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, 1999
                           ----------------------------------------------------

                                       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)


               330 North Wabash, Suite 1400, Chicago, IL 60611
         (formerly 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 13, 2000, there were 11,574,749  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
($12.875 per share) of the  Registrant's  common  stock on the  Nasdaq  National
Market  on  such  date,  was   $149,024,893.

                       DOCUMENTS INCORPORATED BY REFERENCE

Part III: Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 18, 2000.

<PAGE>
<TABLE>
<CAPTION>


                       BROOKDALE LIVING COMMUNITIES, INC.

                                    Form 10-K

                                December 31, 1999

                                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..............................................................................11
Item 7.    Management's Discussion and Analysis of Financial Condition and
              Results of Operations.............................................................................12
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk...........................................16
Item 8.    Financial Statements and Supplementary Data..........................................................18
Item 9.    Changes in and Disagreements with Accountants on Accounting and
              Financial Disclosure..............................................................................36

Part III
--------

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

Part IV
-------

Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K.....................................37

Signatures......................................................................................................41


</TABLE>
<PAGE>


                                     PART I


ITEM 1.        BUSINESS (dollars in thousands, except operating data)

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,  1999,  the Company
operated 23 senior  independent  and  assisted  living  facilities  in 14 states
containing  a total of 5,094 units  which,  as of December  31,  1999,  were 95%
occupied  (excluding the recently leased Berkshire of Castleton and Benchmark of
Hoffman  Estates  and third  party  developments).  The  Company  owns 4 of such
facilities, leases 15 facilities and manages 4 facilities pursuant to management
contracts.  With facilities that contain an average of approximately  219 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 commence  development of 3 to 4 new
facilities per year containing  approximately 220 units each and plans to pursue
the  acquisition  in leasing of portfolios  consisting of 2 or more  facilities,
although the Company may acquire or lease individual facilities.

     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, 1999,
the average age of  Brookdale's  residents was  approximately  83 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  shares of the  Company's
common  stock.  PGI also  purchased  2,500  shares  of the  4,500  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 330
North Wabash,  Suite 1400,  Chicago,  Illinois 60611 (formerly 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,  any  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.

                                       1

<PAGE>


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 to, 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.

     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 33% between  the years 2000 and 2010.  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 which enables 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 an 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 219 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 3 to 4 facilities  on behalf of third
parties in each of the next 5 years and anticipates  that each  development will
require approximately 20 to 24 months to complete.  See "--Acquisitions,  Leases
and Development."

                                       2

<PAGE>


     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 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, 1999,  the  Company's  facilities,  exclusive of the
recently leased Berkshire of Castleton and Benchmark of Hoffman Estates, and The
Willows, a 54-unit assisted living facility  developed by the Company,  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 82-bed skilled nursing facility under  construction
on the campus of The Devonshire facility, on July 1, 1999 the Company opened The
Willows,  a 54-unit  assisted  living  facility  adjacent to its Hawthorn  Lakes
facility located in Vernon Hills, Illinois.

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 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.

                                       3

<PAGE>


     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,  to the extent
permitted  by state  licensing  authorities,  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  state  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.

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  headquarter's  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

                                       4

<PAGE>


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
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 the  Company's  facilities  and  hospitals and health care
networks.  Hospital  and health care  network  affiliations  provide for on-site
physician and nursing services, 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 the  hospital  or health care  network pay to the
Company  approximates  the annual  amounts the Company pays 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  plans to pursue  the  acquisition  in  leasing  of
portfolios consisting of 2 or more facilities,  although the Company may acquire
or lease  individual  facilities.  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  219  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 3 to 4 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 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 to 18  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 $35,000, or approximately $159 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,

                                       5

<PAGE>


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.

     The table set forth below  summarizes  certain  information  related to the
Company's   operating   lease   transactions,   developments   and  third  party
developments during 1999:

<TABLE>
<CAPTION>

                                                   Operating Leases/Developments
                                                   -----------------------------


         Property                       Location                       Units        Date Leased/Opened
         --------                       --------                       -----        ------------------

         <S>                            <C>                             <C>         <C>
         River Bay Club                 Quincy, MA                      284         January 19, 1999
         The Willows                    Vernon Hills, IL                 54         July 1, 1999
         Berkshire of Castleton         Indianapolis, IN                143         September 14, 1999
         Benchmark of Hoffman Estates   Hoffman Estates, IL             287         December 22, 1999
                                                                        ---
                                            Total Units                 768
                                                                        ===

                                                     Third Party Developments
                                                     ------------------------

                                                                                    Opened/Projected
         Development                    Location                       Units        Completion Date
         -----------                    --------                       -----        ---------------


         <S>                            <C>                             <C>         <C>
         The Heritage at Gaines Ranch   Austin, TX                      208         August, 1999
         The Heritage, Southfield       Southfield, MI                  218         August, 1999
         The Meadows of Glen Ellyn      Glen Ellyn, IL                  234         March, 2000
         The Heritage at Raleigh        Raleigh, NC                     218         September, 2000
         The Hallmark at Battery Park   New York, NY                    217         September, 2000
         The Heritage at Mt. Lebanon    Pittsburgh, PA                  219         February, 2001
                                                                        ---
                                            Total Units               1,314
                                                                      =====

</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 competes with such providers  primarily on the basis of cost, quality of
care and the array of services  provided.  The Company  competes 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.

     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, 1999, the Company is
paid for services it provides to

                                       6

<PAGE>


10 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 the
Company now has or heretofore had an interest.  However, the Company can give 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, 1999, the Company had approximately 2,200 employees,  of
which 103 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  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.

                                        7

<PAGE>


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             44      Chairman of the Board, Director
Mark J. Schulte                46      President and Chief Executive Officer, Director
Robert J. Rudnik               45      Executive Vice President, General Counsel and Secretary, Director
R. Stanley Young               47      Executive Vice President, Chief Financial Officer and Treasurer
David J. Schaus                44      Senior Vice President - Sales and Marketing
Stephan T. Beck                44      Senior Vice President - Operations
Matthew F. Whitlock            35      Vice President - Acquisitions
Sheryl A. Wolf                 37      Vice President - Controller
John H. Mertz, Jr.             41      Vice President - Project Finance
Katherine P. Erickson          39      Vice President - Marketing Services

</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 19 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 as
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.

     Robert J. Rudnik has served as Executive Vice  President,  General  Counsel
and  Secretary  of the Company  since July 1997 and as a Director of the Company
since December 1999. 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 Executive Vice  President,  Chief  Financial
Officer and Treasurer  since December  1999.  From August 1998 to December 1999,
Mr. Young was Senior Vice  President-Finance  and Treasurer of the Company. From
1977 to 1998,  Mr. Young was with KPMG 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 - Sales and  Marketing
of the Company since March 2000.  From August,  1998 to March,  2000, Mr. Schaus
served as Senior Vice  President - Human  Services of the Company.  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 20 years of management experience.

     Stephan T. Beck has served as Senior  Vice  President -  Operations  of the
Company  since May 1999 and Vice  President  -  Operations  from May 1997 to May
1999. 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.

     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>

     Sheryl A. Wolf has served as Vice President-Controller of the Company since
May 1999 and  Controller  from May 1997 to May 1999.  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.

     John H. Mertz,  Jr. has served as Vice  President - Project  Finance  since
April  1999.  From 1985 to 1995,  and again from 1998 to March 1999,  Mr.  Mertz
served as Vice President in the Commercial Real Estate Services Group of Bank of
America  (formerly  Continental  Bank).  From  1995 to 1998,  Mr.  Mertz  was an
independent futures trader at the Chicago Board of Trade.

     Katherine P. Erickson has served as Vice President - Marketing  Services of
the Company since March 1999. From 1995 to March 1999, Ms. Erickson was employed
by Alterra  Healthcare  Corporation as their Corporate Director of Marketing and
was later  promoted  to Vice  President  of  Marketing.  From 1988 to 1995,  Ms.
Erickson  was  employed  by PGI first  working as a marketing  counselor  in its
Senior Housing division and later was promoted to Vice President of Marketing.

ITEM 2.        PROPERTIES (dollars in thousands, except operating data)

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)
--------                                       --------            -----  ------   -----------------------------  ------------
                                                                                     1999      1998       1997
                                                                                     ----      ----       ----

<S>                                         <C>                     <C>     <C>      <C>        <C>       <C>      <C>
The Hallmark............................    Chicago, IL             341     1990     100%       99%       100%     Leased
The Devonshire (4)......................    Lisle, IL               321     1990     100%      100%       100%     Owned
The Classic at West Palm Beach..........    West Palm Beach, FL     301     1990      92%       95%        92%     Leased
The Heritage............................    Des Plaines, IL         255     1993      97%       98%       100%     Owned
Park Place..............................    Spokane, WA             208     1992      94%       95%        88%     Leased
Edina Park Plaza........................    Edina, MN               209     1987      99%       94%        96%     Owned
The Island on Lake Travis...............    Lago Vista, TX          207     1988      98%       90%        91%     Managed
Hawthorn Lakes (5)......................    Vernon Hills, IL        202     1987      94%       98%       100%     Owned
The Springs of East Mesa................    Mesa, AZ                185     1986      96%       95%       100%     Leased
The Gables at Farmington................    Farmington, CT          172     1984      80%       94%        99%     Leased
The Kenwood.............................    Minneapolis, MN         154     1987     100%      100%       100%     Managed
Brendenwood.............................    Voorhees, NJ            143     1987     100%       92%        88%     Leased
The Gables at Brighton..................    Rochester, NY           103     1988      81%       78%        95%     Leased
                                                                   ----
      Total Units as of December 31, 1997                         2,801
                                                                  =====

Kenwood of Lake View
   (formerly Harbor Village) (6)........    Chicago, IL             274     1954      87%       82%       N/A      Leased
The Atrium..............................    San Jose, CA            292     1987     100%      100%       N/A      Leased
Chatfield...............................    West Hartford, CT       119     1989      88%       91%       N/A      Leased
Ponce de Leon...........................    Santa Fe, NM            144     1985      95%       97%       N/A      Leased
Woodside Terrace........................    Redwood City, CA        270     1988      97%       96%       N/A      Leased
                                                                   ----
      Total Units as of December 31, 1998                         3,900
                                                                  =====

The Willows (5).........................    Vernon Hills, IL         54     1999      41%       N/A       N/A      Owned
River Bay Club..........................    Quincy, MA              284     1986      86%       N/A       N/A      Leased
Berkshire of Castleton..................    Indianapolis, IN        143     1986      85%       N/A       N/A      Leased
Benchmark of Hoffman Estates............    Hoffman Estates, IL     287     1987      92%       N/A       N/A      Leased
The Heritage at Gaines Ranch (7)........    Austin, TX              208     1999      N/A       N/A       N/A      Managed
The Heritage, Southfield (7)............    Southfield, MI          218     1999      N/A       N/A       N/A      Managed
                                                                   ----
      Total Units as of December 31, 1999                         5,094
                                                                  =====


(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 11 one-year
     extension options) to 23 years (with two 25-year extension options).
(4)  Total units exclude the 82-bed skilled nursing facility under  construction
     at The Devonshire facility.
(5)  The Willows is a 54-unit  assisted  living  expansion at the Hawthorn Lakes
     facility which opened in July 1999.
(6)  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.
(7)  These  facilities  were developed by the Company for third party owners and
     first opened for occupancy in August, 1999.

</TABLE>

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

                                        9

<PAGE>

<TABLE>
<CAPTION>
                                         Estimated                                Opened/
         Location                          Units             Status          Opening Expected
         --------                        ---------           ------          ----------------

         <S>                                 <C>       <C>                    <C>
         Glen Ellyn, IL                      234       Under Construction     March, 2000
         Raleigh, NC                         218       Under Construction     September, 2000
         New York (Battery Park City), NY    217       Under Construction     September, 2000
         Pittsburgh, PA                      219       Under Construction     February, 2001
         Huntley, IL                         274         In Development       December, 2001
         Columbus, OH                        210         In Development       December, 2001
         Houston, TX                         220         In Development       December, 2001
         Creve Coeur (St. Louis), MO         220         In Development       December, 2001
                                           -----
             Total estimated units         1,812
                                           =====

</TABLE>

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  controlled by Prime
Group Realty Trust,  the  successor-in-interest  to PGI's office and  industrial
divisions.  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 was $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 the signing of the Office Lease and the amendment,
the Company  received  $404 and $452,  respectively,  of cash  payments from the
Landlord for tenant improvements which are amortized over the term of the Office
Lease.

     On September 30, 1999,  the Office Lease was amended,  and the Office Lease
was  terminated  effective  February 29, 2000.  Also on September 30, 1999,  the
Company entered into a ten year operating lease for approximately  30,000 square
feet  of new  corporate  office  space  in a  building  owned  by a  partnership
controlled by Prime Group Realty Trust.  The  operating  lease  provides for the
payment of approximately $2,100 to the Company to pay certain tenant improvement
costs  and  requires  the  payment  of base  rent at  $16.50  per  square  foot,
escalating $0.75 per square foot on each March 1 of the term commencing March 1,
2000, plus operating expenses (as defined in the operating lease).

     As of March 1, 2000, the Company's corporate office is located at 330 North
Wabash, Suite 1400, Chicago, Illinois 60611 (and was formerly 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, 1999.


                                     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>
                                                              1999                      1998
                                                              ----                      ----
                                                         High      Low             High       Low
                                                         ----      ---             ----       ---
             <S>                                        <C>       <C>             <C>       <C>
             First Quarter.....................         $21.00    $14.63          $25.25    $16.50
             Second Quarter ...................          17.38     13.75           29.25     22.63
             Third Quarter.....................          14.50     12.25           25.63     17.44
             Fourth Quarter....................          14.13     11.38           21.59     13.25
</TABLE>

     As of March 13, 2000,  the closing price for the common stock,  as reported
by Nasdaq was $12.875  per share.  At such date,  the Company had  approximately
1,260 holders of record of common stock.

                                       10

<PAGE>

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, 1999 and 1998 and for
the years then ended December 31, 1999, 1998, and the period from May 7, 1997 to
December  31, 1997 and the period from  January 1, 1997 to May 6, 1997 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, 1997, 1996 and 1995 and
for the years ended  December  31,  1996 and 1995,  have been  derived  from the
consolidated  financial  statements of the Company,  and the combined  financial
statements of the  Predecessor  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             Brookdale Living Communities, Inc.
                                              ------------------------------       ---------------------------------------
                                              Years Ended                                                     Years Ended
                                              December 31,                                                    December 31,
                                              ------------     January 1, to             May 7, to           ------------
                                            1995(1)  1996(1)   May 6, 1997(2)       December 31, 1997 (2)  1998       1999
                                            -------  -------   --------------       --------------------   ----       ----
                                                     (in thousands, except per share and operating data)


Statement of Operations Data:
   <S>                                      <C>       <C>         <C>                    <C>             <C>         <C>
   Revenues...............................  $ 21,848  $ 23,221    $ 10,473               $ 30,237        $ 77,701    $105,920
   Facility operating expenses(3).........   (13,253)  (12,805)     (6,102)               (15,892)        (39,935)    (52,923)
   Lease expense..........................         -         -      (3,042)                (6,942)        (17,876)    (25,516)
   General and administrative
    expenses(3) ..........................         -         -           -                 (2,187)         (4,878)     (5,144)
   Depreciation and amortization..........    (4,598)   (3,527)       (857)                (2,967)         (4,853)     (5,928)
   Write-off of deferred financing costs           -         -           -                      -               -        (273)
                                            --------  --------    --------               --------        --------    --------
   Income from operations.................     3,997     6,889         472                  2,249          10,159      16,136
   Interest (expense) income, net.........    (5,421)   (4,524)       (762)                (2,326)            122       1,871
                                            --------  --------    --------               --------        --------    --------
   Income (loss) before minority interest,
     (provision)/benefit for income taxes
     and extraordinary item...............    (1,424)    2,365        (290)                   (77)         10,281      18,007
   Loss (income) allocated to
     minority interest....................       802      (756)       (138)                     -               -           -
                                            --------  --------    --------               --------        --------    --------
   Income (loss) before (provision)/benefit
     for  income  taxes  and  extraordinary
     item.................................      (622)    1,609        (428)                   (77)         10,281      18,007
   (Provision)/benefit for income taxes and
     extraordinary item...................         -         -        (236)                   558          (3,627)     (6,571)
   Extraordinary  item (net of  income  tax
     benefit  of $191  and $24 for 1999 and
     1997, respectively)..................     3,274         -         -                      (36)              -        (311)
                                            --------  --------    --------               --------        --------    --------
   Net income (loss)......................  $  2,652  $  1,609    $   (664)              $    445        $  6,654    $ 11,125
                                            ========  ========    ========               ========        ========    ========
   Basic earnings per common share:
     Income from continuing operations
     before extraordinary item............         -         -         -                 $   0.07        $   0.68    $   1.00
     Extraordinary item...................         -         -         -                    (0.01)              -       (0.03)
                                            --------  --------    --------               --------        --------    --------
     Net income...........................         -         -         -                 $   0.06        $   0.68    $   0.97
                                            ========  ========    ========               ========        ========    ========
   Diluted earnings per common
     share:...............................
     Income from continuing operatings
          before extraordinary
          item............................         -         -                           $   0.07        $   0.67    $   0.92
     Extraordinary item...................         -         -         -                    (0.01)              -       (0.02)
                                            --------  --------    --------               --------        --------    --------
     Net income...........................         -         -         -                 $   0.06        $   0.67    $   0.90
                                            ========  ========    ========               ========        ========    ========
Weighted average shares
outstanding:
     Basic................................         -         -         -                    7,208           9,751      11,411
     Diluted..............................         -         -         -                    7,351           9,978      14,970
Selected Operating and Other
Data:
   Number of facilities (at end
   of period).............................         3         5        (9)                      13              18          23
   Total units operated (4)...............       916     1,204        (9)                   2,801           3,900       5,094
   Occupancy rate (4)(6)..................      98.1%     99.7%       (9)                    96.7%           94.9%       87.8%
   Average monthly revenue per
   unit (5)(6)............................  $  2,015  $  2,050        (9)                $  1,965        $  2,046    $  2,221

                                                                11

<PAGE>


continued

                                                Predecessor Properties               Brookdale Living Communities, Inc.
                                            ------------------------------         ---------------------------------------
                                            Years Ended                                                      Years Ended
                                            December 31,                                                     December 31,
                                            ------------     January 1, to               May 7, to           ------------
                                          1995(1)  1996(1)   May 6, 1997(2)         December 31, 1997 (2)  1998        1999
                                          -------  -------   --------------         --------------------   ----        ----
                                                     (in thousands, except per share and operating data)

Balance Sheet Data:
   Cash and cash equivalents........     $  5,086  $  4,230    $  1,915                  $ 13,292      $    1,065     $   638
   Short-term investments...........            -         -           -                         -               -      12,505
   Cash and investments-
      restricted (7)................        1,733     1,089       2,269                     5,920           8,226       9,835
   Investment certificates -
      restricted....................            -         -           -                         -          15,951      35,637
   Letter of credit deposits (7) ...            -         -           -                    12,138          13,919           -
   Lease security deposits (8) .....            -         -           -                    18,542          55,453      92,735
   Total assets.....................      100,325    57,836      55,982                   183,169         244,633     340,205
   Total long-term debt.............       99,627    65,000      65,000                    96,167          95,880     199,065
   Total stockholders' equity and
      predecessor capital (deficit).        3,597   (25,427)    (28,685)                   57,920         101,316      96,326

</TABLE>

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

(2)  The  financial  and  operating  data for the year ended  December  31, 1997
     represent combined historical financial data for the Predecessor Properties
     until May 6, 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.

(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  deposits  represent cash  collateral  securing the credit
     enhancement  issued to secure the $65,000 of tax-exempt  bonds with respect
     to the Devonshire and Heritage facilities,  which deposits were released in
     1999.   The   Company   earns   interest    income   on   both   cash   and
     investments-restricted  and letter of credit deposit  amounts.  See Notes 3
     and 7 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 (dollars in thousands, except per share and
               operating data)

Overview

     As of  December  31, 1999 and 1998,  the Company  operated 23 and 18 senior
independent and assisted living facilities, respectively,  containing a total of
5,094 units and 3,900 units, respectively.  Four of such facilities are owned by
the Company,  15 facilities (12 facilities at December 31, 1998)  facilities are
leased by the Company and 4 facilities (2  facilities at December 31, 1998,  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 both December 31, 1999 and 1998,
over 99% of the  Company's  resident  fee

                                       12


<PAGE>

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,  insurance 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.

Results of Operations

     During  1999,  growth in  resident  fees and  facility  operating  expenses
resulted both from increases at facilities  owned as of January 1, 1998 and from
leases of new facilities and additions to existing facilities.

     For the year ended  December 31, 1999,  net income on a fully diluted basis
was  $13,487,  or $0.90  per  diluted  share,  on  total  revenues  of  $105,920
(including $0.01 and $0.02 related to the write-off of deferred  financing costs
for the replacement credit enhancement on the Devonshire and Heritage tax-exempt
bonds and an  extraordinary  loss on the  refinancing  of the Edina  Park  Plaza
facility,  respectively).  For the year ended December 31, 1998, net income on a
fully diluted basis was $6,654, or $0.67 per diluted share, on total revenues of
$77,701. The growth in earnings per share in 1999 is on a weighted average share
base of  14,970  shares as a result of the  issuance  of 2,000  shares of common
stock on November 18, 1998 and $100,000 of 5.5% convertible  subordinated  notes
with a  conversion  price of $18.25  on May 14,  1999,  partially  offset by the
repurchase of 1,266 shares of common stock as of December 31, 1999.

     On a "same store" basis revenues,  operating  expenses and operating income
increased  5%,  3% and 19%,  respectively,  to  $65,260,  $54,221  and  $11,039,
respectively.  Weighted  average rental rates per unit per month increased 5.7%,
to $2,328 in 1999 from $2,203 in 1998, respectively.

Comparison of Year Ended December 31, 1999 to Year Ended December 31, 1998

     Revenue.  Total revenue increased by $28,219, or 36.3%, to $105,920 for the
year ended  December 31, 1999 when compared to the year ended December 31, 1998.
Of this  increase,  $27,153  was from  increased  resident  fees,  $934 was from
development fees earned from third parties, and $132 was from management fees.

     Of the increased  resident fees,  $3,251 (an increase of 5.2%) was from the
eleven "same store" properties operated for the full year 1999 and 1998, $16,891
was from the five  properties  leased during 1998 and operated for the full year
1999, and $7,011 was from the three properties leased in 1999.

     Operating  Expenses.  Total  operating  expenses  increased by $22,242,  or
32.9%, to $89,784 for the year ended December 31, 1999 when compared to the year
ended December 31, 1998.  Facility  operating  expenses  increased  $12,988,  or
32.5%;  general and  administrative  expenses  increased  $266,  or 5.5%;  lease
expense increased $7,640, or 42.7%;  depreciation and amortization and write-off
of deferred financing costs increased $1,348, or 27.8%.

     Of the  increased  facility  operating  expenses,  $796 was from the eleven
"same store"  properties  operated  for the full year 1999 and 1998,  $9,092 was
from the five facilities leased during 1998 and operated for the full year 1999,
and $3,100 was from the three facilities leased in 1999.

     The increased  lease expense was due to the five  facilities  leased during
1998 and operated for the full year 1999,  and the three  additional  facilities
leased in 1999.

     General and administrative  expenses increased $266, or 5.5%, primarily due
to increased personnel in the corporate office.

     Depreciation  and  amortization  and write-off of deferred  financing costs
increased $1,348, or 27.8%,  primarily due to the partial year's depreciation of
The  Willows  facility  placed  in  service  on July 1,  1999,  depreciation  of
improvements  at the leased  facilities  depreciated  over the  shorter of their
estimated  useful life or  applicable  lease term,  depreciation  of  additional
furniture,  fixtures and  equipment at the Company's  corporate  office and $273
write-off of deferred  financing costs in connection with the replacement credit
enhancements on the Devonshire and Heritage facilities.

     Interest income increased  $4,885,  or 114.3%,  for the year ended December
31, 1999,  when compared to the year ended  December 31, 1998,  due primarily to
proceeds from the issuance of $100,000 of 5.5%  convertible  subordinated  notes
due  2009,  increase  of  restricted  deposits  in  connection  with the  leased
facilities and development activities, offset partially by the reduction in cash
investments  collateralizing the Devonshire and Heritage  facilities' letters of
credit which collateral was released in 1999.

     Interest expense  increased  $3,136,  or 75.5%, for the year ended December
31, 1999 when compared to December 31, 1998 primarily due to the issuance on May
14, 1999 of $100,000 of 5.5% convertible  subordinated notes due 2009,  issuance
of $6,000 of  variable  rate debt  secured by The  Willows  facility,  increased
mortgage interest for The Devonshire and The Heritage  facilities' variable rate
tax-exempt bonds, partially offset by the reduced borrowings under the unsecured
lines of credit.

                                       13

<PAGE>


     Net  Income.  Net income of $11,125  for the year ended  December  31, 1999
increased  when  compared  to the year ended  December  31, 1998 due to improved
operations for the eleven "same store"  properties,  a full year's  operation of
the five  facilities  leased in 1998 and the  operation of the three  facilities
leased in 1999  partially  offset by the costs  associated  with  financing  and
refinancing transactions.

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 through May 7, 1997, and all of the Company's facilities
thereafter.

     Revenue.  Total revenue increased by $36,991,  or 90.9%, to $77,701 for the
year ended  December 31, 1998 when compared to the year ended December 31, 1997.
Of this  increase,  $31,207 was from increased  resident  fees,  $5,655 was from
development fees earned from third parties, and $129 was from management fees.

     Of the increased  resident fees,  $1,391 (an increase of 4.5%) was from the
five "same store" properties  operated for the full year 1998 and 1997,  $20,040
was from the six properties purchased or leased during 1997 and operated for the
full year 1998, and $9,876 was from the five properties leased in 1998.

     Operating  Expenses.  Total  operating  expenses  increased by $29,553,  or
77.8%, to $67,542 for the year ended December 31, 1998 when compared to the year
ended December 31, 1997.  Facility  operating  expenses  increased  $18,171,  or
83.5%; general and administrative expense increased $2,691, or 123.1% (there was
no general and  administrative  expense prior to the IPO on May 7, 1997);  lease
expense  increased  $7,892,  or 79.0%;  depreciation and amortization  increased
$1,029,  or 26.9%; and property  management fees for the Predecessor  Properties
decreased $230, or 100.0% as a result of the Predecessor  Properties contracting
for outside management.

     Of the  increased  facility  operating  expenses,  ($136) was from the five
"same store"  properties  operated for the full year 1998 and 1997,  $11,919 was
from the six  facilities  purchased  or leased  during 1997 and operated for the
full year 1998, and $6,388 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 $2,691, or 123.1%, due to a
full year of  operation  subsequent  to the  formation  of the Company on May 7,
1997.  Increased general and  administrative  costs were partially offset by the
$230 decrease in property  management fees for the Predecessor  Properties prior
to the formation of the Company on May 7, 1997.

     Depreciation and amortization increased $1,029 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  $3,513,  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 Heritage  facilities'  letters of credit and
investment certificates acquired by the Company in 1998.

     Interest  expense  increased $303 for the year ended December 31, 1998 when
compared  to  December  31,  1997  primarily  due to the full  year of  mortgage
interest in 1998 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 $6,654 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.

Liquidity and Capital Resources

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

     At December  31,  1999,  the Company had cash and cash  equivalents  (which
excludes    cash    and    investments-restricted    of    $9,835,    investment
certificates-restricted  of $35,637,  and lease security deposits of $92,735) of
$638, short-term  investments of $12,505 and $32,065 available under its $35,000
unsecured  line of  credit.  The  decrease  in cash  and cash  equivalents  from
December 31, 1998 was primarily due to the funding of lease security deposits in
connection  with the  leasing  of three  facilities  in 1999,  costs  related to
development  activities,  improvements  at owned and leased  facilities,  common
stock  repurchases,  general  corporate  purposes  and the funding of $12,505 of
short-term  investments,  offset by the issuance of $100,000 of 5.5% convertible
subordinated notes due 2009, release of the cash investments collateralizing The
Devonshire and Heritage  facilities'  letters of credit, and cash generated from
property operations.

                                       14

<PAGE>

     Net cash provided by operating  activities  for the year ended December 31,
1999 increased to $15,494 from $10,289 for the year ended December 31, 1998. The
increase is primarily due to an additional  three  facilities  leased in 1999, a
full year's  operating  results for the five  facilities  leased during 1998 and
improved operating results for the eleven facilities  operated for the full year
1999 and 1998.

     Net cash used in investing  activities for the year ended December 31, 1999
increased to $97,218  from  $66,780 for the year ended  December 31, 1998 due to
increased development activity for third parties and net purchases of short-term
investments from the proceeds of the $100,000 of 5.5%  convertible  subordinated
notes which was partially offset by the decrease in cash paid for lease security
deposits and  acquisitions.  In 1999, the Company leased three  facilities (five
facilities in 1998) and completed  construction  of the 54-unit  assisted living
addition (The Willows) to the Hawthorn Lakes facility.

     Net cash provided by financing  activities  for the year ended December 31,
1999 increased to $81,297 from $44,264 for the year ended December 31, 1998. The
increase was primarily due to the proceeds from the issuance of $100,000 of 5.5%
convertible  subordinated  notes and other debt  financings and $13,919 from the
release of the letter of credit deposits securing $65,000 of tax-exempt bonds as
a result of the replacement credit enhancement offset by repayment of borrowings
under the  unsecured  lines of credit and other  long-term  debt,  purchases  of
treasury  stock and  reduction in proceeds  from the issuance of common stock in
1998.

Company Indebtedness

     As of December  31, 1999 and 1998,  the  Company's  debt was  $199,065  and
$95,880, respectively. The increase is primarily attributable to the issuance of
$100,000 of 5.5%  convertible  subordinated  notes,  with a conversion  price of
$18.25,  due May 2009. As of December 31, 1999 and 1998, the Company had $86,040
and $65,000,  respectively,  of variable rate  long-term  indebtedness  of which
$80,040 and $65,000,  respectively,  was in the form of variable rate tax-exempt
bonds.  The interest rates  (exclusive of credit  enhancement and other fees) on
the variable rate  tax-exempt  bonds were 5.5% and 4.1% at December 31, 1999 and
1998,  respectively  (the average interest rate was 3.4%, 3.5%, and 3.7% for the
years ended December 31, 1999, 1998 and 1997, respectively),  and are subject to
interest  rate caps.  The  tax-exempt  bonds  contain  covenants  requiring  the
facilities to maintain a minimum number of units for income qualified residents.

     The  Company  established  a new line of credit in the amount of $35,000 on
August 1, 1999 and has an effective "shelf"  registration  statement pursuant to
which the  Company may issue up to  $200,000  of equity or debt  securities.  In
November  1998,  the Company issued $33,000 of common stock leaving a balance of
$167,000  that the  Company  may issue in the  future.  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 and debt financing, lease transactions and cash generated from
operations to fund its acquisition and development activities.

Acquisition and Development Activities

     The  Company  currently  plans  to  commence  development  of 3  to  4  new
facilities per year containing approximately 220 units each and focus its future
acquisition/lease  strategy  to  larger  portfolio  transactions.  However,  the
Company may acquire or lease individual facilities. 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 to 18 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 $35,000, or approximately $159 per unit. At March 13, 2000, the
Company had 8 sites under  development for third parties for senior  independent
and  assisted  living  facilities,  4 of  which  were  under  construction.  The
Company's  estimated  capital  expenditures  related to sites under  development
aggregate to approximately  $14,000 to $17,000.  Capital expenditures related to
the  Company's  existing  facilities,  including  the 82-unit  expansion  at the
Devonshire   facility  currently  under   construction,   are  estimated  to  be
approximately $5,000 to $7,000 in 2000.

     In 1998,  the  Company  established  a $100,000  credit  facility  with The
Capital  Company of America LLC  (successor-in-interest  to Nomura Asset Capital
Corporation) ("Lender") pursuant to which the Lender agrees to provide financing
of up to an  aggregate of $100,000  for  projects,  developed by the Company for
third  parties.  In 1998,  an  aggregate  $51,000  of the  credit  facility  was
committed to the Austin,  Texas and Southfield,  Michigan  development  projects
which opened  August 1999.  During  2000,  the Company and the Lender  commenced
discussions  to amend the  credit  facility  and the loans made  thereunder.  In
general,  the  amendment  would  provide  for  the  funding  of the  Pittsburgh,
Pennsylvania  development  project being developed for a third party, no further
obligation of the Lender to fund under the $100,000  commitment,  elimination of
the Lender's  obligation to fund the permanent  loans under the credit  facility
and elimination of the Company's loan resizing  obligation on the Austin,  Texas
and Southfield,  Michigan loans. There can be no assurance that the Company will
be able to execute  the  amendment  or obtain the  financing  necessary  for its
acquisition and development programs.

     The  Company's  growth plan includes the  acquisition  or lease of existing
independent  and  assisted  living  facilities.  The  success  of the  Company's
acquisitions  will be  determined by numerous  factors,  including the Company's
ability  to  identify  suitable  acquisition  candidates,  competition  for such
acquisitions,  the purchase  price,  lease terms and  conditions,  the financial
performance of the facilities  after  acquisition and the ability of the Company
to integrate and operate acquired facilities  effectively.  Any failure to do so
may  have a  material  adverse  effect  on  the  Company's  business,  financial
condition, revenues and earnings.

     The Company's  development  programs are dependent on a variety of factors,
including the ability to identify and purchase suitable  development  sites, the
ability to obtain suitable third-party financing, the ability to locate suitable
contractors to construct the  facilities,  the ability to obtain required zoning
and permits, and the ability to complete and lease-up the facilities on schedule
and within budget.

                                       15

<PAGE>

     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.

Competition

     The long-term care industry is highly  competitive  and the independent and
assisted  living  segment is  becoming  increasingly  competitive.  The  Company
competes  with many other  providers of  long-term  care  alternatives,  such as
not-for-profits,  home health care agencies,  facility-based  service  programs,
retirement communities,  convalescent centers and other independent and assisted
living  providers.   In  pursuing  the  Company's   development  and  operations
strategies,  the Company has  experienced  and expects to continue to experience
increased   competition  in  its  efforts  to  develop  and  acquire  and  lease
independent and assisted living facilities.  Consequently,  the Company can give
no assurance that it will not encounter  increased  competition that could limit
its  ability to attract  residents  or expand its  business,  which could have a
material adverse effect on its revenues and earnings.

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 12 or 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. At December 31, 1999, approximately $86,040 in principal amount of
the  Company's  indebtedness  bore interest at tax-exempt  floating  rates.  The
Company's  exposure to rising interest rates is mitigated by using interest rate
caps on $80,040 of its floating rate debt. Inflation, and its impact on floating
interest  rates,  could  affect  the  amount of  interest  payments  due on such
indebtedness.

Year 2000

     The Company  implemented  a program to assess,  remediate  and mitigate the
potential  impact of the Year 2000 Issue  throughout the Company.  The Company's
program  was   structured   to  address  its  internal   computer   systems  and
applications, network services operations, facilities operations and third-party
vendors and suppliers.  As a result of the planning and implementation  efforts,
the Company did not experience any disruption due to the Year 2000 Issue. During
2000,  the Company is continuing  to upgrade its  accounting,  human  resources,
property  management  and  marketing  systems to meet its  internal and external
needs.  Through  December 31, 1999,  the Company had  capitalized  approximately
$4,288 upgrading such systems. The Company will continue to monitor its computer
systems and applications, network services operations, facilities operations and
third-party  vendors  and  suppliers  to ensure  that any Year 2000  Issues  are
addressed promptly.

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

     The  Company  is  exposed  to  interest  rate risk  primarily  through  its
borrowing and leasing  activities.  The Company's  interest rate risk management
objective  is to limit the impact of interest  rate changes on earnings and cash
flows and to lower its overall  costs.  To achieve its  objectives,  the Company
borrows and leases at fixed rates and may enter into  swaps,  caps and  treasury
locks to mitigate  its  interest  rate risk on a related  financial  instrument.
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.

                                       16

<PAGE>


     Long-term  debt and  related  contracts  to  limit  interest  rate  risk at
December 31, 1999 is as follows:

<TABLE>
<CAPTION>

                                                                                                  Interest Rate Cap
                                                                                  -----------------------------------------------
                                                          Rate at                  Fixed                   Approximate Fair Value
                                            Amount     Dec. 31, 1999   Maturity    Rate     Maturity          at Dec. 31, 1999
                                            ------     -------------   -------     ----     --------       ----------------------

Fixed rate debt

     <S>                                   <C>           <C>           <C>        <C>      <C>                   <C>
     Convertible subordinated notes....... $ 100,000         5.5%        2009          -          -               $     -
     Mortgage loan........................    13,025       8.525%        2027          -          -                     -
                                           ---------
                                             113,025
                                           ---------

Variable rate debt:
     LIBOR plus 1.625%..................       6,000       7.726%        2002          -          -                     -
     Tax-exempt.........................      65,000        5.46%     2019-2025     6.35%    6/1/04                   281
     Tax-exempt.........................      15,040        5.45%        2029       6.58%   12/1/04                    74
                                           ---------       ======     =========     =====   =======               -------
                                              86,040                                                                  355
                                           ---------                                                              -------
Total...................................   $ 199,065                                                              $   355
                                           =========                                                              =======
</TABLE>


     If interest rates on the Company's variable rate debt, including tax-exempt
bonds,  increased  by 1 percentage  point as of December  31,  1999,  the annual
interest expense would increase by approximately $860.

     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.
The lease for four of the facilities  requires the payment of additional rent of
10% of the excess of each year's revenue compared to 1998.

                                       17

<PAGE>


ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     Financial Statement

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

<TABLE>
<CAPTION>

     <S>                                                                                                                <C>
     Report of Independent Auditors.....................................................................................19

     Consolidated  Balance Sheets of Brookdale Living  Communities,  Inc. as of December 31, 1999
     and 1998...........................................................................................................20

     Consolidated  Statements of Operations of Brookdale Living  Communities,  Inc. for the years
     ended  December 31,  1999 and 1998 and for the period from May 7,  1997 through December 31,
     1997 and Combined  Statement of Operations of the  Predecessor  Properties  (predecessor  to
     Brookdale Living Communities, Inc.) for the period from January 1, 1997 through May 6, 1997........................21

     Consolidated  Statements of Stockholders'  Equity of Brookdale Living Communities,  Inc. for
     the years  ended  December 31,  1999 and 1998 and for the  period  from May 7, 1997  through
     December 31, 1997..................................................................................................22

     Combined  Statement 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................................................................................................23

     Consolidated  Statements of Cash Flows of Brookdale Living  Communities,  Inc. for the years
     ended  December 31,  1999 and 1998 and for the period from May 7,  1997 through December 31,
     1997  and  Combined  Statement  of Cash  Flows of  Predecessor  Properties  (predecessor  to
     Brookdale Living Communities, Inc.) for the period from January 1, 1997 through May 6, 1997........................24

     Notes to Consolidated and Combined  Financial  Statements of Brookdale  Living  Communities,
     Inc. and the Predecessor Properties (predecessor to Brookdale Living Communities, Inc.)............................26

</TABLE>

     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.

                                       18


<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,  1999 and 1998,  and the  related  consolidated
statements  of  operations,  stockholders'  equity  and cash flows for the years
ended  December  31,  1999 and 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. 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  auditing  standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit  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, 1999 and 1998, and
the consolidated  results of their operations and their cash flows for the years
ended  December  31, 1999 and 1998 and for the period  from May 7, 1997  through
December 31,  1997,  and the combined  changes in partners'  capital  (deficit),
results of  operations  and cash flows of the  Predecessor  Properties,  for the
period from January 1, 1997 through May 6, 1997, in conformity  with  accounting
principles generally accepted in the United States.



                                ERNST & YOUNG LLP


Chicago,  Illinois
February 24, 2000, except for
Note 17 as to which the date
is March 13, 2000

                                       19

<PAGE>

<TABLE>
<CAPTION>

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

                                            CONSOLIDATED BALANCE SHEETS OF THE COMPANY
                                                    December 31, 1999 and 1998
                                             (In Thousands, Except Par Value Amounts)


                                    Assets                                                     1999              1998
                                                                                               ----              ----
<S>                                                                                     <C>               <C>
Current assets:
Cash and cash equivalents ......................................................        $       638       $     1,065
Short-term investments..........................................................             12,505                 -
Accounts receivable.............................................................              1,188               379
Notes receivable................................................................              5,147             3,486
Reimbursable development costs..................................................             10,958             9,815
Prepaid expenses and other......................................................              4,456             4,752
                                                                                        -----------       -----------
      Total current assets......................................................             34,892            19,497
                                                                                        -----------       -----------

Property, plant and equipment...................................................            139,323           115,801
Accumulated depreciation........................................................            (10,472)           (5,689)
                                                                                       -------------      ------------
Property, plant and equipment, net..............................................            128,851           110,112
                                                                                       ------------       -----------

Property under development......................................................             13,401            11,221
Cash and investments - restricted...............................................              9,835             8,226
Investment certificates - restricted............................................             35,637            15,951
Letter of credit deposits.......................................................                  -            13,919
Lease security deposits.........................................................             92,735            55,453
Other...........................................................................             24,854            10,254
                                                                                       ------------       -----------
      Total assets..............................................................       $    340,205       $   244,633
                                                                                       ============       ===========

                         Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt...............................................       $        118       $     3,310
Unsecured line of credit........................................................                  -            10,997
Current portion of deferred gain on sale of property............................                805               806
Accrued interest payable........................................................                413               968
Accrued real estate taxes.......................................................              1,957             1,485
Accounts payable and accrued expenses...........................................             10,294             7,749
Tenant refundable entrance fees and security deposits...........................              7,648             5,838
Other...........................................................................                574               629
                                                                                       ------------       -----------
      Total current liabilities.................................................             21,809            31,782
                                                                                       ------------       -----------

Long-term debt, less current portion............................................            198,947            92,570
Deferred lease liability........................................................              2,885             2,849
Deferred gain on sale of property, less current portion.........................             15,311            16,116
Deferred income taxes...........................................................              4,927                 -
                                                                                       ------------       -----------
      Total liabilities.........................................................            243,879           143,317
                                                                                       ------------       -----------
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value, 20,000 authorized, none issued.................                  -                 -
Common stock,  $.01 par value,  75,000  shares  authorized,  11,575,  and 11,572
   shares issued and outstanding at December 31, 1999 and 1998, respectively....                116               116
Additional paid-in-capital......................................................             94,134            94,101
Accumulated earnings............................................................             18,224             7,099
Treasury stock, 1,266 common shares at December 31, 1999, at cost...............            (16,148)                -
                                                                                       -------------      -----------
      Total stockholders' equity................................................             96,326           101,316
                                                                                       ------------       -----------
      Total liabilities and stockholders' equity................................       $    340,205       $   244,633
                                                                                       ============       ===========




See accompanying notes to consolidated and combined financial statements.

                                       20
</TABLE>
<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
                                            STATEMENT 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 December 31,              through               through
                                                     1999              1998          December 31, 1997        May 6, 1997
                                                     ----              ----          -----------------        -----------
<S>                                            <C>               <C>                  <C>                  <C>
Revenue
Resident fees................................  $    98,938       $    71,785           $    30,105          $     10,473
Development fees.............................        6,589             5,655                     -                     -
Management fees..............................          393               261                   132                     -
                                               -----------       -----------           -----------          ------------
     Total revenue...........................      105,920            77,701                30,237                10,473
                                               -----------       -----------           -----------          ------------

Expenses
Facility operating...........................       52,923            39,935                15,892                 5,872
General and administrative...................        5,144             4,878                 2,187                     -
Lease expense................................       25,516            17,876                 6,942                 3,042
Depreciation and amortization................        5,928             4,853                 2,967                   857
Write-off of deferred financing costs........          273                 -                     -                     -
Property management fees.....................            -                 -                     -                   230
                                               -----------       -----------           -----------          ------------
     Total operating expenses................       89,784            67,542                27,988                10,001
                                               -----------       -----------           -----------          ------------
Income from operations.......................       16,136            10,159                 2,249                   472
Interest income..............................        9,160             4,275                   694                    68
Interest expense.............................       (7,289)           (4,153)               (3,020)                 (830)
                                               -----------       -----------           -----------          ------------
Income (loss) before minority interest,
   (provision)/benefit for income taxes
   and extraordinary item....................       18,007            10,281                   (77)                 (290)
Minority interest............................            -                 -                     -                  (138)
(Provision)/benefit for income taxes.........       (6,571)           (3,627)                  558                  (236)
                                               -----------       -----------           -----------          ------------
Income (loss) from continuing operations
   before extraordinary item.................       11,436             6,654                   481                  (664)
Extraordinary item (net of income
   tax benefit of $191 and $24 for
   1999 and 1997, respectively)..............         (311)                -                   (36)                    -
                                               -----------       -----------           -----------          ------------
     Net income (loss).......................  $    11,125       $     6,654           $       445          $       (664)
                                               ===========       ===========           ===========          ============
Basic earnings per common share:
   Income from continuing operations
     before extraordinary item...............  $      1.00       $      0.68           $      0.07
   Extraordinary item........................        (0.03)                -                 (0.01)
                                               -----------       -----------           -----------
   Net income................................  $      0.97       $      0.68           $      0.06
                                               ===========       ===========           ===========

Diluted earnings per common share:
   Income from continuing operations
     before extraordinary item...............  $      0.92       $      0.67           $      0.07
   Extraordinary item........................        (0.02)                -                 (0.01)
                                               -----------       -----------           -----------
   Net income................................  $      0.90       $      0.67           $      0.06
                                               ===========       ===========           ===========

   Weighted average shares used for
     computing basic earnings per share......       11,411             9,751                 7,208
                                               ===========       ===========           ===========

   Weighted average shares used for
     computing diluted earnings per share....       14,970             9,978                 7,351
                                               ===========       ===========           ===========



See accompanying notes to consolidated and combined financial statements.

</TABLE>

                                       21

<PAGE>

<TABLE>
<CAPTION>

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

                                  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY OF THE COMPANY

                                            YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
                                         PERIOD FROM MAY 7, 1997 THROUGH DECEMBER 31, 1997
                                                          (In Thousands)


                                              Common stock                                                               Total
                                         ------------------------      Additional      Accumulated      Treasury      Stockholders'
                                         Shares            Amount    Paid-In Capital    Earnings          Stock          Equity
                                         ------            ------    ---------------   -----------      --------      -------------

<S>                                      <C>             <C>           <C>              <C>            <C>               <C>
Balances at May 7, 1997.................      -         $       -      $         -     $         -     $       -        $       -
Reclassification of net deficit of
predecessor.............................      -                 -          (28,685)              -             -          (28,685)
Deferred tax asset......................      -                 -            4,002               -             -            4,002
Issuance of common stock, net...........  9,175                92           82,066               -             -           82,158
Net income..............................      -                 -                -             445             -              445
                                        -------         ---------      -----------     -----------     ---------        ---------
Balances at December 31, 1997...........  9,175                92           57,383             445             -           57,920
                                        -------         ---------      -----------     -----------     ---------        ---------

Issuance of common stock, net...........  2,397                24           36,234               -             -           36,258
Tax benefit on stock options............      -                 -              484               -             -              484
Net income..............................      -                 -                -           6,654             -            6,654
                                        -------         ---------      -----------     -----------     ---------        ---------
Balances at December 31, 1998........... 11,572               116           94,101           7,099             -          101,316
                                        -------         ---------      -----------     -----------     ---------        ---------

Issuance of common stock................      3                 -               31               -             -               31
Tax benefit on stock options............      -                 -                2               -             -                2
Acquisition of 1,266 common shares......      -                 -                -               -       (16,148)         (16,148)
Net income..............................      -                 -                -          11,125             -           11,125
                                        -------         ---------      -----------     -----------     ---------        ---------
Balances at December 31, 1999........... 11,575         $     116      $    94,134     $    18,224     $ (16,148)       $  96,326
                                        =======         =========      ===========     ===========     ==========       =========



See accompanying notes to consolidated and combined financial statements.

</TABLE>

                                                                22

<PAGE>



            PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)

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

                 PERIOD FROM JANUARY 1, 1997 THROUGH MAY 6, 1997
                                 (In Thousands)


Balance at January 1, 1997......................................... $   (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.

                                       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
                                            STATEMENT OF CASH FLOWS OF THE PREDECESSOR
                                                          (In Thousands)


                                                          Brookdale Living Communities, Inc.          Predecessor Properties
                                                          ----------------------------------          -----------------------
                                                             Year Ended           Period from               Period from
                                                            December 31,          May 7, 1997             January 1, 1997
                                                       ----------------------       through                   through
                                                          1999         1998     December 31, 1997           May 6, 1997
                                                          ----         ----     -----------------           -----------
<S>                                                   <C>            <C>          <C>                       <C>
Cash Flows from Operating Activities:
Net income (loss)..................................   $ 11,125       $  6,654     $     445                  $   (664)
   Adjustments to reconcile net income (loss) to net
     cash provided by operating activities:
     Depreciation and amortization.................      5,928          4,853         2,967                       857
     Write-off of deferred financing costs.........        273              -             -                         -
     Minority interest.............................          -              -             -                       138
     Extraordinary item............................        311              -            36                         -
     Increase in deferred lease liability..........         36          1,038         1,379                       419
     Deferred gain on sale of property.............       (805)          (806)         (525)                     (281)
     Deferred income taxes.........................      6,189          2,628          (582)                        -
     Changes in:
       Accounts receivable.........................       (809)           (67)         (218)                       (5)
       Prepaid expenses and other assets...........     (9,611)        (7,719)       (1,120)                      597
       Due from/to affiliates, net.................          -              -            53                      (763)
       Accrued interest payable....................       (555)           402           273                       111
       Accrued real estate taxes...................        172             24           199                        54
       Accounts payable and accrued expenses.......      2,599          4,671         1,786                       377
       Tenant refundable entrance fees and
         security deposits.........................        257             (8)          374                        35
       Other liabilities...........................        384         (1,380)       (2,101)                    1,022
                                                      --------       --------     ---------                  --------
           Net cash provided by operating
            activities.............................     15,494         10,289         2,966                     1,897
                                                      --------       --------     ---------                  --------
Cash Flows from Investing Activities:
   Cash paid for lease security
     deposits and acquisitions, net................    (36,234)       (35,203)      (47,705)                        -
   Proceeds from sale of  property
     under development, net........................      2,211          5,550             -                         -
   Changes in cash and
     investments-restricted........................     (1,088)          (758)       (2,614)                   (1,180)
   Increase in investment
     certificates-restricted.......................    (19,686)       (15,951)            -                         -
   Cash paid for property
     under development.............................    (18,284)       (18,615)       (8,350)                       (2)
   Payments received on notes receivable...........      3,303          9,785             -                         -
   Purchase of short-term investments..............    (55,000)             -             -                         -
   Sales of short-term investments.................     42,495              -             -                         -
   Additions to property, plant and equipment and
     reimbursable development costs................    (14,935)       (11,588)       (1,769)                     (149)
                                                      --------       --------     ---------                  --------
         Net cash used in investing activities.....    (97,218)       (66,780)      (60,438)                   (1,331)
                                                      --------       --------     ---------                  --------
Cash Flows from Financing Activities:
   Repayment of long-term debt.....................    (17,855)          (286)         (178)                        -
   Proceeds from long-term debt....................    121,040              -             -                         -
   Payment of deferred costs.......................     (8,695)          (923)         (993)                     (287)
   Proceeds from unsecured lines of credit.........     31,933         46,946             -                         -
   Repayment of unsecured lines of credit..........    (42,930)       (35,950)            -                         -
   Decrease (increase) in letter of credit
     deposit.......................................     13,919         (1,781)      (12,138)                        -
   Proceeds from issuance of common stock, net.....         33         36,258        82,158                         -
   Purchase of treasury stock......................    (16,148)             -             -                         -
   Net contributions, advances/distributions to
     partners......................................          -              -             -                    (2,594)
                                                      --------       --------     ---------                  --------
         Net cash provided by (used in)
           financing activities....................     81,297         44,264        68,849                    (2,881)
                                                      --------       --------     ---------                  --------

         Net (decrease) increase in cash and
           cash equivalents........................       (427)       (12,227)       11,377                    (2,315)
         Cash and cash equivalents at beginning
           of period...............................      1,065         13,292         1,915                     4,230
                                                      --------       --------     ---------                  --------
         Cash and cash equivalents at end
           of period...............................   $    638       $  1,065     $  13,292                  $  1,915
                                                      ========       ========     =========                  ========


See accompanying notes to consolidated and combined financial statements.

                                                                24
</TABLE>

<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
                                      STATEMENT OF CASH FLOWS OF THE PREDECESSOR (continued)
                                                          (In Thousands)


                                                        Brookdale Living Communities, Inc.              Predecessor Properties
                                                     ------------------------------------------        ------------------------
                                                                                     Period from             Period from
                                                      Year Ended December 31,        May 7, 1997            January 1, 1997
                                                      -----------------------          through                  through
                                                      1999              1998      December 31, 1997           May 6, 1997
                                                      ----              ----      -----------------           -----------

Supplemental Disclosure of Cash Flow Information:
      <S>                                           <C>               <C>            <C>                       <C>
     Interest paid, net of amounts
     capitalized.............................       $   7,844         $   3,751      $   2,747                 $   723
                                                    =========         =========      =========                 =======

     Income taxes paid.......................       $     527         $     661      $       -                 $     -
                                                    =========         =========      =========                 =======

Supplemental Schedule of Noncash Investing
and Financing Activities:
   In connection with net lease transactions and
   acquisitions, assets acquired and liabilities
   assumed were as follows:
     Fair value of assets acquired...........       $  35,994         $  35,151      $  87,260                 $     -
     Less cash paid..........................          34,002            31,591         47,643                       -
                                                    ---------         ---------      ---------                  ------
     Net liabilities assumed.................       $   1,992         $   3,560      $  39,617                 $     -
                                                    =========         =========      =========                 =======

   Write-off of fully amortized and deferred
     financing costs.............................   $   1,596         $      16      $       -                 $     -
                                                    =========         =========      =========                 =======
   Reclassification of property under
     development to property, plant
      and equipment..............................   $  11,724         $       -      $       -                 $     -
                                                    =========         =========      =========                 =======
   Reclassification of reimbursable costs to
      property, plant and equipment..............   $   3,149         $       -      $       -                 $     -
                                                    =========         =========      =========                 =======
   Tax benefit in connection with exercise of
     stock options...............................   $       2         $     484      $       -                 $     -
                                                    =========         =========      =========                 =======

</TABLE>

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

<TABLE>
<CAPTION>

<S>                                                                   <C>
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.

</TABLE>

                                       25

<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>
<CAPTION>

                              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 (6)                       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 at Brighton (1)               May 7, 1997                        Rochester, NY
                              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
                              Brendenwood                              December 22, 1997                  Vorhees, NJ
                              Kenwood of Lake View
                                (formerly Harbor Village)              March 6, 1998                      Chicago, IL
                              The Atrium                               May 12, 1998                       San Jose, CA
                              Chatfield                                July 2, 1998                       West Hartford, CT
                              Ponce de Leon                            October 21, 1998                   Sante Fe, NM
                              Woodside Terrace                         December 22, 1998                  Redwood City, CA
                              River Bay Club                           January 19, 1999                   Quincy, MA
                              Berkshire of Castleton                   September 14, 1999                 Indianapolis, IN
                              Benchmark of Hoffman Estates             December 22, 1999                  Hoffman Estates, IL

        Managed Facilities:   The Island on Lake Travis (2)                                               Lago Vista, TX
        ------------------    The Kenwood (3)                                                             Minneapolis, MN
                              The Heritage at Gaines Ranch (4)                                            Austin, TX
                              The Heritage, Southfield (4)                                                Southfield, MI

        Development Projects Under Construction(5):
        ------------------------------------------
        Glen Ellyn, IL
        Raleigh, NC
        New York (Battery Park City), NY
        Pittsburgh, PA

</TABLE>
                                                                26

<PAGE>


     (1)  Collectively referred to as "the Predecessor Properties"
     (2)  Management services commenced May 7, 1997
     (3)  Management services commenced July 1, 1997
     (4)  The  Company  developed  these  projects  for third  party  owners and
          commenced management August 1, 1999
     (5)  The Company is developing these projects for third party owners
     (6)  The Company developed The Willows,  a 54-unit assisted living facility
          (adjacent  to the  Hawthorn  Lakes  facility)  which opened on July 1,
          1999.

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.  All
     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  accounting  principles  generally  accepted in the United
     States 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.

     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 or 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.

                                       27

<PAGE>


     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 bases 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.

     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 (the "FASB") issued
     Statement of Financial  Accounting  Standards ("SFAS") No. 133, "Accounting
     for Derivative  Investments and Hedging Activities".  SFAS No. 133 provides
     guidance for the  recognition  and  measurement of derivatives  and hedging
     activities.  Originally  SFAS  No.  133  was  effective  for  fiscal  years
     beginning after June 15, 1999.  However, in June 1999, the FASB issued SFAS
     No. 137,  "Accounting for Derivative  Instruments and Hedging  Activities -
     Deferral of the  Effective  Date of FASB  Statement  No. 133." SFAS No. 137
     defers the  effective  date of SFAS No. 133 for one year.  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 to the
     current financial statement presentation.

3.   Cash and Investments - Restricted and Investment Certificates-Restricted

     Cash and investments-restricted consists of:

<TABLE>
<CAPTION>
                                                             December 31,
                                                             ------------
                                                          1999         1998
                                                          ----         ----

           <S>                                       <C>           <C>
           Life Care escrow deposits                 $    3,167    $   3,033
           Tenant security deposits                       3,436        2,346
           Construction escrow deposit                        -        1,150
           Real estate tax and insurance reserve          3,232        1,697
                                                     ----------     --------

             Total cash and investments-restricted   $    9,835    $   8,226
                                                     ==========    =========
</TABLE>

     Properties  located  in  Illinois  are  required  to make Life Care  escrow
     deposits  either in cash or letters of credit under the Illinois  Life Care
     Facility Act,  Section 7(b) 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% - 12% per annum.

4.   Property, Plant and Equipment

     Property, plant and equipment consists of:

<TABLE>
<CAPTION>
                                                            December 31,
                                                            ------------
                                                          1999          1998
                                                          ----          ----

           <S>                                       <C>           <C>
           Land                                      $    13,535   $    9,988
           Buildings and improvements                    108,540       99,262
           Leasehold improvements                          4,999        1,361
           Furniture and equipment                        12,249        5,190
                                                     -----------   ----------
                                                         139,323      115,801
           Less accumulated depreciation                 (10,472)      (5,689)
                                                     -----------   ----------
           Net property, plant and equipment         $   128,851   $  110,112
                                                     ===========   ==========
</TABLE>

                                       28

<PAGE>

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

5.   Deferred Costs

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

<TABLE>
<CAPTION>
                                                               December 31,
                                                               ------------
                                                            1999         1998

                                                            ----         ----
           <S>                                            <C>          <C>
           Bond credit enhancement and deferred
             financing costs                              $  10,428    $   3,631
           Lease costs                                          133          179
                                                          ---------    ---------
                                                             10,561        3,810
           Less accumulated amortization                     (1,644)      (1,511)
                                                          ---------    ---------
           Net deferred costs                             $   8,917    $   2,299
                                                          =========    =========
</TABLE>

6.   Credit Agreement

     During 1998, the Company obtained an original $15,000  unsecured  revolving
     line of credit,  which was  increased  to $29,000 and matured July 31, 1999
     (repaid in May 1999).  The Company  established a new line of credit in the
     amount of  $35,000  on  August 1, 1999  which  matures  October  31,  2000.
     Borrowings  under the original  line of credit bore  interest at prime plus
     1/2% per annum through August 1, 1999 and borrowings  under the new line of
     credit bear interest at prime  thereafter  (8.50% and 8.25% at December 31,
     1999 and 1998,  respectively) and a fee of 1/4% on the original unused line
     of credit  through  August  1,  1999 and 1/8%  under the new line of credit
     payable  quarterly.  At December 31, 1999 and 1998,  the Company had $2,935
     and $903, respectively,  of outstanding letters of credit which reduces the
     amount  available  under the lines of credit.  Pursuant to the terms of the
     agreement, the Company must maintain certain facility operating margins (as
     defined).

     On January 25,  1999,  the Company  entered  into a $5,000  unsecured  loan
     agreement  bearing  interest at 12% payable  interest only and maturing May
     21, 1999 (original  maturity was April 26, 1999). The loan was subordinated
     to the  Company's  existing  unsecured  line of credit and  prohibited  the
     Company from paying any dividends. This loan was repaid on May 14, 1999.

     During 1997,  the Company  obtained an  unsecured  $20,000  interim  credit
     facility  that bore  interest  at prime  plus 1% for  working  capital  and
     acquisition  needs.  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 income tax benefit, of $36.

7.   Long-Term Debt

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

                                                                                                     December 31,
                                                                                                     ------------
                                                                                                 1999             1998
                                                                                                 ----             ----
           <S>                                                                               <C>              <C>
           Mortgage note payable secured by the Hawthorn Lakes facility, bearing
               interest at 8.525% payable principal and interest until
               maturity December 1, 2027                                                     $   13,025       $   13,133
           5.5% convertible subordinated notes, due May 14, 2009
               (a)                                                                              100,000                -
           Mortgage note payable interest only at LIBOR plus 1.625%
               (7.726% at December 31, 1999) until maturity on
               April 18, 2002, secured by The Willows and a partial guaranty of the Company       6,000                -
           Variable rate tax-exempt bonds (b):
               Secured by the Devonshire  facility  payable interest only (5.42%
                  and 4.07% at December 31, 1999 and 1998,
                  respectively) until maturity December 15, 2025 (c)                             33,000           33,000
               Secured by The Heritage facility payable interest only
                  (5.50% and 4.20%  at December 31, 1999 and 1998,
                  respectively) until maturity December 15, 2019 (c)                             32,000           32,000
               Secured by The Edina Park Plaza facility, payable interest
                  only (5.45% at December 31, 1999) until maturity
                  December 1, 2029 (d)                                                           15,040                -
           Mortgage note payable secured by the Edina Park Plaza
               facility, bearing interest at 8.0% and refinanced December 1999 (d)                    -           14,747
           Note payable bearing interest at 8.0% and repaid May,1999                                  -            3,000
                                                                                             ----------       ----------
           Total debt                                                                           199,065           95,880
           Less current portion                                                                     118            3,310
                                                                                             ----------       ----------

           Total long-term debt                                                              $  198,947       $   92,570
                                                                                             ==========       ==========
</TABLE>

                                       29

<PAGE>


          (a)  The 5.5%  convertible  subordinated  notes are  convertible  into
               5,479 shares of common  stock,  for a conversion  price of $18.25
               per share, until May 14, 2009.

          (b)  These tax-exempt Qualified Residential Rental Bonds (the "Bonds")
               require a  portion  of the  units at these  facilities  served by
               tax-exempt bonds to be leased to qualified  individuals  based on
               income levels specified by the U.S. Government. The interest rate
               is  adjusted  weekly  based upon the  remarketing  rate for these
               bonds.  The credit  enhancement for the Bonds was provided by the
               Federal Home Loan Mortgage Corporation.  The annual interest rate
               on the Bonds cannot  exceed 15%.  Under certain  conditions,  the
               interest  rate may be converted to a fixed rate at the request of
               the Company.

          (c)  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 were collateralized,  in part, by
               letter of credit  deposits  with the  financial  institutions  at
               December 31,  1998.  The Company  amortized  letter of credit and
               other credit  enhancement fees of $1,458,  $1,205 and $549 during
               the years  ended  December  31, 1999 and 1998 and the period from
               May 7, 1997 through December 31, 1997, respectively. 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 during the period from  January 1, 1997  through May
               6, 1997.

               On  May  27,  1999,  the  Company  obtained   replacement  credit
               enhancements  to secure the payment of principal  and interest on
               the  Bonds.  In  connection  with the  replacement  of the credit
               enhancements,  the Company  received  the release of $14,464 that
               was on deposit with the previous credit enhancement providers and
               wrote-off  $273  of  previously  deferred  financing  costs.  The
               Company is required to fund a principal  reserve account based on
               a 30-year  amortization of the Bonds up to $4,000 and to maintain
               an  interest  rate  cap for the  entire  term.  The  Company  has
               purchased a $65,000  interest  rate cap,  with a strike  price of
               6.35% and a fair value of $281 at December 31, 1999, that expires
               June 1,  2004.  In  addition,  the  Company  has  guaranteed  the
               reimbursement   obligation,   which  is  limited  to  $4,000  and
               terminates  when the amount in the principal  reserve fund equals
               or exceeds $4,000.

          (d)  On December 1, 1999,  the  $15,040 of  variable  rate  tax-exempt
               bonds were  issued to refund the  tax-exempt  bonds  issued  with
               respect  to the  Edina  Park  Plaza  mortgage  note  payable.  In
               connection with the refunding the Company incurred a loss, net of
               income tax  benefit  of $191,  of $311  which is  recorded  as an
               extraordinary item in the accompanying  consolidated statement of
               operations.  The Company  purchased a $15,040  interest  rate cap
               with a strike  price of 6.58% and a fair value of $74 at December
               31, 1999, that expires December 1, 2004.

     The annual aggregate scheduled  maturities of debt obligations for the five
     years subsequent to December 31, 1999 are as follows:

          Year ended December 31,
          2000                      $       118
          2001                              128
          2002                            6,140
          2003                              152
          2004                              166
          Thereafter                    192,361
                                    -----------

                                    $   199,065
                                    ===========

     The Company and the Predecessor  Properties  incurred interest cost for the
     years  ended  December  31,  1999 and 1998,  the period from May 7, 1997 to
     December  31,  1997,  and the period from January 1, 1997 to May 6, 1997 of
     $8,884, $5,711, $3,211, and $830 respectively,  of which $1,595, $1,558 and
     $191 was capitalized for the years ended December 31, 1999 and 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

     During  1999,  the  Company  sold  certain of its rights and  interests  in
     development sites in Columbus, Ohio; Houston, Texas; Huntley, Illinois (see
     note 14);  and Creve Coeur (St.  Louis),  Missouri for a price equal to the
     Company's  cost and,  in  connection  with each of the sales,  the  Company
     entered into  development  agreements  with  respect to such sites.  During
     1998,  the Company sold certain of its rights and interests in  development
     sites  in  Austin,  Texas;  Southfield,  Michigan;  Glen  Ellyn,  Illinois;
     Raleigh,  North Carolina;  Pittsburgh,  Pennsylvania and Battery Park City,
     New York. The aggregate sales price for these  development sites was $4,380
     and $18,821 for the years ended  December 31, 1999 and 1998,  respectively.
     In connection with these sales a portion of the sales price was in the form
     of a  promissory  note,  of which  $2,994  and $3,486  was  outstanding  at
     December  31, 1999 and 1998,  respectively.  During  1999,  the Company was
     reimbursed  for  costs  incurred  in the  development  of  the  Pittsburgh,
     Pennsylvania  site for cash and a net increase of $1,970 on the  promissory
     note to $2,153  which was  outstanding  at  December  31,  1999.  The notes
     receivable bear interest at 9 - 12% and are due

                                       30

<PAGE>


     through December 31, 2003. 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, 1999 and 1998,  the Company had  reimbursable  development
     costs due from third parties of which $1,659 and $2,467, respectively,  was
     unbilled.  Included in other long term assets at December 31, 1999 and 1998
     in the  accompanying  balance sheets,  are development  fees of $12,217 and
     $5,655,  respectively,  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 $53,500 and the approximate fair value of such
     hedging contracts is $3,271.

9.   Stock Based Compensation Plan

     The Company has granted  stock  options to various  employees and directors
     under its various stock  incentive  plans (the  "Plans").  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.  At
     December 31, 1999,  there were 278  additional  shares  available for grant
     under the Plans.

     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  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.

     Had compensation cost for these plans been determined  consistent with SFAS
     No. 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,          December 31, 1997
                                        ------------          -----------------
                                      1999        1998
                                      ----        ----

         Net income:
            As reported            $  11,125    $  6,654          $    445
            Pro forma              $  10,184    $  5,181          $     92
         Basic EPS:
            As reported            $    0.97    $   0.68          $   0.06
            Pro forma              $    0.89    $   0.53          $   0.01
         Diluted EPS:
            As reported            $    0.90    $   0.67          $   0.06
            Pro forma              $    0.84    $   0.52          $   0.01

     The fair value of stock  options  used to compute  pro forma net income and
     earnings per share  disclosures  is the estimated fair value on the date of
     grant  using the  Black-Scholes  option  pricing  model with the  following
     assumptions:

                                            Year Ended
                                            December 31         Period from
         Weight Average                     -----------      May 7, 1997 through
           Assumptions                    1999       1998     December 31, 1997
           -----------                    ----       ----     -----------------

         Risk-free interest rate           6.36%      5.5%            6.6%
         Expected volatility               52.0%     55.5%           43.5%
         Expected life (in years)             4         4               4
         Dividend yield                       -         -               -
         Fair value                       $6.75    $10.78           $4.89

                                       31

<PAGE>


  The table below  summarizes the  transactions in the Company's stock incentive
  plans during 1999,  1998 and the period from May 7, 1997 through  December 31,
  1997:

<TABLE>
<CAPTION>

                                                        1999                             1998                       1997
                                                 ----------------------          --------------------        -------------------
                                            Number      Weighted-Average    Number     Weighted-Average   Number    Weighted-Average
                                           of Shares     Exercise Price    of Shares    Exercise Price   of Shares   Exercise Price
                                           ---------    ----------------   ---------   --------------    ---------  ----------------
      <S>                                    <C>         <C>                  <C>         <C>               <C>        <C>
     Options outstanding at beginning
      of period                                901       $   15.28            762      $   11.60                -         $      -
     Granted                                   116           14.31            312          22.85              762            11.60
     Exercised                                  (3)          11.64            (97)         11.50                -                -
     Cancelled                                (112)          15.07            (76)         14.27                -                -
                                             -----                          -----                           -----
     Options outstanding at end of period      902           15.19            901          15.28              762            11.60
                                             =====                          =====                           =====
     Exercisable at end of year                480           15.27            207          18.08                -                -
                                             =====                          =====                           =====
</TABLE>

     The following  table  summarizes  information  about certain options in the
     Company's  stock  incentive  plans  outstanding  as of December 31, 1999 in
     accordance with SFAS No. 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                         476       7.35  years       $     11.50            296       $    11.50
       $11.88 - $21.42                230       8.67  years       $     15.77             50       $    15.60
       $23.48                         196       8.39  years       $     23.48            134       $    23.48
                                     ----                                               ----
       $11.50 - $23.48                902       7.91  years       $     15.19            480       $    15.27
                                     ====       ====              ===========           ====       ==========
</TABLE>

10.  Income Taxes

     The  (provision)  benefit  for  income  taxes  (including  income  taxes on
     extraordinary items in 1999 and 1997) is composed of the following:
<TABLE>
<CAPTION>


                                          Year Ended                    Period from               Period from
                                         December 31,                   May 7, 1997             January 1, 1997
                                         -----------                      through                   through
                                   1999              1998            December 31, 1997            May 6, 1997
                                   ----              ----            -----------------           -------------
    <S>                            <C>            <C>                     <C>                       <C>
    Federal:
       Current                     $  (121)       $   (894)               $      -                  $   (195)
       Deferred                     (5,211)         (2,271)                    509                         -
                                   -------        --------                --------                  --------
                                    (5,332)         (3,165)                    509                      (195)
                                   -------        --------                --------                  --------
     State:
       Current                         (70)           (105)                      -                       (41)
       Deferred                       (978)           (357)                     73                         -
                                   -------        --------                --------                  --------
                                    (1,048)           (462)                     73                       (41)
                                   -------        --------                --------                  --------
                                   $(6,380)       $ (3,627)               $    582                  $   (236)
                                   =======        ========                ========                  ========
</TABLE>

     A reconciliation of the (provision)  benefit for income taxes to the amount
     computed at the U.S.  federal  statutory  rate of 34% for 1999 and 1998 and
     35% for 1997, is as follows:

<TABLE>
<CAPTION>

                                                                  Year Ended            Period from      Period from
                                                                 December 31,           May 7, 1997    January 1, 1997
                                                                 ------------             through          through
                                                             1999          1998      December 31, 1997   May 6, 1997
                                                             ----          ----      -----------------  -------------

       <S>                                                <C>          <C>               <C>              <C>
       Computed "expected" tax (expense) benefit          $(6,122)     $ (3,495)         $   27           $  150
       State taxes, net of federal income tax                (692)         (305)             73              (41)
       Non-taxable amortization of deferred gain on sale
         of property                                          274           274             184                -
       Income of non-taxable Predecessor Properties             -             -               -              (71)
       Rental income taxable to the Predecessor                 -             -             286             (242)
       Deferred lease costs                                     -             -               -              (43)
       Extraordinary item                                     171             -              21                -
       Other, net                                             (11)         (101)             (9)              11
                                                          --------     ---------          ------          -------

                                                          $(6,380)     $ (3,627)          $ 582           $ (236)
                                                          ========     =========          ======          =======

</TABLE>

                                       32

<PAGE>

     During 1999 and 1998,  the  Company  received a tax benefit of $2 and $484,
     respectively, in connection with the exercise by certain employees of stock
     options. Such amount was credited to additional paid-in capital.

     Significant components of the Company's deferred tax assets and liabilities
     are as follows:

                                                            December 31,
                                                     -------------------------
                                                      1999               1998
                                                      ----               ----

        Deferred tax assets
                 Property, plant and equipment   $          -        $      347
                 Deferred lease costs                   1,004               659
                 Operating loss carryforward            2,764               286
                 AMT tax credit                           129               366
                 Other                                     55                 -
                                                 ------------        ----------

        Total gross deferred tax asset                  3,952             1,658
                                                 ------------        ----------

        Deferred tax liabilities
                 Property, plant and equipment         (8,670)                -
                 Deferred revenue                           -              (344)
                 Other                                   (157)                -
                                                 ------------        ----------

        Total gross deferred tax liability             (8,827)             (344)
                                                 ------------        ----------

        Net deferred tax (liability) asset       $     (4,875)       $    1,314
                                                 ============        ==========

     At December 31, 1999 the Company had net operating loss  carryforwards  for
     federal and state income tax purposes of approximately  $6,497 and $12,814,
     respectively,  which are available to offset future taxable income, if any,
     through  2012.  Also  through  December  31, 1999 the Company  provided for
     alternative  minimum  tax of  $129,  which  can be used to  offset  regular
     federal tax, if any, and has no  expiration  date.  The Company had current
     tax   receivables  of  $608  and  $642  at  December  31,  1999  and  1998,
     respectively,  included in prepaid expenses and other assets.  In addition,
     the Company had $95 of current tax payable in other  liabilities  for 1998.
     The net deferred  tax  liability  of $4,875 for 1999,  per above,  includes
     current  deferred tax assets of $52, which is included in prepaid  expenses
     and other assets.

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),  The Heritage  received payments
     totaling $576.

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 $300,  $176,  $55,  and $15 for the years ended
     December 31, 1999 and 1998,  the period from May 7, 1997  through  December
     31,  1997,  and the  period  from  January  1, 1997  through  May 6,  1997,
     respectively.  Such amounts are included in facility  operating and general
     and administrative  expense in the consolidated and combined  statements of
     operations.

                                       33

<PAGE>


13.  Earnings Per Share

     The  following  table  sets  forth the  computation  of basic  and  diluted
     earnings  per share for the year ended  December  31, 1999 and 1998 and for
     the period from May 7, 1997 through December 31, 1997.

<TABLE>
<CAPTION>

                                                                                    Year Ended
                                                                                    December 31,         Period May 7, 1997
                                                                                    ------------               through
                                                                               1999            1998       December 31, 1997
                                                                               ----            ----       -----------------

       Numerator:
         <S>                                                               <C>               <C>               <C>
         Income from continuing operations before extraordinary item       $  11,436         $   6,654         $    481
         Extraordinary item (net of income tax benefit of $191 and $24 for
           1999 and 1997, respectively)                                         (311)                -              (36)
                                                                           ---------         ---------         --------
         Numerator for basic earnings per share                               11,125             6,654              445
         Interest expense on convertible subordinated notes, net of tax        2,362                 -                -
                                                                           ---------         ---------         --------
         Numerator for diluted earnings per share                          $  13,487         $   6,654         $    445
                                                                           =========         =========         ========

       Denominator:
         Denominator for basic earnings per share - weighted-average shares   11,411             9,751            7,208
         Effect of dilutive securities
                Employee stock options                                            91               227              143
                Warrants                                                           -                 -                -
                Convertible subordinated notes                                 3,468                 -                -
                                                                           ---------         ---------         --------
                Denominator for diluted earnings per share-adjusted
                  weighted average shares and assumed conversions             14,970             9,978            7,351
                                                                           =========         =========         ========

       Basic earnings per share                                            $    0.97         $    0.68         $   0.06
                                                                           =========         =========         ========

       Diluted earnings per share                                          $    0.90         $    0.67         $   0.06
                                                                           =========         =========         ========
</TABLE>

     Options  to  purchase  313,  297 and 11 shares of common  stock at  $22.40,
     $22.96  and  $16.66  weighted   average   exercise  price  per  share  were
     outstanding  during the years ended  December 31, 1999 and 1998 and for the
     period  from May 7, 1997  through  December  31,  1997,  respectively,  and
     warrants to purchase 117 shares and 83 shares of common stock at $23.89 and
     $25.25 weighted average per share were outstanding at December 31, 1999 and
     1998,  respectively,  but were not included in the  computation  of diluted
     earnings per share because the 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 are summarized as follows:

                                                                Period from
                                                              January 1, 1997
                                                                  through
                                                                May 6, 1997
                                                               --------------

     Property management fee of 5%                                  $230
                                                                    ====

     Administration fee for providing services to The
       Devonshire and The Heritage facilities                       $130
                                                                    ====

     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 $209, $210
     and $132 in  management  fee revenue for the years ended  December 31, 1999
     and 1998 and for the period from May 7, 1997  through  December  31,  1997,
     respectively.

     In connection with the  development  site in Huntley,  Illinois,  the third
     party owner  purchased  the land from an affiliate  of PGI for $1,958.  The
     Company's  note  receivable of $2,032 at December 31, 1999,  from the third
     party is also secured by the land.

     On December 6, 1999,  an officer and  director of the Company  resigned and
     entered  into  a  six-month   consulting  contract  with  the  Company.  In
     connection with the  resignation,  the Company  purchased and exercised the
     officer's option to acquire 125 shares of stock of the Company from PGI and
     certain of its affiliates in a treasury stock  transaction for an aggregate
     purchase price of $1,599, or $12.79 per share.

                                       34

<PAGE>


14.  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.  See
     also notes 7(c), 7(d) and 8.

15.  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 ($111 for the year
     ended December 31, 1999). The Lease Agreements for the remaining facilities
     have initial terms of one to five years with options to extend (as defined)
     and the Company has the option to acquire the facilities prior to or at the
     end of such lease terms. The Company has pledged lease security deposits of
     $92,735  and  $55,453  at  December  31,  1999 and 1998,  respectively,  in
     connection with certain leased facilities.

     On September 25, 1997, the Company entered into a five year operating lease
     for its corporate  office with an affiliate of PGI (the  "Landlord")  which
     was amended on March 17, 1998 and September  30, 1999.  In connection  with
     the September 30, 1999 amendment the corporate  office lease was terminated
     effective  February 29,  2000.  Also on  September  30,  1999,  the Company
     entered into a 10-year  operating lease agreement for 30,000 square feet of
     new office space in a building  owned by a partnership  controlled by Prime
     Group Realty Trust an affiliate of PGI. The operating  lease provides for a
     payment of approximately $2,100 to the Company for tenant improvement costs
     which  commenced  March 1, 2000, and requires the payment of rent at $16.50
     per square foot, escalating $0.75 per square foot on each March of the term
     commencing  March 1,  2001,  plus  operating  expenses  (as  defined in the
     operating lease). In conjunction with the original 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 respective office lease.  Office
     lease expense of $594,  $300 and $193 for the years ended December 31, 1999
     and 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  $6,097 of  payments  to be made to the  Landlord  for the office
     lease as of December 31, 1999, are as follows:

             Year ended December 31,

             2000                        $     28,223
             2001                              28,336
             2002                              28,178
             2003                              20,606
             2004                              13,144
             Thereafter                       171,448
                                          -----------
                                         $    289,935
                                         ============

     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

     In 1998,  the  Company  established  a $100,000  credit  facility  with The
     Capital  Company  of America  LLC  (successor-in-interest  to Nomura  Asset
     Capital  Corporation)  ("Lender")  pursuant  to which the Lender  agrees to
     provide financing of up to an aggregate of $100,000 for projects, developed
     by the Company for third  parties.  In 1998,  an  aggregate  $51,000 of the
     credit facility was committed to the Austin, Texas and Southfield, Michigan
     development projects which opened August 1999. During 2000, the Company and
     the Lender commenced discussions to amend the credit facility and the loans
     made thereunder. In general, the amendment would provide for the funding of
     the  Pittsburgh,  Pennsylvania  development  project being  developed for a
     third party, no further obligation of the Lender to fund under the $100,000
     commitment,  elimination  of the Lender's  obligation to fund the permanent
     loans under the credit  facility  and  elimination  of the  Company's  loan
     resizing  obligation on the Austin,  Texas and Southfield,  Michigan loans.
     There can be no  assurance  that the  Company  will be able to execute  the
     amendment. In connection with the aforementioned projects and certain other
     developments, the Company has guarantees for construction loans aggregating
     approximately  $160,325 of which  $93,522 and  $18,982 was  outstanding  at
     December 31, 1999 and 1998, respectively.

                                       35

<PAGE>


16.  Pro Forma (Unaudited)

     The following unaudited pro forma financial  information of the Company for
     the years ended  December 31, 1999,  1998 and 1997 are  presented as if, at
     January 1, 1997,  the  Company  had sold and  issued  11,575  shares of its
     common stock, purchased 1,266 shares of treasury stock, purchased the Owned
     Facilities and leased the Leased Facilities.

     This  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,
                                             --------------------------------
                                          1999            1998            1997
                                          ----            ----            ----

        Revenue                      $  114,850      $   107,220      $   98,854
                                     ==========      ===========      ==========
        Net income                   $   12,872      $     8,288      $    4,690
                                     ==========      ===========      ==========
        Basic earnings per share     $     1.25      $      0.72      $     0.41
                                     ==========      ===========      ==========
        Diluted earnings per share   $     1.04      $      0.72      $     0.32
                                     ==========      ===========      ==========
        Weighted diluted shares          15,879           16,015          15,931
                                     ==========      ===========      ==========

17.  Subsequent Events

     Through March 13, 2000,  the Company  purchased an additional 459 shares of
     treasury stock at an aggregate cost of $6,207.

18.  Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>

                                                  1999 Quarter Ended                           1998 Quarter Ended
                                       ---------------------------------------     -----------------------------------------
                                       Mar. 31    Jun. 30   Sept. 30   Dec. 31     Mar. 31   June 30    Sept. 30     Dec. 31
                                       -------    -------   --------   -------     -------   -------    --------     -------

<S>                                  <C>        <C>        <C>       <C>         <C>         <C>       <C>           <C>
Revenue                              $ 25,517   $ 26,117   $ 26,652  $  27,634   $ 16,898    $ 18,651  $  20,482     $ 21,670
Operating expenses                    (20,238)   (20,531)   (21,160)   (21,654)   (13,730)    (15,036)   (16,785)     (17,138)
Interest income (expense), net            419        155        661        636       (217)          -        244           95
Depreciation and amortization          (1,362)    (1,320)    (1,568)    (1,678)    (1,226)     (1,205)    (1,146)      (1,276)
Write-off of deferred financing costs       -       (273)         -          -          -           -          -            -
                                      --------   --------   --------  ---------   --------    --------  ---------     --------
Income before provision for
   income taxes and extraordinary item  4,336      4,148      4,585      4,938      1,725       2,410      2,795        3,351
Provision for income taxes             (1,579)    (1,508)    (1,675)    (1,809)      (614)       (889)      (982)      (1,142)
                                      --------   --------   --------  ---------   --------    --------  ---------     --------
Income from continuing operations
   before extraordinary item            2,757      2,640      2,910      3,129      1,111       1,521      1,813        2,209

Extraordinary item (net of income tax
   benefit of $191 in Q4 1999)              -          -          -       (311)         -           -          -            -
                                      --------   --------   --------  ---------   --------    --------  ---------     --------

Net income                           $  2,757   $  2,640   $  2,910  $   2,818   $  1,111    $  1,521  $   1,813     $  2,209
                                      ========   ========  =========  =========   ========    ========  =========     ========

Basic earnings per common share:
Income from continuing operations
   before extraordinary item         $   0.24   $   0.23   $   0.25  $    0.29   $   0.12    $   0.16  $    0.19     $   0.21
Extraordinary item                          -          -          -      (0.03)         -           -          -            -
                                      --------   --------   --------  ---------   --------    --------  ---------     --------

Net income                           $   0.24   $   0.23   $   0.25  $    0.26   $   0.12    $   0.16  $    0.19     $   0.21
                                      ========   ========  =========  =========   ========    ========  =========     ========

Weighted average shares used for
computing basic earnings per
  common share                         11,572     11,572     11,555     10,951      9,408       9,487      9,569       10,529
                                      ========   ========  =========  =========   ========    ========  =========     ========

Diluted  earnings per common share:
Income from continuing operations
   before extraordinary item         $   0.24   $   0.22  $    0.23  $    0.25   $   0.12    $   0.16  $    0.19     $   0.21
Extraordinary item                          -          -          -      (0.02)         -           -          -            -
                                      --------   --------   --------  ---------   --------    --------  ---------     --------

Net income                           $   0.24   $   0.22  $    0.23  $    0.23   $   0.12    $   0.16  $    0.19     $   0.21
                                      ========   ========  =========  =========   ========    ========  =========     ========

Weighted average shares used for
computing diluted earnings per
 common share                          11,720     14,499     17,099     16,471      9,646       9,793      9,771       10,672
                                      ========   ========  =========  =========   ========    ========  =========     ========
</TABLE>

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

     Not applicable.

                                       36

<PAGE>

                                    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 Officers" and "Other
Information-Compliance  with  Section  16(a) of the  Securities  Exchange Act of
1934" in the Company's  2000 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  2000 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 2000 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  2000 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  filed 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  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 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    Note  Purchase  Agreement,  dated as of April 27, 1999,  by and
                 between Brookdale Living Communities, Inc. and Health Partners,
                 as filed with the Securities and Exchange Commission on May 19,
                 1999 as Exhibit 10.1 to the Company's  Form 8-K dated April 27,
                 1999 (File No. 0-22253) and incorporated herein by reference

                                       37

<PAGE>

         10.2    Indenture,  dated as of May 14, 1999, by and between  Brookdale
                 Living  Communities,  Inc.  and  State  Street  Bank and  Trust
                 Company,  as Trustee, as filed with the Securities and Exchange
                 Commission  on May 19,  1999 as Exhibit  10.2 to the  Company's
                 Form  8-K  dated  April  27,  1999  (File  No.   0-22253)   and
                 incorporated herein by reference

         10.3    Supplemental  Indenture,  dated  as of  May  14,  1999,  by and
                 between  Brookdale  Living  Communities,  Inc. and State Street
                 Bank  and  Trust  Company,   as  Trustee,  as  filed  with  the
                 Securities  and Exchange  Commission on May 19, 1999 as Exhibit
                 10.3 to the  Company's  Form 8-K dated April 27, 1999 (File No.
                 0-22253) and incorporated herein by reference

         10.4    Registration Rights Agreement, dated as of May 14, 1999, by and
                 between Brookdale Living Communities, Inc. and Health Partners,
                 as filed with the Securities and Exchange Commission on May 19,
                 1999 as Exhibit 10.4 to the Company's  Form 8-K dated April 27,
                 1999 (File No. 0-22253) and incorporated herein by reference

         10.5    Stockholders Agreement,  dated as of May 14, 1999, by and among
                 Brookdale Living  Communities,  Inc. and the signatories listed
                 therein,  as filed with the Securities and Exchange  Commission
                 on May 19, 1999 as Exhibit 10.5 to the Company's Form 8-K dated
                 April 27, 1999 (File No.  0-22253) and  incorporated  herein by
                 reference

         10.6    Limited  Guaranty,  dated as of May 27,  1999,  by and  between
                 Brookdale Living Communities,  Inc. and Glaser Financial Group,
                 Inc., as filed with the Securities  and Exchange  Commission on
                 June 21, 1999 as Exhibit 10.1 to the  Company's  Form 8-K dated
                 May 27,  1999 (File No.  0-22253)  and  incorporated  herein by
                 reference

         10.7    Reimbursement and Security Agreement,  dated as of May 1, 1999,
                 by and between  Federal Home Loan Mortgage  Corporation and The
                 Ponds  of  Pembroke  Limited  Partnership,  as  filed  with the
                 Securities and Exchange  Commission on June 21, 1999 as Exhibit
                 10.2 to the  Company's  Form 8-K dated May 27,  1999  (File No.
                 0-22253) and incorporated herein by reference

         10.8    Reimbursement and Security Agreement,  dated as of May 1, 1999,
                 by and between Federal Home Loan Mortgage Corporation and River
                 Oaks  Partners,  as filed  with  the  Securities  and  Exchange
                 Commission  on June 21, 1999 as Exhibit  10.3 to the  Company's
                 Form 8-K dated May 27, 1999 (File No. 0-22253) and incorporated
                 herein by reference

         10.9    Reimbursement and Security Agreement,  dated as of May 1, 1999,
                 by and between  Federal Home Loan Mortgage  Corporation and The
                 Ponds  of  Pembroke  Limited  Partnership,  as  filed  with the
                 Securities and Exchange  Commission on June 21, 1999 as Exhibit
                 10.4 to the  Company's  Form 8-K dated May 27,  1999  (File No.
                 0-22253) and incorporated herein by reference

         10.10   Brookdale  Living  Communities,  Inc. Stock  Incentive Plan, as
                 filed with the Securities  and Exchange  Commission on December
                 15, 1997 as Exhibit  10.14 to Amendment  No. 4 to the Company's
                 Registration Statement on Form S-1 (Registration No. 333-41191)
                 and incorporated herein by reference

         10.11   1998 Brookdale Living  Communities,  Inc. Stock Incentive Plan,
                 as filed with the Securities and Exchange  Commission on August
                 16, 1999 as Exhibit No.  10.13 to the  Company's  Form 10-Q for
                 the  period  ended  June  30,  1999  (File  No.   0-22253)  and
                 incorporated herein by reference

         10.12   1999 Brookdale Living  Communities,  Inc. Stock Incentive Plan,
                 as filed with the Securities and Exchange  Commission on August
                 16, 1999 as Exhibit No.  10.14 to the  Company's  Form 10-Q for
                 the  period  ended  June  30,  1999  (File  No.   0-22253)  and
                 incorporated herein by reference

         10.13   Building  Loan  Agreement,  dated as of August 24, 1999, by and
                 among AH Battery Park Owner,  LLC, Key Corporate  Capital Inc.,
                 Fleet  National Bank and European  American Bank, as filed with
                 the Securities and Exchange  Commission on November 15, 1999 as
                 Exhibit  10.1 to the  Company's  Form 10-Q for the period ended
                 September 30, 1999 (File No. 0-22253) and  incorporated  herein
                 by reference

         10.14   Soft Cost Loan  Agreement,  dated as of August 24, 1999, by and
                 among AH Battery Park Owner,  LLC, Key Corporate  Capital Inc.,
                 Fleet  National Bank and European  American Bank, as filed with
                 the Securities and Exchange  Commission on November 15, 1999 as
                 Exhibit  10.2 to the  Company's  Form 10-Q for the period ended
                 September 30, 1999 (File No. 0-22253) and  incorporated  herein
                 by reference

         10.15   Payment  Guaranty,  dated as of  August  24,  1999,  issued  by
                 Brookdale  Living  Communities,  Inc. in favor of Key Corporate
                 Capital  Inc.,  as  filed  with  the  Securities  and  Exchange
                 Commission  on  November  15,  1999 as Exhibit  No. 10.3 to the
                 Company's  Form 10-Q for the period  ended  September  30, 1999
                 (File No. 0-22253) and incorporated herein by reference

         10.16   Completion  Guaranty,  dated as of August 24,  1999,  issued by
                 Brookdale  Living  Communities,  Inc.  for the  benefit  of Key
                 Corporate  Capital  Inc.,  as  filed  with the  Securities  and
                 Exchange Commission on November 15, 1999 as Exhibit No. 10.4 to
                 the Company's Form 10-Q for the period ended September 30, 1999
                 (File No. 0-22253) and incorporated herein by reference

                                       38

<PAGE>

         10.17   Indemnity  Agreement,  dated as of August 24,  1999,  issued by
                 Brookdale Living Communities,  Inc. in favor of AH Battery Park
                 Owner,   LLC,  as  filed  with  the   Securities  and  Exchange
                 Commission  on  November  15,  1999 as Exhibit  No. 10.5 to the
                 Company's  Form 10-Q for the period  ended  September  30, 1999
                 (file No. 0-22253) and incorporated herein by reference

         10.18   Property Option Agreement,  dated as of August 24, 1999, by and
                 between  AH  Battery  Park  Owner,  LLC  and  Brookdale  Living
                 Communities of New York-BPC, Inc., as filed with the Securities
                 and  Exchange  Commission  on November  15, 1999 as Exhibit No.
                 10.6 to the Company's Form 10-Q for the period ended  September
                 30,  1999  (File  No.  0-22252)  and  incorporated   herein  by
                 reference

         10.19   Equity  Option  Agreement,  dated as of August 24, 1999, by and
                 among AH Battery  Park Member LLC, AH Battery  Park Owner,  LLC
                 and Brookdale Living Communities of New York-BPC, Inc, as filed
                 with the  Securities  and Exchange  Commission  on November 15,
                 1999 as Exhibit  No.  10.7 to the  Company's  Form 10-Q for the
                 period  ended   September  30,  1999  (File  No.  0-22253)  and
                 incorporated herein by reference

         10.20   Amended and Restated Development Agreement,  dated as of August
                 24,  1999,  by and  between  AH  Battery  Park  Owner,  LLC and
                 Brookdale  Living  Communities of New York-BPC,  Inc., as filed
                 with the  Securities  and Exchange  Commission  on November 15,
                 1999 as Exhibit  No.  10.8 to the  Company's  Form 10-Q for the
                 period  ended   September  30,  1999  (File  No.  0-22253)  and
                 incorporated herein by reference

         10.21   Management  Agreement,  dated as of  August  24,  1999,  by and
                 between  AH  Battery  Park  Owner,  LLC  and  Brookdale  Living
                 Communities of New York-BPC, Inc., as filed with the Securities
                 and Exchange Commission on November 15, 1999 as Exhibit 10.9 to
                 the Company's Form 10-Q for the period ended September 30, 1999
                 (File No. 0-22253) and incorporated herein by reference

         10.22   Loan  Agreement,  dated  as of  August  1,  1999  by and  among
                 Brookdale  Living  Communities,  Inc. and LaSalle Bank National
                 Association

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

         21      Subsidiaries of the Registrant

         23.1    Consent of Ernst & Young LLP

         27      Financial Data Schedule

(b)    Reports on Form 8-K

       On October 1, 1999,  the Company filed a Current Report on Form 8-K dated
       September 8, 1999 with the Securities and Exchange Commission  announcing
       pursuant to Item 5 of Form 8-K that the Company's  Board of Directors had
       authorized the repurchase of up to 2,000,000 shares of its Common Stock.

       On October  1, 1999,  the  Company  filed a Current  Report on Form 8-K/A
       dated July 2, 1998 with the Securities and Exchange Commission  including
       pursuant to Item 7 of Form 8-K/A the audited  statements of the Chatfield
       Limited Partnership,  which was leased by the Company on July 2, 1998 and
       the  unaudited  pro  forma  statements  of  the  Company  reflecting  all
       acquisitions and leases through the lease of Chatfield.

       On December 8, 1999, the Company filed a Current Report on Form 8-K dated
       December 7, 1999 with the Securities and Exchange  Commission  announcing
       pursuant  to Item 5 of Form 8-K that the  Chief  Financial  Officer,  had
       resigned and that a successor had been named.

                                       39

<PAGE>


(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

                                       40

<PAGE>


                                   SIGNATURES

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

                                 BROOKDALE LIVING COMMUNITIES, INC.
                                 Registrant


Dated:  March 30, 2000           /s/ Mark J. Schulte
                                 -------------------------------------
                                 Mark J. Schulte
                                 President and Chief Executive Officer


Dated:  March 30, 2000           /s/ R. Stanley Young
                                 -------------------------------------
                                 R. Stanley Young
                                 Executive  Vice  President,
                                 Chief  Financial  Officer  and
                                 Treasurer

          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 30, 2000
         -----------------------------------
         Michael W. Reschke
         Chairman of the Board, Director


         /s/ Mark J. Schulte                                     March 30, 2000
         -----------------------------------
         Mark J. Schulte
         President and Chief Executive Officer, Director
         (Principal Executive Officer)


         /s/ Robert J. Rudnik                                    March 30, 2000
         -----------------------------------
         Robert J. Rudnik
         Executive Vice President and General Counsel,
         Director


         /s/ R. Stanley Young                                    March 30, 2000
         -----------------------------------
         R. Stanley Young
         Executive Vice President, Chief Financial Officer
         and Treasurer
         (Principal Financial and Accounting Officer)


         /s/ Wayne D. Boberg                                     March 30, 2000
         -----------------------------------
         Wayne D. Boberg, Director


         /s/ Bruce L. Gewertz                                    March 30, 2000
         -----------------------------------
         Bruce L. Gewertz, Director


         /s/ Darryl W. Hartley-Leonard                           March 30, 2000
         -----------------------------------
         Darryl W. Hartley-Leonard, Director


         /s/ Mark H. Tabak                                       March 30, 2000
         -----------------------------------
         Mark H. Tabak, Director


         /s/ Paul H. Warren                                      March 30, 2000
         -----------------------------------
         Paul H. Warren, Director

                                       41