $   0.68                $   0.06
                 Pro forma .....   $   0.53                $   0.01
              Diluted EPS:
                 As reported ...   $   0.67                $   0.06
                 Pro forma .....   $   0.52                $   0.01

     The  table  below  summarizes  the  transactions  in  the  Company's  stock
incentive plan during 1998 and 1997:

<TABLE>
<CAPTION>

                                                           1998                               1997 
                                                          ------                             ------
                                                  Number      Weighted-Average        Number      Weighted-Average
                                                of Shares      Exercise Price       of Shares     Exercise Price 
                                                ---------     ----------------      ---------     ----------------

<S>                                               <C>              <C>               <C>               <C>  
     Options outstanding at beginning of year ..   762               $11.60             --               $   --
     Granted ...................................   312                22.85            762                11.60
     Exercised .................................   (97)               11.50             --                   --
     Canceled ..................................   (76)               14.27             --                   --
                                                ---------                            -------
     Options  outstanding  at end of year.......   901                15.28            762                11.60
                                                =========                            =======

     Exercisable at end of year ...............    207                18.08             --                   --
                                                =========                            =======
</TABLE>

     The following  table  summarizes  information  about certain options in the
Company's stock incentive plan outstanding as of December 31, 1998 in accordance
with SFAS 123:

<TABLE>
<CAPTION>

                                                 Options Outstanding                          Options Exercisable  
                                     ---------------------------------------------       ----------------------------
                                                    Weighted Avg.
                                      Number         Remaining        Weighted Avg.        Number       Weighted Avg.
       Range of Exercise Prices     Outstanding   Contractual Life   Exercise Price      Outstanding   Exercise Price
       ------------------------     -----------   ----------------   --------------      -----------   --------------
       <S>                               <C>        <C>                  <C>                 <C>           <C>   
       $11.50 ......................     542        8.35  years          $11.50               78           $11.50
       $11.88 - $21.42 .............     141        9.12  years          $17.11               17           $12.64
       $23.48 ......................     218        9.39  years          $23.48              112           $23.48
                                        ----                                                ----

       $11.50 - $23.48 .............     901        8.72  years          $15.28              207           $18.08
                                        ====       =====                 ======             ====           ======
</TABLE>

10.      Income Taxes

     The  (provision)  benefit  for  income  taxes  (including  income  taxes on
extraordinary item in 1997) is composed of the following:

<TABLE>
<CAPTION>

                                                                 Period from                Period from
                                                                 May 7, 1997              January 1, 1997
                                          Year Ended               through                    through
                                       December 31, 1998      December 31, 1997             May 6, 1997 
                                       -----------------      -----------------            -------------
     <S>                                  <C>                    <C>                        <C>       
     Federal:
       Current ........................   $     (894)            $        -                 $    (195)
       Deferred .......................       (2,271)                   509                         -
                                          ----------             ----------                 ---------
                                              (3,165)                   509                      (195)
                                          ----------             ----------                 ---------
     State:
       Current ........................         (105)                     -                       (41)
       Deferred .......................         (357)                    73                         -
                                          -----------            ----------                 ---------
                                                (462)                    73                       (41)
                                          -----------            ----------                 ---------
                                          $   (3,627)            $      582                 $    (236)
                                          ==========             ==========                 =========

</TABLE>


                                      -30-
<PAGE>


     A reconciliation of the (provision)  benefit for income taxes to the amount
computed at the U.S.  federal  statutory  rate of 34% and 35% for 1998 and 1997,
respectively, is as follows:

<TABLE>
<CAPTION>

                                                                                   Period from        Period from
                                                                                   May 7, 1997      January 1, 1997
                                                               Year Ended            through            through
                                                            December 31, 1998   December 31, 1997     May 6, 1997 
                                                            -----------------   -----------------    -------------

       <S>                                                       <C>                    <C>              <C>   
       Computed "expected" tax (expense) benefit...........       $ (3,495)              $   27           $  150
       State taxes, net of federal income tax benefit .....           (305)                  73              (41)
       Non-taxable amortization of deferred gain on
         sale of property .................................            274                  184                -
       Income of non-taxable Predecessor
         Properties .......................................              -                    -               (71)
       Rental income taxable to the Predecessor ...........              -                  286              (242)
       Deferred lease costs ...............................              -                    -               (43)
       Extraordinary item .................................              -                   21                 -
       Other, net .........................................           (101)                  (9)               11
                                                             -----------------   -----------------    -------------

                                                                  $ (3,627)                $ 582           $ (236)
                                                             =================   =================    ==============

</TABLE>

     During 1998, the Company  received a tax benefit of $484 in connection with
the  exercise by certain  employee  stock  options.  Such amount was credited to
additional paid-in capital.

     Prior  to  formation  of  the  Company  on  May 7,  1997,  the  Predecessor
Properties were held in either partnerships which passed through tax liabilities
and benefits to the owners or in a C-Corporation  (operations began December 12,
1997) which was subject to income taxes. The transfer of assets at the formation
of the Company was taxable,  in part, to the owners,  which resulted in a $4,002
deferred tax asset at the  contribution  date. In addition,  the Predecessor had
$236 of current income taxes payable for the period from January 1, 1997 through
May 6, 1997, which were paid in 1998.  Accordingly,  the tax basis of a majority
of the property and equipment of the Company  exceeds its respective  book basis
for financial reporting purposes.  The tax effects of temporary differences that
give rise to  significant  portions of the deferred tax assets  recognized as of
the date of  formation  of the  Company  and at  December  31, 1998 and 1997 are
presented  below and included in other assets and other current  liabilities  in
the accompanying consolidated balance sheets.

<TABLE>
<CAPTION>

                                                         December 31, 1998  December 31, 1997
                                                         -----------------  -----------------  
       <S>                                                  <C>               <C>         
       Noncurrent:
         Deferred tax assets:
         Property, plant and equipment .................... $        481      $      3,676
         Deferred lease costs .............................          914               523
         Operating loss carryforward ......................          397               343
         AMT tax credit ...................................          508                --
         Deferred revenue .................................           --                42
                                                            ------------      ------------

         Total gross deferred tax assets ..................        2,300             4,584
         Less valuation allowance .........................           --                --
                                                            ------------      ------------
         Net noncurrent deferred tax assets ............... $      2,300      $      4,584
                                                            ============      ============

       Current deferred tax liability - deferred revenue .. $        344      $         --
                                                            ============      ============

</TABLE>

     At December 31, 1998, the Company had net operating loss  carryforwards for
federal  income tax  purposes of  approximately  $1,045  which are  available to
offset future federal taxable income, if any, through 2011.

11.      Tax Incremental Financing

         The Heritage is located in a  redevelopment  area designated by a local
municipality as a tax incremental financing district ("TIF"). Under the terms of
the redevelopment  agreement,  The Heritage was eligible to receive payments, in
accordance with the terms of the Tax Incremental  Financing Bond ("Bond") issued
to it. The Bond was  scheduled to mature on December 1, 2007 and had interest at
10% per annum,  with principal and interest payable annually on each December 1.
The Bond was subject to optional  redemption,  in whole or in part, at any time,
at a redemption  price equal to the principal  outstanding at the date redeemed.
The Bond was subject to mandatory  redemption,  in part, by the  application  of
annual sinking fund  installments  by the  municipality on each December 1, at a
redemption  price equal to the principal  outstanding at the date redeemed.  The
Bond was payable  solely from real estate tax  incremental  revenues and certain
sales tax receipts  generated in the TIF. Payments were to be made to the extent
of available TIF revenues.  The  insufficiency of TIF revenues  generated in the
redevelopment  area for any given  year  would not be  considered  a default  in
payment, but all past due amounts would be a continuing  obligation payable from
future TIF revenues.  Any unpaid amounts including interest, at maturity,  would
be  forgiven.  As the  collectibility  of the Bond  principal  and  interest was
dependent  upon  sufficient TIF revenues  being  generated in the  redevelopment
area,  revenue was  recognized by The Heritage when  principal and interest were
received.  For the period  from May 7, 1997  through  December  31,  1997 (final
payment)  and for the year  ended  December  31,  1996,  The  Heritage  received
payments totaling $576 and $610, respectively.


                                      -31-
<PAGE>


12.      Employee Benefit Plan

         In August 1994, PGI  established a 401(k) plan for all employees of the
PGI Entities who meet minimum  employment  criteria.  The plan provides that the
participants  may defer up to 15% of their  eligible  compensation  on a pre-tax
basis subject to certain maximum  amounts.  PGI contributed an additional 25% of
the employee's  contribution  to the plan, up to $500 per employee per annum. On
September 1, 1997,  the Company  established  a 401(k) plan for all employees of
the Company's entities that meet minimum employment criteria.  The plan provides
that the  participants  may defer up to 15% of their eligible  compensation on a
pre-tax basis subject to certain  maximum  amounts.  The Company  contributes an
additional 25% of the employee's  contribution to the plan. Employees are always
100%  vested in their own  contributions  and vested in PGI's and the  Company's
contributions   over  five  years.   The  Company  and  the  PGI  entities  made
contributions to such plans in the amount of $176, $55, $15 and $30 for the year
ended December 31, 1998, the period from May 7, 1997 through  December 31, 1997,
the  period  from  January  1, 1997  through  May 6, 1997 and for the year ended
December 31, 1996, respectively. Such amounts are included in facility operating
expense in the consolidated and combined statements of operations.

13.  Earnings Per Share

         The  following  table sets forth the  computation  of basic and diluted
earnings per share for the year ended  December 31, 1998 and for the period from
May 7, 1997 through December 31, 1997.

<TABLE>
<CAPTION>

                                                                                          Period May 7, 1997
                                                                           Year Ended           through
                                                                        December 31, 1998  December 31, 1997
                                                                        -----------------  -----------------
       <S>                                                                <C>                 <C>      
       Numerator:
         Income from continuing operations before extraordinary item      $    6,654          $     481
         Extraordinary item (net of tax benefit of $24 for 1997)                   -                (36)
                                                                           ---------           --------
           Numerator for basic and diluted earnings per common share      $    6,654          $     445
                                                                           =========           ========
       Denominator:
         Denominator for basic earnings per share - weighted-average
           shares                                                              9,751               7,208
         Effect of dilutive securities - Employee stock options                  227                 143
                                                                           ---------           ---------
               Denominator for diluted earnings per share-adjusted
                 weighted average shares and assumed conversions               9,978               7,351
                                                                           =========           =========

       Basic earnings per share                                           $     0.68          $     0.06
                                                                           =========           =========

       Diluted earnings per share                                         $     0.67          $     0.06
                                                                           =========           =========
</TABLE>

         Options  to  purchase  297 and 11 shares of common  stock at $22.96 and
$16.66  weighted  average  per share  were  outstanding  during  the year  ended
December 31, 1998 and for the period from May 7, 1997 through December 31, 1997,
respectively,  and  warrants  to  purchase  83 shares of common  stock at $25.25
weighted  average per share were  outstanding  at December 31, 1998 but were not
included in the  computation of diluted  earnings per share because the options'
exercise  price was greater than the average  market price of the common  shares
and, therefore, the effect would be anti-dilutive.

14.  Related Party Transactions

         Prior to the IPO, in connection with the management and  administration
of The Heritage, The Devonshire and the Hallmark facilities, PGI was entitled to
fees for services provided. Such amounts incurred for the period from January 1,
1997 through May 6, 1997 and for the year ended December 31, 1996 are summarized
as follows:

<TABLE>
<CAPTION>

                                                                  Period from
                                                                January 1, 1997
                                                                    through          Year Ended
                                                                  May 6, 1997     December 31, 1996
                                                                 --------------   -----------------
         <S>                                                           <C>                <C>
         Property management fee of 5% (3% for The Hallmark
           facility through December 26, 1996)                      $   230            $   930
                                                                     ======             ======
         Administration fee for providing services to The
           Devonshire and The Heritage facilities                   $   130            $   372
                                                                     ======             ======
</TABLE>

     On May 7, 1997,  the Company began  providing  management  services for The
Island on Lake Travis  facility,  which is owned by PGI. The Company is entitled
to a fee  based  on 5% of  revenue.  The  Company  recognized  $210  and $132 in
management  fee revenue for the year ended  December 31, 1998 and for the period
from May 7, 1997 through December 31, 1997, respectively.

15.      Fair Value of Financial Instruments

         Cash and cash equivalents, cash and investments-restricted and variable
rate and fixed rate debt are reflected in the accompanying  consolidated balance
sheets at amounts considered by management to reasonably approximate fair value.
Management  estimates  the fair value of its  long-term  fixed rate debt using a
discounted  cash flow analysis based upon the Company's  current  borrowing rate
for debt with similar maturities.


                                      -32-
<PAGE>

16.      Commitments and Contingencies

Leases

         The  Company   entered  into   operating   lease   agreements   ("Lease
Agreements")  with various  third parties for the Leased  Facilities.  The Lease
Agreement for The Hallmark, The Springs of East Mesa, The Gables at Brighton and
The Park Place  facilities has an initial term of 23 years,  with two options to
extend for 25 years each,  and requires  annual base rent payments  ranging from
$10,185 to $11,204.  The Lease Agreement for these four facilities also requires
additional  rent each year  beginning in 1999 based on 10% of the excess of each
year's revenue compared to 1998 revenue.  The Lease Agreements for the remaining
facilities  have  initial  terms of one to five years with options to extend (as
defined).  The Company has the option to acquire the Leased  Facilities  at fair
market value prior to or at the end of such lease terms. The Company has pledged
lease  security  deposits of $55,453 and $18,542 at December  31, 1998 and 1997,
respectively, in connection with certain leased facilities.

     On September 25, 1997,  the Company  entered into a five year lease for its
corporate office with an affiliate of PGI (the "Landlord")  which was amended on
March 17, 1998. The lease expires April 30, 2005,  with base rent that escalates
at each anniversary of the commencement  date by $0.75 per square foot per year.
In  conjunction  with the  signing of the lease and the  amendment,  the Company
received cash payments of $404 and $452, respectively,  from the Landlord, which
have been deferred and are being amortized using the  straight-line  method over
the life of the office lease. Office lease expense of $300 and $193 for the year
ended December 31, 1998 and for the period from May 7, 1997 through December 31,
1997 is included in General and Administrative expense.

         The aggregate  amount of all future  minimum  operating  lease payments
including  $3,006 of payments to be made to the Landlord for the office lease as
of December 31, 1998 are as follows:

             Year ended December 31,
             1999                        $     24,062
             2000                              25,017
             2001                              25,092
             2002                              24,940
             2003                              17,461
             Thereafter                       180,146
                                          -----------
                                         $    296,718
                                          ===========

Litigation

     The  Company is  involved  in various  lawsuits  and claims  arising in the
normal course of business. In the opinion of management of the Company, although
the  outcomes of these suits and claims are  uncertain,  in the  aggregate  they
should not have a material adverse effect on the Company's  business,  financial
condition and results of operations.

Other

     The Company has a $100,000  commitment from Capital  Corporation of America
of which $51,000 has been committed to the third parties  developing the Austin,
Texas and Southfield,  Michigan projects.  In connection with the aforementioned
projects  and  certain  other  developments,  the  Company  has  guarantees  for
construction  loans  aggregating  approximately  $82,000  of which  $18,982  was
outstanding at December 31, 1998.

17.      Pro Forma (Unaudited)

     The following unaudited pro forma financial  information of the Company for
the years ended  December  31, 1998 and 1997 are  presented as if, at January 1,
1998 and 1997,  the  Company  had sold and  issued  11,572  shares of its common
stock,  purchased the Owned Facilities and leased the Leased  Facilities and The
River Bay Club (see note 18) which was leased beginning January 19, 1999. If The
River  Bay Club was not  included  in the pro  forma  operations,  revenue,  net
income,  basic  earnings  per  share and  diluted  earnings  per share  would be
$92,013, $8,006, $0.69, and $0.68,  respectively,  for 1998 and $83,617, $3,226,
$0.28, and $0.28, respectively for 1997.


                                      -33-
<PAGE>

     These  unaudited  pro  forma  financial   information  is  not  necessarily
indicative  of what the actual  results of  operations of the Company would have
been assuming the IPO and follow-on public offerings had been consummated at the
beginning of each period presented, nor do they purport to represent the results
of operations of the Company for future periods.

                                             Year ended December 31,
                                             ----------------------
                                                1998         1997
                                                ----         ----

              Revenue                         $98,195      $89,799
              Net income                        8,758        3,978
              Basic earnings per share           0.76         0.34
              Diluted earnings per share         0.74         0.34
              Weighted diluted shares          11,799       11,715

18.      Subsequent Events

         On January  19,  1999,  the Company  entered  into an  operating  lease
agreement to lease The River Bay Club facility,  a 285-unit  facility located in
Quincy, Massachusetts. The lease is an operating lease with an initial five-year
term with five one-year  renewal option  periods with annual payment  amounts of
approximately  $2,500  through the initial lease term. The Company has an option
to acquire this facility at the end of the lease term.

         On January 25, 1999, the Company  entered into a $5,000  unsecured loan
agreement bearing interest at 12%, payable interest only, and maturing April 26,
1999.  The loan is  subordinated  to the Company's  existing  unsecured  line of
credit (see Note 6) and prohibits the Company from paying any dividends.

17.      Quarterly Financial Information (Unaudited)

<TABLE>
<CAPTION>


                                                       1998 Quarter Ended                      1997 Quarter Ended       
                                            ---------------------------------------     --------------------------------
                                            Mar. 31    Jun. 30   Sept. 30   Dec. 31      June 30 (1)  Sept. 30   Dec. 31
                                            -------    -------   --------   -------      -----------  --------   -------

<S>                                        <C>        <C>        <C>       <C>           <C>          <C>        <C>    
Revenue ..................................$ 16,898   $ 18,651   $ 20,482   $ 21,670      $   6,571    $11,242    $12,424
Operating expenses ....................... (13,730)   (15,036)   (16,785)   (17,138)        (5,505)    (9,020)   (10,496)
Interest income (expense), net ...........    (217)        --        244         95           (589)      (884)      (853)
Depreciation and amortization ............  (1,226)    (1,205)    (1,146)    (1,276)          (691)    (1,158)    (1,118)
                                           --------    -------    -------   --------      --------     -------   -------

Income (loss)  before  (provision)/benefit
  for income taxes and extraordinary item    1,725      2,410      2,795      3,351           (214)       180        (43)
(Provision)/benefit for income taxes......    (614)      (889)      (982)    (1,142)           133         10        415
                                           --------    -------    -------   --------      --------    -------    -------
Income (loss) from  continuing  operations
  before extraordinary item ..............   1,111      1,521      1,813      2,209            (81)       190        372 
Extraordinary  item (net of  deferred  tax
  benefit for income taxes of $24) .......      --         --         --         --             --         --        (36)
                                           --------    -------    -------   --------      --------    -------    -------
  Net income (loss) ......................$  1,111   $  1,521   $  1,813   $  2,209      $     (81)   $   190    $   336
                                           ========    =======    =======   ========      ========    =======    =======
Basic earnings per common share:


Income (loss) from  continuing operations
  before extraordinary item ..............$   0.12   $   0.16   $   0.19   $   0.21      $   (0.01)   $  0.03    $  0.05
Extraordinary item .......................      --         --         --         --             --         --         --
                                          --------    -------    -------   --------       --------    -------    -------
Net income (loss) ........................$   0.12   $   0.16   $   0.19   $   0.21      $   (0.01)   $  0.03    $  0.05 
                                          ========    =======    =======   ========       ========    =======    =======

Weighted    average   shares   used   for
  computing  basic  earnings  per  common
  share ..................................   9,408      9,487      9,569     10,529          6,844      7,175      7,458
                                          ========    =======    =======   ========       ========    =======    =======

Diluted  earnings per common share:
Income (loss) from continuing operations
   before extraordinary item .............$   0.12   $   0.16   $    0.19  $   0.21      $   (0.01)   $  0.03    $  0.05
Extraordinary item .......................      --         --          --        --             --         --      (0.01)
                                          --------    -------    --------  --------       --------    -------    -------
Net income (loss) ........................$   0.12   $   0.16   $    0.19  $   0.21      $   (0.01)   $  0.03    $  0.04
                                          ========    =======    ========  ========       ========    =======    =======

Weighted    average   shares   used   for
  computing  diluted  earnings per common
  share ..................................   9,646      9,793      9,771     10,672          6,844      7,317      7,671
                                          ========    =======    =======   ========      =========    ========   =======

         (1) The period  includes  operations  from May 7, 1997 through June 30, 1997.

</TABLE>

                                      -34-
<PAGE>


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

     Not applicable.


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information  required by Item 10 is incorporated herein by reference to
the information  contained under the headings "Election of Directors" and "Other
Information-Compliance  with  Section  16(a) of the  Securities  Exchange Act of
1934" in the Company's  1999 Annual Meeting Proxy  Statement,  which the Company
intends  to file  within 120 days of its fiscal  year end.  Certain  information
regarding executive officers is contained in Part I hereof.

ITEM 11.  EXECUTIVE COMPENSATION

     The information  required by Item 11 is incorporated herein by reference to
the  information  contained  under  the  headings   "Compensation  of  Executive
Officers,"  "Compensation  Committee  Interlocks and Insider  Participation" and
"Report of  Compensation  Committee" in the Company's  1999 Annual Meeting Proxy
Statement,  which the Company intends to file within 120 days of its fiscal year
end.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information  required by Item 12 is incorporated herein by reference to
the information  contained under the heading "Principal  Security Holders of the
Company" in the Company's 1999 Annual Meeting Proxy Statement, which the Company
intends to file within 120 days of its fiscal year end.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information  required by Item 13 is incorporated herein by reference to
the  information   contained   under  the  heading  "Other   Information-Certain
Relationships  and Related  Transactions"  in the Company's  1999 Annual Meeting
Proxy Statement, which the Company intends to file within 120 days of its fiscal
year end.


                                     PART IV

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

(a)(1) Financial Statements

       The  financial  statements  files as part of this report are set forth in
       response to Item 8.

(a)(2) Financial Statement Schedules


(a)(3) Exhibits

Exhibit
Number                                 Description
-------                                -----------

3.1    Restated  Certificate of Incorporation of the Company,  as filed with the
       Securities and Exchange Commission on June 16, 1997 as Exhibit 3.1 to the
       Company's  Form  10-Q for the  period  ended  March  31,  1997  (File No.
       0-22253) and incorporated herein by reference

3.2    Amended and Restated By-laws of the Company, as filed with the Securities
       and Exchange  Commission on June 16, 1997 as Exhibit 3.2 to the Company's
       Form 10-Q for the period  ended  March 31,  1997 (File No.  0-22253)  and
       incorporated herein by reference

4.1    Form of certificate  representing  Common Stock of the Company,  as filed
       with the Securities and Exchange  Commission on March 17, 1997 as Exhibit
       10.14 to the Company's  Registration  Statement on Form S-1 (Registration
       No. 333-12259) and incorporated herein by reference

10.1   Lease  dated  as of  March  6,  1998  by  and  between  Brookdale  Living
       Communities  of  Illinois-H.V.,  Inc., as lessee,  and The Harbor Village
       Business  Trust,  as lessor,  as filed with the  Securities  and Exchange
       Commission  on April 14, 1998 as Exhibit 10.1 to the  Company's  Form 8-K
       dated  March 6,  1998  (File  No.  0-22253)  and  incorporated  herein by
       reference

10.2   Loan Agreement  dated as of March 6, 1998 by and among The Harbor Village
       Business Trust,  Brookdale Living Communities of Illinois-H.V.,  Inc. and
       Nomura  Asset  Capital  Corporation,  as filed  with the  Securities  and
       Exchange  Commission  on April 14, 1998 as Exhibit 10.2 to the  Company's
       Form 8-K dated March 6, 1998 (File No. 0-22253) and  incorporated  herein
       by reference


                                      -35-
<PAGE>

Exhibit
Number                                 Description
-------                                -----------

10.3   Certificate  Pledge  Agreement  dated as of March  6,  1998 by  Brookdale
       Living Communities of Illinois-H.V.,  Inc. in favor of The Harbor Village
       Business Trust,  as filed with the Securities and Exchange  Commission on
       April 14, 1998 as Exhibit 10.3 to the  Company's  Form 8-K dated March 6,
       1998 (File No. 0-22253) and incorporated herein by reference

10.4   Securities Pledge Agreement dated as of March 6, 1998 by Brookdale Living
       Communities  of  Illinois-H.V.,  Inc.  in  favor  of The  Harbor  Village
       Business Trust and Wilmington Trust Company, as filed with the Securities
       and  Exchange  Commission  on  April  14,  1998  as  Exhibit  10.4 to the
       Company's   Form  8-K  dated  March  6,  1998  (File  No.   0-22253)  and
       incorporated herein by reference

10.5   Indemnity  Agreement  dated as of March 6,  1998  from  Brookdale  Living
       Communities,  Inc. in favor of Wilmington  Trust Company and FBTC Leasing
       Corp., as filed with the Securities and Exchange  Commission on April 14,
       1998 as Exhibit 10.5 to the Company's  Form 8-K dated March 6, 1998 (File
       No. 0-22253) and incorporated herein by reference

10.6   Guaranty  and  Suretyship  Agreement  dated  as of  March  6,  1998  from
       Brookdale Living  Communities of  Illinois-H.V.,  Inc. in favor of Nomura
       Asset  Capital  Corporation,  as filed with the  Securities  and Exchange
       Commission  on April 14, 1998 as Exhibit 10.6 to the  Company's  Form 8-K
       dated  March 6,  1998  (File  No.  0-22253)  and  incorporated  herein by
       reference

10.7   Environmental  Indemnity  Agreement  dated  as  of  March  6,  1998  from
       Brookdale  Living  Communities,  Inc.  in favor of Nomura  Asset  Capital
       Corporation,  as filed with the  Securities  and Exchange  Commission  on
       April 14, 1998 as Exhibit 10.7 to the  Company's  Form 8-K dated March 6,
       1998 (File No. 0-22253) and incorporated herein by reference

10.8   Mezzanine  Loan  Agreement  dated as of March 6,  1998 by and  among  The
       Harbor  Village   Business  Trust,   Brookdale   Living   Communities  of
       Illinois-H.V.,  Inc. and Nomura Asset Capital Corporation,  as filed with
       the Securities and Exchange  Commission on April 14, 1998 as Exhibit 10.8
       to the  Company's  Form 8-K dated  March 6, 1998 (File No.  0-22253)  and
       incorporated herein by reference

10.9   Mezzanine  Guaranty and  Suretyship  Agreement  dated as of March 6, 1998
       from  Brookdale  Living  Communities of  Illinois-H.V.,  Inc. in favor of
       Nomura  Asset  Capital  Corporation,  as filed  with the  Securities  and
       Exchange  Commission  on April 14, 1998 as Exhibit 10.9 to the  Company's
       Form 8-K dated March 6, 1998 (File No. 0-22253) and  incorporated  herein
       by reference

10.10  Mezzanine  Environmental  Indemnity  Agreement  dated as of March 6, 1998
       from Brookdale Living Communities,  Inc. in favor of Nomura Asset Capital
       Corporation,  as filed with the  Securities  and Exchange  Commission  on
       April 14, 1998 as Exhibit 10.10 to the Company's  Form 8-K dated March 6,
       1998 (File No. 0-22253) and incorporated herein by reference

10.11  Purchase and Sale  Agreement,  dated as of March 31, 1998, by and between
       Brookdale  Living  Communities  of Michigan,  Inc. and AH Michigan  Owner
       Limited Partnership, as filed with the Securities and Exchange Commission
       on April 15, 1998 as Exhibit 10.1 to the  Company's  Form 8-K dated March
       31, 1998 (File No. 0-22253) and incorporated herein by reference

10.12  Note,  dated  March  31,  1998,  issued  by  AH  Michigan  Owner  Limited
       Partnership  payable  to the order of  Brookdale  Living  Communities  of
       Michigan,  Inc. in the principal amount of  $3,044,082.12,  as filed with
       the Securities and Exchange  Commission on April 15, 1998 as Exhibit 10.2
       to the  Company's  Form 8-K dated March 31, 1998 (File No.  0-22253)  and
       incorporated herein by reference

10.13  Development  Agreement,  dated as of March 31,  1998,  by and  between AH
       Michigan Owner Limited  Partnership and Brookdale  Living  Communities of
       Michigan,  Inc., as filed with the Securities and Exchange  Commission on
       April 15, 1998 as Exhibit 10.3 to the Company's  Form 8-K dated March 31,
       1998 (File No. 0-22253) and incorporated herein by reference

10.14  Guaranty  Agreement,  dated as of March 31,  1998,  issued by AH Michigan
       CPG, Inc. and AH Michigan Subordinated,  LLC in favor of Brookdale Living
       Communities,  Inc., as filed with the Securities and Exchange  Commission
       on April 15, 1998 as Exhibit 10.4 to the  Company's  Form 8-K dated March
       31, 1998 (File No. 0-22253) and incorporated herein by reference

10.15  Collateral  Assignment of  Partnership  Interests,  dated as of March 31,
       1998,  issued by AH Michigan CPG, Inc. and AH  Subordinated,  LLC for the
       benefit of Brookdale Living Communities of Michigan,  Inc., as filed with
       the Securities and Exchange  Commission on April 15, 1998 as Exhibit 10.5
       to the  Company's  Form 8-K dated March 31, 1998 (File No.  0-22253)  and
       incorporated herein by reference


                                      -36-
<PAGE>

Exhibit
Number                                 Description
-------                                -----------

10.16  Purchase and Sale  Agreement,  dated as of March 31, 1998, by and between
       BLC of Texas-II,  L.P. and AH Texas Owner Limited  Partnership,  as filed
       with the Securities and Exchange  Commission on April 15, 1998 as Exhibit
       10.6 to the  Company's  Form 8-K dated March 31, 1998 (File No.  0-22253)
       and incorporated herein by reference

10.17  Note, dated March 31, 1998, issued by AH Texas Owner Limited  Partnership
       payable to the order of BLC of Texas-II,  L.P. in the principal amount of
       $4,016,340.53.,  as filed with the Securities and Exchange  Commission on
       April 15, 1998 as Exhibit 10.7 to the Company's  Form 8-K dated March 31,
       1998 (File No. 0-22253) and incorporated herein by reference

10.18  Development  Agreement,  dated as of March 31,  1998,  by and  between AH
       Texas Owner Limited Partnership and BLC of Texas-II,  L.P., as filed with
       the Securities and Exchange  Commission on April 15, 1998 as Exhibit 10.8
       to the  Company's  Form 8-K dated March 31, 1998 (File No.  0-22253)  and
       incorporated herein by reference

10.19  Guaranty  Agreement,  dated as of March 31, 1998, issued by AH Texas CPG,
       Inc. and AH Texas Subordinated, LLC in favor of BLC of Texas-II, L.P., as
       filed with the  Securities  and Exchange  Commission on April 15, 1998 as
       Exhibit  10.9 to the  Company's  Form 8-K dated  March 31, 1998 (File No.
       0-22253) and incorporated herein by reference

10.20  Collateral  Assignment of  Partnership  Interests,  dated as of March 31,
       1998, issued by AH Texas CPG, Inc. and AH Texas Subordinated, LLC for the
       benefit  of BLC of  Texas-II,  L.P.,  as filed  with the  Securities  and
       Exchange  Commission  on April 15, 1998 as Exhibit 10.10 to the Company's
       Form 8-K dated March 31, 1998 (File No. 0-22253) and incorporated  herein
       by reference

10.21  Development  Agreement,  dated  as of  March  31,  1998,  by and  between
       Brookdale  Living  Communities,  Inc.  and National  Development  Eastern
       Associates, Inc., as filed with the Securities and Exchange Commission on
       May 15, 1998 as Exhibit 10.21 to the  Company's  Form 10-Q for the period
       ended  March 31,  1998  (File No.  0-22253)  and  incorporated  herein by
       reference

10.22  Agreement to Assign Agreement of Sale and Purchase, dated as of March 31,
       1998,  by  and  among  Brookdale  Living   Communities,   Inc.,  National
       Development  Eastern  Associates,  Inc.,  Kenneth A.  LeDonne,  Robert A.
       LeDonne,  Karen A. LeDonne,  Peter O. LeDonne and Dorthea J. LeDonne,  as
       filed with the  Securities  and  Exchange  Commission  on May 15, 1998 as
       Exhibit 10.22 to the  Company's  Form 10-Q for the period ended March 31,
       1998 (File No. 0-22253) and incorporated herein by reference

10.23  Lease  dated  as  of  May  11,  1998  by  and  between  Brookdale  Living
       Communities of California,  Inc., as lessee,  and Atrium of San Jose LLC,
       as lessor-owner,  as filed with the Securities and Exchange Commission on
       May 26, 1998 as Exhibit 10.1 to the Company's Form 8-K dated May 12, 1998
       (File No. 0-22253) and incorporated herein by reference

10.24  Note and Deed of Trust Modification and Assumption  Agreement dated as of
       May 12,  1998 by and among  LaSalle  National  Bank,  as Trustee  for the
       Registered Holders of DLJ Mortgage Acceptance Corp.,  Commercial Mortgage
       Pass-Through Certificates,  Series 1996-CF1 ("Trustee"),  Atrium Venture,
       The  Atrium  of  San  Jose  LLC  and  Brookdale  Living   Communities  of
       California, Inc., as filed with the Securities and Exchange Commission on
       May 26, 1998 as Exhibit 10.2 to the Company's Form 8-K dated May 12, 1998
       (File No. 0-22253) and incorporated herein by reference

10.25  Leasehold  Deed of Trust,  Assignment  of Rents,  Security  Agreement and
       Fixture Filing dated as of May 12, 1998 by Brookdale  Living  Communities
       of California, Inc. in favor of The Atrium of San Jose LLC, as filed with
       the Securities and Exchange Commission on May 26, 1998 as Exhibit 10.3 to
       the  Company's  Form 8-K  dated  May 12,  1998  (File  No.  0-22253)  and
       incorporated herein by reference

10.26  Pledge  and  Security  Agreement  dated as of May 12,  1998 by  Brookdale
       Living Communities of California,  Inc. and The Atrium of San Jose LLC in
       favor of Key Corporate Capital,  Inc. and SELCO Service  Corporation,  as
       filed with the  Securities  and  Exchange  Commission  on May 26, 1998 as
       Exhibit  10.4 to the  Company's  Form 8-K  dated May 12,  1998  (File No.
       0-22253) and incorporated herein by reference

10.27  Indemnity and Guaranty  Agreement dated as of May 12, 1998 from Brookdale
       Living Communities of California,  Inc. and Brookdale Living Communities,
       Inc.  in favor of  Trustee,  as filed with the  Securities  and  Exchange
       Commission  on May 26,  1998 as Exhibit  10.5 to the  Company's  Form 8-K
       dated  May 12,  1998  (File  No.  0-22253)  and  incorporated  herein  by
       reference


                                      -37-
<PAGE>

Exhibit
Number                                 Description
-------                                -----------

10.28  Hazardous  Substances  Indemnity  Agreement dated as of May 12, 1998 from
       The Atrium of San Jose LLC,  Brookdale Living  Communities of California,
       Inc. and Brookdale Living Communities, Inc. in favor of Trustee, as filed
       with the  Securities  and Exchange  Commission on May 26, 1998 as Exhibit
       10.6 to the Company's Form 8-K dated May 12, 1998 (File No.  0-22253) and
       incorporated herein by reference

10.29  Indemnity and Guaranty  Agreement dated as of May 12, 1998 from Brookdale
       Living   Communities,   Inc.  in  favor  of   Healthcare   Realty   Trust
       Incorporated, as filed with the Securities and Exchange Commission on May
       26,  1998 as Exhibit  10.7 to the  Company's  Form 8-K dated May 12, 1998
       (File No. 0-22253) and incorporated herein by reference

10.30  Indemnity  Agreement  dated  as of May 12,  1998 by and  among  Brookdale
       Living  Communities,  Inc.  in  favor  of The  Atrium  of San  Jose  LLC,
       Healthcare Realty Trust Incorporated,  Key Corporate Capital, Inc., SELCO
       Service  Corporation  and  Wilmington  Trust  Company,  as filed with the
       Securities and Exchange Commission on May 26, 1998 as Exhibit 10.8 to the
       Company's Form 8-K dated May 12, 1998 (File No. 0-22253) and incorporated
       herein by reference

10.31  Master  Facility  Agreement,  dated as of June 17,  1998,  by and between
       Brookdale Living  Communities,  Inc. and Nomura Asset Capital Corporation
       as filed with the Securities and Exchange  Commission on July 16, 1998 as
       Exhibit  10.1 to the  Company's  Form 8-K dated  June 25,  1998 (File No.
       0-22253) and incorporated herein by reference

10.32  Loan  Agreement,  dated as of June 17,  1998,  by and among  Nomura Asset
       Capital  Corporation,  AH  Texas  Owner  Limited  Partnership  and BLC of
       Texas-II,  L.P. as filed with the Securities  and Exchange  Commission on
       July 16, 1998 as Exhibit  10.2 to the  Company's  Form 8-K dated June 25,
       1998 (File No. 0-22253) and incorporated herein by reference

10.33  Building Loan  Agreement,  dated as of June 17, 1998, by and among Nomura
       Asset Capital Corporation,  AH Texas Owner Limited Partnership and BLC of
       Texas-II,  L.P. as filed with the Securities  and Exchange  Commission on
       July 16, 1998 as Exhibit  10.3 to the  Company's  Form 8-K dated June 25,
       1998 (File No. 0-22253) and incorporated herein by reference

10.34  Guaranty of Payment of Note,  Rate Lock  Obligations,  Carrying Costs and
       Recourse  Obligations,  dated as of June 17, 1998, from Brookdale  Living
       Communities,  Inc. in favor of Nomura Asset Capital Corporation. as filed
       with the Securities  and Exchange  Commission on July 16, 1998 as Exhibit
       10.4 to the Company's Form 8-K dated June 25, 1998 (File No. 0-22253) and
       incorporated herein by reference

10.35  Guaranty of  Completion,  dated as of June 17, 1998, by Brookdale  Living
       Communities,  Inc. in favor of Nomura Asset Capital  Corporation as filed
       with the Securities  and Exchange  Commission on July 16, 1998 as Exhibit
       10.5 to the Company's Form 8-K dated June 25, 1998 (File No. 0-22253) and
       incorporated herein by reference

10.36  Environmental  Indemnity  Agreement,  dated  as of June  17,  1998,  from
       Brookdale  Living  Communities,  Inc.  in favor of Nomura  Asset  Capital
       Corporation as filed with the Securities and Exchange  Commission on July
       16, 1998 as Exhibit  10.6 to the  Company's  Form 8-K dated June 25, 1998
       (File No. 0-22253) and incorporated herein by reference

10.37  Loan  Agreement,  dated  as of June 17,  1998,  by and  between  Banc One
       Capital Partners IV, Ltd. and AH Texas  Subordinated,  LLC. as filed with
       the Securities  and Exchange  Commission on July 16, 1998 as Exhibit 10.7
       to the  Company's  Form 8-K dated June 25,  1998 (File No.  0-22253)  and
       incorporated herein by reference

10.38  Guaranty  Agreement,  dated as of June 17, 1998,  from  Brookdale  Living
       Communities, Inc. in favor of Banc One Capital Partners IV, Ltd. as filed
       with the Securities  and Exchange  Commission on July 16, 1998 as Exhibit
       10.8 to the Company's Form 8-K dated June 25, 1998 (File No. 0-22253) and
       incorporated herein by reference

10.39  Guaranty of  Completion,  dated as of June 17, 1998, by Brookdale  Living
       Communities, Inc. in favor of Banc One Capital Partners IV, Ltd. as filed
       with the Securities  and Exchange  Commission on July 16, 1998 as Exhibit
       10.9 to the Company's Form 8-K dated June 25, 1998 (File No. 0-22253) and
       incorporated herein by reference

10.40  Non-recourse  Guaranty  Agreement,  dated  as  of  June  17,  1998,  from
       Brookdale Living Communities,  Inc. in favor of Banc One Capital Partners
       IV, Ltd. as filed with the Securities and Exchange Commission on July 16,
       1998 as Exhibit 10.10 to the Company's Form 8-K dated June 25, 1998 (File
       No. 0-22253) and incorporated herein by reference


                                      -38-
<PAGE>

Exhibit
Number                                 Description
-------                                -----------

10.41  Environmental  Indemnity  Agreement,  dated  as of June  17,  1998,  from
       Brookdale Living Communities,  Inc. in favor of Banc One Capital Partners
       IV, Ltd. as filed with the Securities and Exchange Commission on July 16,
       1998 as Exhibit 10.11 to the Company's Form 8-K dated June 25, 1998 (File
       No. 0-22253) and incorporated herein by reference

10.42  Environmental  Indemnity  Agreement,  dated  as of June  17,  1998,  from
       Brookdale Living  Communities,  Inc. in favor of the Indemnified  Parties
       (as defined therein) and AH Texas Owner Limited Partnership as filed with
       the Securities and Exchange  Commission on July 16, 1998 as Exhibit 10.12
       to the  Company's  Form 8-K dated June 25,  1998 (File No.  0-22253)  and
       incorporated herein by reference

10.43  Conditional  Investment  Agreement,  dated  as of June 17,  1998,  by and
       between Brookdale Living  Communities,  Inc. and Banc One Capital Funding
       Corporation as filed with the Securities and Exchange  Commission on July
       16, 1998 as Exhibit 10.13 to the  Company's  Form 8-K dated June 25, 1998
       (File No. 0-22253) and incorporated herein by reference

10.44  Warrant  Certificate,  dated as of June 17,  1998,  issued  by  Brookdale
       Living Communities,  Inc. in favor of Banc One Capital Markets,  Inc. for
       up to 5,000 shares of Common Stock of Brookdale Living Communities,  Inc.
       as filed with the Securities and Exchange  Commission on July 16, 1998 as
       Exhibit  10.14 to the  Company's  Form 8-K dated June 25,  1998 (File No.
       0-22253) and incorporated herein by reference

10.45  Warrant  Certificate,  dated as of June 17,  1998,  issued  by  Brookdale
       Living  Communities,  Inc. in favor of Banc One Capital Partners IV, Ltd.
       for up to 20,000 shares of Common Stock of Brookdale Living  Communities,
       Inc. as filed with the  Securities  and Exchange  Commission  on July 16,
       1998 as Exhibit 10.15 to the Company's Form 8-K dated June 25, 1998 (File
       No. 0-22253) and incorporated herein by reference

10.46  Amended and Restated Development Agreement, dated as of June 17, 1998, by
       and between BLC of Texas-II,  L.P. and AH Texas Owner Limited Partnership
       as filed with the Securities and Exchange  Commission on July 16, 1998 as
       Exhibit  10.16 to the  Company's  Form 8-K dated June 25,  1998 (File No.
       0-22253) and incorporated herein by reference

10.47  Management  Agreement,  dated as of June 17, 1998,  by and between BLC of
       Texas-II,  L.P. and AH Texas Owner Limited  Partnership as filed with the
       Securities  and Exchange  Commission on July 16, 1998 as Exhibit 10.17 to
       the  Company's  Form 8-K  dated  June 25,  1998  (File No.  0-22253)  and
       incorporated herein by reference

10.48  Equity  Option  Agreement,  dated  as of  June  17,  1998,  by and  among
       Brookdale Living Communities,  Inc., AH Texas Owner Limited  Partnership,
       AH Texas  Subordinated,  LLC, AH Texas CGP,  Inc. and AH Texas  Investor,
       Inc. as filed with the  Securities  and Exchange  Commission  on July 16,
       1998 as Exhibit 10.18 to the Company's Form 8-K dated June 25, 1998 (File
       No. 0-22253) and incorporated herein by reference

10.49  Property  Option  Agreement,  dated as of June  17,  1998,  by and  among
       Brookdale Living  Communities,  Inc., AH Texas Owner Limited  Partnership
       and AH Texas Subordinated, LLC, as filed with the Securities and Exchange
       Commission on July 16, 1998 as Exhibit  10.19 to the  Company's  Form 8-K
       dated  June 25,  1998  (File  No.  0-22253)  and  incorporated  herein by
       reference

10.50  Loan  Agreement,  dated as of June 17,  1998,  by and among  Nomura Asset
       Capital Corporation,  AH Michigan Owner Limited Partnership and Brookdale
       Living  Communities  of Michigan,  Inc. as filed with the  Securities and
       Exchange  Commission  on July 16, 1998 as Exhibit  10.20 to the Company's
       Form 8-K dated June 25, 1998 (File No. 0-22253) and  incorporated  herein
       by reference

10.51  Building Loan  Agreement,  dated as of June 17, 1998, by and among Nomura
       Asset Capital  Corporation,  AH Michigan  Owner Limited  Partnership  and
       Brookdale  Living  Communities  of  Michigan,  Inc.  as  filed  with  the
       Securities  and Exchange  Commission on July 16, 1998 as Exhibit 10.21 to
       the  Company's  Form 8-K  dated  June 25,  1998  (File No.  0-22253)  and
       incorporated herein by reference

10.52  Guaranty of Payment of Note,  Rate Lock  Obligations,  Carrying Costs and
       Recourse  Obligations,  dated as of June 17, 1998, from Brookdale  Living
       Communities,  Inc. in favor of Nomura Asset Capital  Corporation as filed
       with the Securities  and Exchange  Commission on July 16, 1998 as Exhibit
       10.22 to the  Company's  Form 8-K dated June 25, 1998 (File No.  0-22253)
       and incorporated herein by reference

10.53  Guaranty of  Completion,  dated as of June 17, 1998, by Brookdale  Living
       Communities,  Inc. in favor of Nomura Asset Capital  Corporation as filed
       with the Securities  and Exchange  Commission on July 16, 1998 as Exhibit
       10.23 to the  Company's  Form 8-K dated June 25, 1998 (File No.  0-22253)
       and incorporated herein by reference


                                      -39-
<PAGE>

Exhibit
Number                                 Description
-------                                -----------

10.54  Environmental  Indemnity  Agreement,  dated  as of June  17,  1998,  from
       Brookdale  Living  Communities,  Inc.  in favor of Nomura  Asset  Capital
       Corporation as filed with the Securities and Exchange  Commission on July
       16, 1998 as Exhibit 10.24 to the  Company's  Form 8-K dated June 25, 1998
       (File No. 0-22253) and incorporated herein by reference

10.55  Loan  Agreement,  dated  as of June 17,  1998,  by and  between  Banc One
       Capital Partners IV, Ltd. and AH Michigan Subordinated, LLC as filed with
       the Securities and Exchange  Commission on July 16, 1998 as Exhibit 10.25
       to the  Company's  Form 8-K dated June 25,  1998 (File No.  0-22253)  and
       incorporated herein by reference

10.56  Guaranty  Agreement,  dated as of June 17, 1998,  from  Brookdale  Living
       Communities, Inc. in favor of Banc One Capital Partners IV, Ltd. as filed
       with the Securities  and Exchange  Commission on July 16, 1998 as Exhibit
       10.26 to the  Company's  Form 8-K dated June 25, 1998 (File No.  0-22253)
       and incorporated herein by reference

10.57  Guaranty of  Completion,  dated as of June 17, 1998, by Brookdale  Living
       Communities, Inc. in favor of Banc One Capital Partners IV, Ltd. as filed
       with the Securities  and Exchange  Commission on July 16, 1998 as Exhibit
       10.27 to the  Company's  Form 8-K dated June 25, 1998 (File No.  0-22253)
       and incorporated herein by reference

10.58  Non-recourse  Guaranty  Agreement,  dated  as  of  June  17,  1998,  from
       Brookdale Living Communities,  Inc. in favor of Banc One Capital Partners
       IV, Ltd. as filed with the Securities and Exchange Commission on July 16,
       1998 as Exhibit 10.28 to the Company's Form 8-K dated June 25, 1998 (File
       No. 0-22253) and incorporated herein by reference

10.59  Environmental  Indemnity  Agreement,  dated  as of June  17,  1998,  from
       Brookdale Living Communities,  Inc. in favor of Banc One Capital Partners
       IV, Ltd. as filed with the Securities and Exchange Commission on July 16,
       1998 as Exhibit 10.29 to the Company's Form 8-K dated June 25, 1998 (File
       No. 0-22253) and incorporated herein by reference

10.60  Environmental  Indemnity  Agreement,  dated  as of June  17,  1998,  from
       Brookdale Living  Communities,  Inc. in favor of the Indemnified  Parties
       (as defined  therein) and AH Michigan Owner Limited  Partnership as filed
       with the Securities  and Exchange  Commission on July 16, 1998 as Exhibit
       10.30 to the  Company's  Form 8-K dated June 25, 1998 (File No.  0-22253)
       and incorporated herein by reference

10.61  Conditional  Investment  Agreement,  dated  as of June 17,  1998,  by and
       between Brookdale Living  Communities,  Inc. and Banc One Capital Funding
       Corporation as filed with the Securities and Exchange  Commission on July
       16, 1998 as Exhibit 10.31 to the  Company's  Form 8-K dated June 25, 1998
       (File No. 0-22253) and incorporated herein by reference

10.62  Warrant  Certificate,  dated as of June 17,  1998,  issued  by  Brookdale
       Living Communities,  Inc. in favor of Banc One Capital Markets,  Inc. for
       up to 5,000 shares of Common Stock of Brookdale Living Communities,  Inc.
       as filed with the Securities and Exchange  Commission on July 16, 1998 as
       Exhibit  10.32 to the  Company's  Form 8-K dated June 25,  1998 (File No.
       0-22253) and incorporated herein by reference

10.63  Warrant  Certificate,  dated as of June 17,  1998,  issued  by  Brookdale
       Living  Communities,  Inc. in favor of Banc One Capital Partners IV, Ltd.
       for up to 20,000 shares of Common Stock of Brookdale Living  Communities,
       Inc. as filed with the  Securities  and Exchange  Commission  on July 16,
       1998 as Exhibit 10.33 to the Company's Form 8-K dated June 25, 1998 (File
       No. 0-22253) and incorporated herein by reference

10.64  Amended and Restated Development Agreement, dated as of June 17, 1998, by
       and  between  Brookdale  Living  Communities  of  Michigan,  Inc.  and AH
       Michigan  Owner  Limited  Partnership  as filed with the  Securities  and
       Exchange  Commission  on July 16, 1998 as Exhibit  10.34 to the Company's
       Form 8-K dated June 25, 1998 (File No. 0-22253) and  incorporated  herein
       by reference

10.65  Management Agreement, dated as of June 17, 1998, by and between Brookdale
       Living  Communities  of  Michigan,  Inc.  and AH Michigan  Owner  Limited
       Partnership as filed with the Securities and Exchange  Commission on July
       16, 1998 as Exhibit 10.35 to the  Company's  Form 8-K dated June 25, 1998
       (File No. 0-22253) and incorporated herein by reference


                                      -40-
<PAGE>

Exhibit
Number                                 Description
-------                                -----------

10.66  Equity  Option  Agreement,  dated  as of  June  17,  1998,  by and  among
       Brookdale   Living   Communities,   Inc.,   AH  Michigan   Owner  Limited
       Partnership, AH Michigan Subordinated,  LLC, AH Michigan CGP, Inc. and AH
       Michigan  Investor,  Inc.  as filed  with  the  Securities  and  Exchange
       Commission on July 16, 1998 as Exhibit  10.36 to the  Company's  Form 8-K
       dated  June 25,  1998  (File  No.  0-22253)  and  incorporated  herein by
       reference

10.67  Property  Option  Agreement,  dated as of June  17,  1998,  by and  among
       Brookdale Living Communities, Inc., AH Michigan Owner Limited Partnership
       and AH  Michigan  Subordinated,  LLC.  as filed with the  Securities  and
       Exchange  Commission  on July 16, 1998 as Exhibit  10.37 to the Company's
       Form 8-K dated June 25, 1998 (File No. 0-22253) and  incorporated  herein
       by reference

10.68  Purchase and Sale Agreement, dated as of June 30, 1998, by and between AH
       North Carolina Owner Limited Partnership and Brookdale Living Communities
       of North Carolina,  Inc., and guaranteed by Brookdale Living Communities,
       Inc. as filed with the  Securities  and Exchange  Commission  on July 17,
       1998 as Exhibit 10.1 to the Company's  Form 8-K dated June 30, 1998 (File
       No. 0-22253) and incorporated herein by reference

10.69  Note,  dated June 30, 1998,  issued by AH North  Carolina  Owner  Limited
       Partnership in favor of Brookdale  Living  Communities of North Carolina,
       Inc.  in  the  principal  amount  of  $1,902,776.97  as  filed  with  the
       Securities  and Exchange  Commission  on July 17, 1998 as Exhibit 10.2 to
       the  Company's  Form 8-K  dated  June 30,  1998  (File No.  0-22253)  and
       incorporated herein by reference

10.70  Development Agreement, dated as of June 30, 1998, by and between AH North
       Carolina Owner Limited  Partnership and Brookdale  Living  Communities of
       North  Carolina,  Inc., and guaranteed by Brookdale  Living  Communities,
       Inc. as filed with the  Securities  and Exchange  Commission  on July 17,
       1998 as Exhibit 10.3 to the Company's  Form 8-K dated June 30, 1998 (File
       No. 0-22253) and incorporated herein by reference

10.71  Guaranty  Agreement,  dated  as of June  30,  1998,  issued  by AH  North
       Carolina CPG, Inc. and AH North  Carolina  Subordinated,  LLC in favor of
       Brookdale  Living  Communities of North Carolina,  Inc. as filed with the
       Securities  and Exchange  Commission  on July 17, 1998 as Exhibit 10.4 to
       the  Company's  Form 10-Q for the period  ended  June 30,  1998 (File No.
       0-22253) and incorporated herein by reference

10.72  Collateral  Assignment  of  Partnership  Interests,  dated as of June 30,
       1998,  issued  by AH North  Carolina  CPG,  Inc.  and AH  North  Carolina
       Subordinated,  LLC for the benefit of  Brookdale  Living  Communities  of
       North Carolina, Inc. as filed with the Securities and Exchange Commission
       on July 17,  1998 as  Exhibit  10.5 to the  Company's  Form  10-Q for the
       period ended June 30, 1998 (File No. 0-22253) and incorporated  herein by
       reference

10.73  Loan Agreement  dated as of April 27, 1998 by and between the Company and
       LaSalle  National  Bank,  as  filed  with  the  Securities  and  Exchange
       Commission on July 17, 1998 as Exhibit  10.51 to the Company's  Form 10-Q
       for the period ended June 30, 1998 (File No.  0-22253)  and  incorporated
       herein by reference

10.74  Note dated April 27,  1998 issued by the Company  payable to the order of
       LaSalle   National  Bank  as  filed  with  the  Securities  and  Exchange
       Commission on July 17, 1998, as Exhibit 10.52 to the Company's  Form 10-Q
       for the period ended June 30, 1998 (File No.  0-22253)  and  incorporated
       herein by reference

10.75  Lease,  dated  as of  July  1,  1998,  by and  between  Brookdale  Living
       Communities  of  Connecticut-WH,  Inc.,  as  lessee,  and  The  Chatfield
       Business Trust,  S.T., as lessor-owner,  as filed with the Securities and
       Exchange  Commission  on July 16, 1998 as Exhibit  10.1 to the  Company's
       Form 8-K dated July 2, 1998 (File No. 0-22253) and incorporated herein by
       reference

10.76  Fixed Rate Program  Promissory  Note  Secured by Mortgage,  dated July 1,
       1998, from The Chatfield Business Trust,  S.T., as maker,  payable to the
       order of  Heller  Financial,  Inc.,  as filed  with  the  Securities  and
       Exchange  Commission  on July 16, 1998 as Exhibit  10.2 to the  Company's
       Form 8-K dated July 2, 1998 (File No. 0-22253) and incorporated herein by
       reference

10.77  Guaranty,   dated  as  of  July  1,  1998,  issued  by  Brookdale  Living
       Communities of Connecticut-WH,  Inc. in favor of Heller Financial,  Inc.,
       as filed with the Securities and Exchange  Commission on July 16, 1998 as
       Exhibit  10.3 to the  Company's  Form 8-K dated  July 2,  1998  (File No.
       0-22253) and incorporated herein by reference

10.78  Certificate  A Pledge  Agreement,  dated as of July 1, 1998, by Brookdale
       Living  Communities  of  Connecticut-WH,  Inc. in favor of The  Chatfield
       Business Trust, S.T., Wilmington Trust Company and LaSalle National Bank,
       as filed with the Securities and Exchange  Commission on July 16, 1998 as
       Exhibit  10.4 to the  Company's  Form 8-K dated  July 2,  1998  (File No.
       0-22253) and incorporated herein by reference


                                      -41-
<PAGE>

Exhibit
Number                                 Description
-------                                -----------

10.79  Certificate  B Pledge  Agreement,  dated as of July 1, 1998, by Brookdale
       Living  Communities  of  Connecticut-WH,  Inc. in favor of The  Chatfield
       Business Trust, S.T., Wilmington Trust Company and LaSalle National Bank,
       as filed with the Securities and Exchange  Commission on July 16, 1998 as
       Exhibit  10.5 to the  Company's  Form 8-K dated  July 2,  1998  (File No.
       0-22253) and incorporated herein by reference

10.80  Hazardous Substance Indemnification  Agreement, dated as of July 1, 1998,
       from Brookdale Living Communities of  Connecticut-WH,  Inc. and Brookdale
       Living  Communities,  Inc. in favor of Heller  Financial,  Inc., as filed
       with the Securities  and Exchange  Commission on July 16, 1998 as Exhibit
       10.6 to the Company's Form 8-K dated July 2, 1998 (File No.  0-22253) and
       incorporated herein by reference

10.81  Indemnity  Agreement,  dated as of July 1, 1998,  from  Brookdale  Living
       Communities, Inc. in favor of Wilmington Trust Company and Bank Hapoalim,
       B.M., as filed with the  Securities  and Exchange  Commission on July 16,
       1998 as Exhibit 10.7 to the  Company's  Form 8-K dated July 2, 1998 (File
       No. 0-22253) and incorporated herein by reference

10.82  Letter  Agreement  regarding  liability for  carve-outs  to  non-recourse
       provisions,  dated July 1, 1998, issued by Brookdale Living  Communities,
       Inc. in favor of Heller Financial, Inc., as filed with the Securities and
       Exchange  Commission  on July 16, 1998 as Exhibit  10.8 to the  Company's
       Form 8-K dated July 2, 1998 (File No. 0-22253) and incorporated herein by
       reference

10.83  First  Amendment to Loan  Agreement and  Documents,  dated as of July 16,
       1998,  by and between the Company and LaSalle  National  Bank.,  as filed
       with the  Securities  and  Exchange  Commission  on November  16, 1998 as
       Exhibit 10.9 to the  Company's  Form 10-Q for the period ended  September
       30, 1998 (File No. 0-22253) and incorporated herein by reference

10.84  Amended  and  Restated  Note dated July 16,  1998  issued by the  Company
       payable  to the  order  of  LaSalle  National  Bank,  as  filed  with the
       Securities and Exchange  Commission on November 16, 1998 as Exhibit 10.10
       to the Company's Form 10-Q for the period ended  September 30, 1998 (File
       No. 0-22253) and incorporated herein by reference

10.85  Lease,  dated as of October 14,  1998,  by and between  Brookdale  Living
       Communities  of New  Mexico-SF,  Inc.,  as lessee,  and The PDL  Business
       Trust,  S.T., as lessor-owner,  as filed with the Securities and Exchange
       Commission on November 2, 1998 as Exhibit 10.1 to the Company's  Form 8-K
       dated  October 21, 1998 (File No.  0-22253)  and  incorporated  herein by
       reference

10.86  Fixed Rate Program Promissory Note Secured by Mortgage, dated October 14,
       1998, from The PDL Business Trust,  S.T., as maker,  payable to the order
       of Heller  Financial,  Inc., as filed with the  Securities  and  Exchange
       Commission on November 2, 1998 as Exhibit 10.2 to the Company's  Form 8-K
       dated  October 21, 1998 (File No.  0-22253)  and  incorporated  herein by
       reference

10.87  Guaranty,  dated as of  October  14,  1998,  issued by  Brookdale  Living
       Communities of New Mexico-SF, Inc. in favor of Heller Financial, Inc., as
       filed with the Securities and Exchange  Commission on November 2, 1998 as
       Exhibit 10.3 to the  Company's  Form 8-K dated October 21, 1998 (File No.
       0-22253) and incorporated herein by reference

10.88  Certificate  A  Pledge  Agreement,  dated  as of  October  14,  1998,  by
       Brookdale Living  Communities of New Mexico-SF,  Inc. in favor of The PDL
       Business Trust, S.T.,  Wilmington Trust Company,  as valuation agent, and
       LaSalle  National  Bank,  as  collateral  account bank, as filed with the
       Securities and Exchange Commission on November 2, 1998 as Exhibit 10.4 to
       the  Company's  Form 8-K dated  October 21, 1998 (File No.  0-22253)  and
       incorporated herein by reference

10.89  Certificate  B  Pledge  Agreement,  dated  as of  October  14,  1998,  by
       Brookdale Living  Communities of New Mexico-SF,  Inc. in favor of The PDL
       Business Trust, S.T.,  Wilmington Trust Company,  as valuation agent, and
       LaSalle  National  Bank,  as  collateral  account bank, as filed with the
       Securities and Exchange Commission on November 2, 1998 as Exhibit 10.5 to
       the  Company's  Form 8-K dated  October 21, 1998 (File No.  0-22253)  and
       incorporated herein by reference

10.90  Hazardous Substance  Indemnification  Agreement,  dated as of October 14,
       1998,  from  Brookdale  Living  Communities  of New  Mexico-SF,  Inc. and
       Brookdale Living Communities, Inc. in favor of Heller Financial, Inc., as
       filed with the Securities and Exchange  Commission on November 2, 1998 as
       Exhibit 10.6 to the  Company's  Form 8-K dated October 21, 1998 (File No.
       0-22253) and incorporated herein by reference


                                      -42-
<PAGE>

Exhibit
Number                                 Description
-------                                -----------

10.91  Indemnity Agreement,  dated as of October 14, 1998, from Brookdale Living
       Communities,  Inc. in favor of Wilmington  Trust  Company,  SELCO Service
       Corporation  and Bank  Hapoalim  B.M., as filed with the  Securities  and
       Exchange  Commission on November 2, 1998 as Exhibit 10.7 to the Company's
       Form 8-K dated  October  21,  1998 (File No.  0-22253)  and  incorporated
       herein by reference

10.92  Letter  Agreement  regarding  liability for  carve-outs  to  non-recourse
       provisions,   dated  October  14,  1998,   issued  by  Brookdale   Living
       Communities,  Inc. in favor of Heller Financial,  Inc., as filed with the
       Securities and Exchange Commission on November 2, 1998 as Exhibit 10.8 to
       the  Company's  Form 8-K dated  October 21, 1998 (File No.  0-22253)  and
       incorporated herein by reference

10.93  Lease,  dated as of December 18, 1998,  by and between  Brookdale  Living
       Communities of California-RC,  Inc., as lessee, and The Woodside Business
       Trust,  as  lessor-owner,  as filed  with  the  Securities  and  Exchange
       Commission on January 6, 1999 as Exhibit 10.1 to the  Company's  Form 8-K
       dated  December 22, 1998 (File No.  0-22253) and  incorporated  herein by
       reference

10.94  Multifamily  Note,  dated December 18, 1998,  from The Woodside  Business
       Trust, as maker, payable to the order of Glaser Financial Group, Inc., as
       filed with the Securities  and Exchange  Commission on January 6, 1999 as
       Exhibit 10.2 to the Company's  Form 8-K dated December 22, 1998 (File No.
       0-22253) and incorporated herein by reference

10.95  Multifamily Guaranty Agreement,  dated as of December 18, 1998, issued by
       Brookdale Living  Communities of  California-RC,  Inc. in favor of Glaser
       Financial  Group,  Inc.,  as  filed  with  the  Securities  and  Exchange
       Commission on January 6, 1999 as Exhibit 10.3 to the  Company's  Form 8-K
       dated  December 22, 1998 (File No.  0-22253) and  incorporated  herein by
       reference

10.96  Multifamily  Leasehold  Deed of  Trust,  Assignment  of  Rents,  Security
       Agreement and Fixture  Filing,  dated as of December 18, 1998,  issued by
       Brookdale Living  Communities of California-RC,  Inc. in favor of Chicago
       Title Company,  as trustee,  for the benefit of Glaser  Financial  Group,
       Inc., as filed with the Securities and Exchange  Commission on January 6,
       1999 as Exhibit 10.4 to the  Company's  Form 8-K dated  December 22, 1998
       (File No. 0-22253) and incorporated herein by reference

10.97  Certificate  A  Pledge  Agreement,  dated as of  December  22,  1998,  by
       Brookdale  Living  Communities  of  California-RC,  Inc.  in favor of The
       Woodside  Business Trust,  Wilmington Trust Company,  as valuation agent,
       and LaSalle National Bank, as collateral  account bank, as filed with the
       Securities and Exchange  Commission on January 6, 1999 as Exhibit 10.5 to
       the  Company's  Form 8-K dated  December 22, 1998 (File No.  0-22253) and
       incorporated herein by reference

10.98  Certificate  B  Pledge  Agreement,  dated as of  December  22,  1998,  by
       Brookdale  Living  Communities  of  California-RC,  Inc.  in favor of The
       Woodside  Business Trust,  Wilmington Trust Company,  as valuation agent,
       and LaSalle National Bank, as collateral  account bank, as filed with the
       Securities and Exchange  Commission on January 6, 1999 as Exhibit 10.6 to
       the  Company's  Form 8-K dated  December 22, 1998 (File No.  0-22253) and
       incorporated herein by reference

10.99  Exceptions to Non-Recourse Guaranty,  dated as of December 18, 1998, from
       Brookdale  Living  Communities,  Inc. in favor of Glaser Financial Group,
       Inc., as filed with the Securities and Exchange  Commission on January 6,
       1999 as Exhibit 10.7 to the  Company's  Form 8-K dated  December 22, 1998
       (File No. 0-22253) and incorporated herein by reference

10.100 Indemnity Agreement, dated as of December 22, 1998, from Brookdale Living
       Communities,  Inc. in favor of Wilmington Trust Company and SELCO Service
       Corporation,  as filed with the  Securities  and Exchange  Commission  on
       January 6, 1999 as Exhibit 10.8 to the Company's  Form 8-K dated December
       22, 1998 (File No. 0-22253) and incorporated herein by reference

10.101 Second Amendment to Loan Agreement and Documents, dated as of October 14,
       1998, by and between the Company and LaSalle National Bank

10.102 Third Amendment to Loan Agreement and Documents,  dated as of October 20,
       1998, by and between the Company and LaSalle National Bank

10.103 Fourth Amendment to Loan Agreement and Documents, dated as of November 3,
       1998, by and between the Company and LaSalle National Bank

10.104 Fifth Amendment to Loan Agreement and Documents, dated as of December 21,
       1998, by and between the Company and LaSalle National Bank


                                      -43-
<PAGE>

Exhibit
Number                                 Description
-------                                -----------

10.105 Third  Amended and  Restated  Note dated  December 21, 1998 issued by the
       Company payable to the order of LaSalle National Bank

10.106 Warrant  Certificate,  dated as of October 23, 1998,  issued by Brookdale
       Living  Communities,  Inc. in favor of Banc One Capital Partners IV, Ltd.
       for up to 33.163 shares of Common Stock of Brookdale Living  Communities,
       Inc.

12     Computation  of Ratio of Earnings to Combined Fixed Charges and Preferred
       Stock Dividends

21     Subsidiaries of the Registrant

23     Consent of Ernst & Young LLP

27     Financial Data Schedule

(b)    Reports on Form 8-K

       On November 2, 1998, the Company filed a Current Report on Form 8-K dated
       October 21, 1998  announcing  pursuant to Item 5 of Form 8-K the lease of
       The Ponce de Leon which commenced on October 21, 1998.

       On November 4, 1998, the Company filed a Current Report on Form 8-K dated
       November 3, 1998 announcing  pursuant to Item 5 of Form 8-K the Company's
       third quarter 1998 results.

       On November  10,  1998,  the Company  filed a Current  Report on Form 8-K
       dated  June  30,  1998  announcing  pursuant  to Item 7 of  Form  8-K the
       Company's  Computation of Ratio of Earnings to Combined Fixed Charges for
       the Six Months Ended June 30, 1998

       On November 19, 1998,  the Company  filed a Current  Report on Form 8-K/A
       dated  June 30,  1998  announcing  pursuant  to Item 7 of Form  8-K/A the
       Company's  Computation of Ratio of Earnings to Combined Fixed Charges for
       the Six Months Ended June 30, 1998

       On December 7, 1998, the Company filed a Current Report on Form 8-K dated
       December 4, 1998 announcing  pursuant to Item 5 of Form 8-K the Company's
       interest in acquiring  ILM Senior  Living,  Inc.,  ILM II Senior  Living,
       Inc., ILM I Lease Corporation and ILM II Lease Corporation.

(c)    Exhibits

       The list of  exhibits  filed with this report is set forth in response to
       Item 14(a)(3).  The required exhibits have been filed as indicated in the
       Exhibit Index.

(d)    Financial Statements and Schedules

       Not applicable.


                                      -44-
<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.

                            BROOKDALE LIVING COMMUNITIES, INC.
                            Registrant


Dated:  March 31, 1999      /s/ Mark J. Schulte                            
                            -----------------------------------------------
                            Mark J. Schulte
                            President and Chief Executive Officer

Dated:  March 31, 1999      /s/ Darryl W. Copeland, Jr.                    
                            -----------------------------------------------
                            Darryl W. Copeland, Jr.
                            Executive Vice President and Chief Financial Officer

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

         /s/ Michael W. Reschke                                   March 31, 1999
         ---------------------------------------------------
         Michael W. Reschke
         Chairman of the Board, Director

         /s/ Mark J. Schulte                                      March 31, 1999
         ---------------------------------------------------
         Mark J. Schulte
         President and Chief Executive Officer, Director
         (Principal Executive Officer)

         /s/ Darryl W. Copeland, Jr.                              March 31, 1999
         ---------------------------------------------------
         Darryl W. Copeland, Jr.
         Executive Vice President and Chief Financial Officer, Director
         (Principal Financial Officer)

         /s/ R. Stanley Young                                     March 31, 1999
         ---------------------------------------------------
         R. Stanley Young
         Senior Vice President - Finance and Treasurer
         (Principal Accounting Officer)

         /s/ Wayne D. Boberg                                      March 31, 1999
         ---------------------------------------------------
         Wayne D. Boberg, Director

         /s/ Bruce L. Gewertz                                     March 31, 1999
         ---------------------------------------------------
         Bruce L. Gewertz, Director

         /s/ Darryl W. Hartley-Leonard                            March 31, 1999
         ---------------------------------------------------
         Darryl W. Hartley-Leonard, Director

         /s/ Daniel J. Hennessy, Director                         March 31, 1999
         ---------------------------------------------------
         Daniel J. Hennessy, Director


                                      -45-