FORM 10-Q

                    SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C.  20549


     (Mark One)

     [ X ]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                      SECURITIES EXCHANGE ACT OF 1934
     FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1998

                                     OR

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

     Commission file number: 0-21249

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

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

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

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

          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     .
                                             -----      ----

          At December 14, 1998, the Company had 17,800,000 shares of
     Common Stock, $.01 par value, outstanding.


     <PAGE>

                             GRAND COURT LIFESTYLES, INC.
                        INDEX TO QUARTERLY REPORT ON FORM 10-Q
                    FOR THE FISCAL QUARTER ENDED OCTOBER 31, 1998


                                                                       PAGE

          PART I - FINANCIAL INFORMATION

          Item 1:   Financial Statements and Supplementary Data . . .   2

                    Consolidated Balance Sheets as of January 31,
                    1998 and October 31, 1998

                    Consolidated Statements of Operations for the
                    three and nine months ended October 31, 1997 
                    and 1998

                    Consolidated Statements of Cash Flows for the
                    nine months ended October 31, 1997 and 1998

                    Notes to Consolidated Financial Statements

          Item 2:   Management's Discussion and Analysis of Financial
                    Condition and Results of Operations . . . . . . .   8

          Item 3:   Quantitative and Qualitative Disclosures 
                    about Market Risk . . . . . . . . . . . . . . . .  23

          PART II - OTHER INFORMATION

          Item 2:   Changes in Securities and Use of Proceeds . . . .  23
          Item 6:   Exhibits and Reports on Form 8-K  . . . . . . . .  24


     <PAGE>

                            PART I - FINANCIAL INFORMATION

          ITEM 1.   FINANCIAL STATEMENTS

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

                                                          October  31,
                                             January 31,   (unaudited)
                                             -----------   -----------

                                                 1998         1998
                                              ----------   -----------
           ASSETS

           Cash and cash equivalents . . .     $ 11,964      $ 27,369

           Notes and receivables - net . .      231,140       242,372

           Investments in partnerships . .        3,924         4,706

           Construction in progress  . . .       26,241         9,231

           Buildings, furniture and                            
           equipment - net . . . . . . . .           --        33,979  

           Other assets - net  . . . . . .       22,530        17,660
                                               --------      --------

           Total assets  . . . . . . . . .     $295,799      $335,317
                                               ========      ========

           LIABILITIES AND STOCKHOLDERS' EQUITY

           Loans and accrued interest
           payable . . . . . . . . . . . .     $161,850      $174,810

           Construction loan payable . . .       22,595        32,488

           Notes and commissions payable .        5,299         5,658

           Other liabilities . . . . . . .        3,531         7,318

           Deferred income . . . . . . . .       76,112        77,346
                                               --------      --------

           Total liabilities . . . . . . .      269,387       297,620
                                               --------      --------

           Commitments and contingencies

           Stockholders' equity

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

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

           Paid-in capital                       51,189        73,450

           Accumulated deficit                  (24,927)      (35,931)
                                               --------      --------

           TOTAL STOCKHOLDERS' EQUITY  . .       26,412        37,697
                                               --------      --------

           Total liabilities and
           stockholders' equity  . . . . .     $295,799      $335,317
                                               ========      ========

          See Notes to Consolidated Financial Statements.


                                      2
     <PAGE>


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

                                      Three months ended  Nine months ended
                                         October 31,         October 31,
                                         (unaudited)         (unaudited)
                                      ------------------  -----------------

                                         1997    1998       1997     1998
                                       -------  -------    ------   ------
          Revenues:
            Sales . . . . . . . .       10,483   9,113     31,401   27,074
            Syndication fee income       1,886   1,868      6,529    5,955
            Deferred income earned       3,785     207      4,246      622
            Interest income . . .        2,467   2,623      8,081   10,110
            Property management
            fees from related
            parties . . . . . . .        2,073     650      3,250    2,362
            Equity in earnings from
            partnerships  . . . .          125     166        357      488
            Adult living rental
            revenues  . . . . . .           --   1,478         --    3,067
            Other income                    --      --        283    1,350
                                        ------  ------     ------   ------
                                        20,819  16,105     54,147   51,028
                                        ------  ------     ------   ------

          Cost and Expenses:
            Cost of sales . . . .       10,879   5,380     25,947   23,956
            Selling . . . . . . .        1,803   1,457      6,186    5,089
            Interest  . . . . . .        5,203   5,691     13,991   16,441
            General and
            administrative  . . .        2,352   2,397      6,415    7,478
            Write off of
            registration costs  .           --      --      3,107       -- 
            Adult living operating
            expenses  . . . . . .           --   1,941         --    4,106
            Officers' compensation         300     300        900      900
            Depreciation and
            amortization  . . . .        1,054   1,536      2,650    3,924
                                        ------  ------     ------   ------
                                        21,591  18,702     59,196   61,894
                                        ------  ------     ------   ------
          Net loss before
          provision for taxes . .         (772) (2,597)    (5,049) (10,866)
          Provision for taxes . .           --      45         --      138
                                        ------  ------     ------   ------
          Net loss  . . . . . . .         (772) (2,642)    (5,049) (11,004)
                                        ======  ======     ======   ======
          Loss per common share
          (basic and diluted) . .        (0.05)  (0.15)     (0.34)   (0.63)
                                        ======  ======     ======   ======
          Weighted average common
          shares  . . . . . . . .       15,000  17,800     15,000   17,337
                                        ======  ======     ======   ======

          See Notes to Consolidated Financial Statements.


                                      3 
     <PAGE>


          CONSOLIDATED STATEMENTS OF CASH FLOWS
          (In Thousands)
          -----------------------------------------------------------------
                                                     Nine months ended
                                                        October 31,
                                                        (unaudited)
                                                  ----------------------
                                                     1997        1998
                                                  ---------   ----------

           Cash flows used from operating
           activities:
             Net loss  . . . . . . . . . . . .   $  (5,049)   $  (11,004)
                                                 ---------    ----------
             Adjustments to reconcile net
                 income to net cash used by
                 operating activities:
              Depreciation and amortization  .       2,650         3,924
              Deferred income earned . . . . .      (4,246)         (622)
              Write off of uncollected notes
              receivables  . . . . . . . . . .          --           367
              Write off of registration costs        3,107            --
             Changes in operating assets and
             liabilities:
              Accrued interest on notes and
              receivables  . . . . . . . . . .      (2,981)          307
              Notes and receivables  . . . . .     (12,748)      (11,906)
              Commissions payable  . . . . . .         427           237
              Other liabilities  . . . . . . .       2,292         3,787
              Deferred income  . . . . . . . .       2,603         1,856
                                                 ---------    ----------
                                                    (8,896)       (2,050)
                                                 ---------    ----------
                Net cash used by operating
                activities . . . . . . . . . .     (13,945)      (13,054)
                                                 ---------    ----------

           Cash flows used from investing
           activities:
             Increase in investments . . . . .        (644)         (782)
             Building, furniture and equipment          --        (9,437)
             Construction in progress  . . . .     (13,121)       (7,744)
                                                 ---------    ----------
              Net cash used by investing
              activities . . . . . . . . . . .     (13,765)      (17,963)
                                                 ---------    ----------

           Cash flows provided by financing
           activities:
             Payments on loans payable . . . .     (21,778)      (27,439)
             Proceeds from loans payable   . .      36,290        40,399
             Proceeds from construction loan
             payable . . . . . . . . . . . . .      14,005         9,893
             (Increase) decrease in other
             assets  . . . . . . . . . . . . .      (7,108)        1,158
             Payments of notes payable . . . .        (131)         (207)
               Proceeds from notes payable           2,000           329
             Net proceeds from initial public
             offering  . . . . . . . . . . . .          --        22,289
                                                 ---------    ----------
              Net cash provided by financing
              activities . . . . . . . . . . .      23,278        46,422
                                                 ---------    ----------
           (Decrease) increase in cash and cash
           equivalents . . . . . . . . . . . .      (4,432)       15,405

           Cash and cash equivalents, beginning
           of period . . . . . . . . . . . . .      14,111        11,964
                                                 ---------    ----------
           Cash and cash equivalents, end of
           period  . . . . . . . . . . . . .         9,679        27,369
                                                 =========    ==========
           Supplemental information:
           Interest paid . . . . . . . . . . .      $9,015       $15,995
                                                 =========    ==========


          See Notes to Consolidated Financial Statements.


                                      4
     <PAGE>


          GRAND COURT LIFESTYLES, INC. AND SUBSIDIARIES
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1997 AND 1998
          (IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
          -----------------------------------------------------------------


                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     (UNAUDITED)

               The accompanying consolidated financial statements of Grand
          Court Lifestyles, Inc. and its wholly owned subsidiaries (the
          "Company") have been prepared in accordance with generally
          accepted accounting principles for interim financial information
          and with the instructions to Form 10-Q and Rule 10-01 of
          Regulation S-X.  Accordingly, they do not include all of the
          information and footnotes required by generally accepted
          accounting principles for complete financial statements.  In the
          opinion of management, all adjustments (consisting of normal
          recurring accruals) considered necessary for a fair presentation
          have been included.  The consolidated financial statements as of
          and for the periods ended October 31, 1997 and 1998 are
          unaudited.  The results of operations for the interim periods are
          not necessarily indicative of the results of operations to be
          expected for the fiscal year.  Certain amounts in the prior
          period have been reclassified to conform with current year
          presentation.  These consolidated financial statements should be
          read in connection with the financial statements and notes
          included thereto in the Company's Annual Report on Form 10-K for
          the fiscal year ended January 31, 1998.

               Unless the context otherwise requires, (i) all references
          herein to a "Fiscal" year refer to the fiscal year beginning on
          February 1 of that year (for example, "Fiscal 1997" refers to the
          fiscal year beginning on February 1, 1997) and (ii) all
          references to the Company, include the Company, its subsidiaries
          and its predecessors taken as a whole.

          1.   NEWLY DEVELOPED COMMUNITIES

               The Company has completed construction of seven of its newly
               developed adult living communities, all of which are in
               their initial lease-up phase.  Four of these newly
               constructed adult living communities were developed as part
               of its development financing arrangement with Capstone
               Capital Corporation ("Capstone") and are leased to and
               operated by the Company pursuant to operating leases. 
               These four communities, which are located in El Paso, San
               Angelo, Abilene and Witchita Falls, Texas, respectively,
               contain a total of 552 apartment units offering both
               independent and assisted living services.  Three of these
               newly constructed adult living communities, which are
               located in Corpus Christi, Temple, and Round Rock, Texas,
               contain a total of 410 apartment units offering both
               independent and assisted living services and are owned and
               operated by the Company.  In addition, the Company has
               commenced construction on three additional adult living
               communities in Tyler, League City and Fort Bend County,
               Texas.

          2.   CAPITALIZATION

               In March 1998, in an initial public offering of its common
               stock, the Company sold 2,800,000 shares of its common stock
               at a price of $9.50 per share.  The net proceeds, after
               deducting for all offering expenses, that the Company
               received as a result of this offering was $22,300.  The
               Company intends to use approximately $19,300 of the net
               proceeds to finance the development of new adult living
               communities and the remaining $3,000 for working capital. 
               As of October 31, 1998, $6,900 has been used to finance the
               development of new adult living communities and $100 has
               been used for working capital.  The Company has purchased a
               series of treasury bills with the remaining net proceeds
               pending application of such funds to the intended uses.


                                      5
     <PAGE>


          3.   COMMITMENTS AND CONTINGENCIES 

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

               On November 14, 1997, an investor in a limited partnership
               (the "First Partnership") which was formed to invest in a
               second partnership which was formed to develop and own an
               adult living community (the "Second Partnership"), filed a
               lawsuit, Palmer v. Country Estates Associates Limited
                        --------------------------------------------
               Partnership, et.al., in the United States District Court,
               -------------------
               District of New Jersey against multiple parties including
               the Company and a predecessor of the Company. The parties
               have entered into a stipulation dismissing this lawsuit,
               with prejudice, without payment of any kind by the Company
               or any related entity.

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

               The Company's revenues have been, and are expected to
               continue to be, primarily derived from the sales of
               partnership interests ("Syndications") of partnerships it
               organizes to acquire existing adult living communities
               (each, an "Owning Partnership").  In a typical Syndication,
               the Company identifies an adult living community suitable
               for acquisition and forms an Owning Partnership (in which it
               is the managing general partner and initially owns all of
               the partnership interests) to acquire the property.  Another
               partnership (the "Investing Partnership") is also formed
               (in which the Company is also the general partner with a 1%
               interest) to purchase from the Company a 99% partnership
               interest in the Owning Partnership (the "Purchased
               Interest"), leaving the Company with a 1% interest in the
               Owning Partnership and a 1% interest in the Investing
               Partnership.  In addition, three of the Syndications have
               involved the construction of additional apartment units and
               common space at the existing adult living communities. The
               Owning Partnerships hire independent third party contractors
               to do the construction pursuant to maximum price contracts.
               The new construction generates additional risks, such as
               increased costs due to change orders, which the Company
               believes are not material. The purchase price for the
               Purchased Interest is paid in part in cash and in part by a
               note from the Investing Partnership with a term of
               approximately five years ( a "Purchase Note").  Limited
               partners purchase partnership interests in the Investing
               Partnership by agreeing to make capital contributions over
               approximately five years to the Investing Partnership, which
               allows the Investing Partnership to pay the purchase price
               for the Purchased Interest, including the Purchase Note. 
               The limited partnership agreement of the Investing
               Partnership provides that the limited partners are entitled
               to receive, for a period not to exceed five years,
               distributions equal to between 11% and 12% per annum of
               their then paid-in scheduled capital contributions. 
               Although the Company incurs certain costs in connection with
               acquiring a community and arranging for the Syndication of
               partnership interests, the Company makes a profit on the
               sale of the Purchased Interest.  In addition, as part of the
               purchase price for the Purchased Interest paid by the
               Investing Partnership, the Company receives a 40% interest
               in sale and refinancing proceeds after certain priority
               payments to the limited partners.  The Company also enters
               into a management contract with the Owning Partnership
               pursuant to which the Company agrees to manage the adult
               living community.   As part of the management fee
               arrangements, the management contract requires the Company,
               for a period not to exceed five years, to pay to the Owning
               Partnership (to the extent that cash flows generated by the
               property are insufficient) amounts sufficient to fund (i)
               any operating cash deficiencies of such Owning Partnership
               and (ii) any part of such 11% to 12% return not paid from
               cash flow from the related property (which the Owning
               Partnerships distribute to the Investing Partnerships for
               distribution to limited partners) (collectively, the
               "Management Contract Obligations").  The Company, therefore,
               has no direct obligation to pay specified returns to limited
               partners.  Rather, the Company is obligated pursuant to the
               management contract to pay to the Owning Partnership amounts
               sufficient to make the specified returns to the limited
               partners, to the extent the cash flows generated by the
               property are insufficient to do so.  The Owning Partnership


                                      6
     <PAGE>


               then distributes these amounts to the Investing Partnership
               which, in turn, distributes these amounts to the limited
               partners.  As a result of the Management Contract
               Obligations, the Company and its stockholders bear the risks
               of operations and financial viability of the related
               property for such five-year period.   The management
               contract, however, rewards the Company for successful
               management of the property by allowing the Company to retain
               any cash flow generated by the property in excess of the
               amount needed to satisfy the Management Contract Obligations
               as an incentive management fee.  After the initial five-year
               period, the limited partners are entitled to the same
               specified rate of return, but only to the extent there is
               sufficient cash flow from the property, and any amounts of
               cash flow available after payment of the specified return to
               limited partners are shared as follows: 40% to the Company
               as an incentive management fee and 60% for distribution to
               the limited partners.  The management contract is not
               terminable during this initial five-year period and is
               terminable thereafter by either party upon thirty to sixty
               days notice.

               The Company has arranged for the acquisition of the 40
               Syndicated adult living communities and one nursing home
               that it manages by utilizing mortgage financing and by
               arranging for Syndications of 44 Investing Partnerships
               formed to acquire interests in the 40 Owning Partnerships
               that own the adult living communities and the nursing home. 
               The 40 Syndicated adult living communities and one nursing
               home managed by the Company are owned by the respective
               Owning Partnerships and not by the Company.  The Company is
               the managing general partner of all but one of the Owning
               Partnerships and manages all of the adult living communities
               and the one nursing home in its portfolio.  The Company is
               also the general partner of 35 of the 44 Investing
               Partnerships.  The mortgage financing of the Syndicated
               adult living communities and nursing home are generally
               without recourse to the general credit or assets of the
               Company except with respect to certain specified
               obligations, including, for example, costs incurred for the
               correction of hazardous environmental conditions.  However,
               except for such non-recourse obligations, as a general
               partner, the Company, or a wholly-owned entity formed solely
               to be the general partner, is fully liable for all
               partnership obligations, including those presently unknown
               or unobserved, and unknown or future environmental
               liabilities.  The cost of any such obligations or claims, if
               partially or wholly borne by the Company, could adversely
               affect the Company's business, operating results and
               financial condition.  Although most of the mortgage loans
               are non-recourse, (i) the Company is liable as a general
               partner for approximately $12.9 million  in principal amount
               of mortgage debt relating to six Syndicated adult living
               communities and (ii) wholly-owned entities are liable as
               general partners for approximately $35.7 million in
               principal amount of mortgage debt relating to seven
               Syndicated adult living communities and the one Syndicated
               nursing home managed by the Company as of October 31, 1998. 
               In the case of the general partner liabilities of the
               wholly-owned entities, the only assets of the Company at
               risk of loss are the general partner interests in the
               specific properties. In addition, the Company is currently
               the guarantor of $4.0 million of the non-recourse debt
               described in (ii) of the previous sentence. 

               As part of the Company's development program, on September
               18, 1996 the Company entered into a master development
               agreement with Capstone pursuant to which Capstone will fund
               100% of the development cost of four adult living
               communities.  The maximum amount Capstone will fund per such
               agreement is approximately $37,764 of which $35,030 has been
               funded as of October 31, 1998. 

               The Capstone financing arrangement provides that the Company
               will operate these four adult living communities pursuant to
               long-term operating leases with Capstone, which leases were
               entered into upon the completion of construction and the
               satisfaction of certain other conditions.  The initial term
               of each lease is 15 years with three five-year extension
               options.  The cumulative annual base rent which the Company
               is obligated to pay to Capstone for the four  properties
               placed in service during the nine months ended October 31,
               1998 is $3,682 with 3% per annum annual increases. 

          4.   NEW ACCOUNTING PRONOUNCEMENTS 

               Statement No. 131, "Disclosures about Segments of an
               Enterprise and Related Information" establishes standards
               for the way that public business enterprises report
               information about operating segments in annual financial


                                      7
     <PAGE>
                                           
               statements and requires that those enterprises report
               selected information about operating segments in interim
               financial reports issued to shareholders.  It also
               establishes standards for related disclosures about products
               and services, geographic areas, and major customers.  In
               accordance with Statement No. 131, the Company has elected
               not to apply this statement to its interim financial
               statements in Fiscal 1998; however, comparative information
               for interim periods in Fiscal 1998 will be reported in
               financial statements for interim periods in Fiscal 1999.  

               In February 1998, the Financial Accounting Standards Board
               ("FASB") issued Statement No. 132,  "Employers' Disclosures
               about Pensions and Other Postretirement Benefits". 
               Statement No. 132 is effective for fiscal years beginning
               after December 15, 1997.  Statement No. 132 revises
               employers' disclosure requirements concerning pension and
               other postretirement benefit plans by standardizing such
               disclosure requirements to the extent practicable, requires
               additional information on changes in the benefit obligations
               and fair values of plan assets that will facilitate
               financial analysis, and eliminates certain disclosures that
               are no longer as useful as they were when FASB Statements
               No. 87, "Employers' Accounting for Pensions", No. 88,
               "Employers' Accounting for Settlements and Curtailments of
               Defined Benefit Pension Plans and for Termination Benefits",
               and No. 106, "Employers' Accounting for Postretirement
               Benefits Other Than Pensions", were issued.  Statement No.
               132 suggests combined formats for presentation of pension
               and other postretirement benefit disclosures and permits
               reduced disclosures for nonpublic entities.  Statement No.
               132 will not have any material effect on disclosures
               presented by the Company.

               In June of 1998, the FASB issued Statement No. 133,
               "Accounting for Derivative Instruments and Hedging
               Activities." This statement establishes accounting and
               reporting standards for derivative instruments, including
               certain derivative instruments embedded in other contracts,
               and for hedging activities.  It is effective for all fiscal
               quarters of fiscal years beginning after June 15, 1999.  The
               Company's use of derivative instruments has consisted of a
               treasury bill lock related to a specific debt financing
               which has closed but has not yet funded. While the Company
               has not completed its analysis of Statement No. 133 and has
               not made a decision regarding the timing of adoption, it
               does not believe that adoption will have a material effect
               on its financial position and results of operations based on
               its current use of derivative instruments.

          ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                    CONDITION AND RESULTS OF OPERATIONS

               Unless the context otherwise requires, (i) all references
          herein to a "Fiscal" year refer to the fiscal year beginning on
          February 1 of that year (for example, "Fiscal 1997" refers to the
          fiscal year beginning on February 1, 1997) and (ii) all
          references to the Company, include the Company, its subsidiaries
          and its predecessors taken as a whole.

          SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

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


                                      8
     <PAGE>

               Forward-looking statements made by the Company are subject
          to risks and uncertainties that could cause actual results or
          events to differ materially from those expressed in, or implied
          by, the forward-looking statements.  These forward-looking
          statements include, among others, statements concerning the
          Company's revenue and cost and expense, trends, the number and
          economic impact of anticipated acquisitions and new developments,
          planned capital expenditures and financing needs and
          availability.  Investors or other users of the forward-looking
          statements are cautioned that such statements are not a guarantee
          of future performance by the Company and that such forward-
          looking statements are subject to risks and uncertainties that
          could cause actual results to differ materially from those
          expressed in, or implied by, such statements.  In addition to
          other factors and matters discussed elsewhere herein, the
          following are some, but not all, of the important factors that,
          in the view of the Company, could cause actual results to differ
          materially from those discussed in the forward looking
          statements:

               1.   The potential impact of recent net losses and
                    anticipated operating losses.

               2.   The ability of the Company to service its substantial
                    debt obligations.

               3.   The ability of the Company to pay Management Contract
                    Obligations from the cash flow generated by the
                    Syndicated adult living communities and the terms of
                    future Syndications.

               4.   The need for the Company to utilize cash from
                    operations and obtain additional financing to pursue
                    its new development program and effectuate its business
                    plan. 

               5.   The Company's ability to identify and Syndicate
                    suitable acquisition opportunities.

               6.   The Company's ability to identify suitable development
                    opportunities, pursue such opportunities, complete
                    development, lease-up and effectively operate the adult
                    living communities.

               7.   Changes in anticipated construction costs, operating
                    expenses and start-up losses relating to the Company's
                    new development program.

               8.   Unanticipated delays in the Company's new development
                    program, including without limitation, permitting,
                    licensing and construction delays.

               9.   The potential recourse and guarantee obligations of the
                    Company, including, but not limited to the correction
                    of hazardous environmental conditions, relating to the
                    mortgage financing of the adult living communities.

               10.  The impact of mortgage defaults and/or foreclosures
                    relating to Multi-Family Properties (as defined below)
                    on the Company's ability to collect on its Multi-Family
                    Notes (as defined below).

               11.  The potential liabilities arising from the Company's
                    status as the general partner of Syndicated adult
                    living communities.

               12.  The Company's ability to attract and retain qualified
                    personnel.

               13.  Competitive factors affecting the long-term care
                    services industry.

               14.  Changes in operating costs of adult living communities,
                    including without limitation, staffing and labor costs.

               15.  The ability to attract seniors with sufficient
                    resources to pay for the Company's services.


                                      9
     <PAGE>

               16.  Governmental regulatory actions and initiatives,
                    including without limitation, those relating to
                    healthcare laws, benefitting disabled persons,
                    government mortgage insurance and subsidy programs,
                    environmental requirements and safety requirements.

               17.  Changes in general economic conditions, including, but
                    not limited to, factors particularly affecting real
                    estate and the capital markets.

               18.  The potential impact of computer and embedded
                    technology related Year 2000 problems on the Company's
                    operations, including the ability of the Company and
                    material third parties to identify and/or address all 
                    material Year 2000 issues and implement contingency
                    plans.

          OVERVIEW

               The Company is a fully integrated provider of adult living
          accommodations and services which acquires, develops and manages
          adult living communities.  The Company's revenues have been, and
          are expected to continue to be, primarily derived from the
          Syndication of partnerships it organizes to acquire existing
          adult living communities.  To the extent that the Company's
          development plan to construct new adult living communities is
          successfully implemented, the Company anticipates that the
          percentage of its revenues derived from Syndications would
          decrease and the percentage of its revenues derived from newly
          constructed adult living communities would increase and, the
          Company believes, over time, become the primary source of the
          Company's revenues. Due, in part, to anticipated start-up losses
          during the lease- up phase of newly constructed adult living
          communities developed pursuant to the Company's development plan,
          the Company anticipates that it will continue to incur losses
          during the initial phase of its development plan.

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

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

               The Company continually seeks adult living communities which
          it deems are good acquisition prospects.  In deciding which
          properties it has and will acquire, the Company's senior
          management exercises its business judgement to determine which
          properties are good acquisition candidates and what constitutes
          an acceptable purchase price.  There are no fixed criteria for
          these decisions, but rather, a number of factors are considered,
          including the size, location, occupancy history, physical
          condition, current income and expenses, quality of current
          management, local demographic and market conditions, existing
          competition and proposed entrants to the market.


                                      10
     <PAGE>

               The Company has instituted a development plan pursuant to
          which it has completed construction of seven adult living
          communities as of December 1, 1998, and has commenced construction
          on three additional communities.  During the next two years of the
          plan, the Company intends to commence construction on between 30
          and 34 additional new adult living communities.  The Company plans
          to own or lease pursuant to long-term operating leases or similar
          arrangements the adult living communities that are being developed
          under the plan.  The Company will manage and operate each of the
          newly developed communities. The Company estimates that the cost
          of developing each new adult living community (including reserves
          necessary to carry the community through its lease-up period)
          utilizing mortgage financing will be approximately $10.5 million
          and utilizing long-term lease financing will be approximately $11
          million. The Company expects to complete the construction of one
          of the three communities currently under construction by the end
          of the first quarter of Fiscal 1999, expects to complete the
          construction of the second community under construction by the
          end of the third quarter of Fiscal 1999 and expects to complete
          construction of the remaining community under construction by the
          end of the fourth quarter of Fiscal 1999. These three adult
          living communities, along with the seven communities already
          completed pursuant to the development plan, contain an aggregate
          of 1,356 adult living apartment units.  The 30 to 34 additional
          new communities which the Company intends to commence
          construction on over the next two years will contain between
          4,020 and 4,556 additional adult living apartment units.  The
          Company will use a substantial portion of the proceeds of the
          Company's initial public offering which occurred in March, 1998,
          funds generated by its business operations, mortgage construction
          financing, the proceeds of anticipated refinancings of
          construction financing on, and/or sale-leasebacks of, stabilized,
          newly constructed communities, and may complete additional
          issuances of debt or equity securities to finance the
          development, construction and initial operating costs of
          additional new adult living communities.  Four of the completed
          adult living communities are being operated by the Company
          pursuant to long-term leases.  The Company may use additional
          long-term leases or similar arrangements which require the
          investment of little or no capital on the part of the Company, to
          the extent necessary to proceed with this development plan.

          EARNINGS

               The Company recorded a net loss of $2.6 million and $11.0
          million for the three and nine months ended October 31, 1998,
          respectively, compared to a net loss of $800,000 and $5.0 million
          for the three and nine months ended October 31, 1997,
          respectively. 

          RESULTS OF OPERATION

           Revenues

               Total revenues for the three months ended October 31, 1998
          was $16.1 million as compared to $20.8 million for the three
          months ended October 31, 1997, representing a decrease of $4.7
          million or 22.6%.  Total revenues for the nine months ended
          October 31, 1998 was $51.0 million as compared to $54.1 million
          for the nine months ended October 31, 1997, representing a
          decrease of $3.1 million or 5.7%.

               Sales income for the three months ended October 31, 1998 was
          $9.1 million as compared to $10.5 million for the three months
          ended October 31, 1997, representing a decrease of $1.4 million
          or 13.3%. Sales income for the nine months ended October 31, 1998
          was $27.1 million as compared to $31.4 million for the nine
          months ended October 31, 1997, representing a decrease of $4.3
          million or 13.7%. The decreases are primarily attributable to the
          sale of fewer partnership units sold in the three and nine months
          ended October 31, 1998 as compared to the number of partnership 
          units sold in the three and nine months ended October 31, 1997.

               The primary factors that affect the number of partnership
          units available for sale are (i) the availability of properties
          for Syndications, (ii) the terms of the Syndications and (iii)
          the initial cash flow of the properties being Syndicated.  More
          favorable Syndication terms along with a greater initial cash
          flow of the properties will yield a greater number of units
          available to be sold.  Syndication terms become more favorable
          for the Company if there is an increase  in the ratio of (a) the
          purchase price paid to the Company by the Investing Partnership


                                      11
     <PAGE>


          for its interest in the Operating Partnership, to (b) the initial
          cash flow of the property.  In the three months ended October 31,
          1998, the properties Syndicated had lower initial cashflows as
          offset by more favorable Syndication terms than the properties
          Syndicated in the three months ended October 31, 1997. In the
          nine months ended October 31, 1998, the properties Syndicated had
          equivalent initial cash flows but had less favorable Syndication
          terms than the properties Syndicated in the nine months ended
          October 31, 1997.

               Syndication fee income for the three months ended October
          31, 1998 was $1.9 million as compared to $1.9 million for the
          three months ended October 31, 1997, representing no change. 
          Syndication fee income for the nine months ended October 31, 1998
          was $6.0 million as compared to $6.5 million in the nine  months
          ended October 31, 1997, representing a decrease of $500,000 or
          7.7%.  The decrease is attributable to less commissions and
          professional fees paid on a lower sales volume in the nine 
          months ended October  31, 1998 as compared to the nine  months
          ended October  31, 1997.

               Deferred income earned in the three months ended October 31,
          1998 was $200,000 as compared to $3.8 million in the three months
          ended October 31, 1997, representing a decrease of $3.6 million
          or 94.7%. Deferred income earned for the nine months ended
          October 31, 1998 was $600,000 as compared to $4.2 million in the
          nine months ended October 31, 1997, representing a decrease of
          $3.6 million or 85.7%. The decreases are attributable to the
          cashflows generated by the properties in the three and nine
          months ended October 31, 1998 exceeding the estimates used to
          establish deferred income to a lesser degree than the cashflows
          exceeded estimates used to determine deferred income in the three
          and nine months ended October 31, 1997.

               Interest income for the three months ended October 31, 1998
          was $2.6 million as compared to $2.5 million in the three months
          ended October 31, 1997, representing an increase of $100,000 or
          4%. The increase is primarily attributable to interest earned on
          the Company's net proceeds from its initial public offering.
          Interest  income for the nine months ended October 31, 1998 was
          $10.1 million as compared to $8.1 million as of October 31, 1997,
          representing an increase of $2.0 million or 24.7%. The increase
          is primarily attributable to (i) interest income realized on
          Multi-Family Notes as a result of excess proceeds received from
          mortgage debt refinancings on six Multi-Family Properties and
          (ii) interest earned on the Company's net proceeds from its
          initial public offering in the nine months ended October  31,
          1998.

               Property management fees from related parties was $700,000
          for the three months ended October 31, 1998 as compared to $2.1
          million in the three months ended October 31, 1997, representing
          a decrease of $1.4 million or $66.7%. Property management fees
          from related parties was $2.4 million in the nine months ended
          October 31, 1998 as compared to $3.3 million in the nine months
          ended October 31, 1997, representing a decrease of $900,000 or 
          27.3%. The decreases are primarily attributable to the cashflows
          from the underlying Owning Partnerships exceeding the specified
          rate of return to the limited partners to a lesser degree in the
          three and nine months ended October 31, 1998 as compared to the
          three and nine months ended October 31, 1997. 

               Equity in earnings from partnerships was $200,000 in the
          three months ended October  31, 1998 as compared to $100,000 in
          the three months ended October  31, 1997, representing an
          increase of $100,000 or 100%.  Equity in earnings from
          partnerships was $500,000 in the nine months ended October  31,
          1998 as compared to $400,000 in the nine months ended October 31,
          1997, representing an increase of $100,000 or 25%.  The increases
          are attributable to the Syndication of additional properties in
          which the Company retains a partnership interest.

               Adult living rental revenues were $1.5 million and $3.1
          million  in the three and nine months ended October 31, 1998,
          respectively.  There were no adult living rental revenues in the
          three and nine months ended October  31, 1997 because none of the
          Company's newly developed adult living rental communities had
          been completed during such periods.  

               There was no other income in the three months ended  October
          31, 1998 and 1997, respectively.   Other income was $1.4 million
          in the nine months ended October 31, 1998, as compared to
          $300,000 in the nine months ended October 31, 1997, representing
          an increase of $1.1 million or 366.7%.  The other income in the


                                      12
     <PAGE>


          nine months ended  October 31, 1998 represent developer's fees
          the Company has earned in connection with the four newly
          developed adult living communities the Company operates pursuant
          to long-term leases, which were placed in service in the  nine
          months ended October 31, 1998.  The other income in the nine
          months ended October 31, 1997 is due to the write off of a
          liability.


           Cost of Sales

               Cost of sales (which includes (i) the cash portion of the
          purchase price for Syndicated adult living communities plus
          related transaction costs and expenses, (ii) any payments with
          respect to Management Contract Obligations other than payments
          relating to previously established deferred income liabilities
          and (iii) any increase in Management Contract Obligations
          established in the relevant periods, which are recorded as
          additional deferred  income liabilities) for the three months
          ended October  31, 1998 was $5.4  million as compared to $10.9
          million for the three months ended October 31, 1997, representing
          a decrease of $5.5 million or 50.5%.  The decrease is
          attributable to (i) a  lower amount of deferred income
          liabilities established, (ii) a lower aggregate purchase prices
          plus  related transactions costs and expenses  for the adult
          living communities acquired and Syndicated as partially offset by
          less favorable terms for the adult living community acquisitions
          (in view of the relationship between initial cashflow generated
          by the properties and their purchase prices) and (iii) a decrease
          in the funding of Management Contract Obligations in the three
          months ended October 31, 1998 as compared to the three months
          ended October 31, 1997.  Cost of sales for the nine months ended
          October 31, 1998 was $24.0 million as compared to $25.9 million
          in the nine months ended October 31, 1997, representing a
          decrease of $1.9 million or 7.3%. The decrease is attributable to
          (i) the lower aggregate purchase price plus related transaction
          costs and expenses of the adult living communities acquired and
          Syndicated due to more favorable terms for the adult living
          communitity acquisitions, and (ii) the decrease in funding of the
          Management Contract Obligations as partially offset by the
          establishment of greater deferred income liabilities in the nine
          months ended  October 31, 1998 as compared to the nine months
          ended October 31, 1997. Cost of sales and selling expenses as a
          percentage of sales and syndication fee income for the three
          months ended October 31, 1998 was 62.3% as compared to 102.5% for
          the three months ended  October 31, 1997. The decrease is
          attributable to sales and syndication fee income decreasing  less
          than the decrease in cost of sales and selling expenses. Cost of
          sales and selling expenses as a percentage of sales and
          syndication fee income for the nine months ended October 31, 1998
          was 87.9% as compared to 84.7% for the nine months ended October
          31, 1997. The increase is attributable to sales and syndication
          fee income decreasing more than the decrease in cost of sales and
          selling expenses. 

               Several factors, including the decline of the real estate
          market in the late 1980's and early 1990's, which  resulted in a
          number of distressed property sales and limited competition from
          other prospective purchasers, allowed the Company to acquire
          existing adult living communities at such time on relatively
          favorable terms.  Mortgage financing, however, was generally
          either not available or available only on relatively unattractive
          terms during this period, which  made acquisitions more difficult
          because they either required large outlays of cash or the use of
          mortgage financing on relatively unfavorable terms.  During the
          last several years, several factors have contributed towards a
          trend to less favorable terms for acquisitions of adult living
          communities, including a recovery in the market for adult living
          communities and increased competition from other prospective
          purchasers of adult living communities. Although the Company
          acquired adult living communities on more favorable terms in the
          nine months ended October 31, 1998 as compared to the nine months
          ended October 31, 1997, the Company acquired adult living
          communities on less  favorable terms in the three months ended
          October 31, 1998 as compared to the three months ended October
          31, 1997 and the Company  believes that the general trend towards
          less favorable acquisition terms experienced during the last
          several years will continue in the future. In recent years,
          however, the Company has been able to obtain mortgage financing
          for a greater percentage of the purchase price than in previous
          years.  This factor, combined with an overall reduction of
          interest rates, has partially offset the factors that have led to
          more unfavorable acquisition terms.  A significant change in
          these or other factors (including, in particular, a significant
          rise in interest rates) could prevent the Company from acquiring
          communities on terms favorable enough to offset the start-up


                                      13
     <PAGE>


          losses of newly-developed communities as well as the Company's
          debt service obligations, Management Contract Obligations and the
          Company's selling, and general and administrative expenses. 

           Selling Expenses

               Selling expense for the three months ended October  31, 1998
          was $1.5 million as compared to $1.8 million for the three months
          ended October  31, 1997, representing a decrease of $300,000 or
          16.7%.  Selling expense for the nine  months  ended October 31,
          1998 was $5.1 million as compared to $6.2  million for the nine
          months ended October 31, 1997, representing a decrease of $1.1
          million  or 17.7%.   The decreases are attributable to a lower
          commission rate paid on a lower sales volume in the three and
          nine months ended October 31, 1998 as compared to the three and
          nine  months ended October 31, 1997.  

           Interest Expense

               Interest expense for the three months ended October 31, 1998
          was $5.7 million as compared to $5.2 million in the three months
          ended October 31, 1997, representing an increase of  $500,000 or
          9.6%.  Interest expense for the nine months ended October  31,
          1998 was $16.4 million as compared to $14.0 million for the nine
          months ended October 31, 1997, representing an increase of  $2.4
          million or 17.1%.  The increases are primarily attributable to
          (i) an increase in the principal amount of debt and an increase
          in interest rates for such debt during the three and nine months
          ended October 31, 1998 as compared to the three and nine months
          ended October 31, 1997, and (ii) interest on construction loans
          payable on the three newly developed adult living communities
          which the Company owns, which were placed in service in the three
          and nine months ended October 31, 1998, which construction loan
          interest was not expensed in the three and nine months ended
          October 31, 1997 because such interest was capitalized as these
          communities were under construction during such periods. Interest
          expense included interest on debentures ("Debenture Debt") which
          had an average interest rate of 12.05% and 12.04% per annum in
          the nine months ended October 31, 1997 and 1998, respectively,
          and was secured by the Purchase Notes the Company holds as a
          result of its Syndication of multi-family properties prior to
          1986 (the "Purchase Note Collateral").  During the nine months
          ended October 31, 1998 and 1997, total interest expense with
          respect to Debenture Debt was approximately $6.0 million and $6.2 
          million, respectively and the Purchase Note Collateral produced
          approximately $2.9 million and $1.5 million, respectively, of
          interest and related payments to the Company, which was $3.1
          million and $4.7 million, respectively, less than the amount
          required to pay interest on the Debenture Debt.

           General and Administrative Expenses

               General and administrative expenses were $2.4  million for
          the three months ended October 31, 1998 and  October 31, 1997
          representing no change.  General and administrative expenses for
          the nine months ended October  31, 1998 were $7.5 million as
          compared to $6.4 million for the nine months ended October 31,
          1997, representing an increase of $1.1 million or 17.2%.  The
          increase is primarily attributable to (i) increases in
          professional fees, salary costs and other office expenses in
          arranging for the acquisition of the Company's portfolio of
          Syndicated adult living communities, and in managing the
          Company's portfolio of Syndicated and newly developed adult
          living communities, which portfolio, in the aggregate, was larger
          in the nine months ended October 31, 1998 than the Company's
          portfolio in the nine months ended October  31, 1997, and (ii) an
          increase in development-related overhead due to the completion of
          seven newly developed adult living communities, which expenses
          were previously capitalized.

          Write-off of Registration Costs

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


                                      14
     <PAGE>


           Adult living operating expenses

               Adult living operating expenses consist of operating
          expenses of the newly developed adult living communities which
          the Company either owns or operates pursuant to long-term leases. 
          Adult living operating expenses were $1.9 million and $4.1
          million in the three and nine months ended  October 31, 1998,
          respectively.  In that no newly developed adult living
          communities were completed in fiscal 1997, there was no adult
          living operating expenses in the three and nine months ended
          October  31, 1997.

           Depreciation and Amortization

               Depreciation and amortization consists of (i) amortization
          of deferred debt expense incurred  in connection  with debt
          issuance, (ii) amortization of leasehold costs incurred in
          connection with four of the newly developed adult living
          communities which the Company operates pursuant to long-term
          leases, and (iii) depreciation of buildings, furniture and
          equipment on three of the newly developed adult living
          communities the Company owns directly.  Depreciation and
          amortization for the three months ended October 31, 1998 was $1.5
          million as compared to $1.1 million  for the three months ended
          October  31, 1997, representing an increase of $400,000 or 36.4%. 
          Depreciation and amortization for the nine  months ended October 
          31, 1998 was  $3.9 million as compared to $2.7 million in the
          nine months ended October 31, 1997, representing an increase of
          $1.2 million or 44.4%.  The increases are primarily attributable
          to (i) the increase in amortization of deferred loan costs due to
          the additional Debenture Debt and unsecured debt incurred by the
          Company in the three and nine months ended October  31, 1998, as
          compared to the three and nine months ended October  31, 1997,
          (ii) the amortization of leasehold costs associated with the four
          newly developed communities operated by the Company pursuant to
          long-term leases and (iii) the depreciation of buildings,
          furniture and equipment associated with the three newly developed
          adult living communities owned by the Company, which communities
          described in (ii) and (iii) were not completed in Fiscal 1997.  

          LIQUIDITY AND CAPITAL RESOURCES

               The Company historically has financed operations through
          cash flow generated by operations, Syndications and borrowings
          consisting of debt secured by promissory notes from limited
          partners of the Syndicated partnerships ("Investor Note Debt"),
          unsecured debt ("Unsecured Debt"), mortgage debt ("Mortgage
          Debt") and Debenture Debt.  Now that the Company has completed
          development of seven newly-developed adult living communities,
          the ownership and/or operation of these communities will be an
          additional source of cash flow.  The Company, however,
          anticipates that each newly developed adult living community will
          incur operating losses until it completes its initial lease-up. 
          The Company's principal liquidity requirements are for payment of
          operating expenses, costs associated with development of new
          adult living communities, debt service obligations, and
          Management Contract Obligations.

               Cash flows used by operating activities for the nine months
          ended October  31, 1998 were $13.1 million and were comprised of
          (i) net loss of $11.0 million plus (ii) adjustments for non-cash
          items of $3.7 million less (iii) the net change in operating
          assets and  liabilities of $5.8 million. The adjustments for non-
          cash items is comprised of depreciation and amortization of $3.9
          million, the write-off of uncollected notes receivable of
          $400,000 less deferred income earned of $600,000.  The net change
          in operating assets and liabilities of $5.8 million was primarily
          attributable to an increase in notes and receivables and accrued
          interest on notes and receivables of $11.6 million as offset by
          an increase of other liabilities of $3.8 million.  Approximately
          72% of the increase in "notes and receivables" was attributable
          to an increase in Purchase Notes arising from the Syndication of
          adult living communities ("Adult Living Notes") due to new
          Syndications, as offset by principal reductions on Adult Living
          Notes relating to previous Syndications, and approximately 23% of
          the increase in "notes and receivables" was primarily
          attributable to an increase in advances made to Owning
          Partnerships which own Syndicated multi-family properties
          ("Multi-Family Owning Partnerships"). Cash flows used by
          operating activities for the nine months ended October  31, 1997
          were $13.9 million and were comprised of: (i) net loss of $5.0
          million plus (ii) adjustments for non-cash items of $1.5 million
          less (iii) the net change in operating assets and liabilities of
          $10.4 million.  The adjustments for non-cash items is comprised


                                      15
     <PAGE>


          of depreciation and amortization of $2.7 million, write-off of
          registration costs of $3.1 million  less deferred income earned
          of $4.3 million.  

               Net cash used by investing activities for the nine months
          ended October 31, 1998 of $18.0 million was comprised of an
          increase of building, furniture and equipment of $9.4 million, an
          increase in the cost of the adult living communities the Company
          is constructing of $7.8 million, and an increase in investments
          in general partner interests in adult living communities of
          $800,000.  Net cash used by investing activities in the nine
          months ended October 31, 1997 of $13.8 million was comprised of
          the increase in the cost of the adult living communities the
          Company is constructing of $13.1 million and the increase in
          investments in general partner interests in adult living
          communities of $700,000.

                Net cash provided by financing activities for the nine
          months ended October  31, 1998 of $46.4 million was comprised of
          (i) proceeds from the issuance of new debt of $40.4 million less
          debt prepayments of $27.4 million plus (ii) proceeds from
          construction mortgage financing of $9.9 million, less  (iii)
          payments of notes payable of $200,000 plus (iv) the proceeds of
          notes payable of $300,000 plus (v) the decrease in other assets
          of $1.1 million plus (vi) the net proceeds of the initial public
          offering of $22.3 million.  Net cash used by financing activities
          for the nine months ended October  31, 1997 of $23.3 million was
          comprised of (i) proceeds from the issuance of new debt of $36.3
          million less debt prepayments of $21.8 million plus (ii) proceeds
          from construction mortgage financing of $14.0 million, less (iii)
          payments of notes payable of $100,000, plus (iv) proceeds of
          notes payable of $2.0 million less (v) the increase in other
          assets of $7.1 million.

               At January 31, 1998, the Company had total indebtedness,
          excluding accrued interest, of $160.9 million, consisting of
          $65.5 million of Debenture Debt, $66.2 million of Unsecured Debt,
          $5.0 million of Mortgage Debt and $24.2 million of Investor Note
          Debt, and the Company had cash and cash equivalents at January
          31, 1998 of $12.0 million.  As of October  31, 1998, the Company
          has increased Investor Note Debt from $24.2 million to $28.9
          million, increased Unsecured Debt from $66.2 million to $68.6
          million and increased debenture debt from $65.5 million to $71.2
          million.  As a result, total indebtedness, excluding accrued
          interest, increased from $160.9 million to $173.7 million and the
          Company had cash and cash equivalents at October 31, 1998 of
          $27.4 million.

               Of the principal amount of total indebtedness at January 31,
          1998, $25.5 million becomes due in the fiscal year ending January
          31, 1999; $38.6 million becomes due in the fiscal year ending
          January 31, 2000; $25.6 million becomes due in the fiscal year
          ending January 31, 2001; $32.4 million becomes due in the fiscal
          year ending January 31, 2002; $15.1 million becomes due in the
          fiscal year ending January 31, 2003, and the balance of $23.7
          million becomes due thereafter.  Of the amount maturing in the
          fiscal year ending January 31, 1999, $2.3 million is Investor
          Note Debt, all of which the Company repaid  through the
          collection of investor notes.  The balance, approximately $23.2
          million, includes $2.4 million of Debenture Debt and $20.8
          million of Unsecured Debt, of which $18.0 million has been
          repaid.  The Company expects to repay the balance through funds
          generated by the Company's business operations and/or to
          refinance such debt by the issuance of new debt.

               During the year ended January 31, 1998 and the nine months
          ended October 31, 1998, pursuant to the Company's development
          plan, first mortgage loans were obtained to finance approximately
          80% of the cost of developing five new adult living communities.
          The interest rate on four of the loans equals the 30 day LIBOR
          plus 2 3/4% per annum. The fifth loan bears interest at the rate
          of the prime rate plus 1.5% per annum. These loans mature between
          November , 1999 and February, 2001.  As of January 31, 1998 and
          October  31, 1998, total funding under such first mortgage loans
          amounted to $13.3 million and $23.2 million, respectively. The
          Company intends to increase its construction loans payable as it
          pursues its development plan.

               Pursuant to the Company's development plan, two limited
          partnerships, in each of which the Company holds a 1% general
          partnership interest, have issued limited partnership interests
          for aggregate capital contributions of $9.3 million, the net
          proceeds of which have been used to make second mortgage loans to
          the Company to fund approximately 20% of the cost of developing
          three new adult living communities. Such second mortgage loans


                                      16
     <PAGE>


          were entered into in 1996 and bear interest at the rate of
          13.125% per annum. These second mortgage loans mature between
          November 2001 and March 2002. 

               The Company's debt obligations contain various covenants and
          default provisions, including  provisions relating to, in some
          obligations, certain Investing Partnerships, Owning Partnerships
          or affiliates of the Company.  The Company has experienced
          fluctuations in its net worth over the last several years.  At
          January 31, 1995, the Company had a net worth of $30.7 million,
          at January 31, 1996, the Company had a net worth of $34.8
          million, at January 31, 1997, the Company had a net worth of
          $32.0 million, at January 31, 1998, the Company had a net worth
          of $26.4 million and at October 31, 1998 the Company had a net
          worth of $37.7 million.  Pursuant to one obligation, the Company
          is required to maintain a net worth of no less than $35.3
          million.  Certain obligations of the Company contain covenants
          requiring the Company to maintain maximum ratios of the Company's
          liabilities to its net worth. As of January 31, 1998, the most
          restrictive covenant required that the Company maintain a ratio
          of "loans and accrued interest payable" to consolidated net worth
          of no more than 7 to 1. As of October 31, 1998, the most
          restrictive covenant requires that the Company maintain a ratio
          of debt for borrowed money to consolidated net worth of no more
          than 10 to 1. At January 31, 1998 and October  31, 1998, the
          Company's respective ratios were 6.1 to 1 and 5.5 to 1.  In
          addition, certain obligations of the Company provide that an
          event of default will arise upon the occurrence of a material
          adverse change in the financial condition of the Company or upon
          a default in other obligations of the Company.

               The Company has utilized mortgage financing and Syndications
          to arrange for the acquisitions of the adult living communities
          it operates and intends to continue this practice for future
          acquisitions of existing adult living communities.   The limited
          partnership agreements of the Investing Partnerships provide that
          the limited partners are entitled to receive for a period not to
          exceed five-years specified distributions equal to 11% to 12% per
          annum of their then paid-in scheduled capital contributions. 
          Pursuant to the management contracts with the Owning
          Partnerships, for such five-year period, the Company has
          Management Contract Obligations.  During the nine  months ended
          October  31, 1998, the adult living communities with respect to
          which the Company had such Management Contract Obligations paid
          to the Company, after payment of all operating expenses and debt
          service, an aggregate of $7.2 million for application to the
          Company's Management Contract Obligations.  During such period,
          the Company's Management Contract Obligations exceeded such
          payments by an aggregate of  $6.0 million.  The $6.0 million of
          funding that was required in respect to Management Contract
          Obligations for the nine  months ended October 31, 1998 was
          primarily attributable to (i) an increase in the scheduled
          capital contributions by the limited partners on which the
          Company is required to pay the specified rate of return, (ii) a
          slight decrease in the average occupancy of certain adult living
          communities in the Company's portfolio, and (iii) an increase in
          operating expenses of the same adult living communities.

               The aggregate amount of Management Contract Obligations
          relating solely to returns to limited partners based on existing
          management contracts is $2.8 million for the remaining portion of
          Fiscal 1998, which will increase to $19.6 in Fiscal 1999, and
          decrease to $19.5 million in Fiscal 2000, decrease to $15.3
          million in Fiscal 2001 and decrease to $7.4 million in Fiscal
          2002, and decrease to $1.2 million in Fiscal 2003.  Such amounts
          of Management Contract Obligations are calculated based upon all
          remaining scheduled capital contributions with respect to fiscal
          years 1998 through 2003.  Actual amounts of Management Contract
          Obligations in respect of such contracts will vary based upon the
          timing and amount of such capital contributions.  Furthermore,
          such amounts of Management Contract Obligations are calculated
          without regard to any cash flow the related properties may
          generate, which would reduce such obligations, and are calculated
          without regard to the Management Contract Obligations and
          property cash flows relating to future Syndications.

               The aggregate amount of the Company's Management Contract
          Obligations will depend upon a number of factors including, among
          others, the expiration of such obligations for certain
          partnerships, the cash flow generated by the properties and the
          terms of future Syndications.  The Company anticipates that for
          at least the next two years, the aggregate Management Contract
          Obligations with respect to existing and future Syndications will
          exceed the aggregate cash flow generated by the related
          properties, which will result in the need to utilize cash
          generated by the Company from sources other than the operations
          of the Syndicated adult living communities to meet its Management


                                      17
     <PAGE>


          Contract Obligations (including payment of specified returns for
          distribution to limited partners) for these periods.  In general,
          the payment of expenses arising from obligations of the Company,
          including Management Contract Obligations, have priority over
          earnings that might otherwise be available for distribution to
          stockholders.  The Company intends to structure future
          Syndications to minimize the likelihood that it will be required
          to utilize the cash it generates to pay Management Contract
          Obligations, but there can be no assurance that this will be the
          case.

               The initial five-year terms of the management contracts and
          the related Management Contract Obligations have expired for 10
          Owning Partnerships.  Although the Company has no obligation to
          fund operating shortfalls after the five-year term of the
          management contracts, during the nine months ended October 31,
          1998, the Company had advanced an aggregate of approximately
          $905,000 to six of these Owning Partnerships to fund operating
          shortfalls.  These advances are included in the "notes and
          receivables" recorded on the Company's Consolidated Balance
          Sheet.  Although the Company does not intend to do so in the
          future, from time to time, the Company has also made
          discretionary advances to Owning Partnerships beyond the
          Management Contract Obligations period for the purpose of making
          distributions to limited partners.

               In the past, limited partners have been allowed to prepay
          capital contributions.  The percentage of the prepayments
          received upon the closings of the sales of limited partnership
          interests in Investing Partnerships averaged 78.8% for Fiscal
          1997 and 67.9% for the nine months ended October  31, 1998. 
          Prepayments of capital contributions do not result in the
          prepayment of the related Purchase Notes held by the Company. 
          Instead, such amounts are loaned to the Company by the Investing
          Partnership.  As a result of such loans and crediting provisions
          of the related purchase agreements, the Company records the
          Purchase Notes net of such loans.  Therefore, these prepayments
          act to reduce the recorded value of the Company's note
          receivables and reduce interest income received by the Company. 
          Pursuant to the terms of the offerings, the Company has the
          option not to accept future prepayments by limited partners of
          capital contributions.  The Company presently intends to continue
          to accept prepayments by limited partners of capital
          contributions.  In addition, by arranging for the acquisition of
          Syndicated adult living communities through, and acting as the
          general partner of, partnerships, the potential exists for claims
          by limited partners for violations of the terms of the
          partnership agreements, or management contracts and of applicable
          federal and state securities and blue sky laws and regulations. 

               The Company holds 165 Purchase Notes ("Multi-Family Notes")
          which are secured by controlling interests in Multi-Family Owning
          Partnerships which own 125  multi-family properties that were
          Syndicated by the Company prior to 1986 (the "Multi-Family
          Properties").  Although it has no obligation to do so, the
          Company has also made advances to various Multi-Family Owning
          Partnerships to support the operation of their properties, which
          advances are included in the "notes and receivables" recorded on
          the Company's Consolidated Balance Sheet.  The Multi-Family Notes
          and the related advances entitle the Company to receive all cash
          flow and sale or refinancing proceeds generated by the respective
          Multi-Family Property until the Multi-Family Note and related
          advances are satisfied. As of October 31, 1998, the recorded
          value, net of deferred income, of Multi-Family Notes was $107.0
          million.  All but approximately $2.6 million of the $62.8 million
          of advances included in the "notes and receivables" recorded on
          the Company's Consolidated Balance Sheet as of October  31, 1998
          relate to advances to Multi-Family Owning Partnerships.

               Fourteen of the Multi-Family Owning Partnerships are in
          default on their respective mortgages.  The Company neither owns
          nor manages these properties, nor is it the general partner of
          any Multi-Family Owning Partnerships, but rather, merely holds
          the related Multi-Family Notes and related advances as
          receivables.  The Company, therefore, has no liability in
          connection with these mortgage defaults.  In that these mortgages
          were insured by the United States Department of Housing and Urban
          Development ("HUD"), HUD became the holder of these mortgages
          after they went into default.  In the past, HUD has instituted
          initiatives to deal with its portfolio of defaulted mortgages,
          such as selling such mortgages at auction.  Although HUD has
          discontinued this auction program, these auctions resulted in two
          of the fourteen defaulted mortgages being sold to third parties,
          subject to existing workout agreements.  The remaining twelve
          defaulted mortgages are held by HUD, with workout agreements in
          place regarding six of them with terms of from one to nine years. 
          HUD's policies regarding the granting of workout agreements have
          become more restrictive in recent years and there can be no
          assurance that HUD will renew these workout agreements or


                                      18
     <PAGE>


          restructure the related mortgage debt when these workout
          agreements expire.  Similarly, there can be no assurance that the
          related Multi-Family Owning Partnerships can obtain workout
          agreements for the six defaulted mortgages without workout
          agreements currently in place.  HUD has recently taken steps to
          foreclose on four of the defaulted mortgages without workouts.
          The related Multi-Family Owning Partnerships are negotiating with
          HUD to attempt to obtain workout agreements or mortgage
          restructuring, which restructurings are now possible pursuant to
          new HUD policies. As a result of such negotiations, HUD rescinded
          the step towards foreclosure it took regarding one of these four
          properties and has verbally agreed to delay any further action to
          foreclose on the other three properties until negotiations on
          workout agreements and mortgage restructurings are concluded. 
          Although these Multi-Family Owning Partnerships believe that all
          of these negotiations will be successful, there can be no
          assurance that this will be the case and that foreclosure can be
          avoided.   As of October 31, 1998, the recorded value, net of
          deferred income, of the Multi-Family Notes and the related
          advances held by the Company relating to these fourteen Multi-
          Family Owning Partnerships was $33.0 million.  The Company has
          established reserves of $10.1 million to address the possibility
          that these Multi-Family Notes and related advances may not be
          collected in full.  One of the Multi-Family Owning Partnerships
          whose defaulted mortgage was sold at auction, subject to an
          existing workout agreement, has reached an agreement with the new
          mortgage holder to purchase the mortgage at a discount. Although,
          this Multi-Family Owning Partnership anticipates that if it will
          purchase the mortgage with the proceeds of new mortgage financing
          from a third-party lender (from whom it has obtained a verbal
          commitment) and a capital contribution from the related multi-
          family Investing Partnership, there can be no assurance that the
          purchase and refinancing of this defaulted mortgage will in fact
          close. In view of the foregoing, it is possible that the fourteen
          Multi-Family Owning Partnerships which are in default of their
          mortgages will file bankruptcy petitions or take similar actions
          seeking protection from their creditors and/or lose their
          properties through foreclosure.

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

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

               Certain of the Multi-Family Owning Partnerships intend to
          take advantage of the new HUD initiatives and/or improving market
          conditions to either refinance their HUD-insured mortgages with
          conventional mortgage financing or restructure their HUD-insured


                                      19
     <PAGE>


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

               The future growth of the Company will be based upon the
          continued acquisition and Syndication of existing adult living
          communities and the development of newly-constructed adult living
          communities, which the Company does not intend to Syndicate.  The
          Company anticipates that it will acquire between six and twelve
          existing adult living communities over the next two years.  It is
          anticipated that acquisitions of existing adult living
          communities will be arranged by utilizing a combination of
          mortgage financing and Syndications. The Company holds contracts
          to acquire adult living communities in Seward, Nebraska,
          Henderson, Kentucky and Radcliff, Kentucky, respectively. The
          Company regularly obtains acquisition mortgage financing from two
          different commercial mortgage lenders and, in view of its ready
          access to such mortgage financing, has not sought any specific
          commitments or letters of intent with regard to future,
          unidentified acquisitions. Similarly, the Company believes that
          it has sufficient ability to arrange for acquisitions of existing
          adult living communities in part by Syndications.

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

               The Company anticipates that the proceeds of the Company's
          recently completed initial public offering, funds generated by
          its business operations and construction mortgage financing will
          provide sufficient funds to pursue its development plan (as
          described above) for at least 6 months at the projected rate of
          development.  The Company will use the proceeds of anticipated
          refinancings of construction financing on, and/or sale-leasebacks
          of, stabilized, newly constructed communities at higher principal
          amounts than the original construction financing, additional
          long-term leases or similar forms of financing which require the
          investment of little or no capital on the part of the Company, or
          may use funds raised through the issuance of additional debt or
          equity securities, to continue with its development plan for more
          than the next 6 months at its projected rate of development. 
          There can be no assurance that funds generated by these potential
          sources will be available or sufficient to complete the Company's
          development plan.  In addition, there are a number of
          circumstances beyond the Company's control and which the Company
          cannot predict that may result in the Company's financial
          resources being inadequate to meet its needs.  A lack of
          available funds may require the Company to delay, scale back or
          eliminate some of the adult living communities that are currently
          contemplated in its development plan.  

               The first new communities developed pursuant to the
          Company's development plan are in Texas.  The Company has
          completed construction with mortgage financing on adult living
          communities in Corpus Christi, Temple, and Round Rock, Texas,
          respectively. The Company has commenced construction with
          construction financing on adult living communities in Tyler,
          League City, and Fort Bend County, Texas. The Company has
          acquired an additional site in Amarillo, Texas. The Company  has
          options to acquire sites in Crestview Hills, Kentucky, Jackson,
          Tennessee, Peachtree City, Georgia and Cool Springs, Tennessee
          respectively and is negotiating with several  lenders to obtain
          financing to develop these sites.


                                      20
     <PAGE>


               The Company has, and may in the future, utilize long-term
          lease financing arrangements to develop and operate new
          communities.  The Company has obtained financing of up to $39
          million, of which approximately $35 million has been funded, from
          Capstone for 100% of the development cost of four adult living
          communities that are being operated by the Company pursuant to
          long-term leases with Capstone.  The Company has completed
          construction on all four of these communities in San Angelo, El
          Paso, Wichita Falls and Abilene, Texas, respectively.  

               The Company is actively engaged in negotiations with other
          mortgage and long-term lease lenders to provide additional
          construction financing.  The Company anticipates that most of the
          construction mortgage loans it obtains to finance the development
          and lease-up costs of new adult living communities will contain
          terms where the lender will fund at least 80% of such costs,
          requiring the Company to contribute approximately 20% of such
          costs.

               Other than as described herein, management is not aware of
          any other trends, events, commitments or uncertainties that will,
          or are likely to, materially impact the Company's liquidity.

               YEAR 2000 UPDATE

               The Company is providing the following Year 2000 information
          in compliance with the new disclosure requirements of the
          Securities and Exchange Commission.

               Year 2000 Overview - The Year 2000 issue is the result of
          many computer systems and non-information technology systems
          which rely upon embedded computer technology using only the last
          two digits to refer to a year and therefore being unable to
          distinguish between the years 1900 and 2000.  If not corrected,
          many computer applications that are date sensitive could fail or
          create erroneous results.   As part of the process of upgrading
          its internal computer hardware and software and in anticipation
          of the Year 2000 issue, the Company began to audit, inventory,
          modify and replace its mission critical software and hardware
          (including personal computers, spread sheets, and word
          processing) in its Fort Lee, New Jersey and Boca Raton, Florida
          corporate offices in 1997 ("Year 2000 Project").  During 1998,
          the Company's Year 2000 Project was extended to include software
          and hardware located at the Syndicated adult living communities
          and the newly constructed adult living communities, "embedded
          technology" (such as telephones, fax machines, copiers and
          postage machines), property and corporate facilities (such as
          security/fire systems, emergency call systems, elevators, and
          HVAC systems) and business relationships with governmental
          agencies, utilities and material third party vendors, and service
          providers.

               The Company has separate computer hardware and software
          systems at each of its Fort Lee, New Jersey and Boca Raton,
          Florida offices.  Each office has an intra-office network.  None
          of the Syndicated adult living properties or newly constructed
          adult living properties are part of a computer network.  The
          Company is using a multi-step approach in conducting its Year
          2000 Project.  These steps are: inventory, assessment,
          remediation and testing, and contingency planning.  The first
          step, an inventory of all systems and devices with potential year
          2000 problems has been completed.  The next step, an assessment
          of such inventory to determine the state of year 2000 readiness
          for material systems and devices has also been completed for the
          Company's two offices and it has been completed at the majority
          of the Syndicated adult living properties and newly constructed
          adult living properties.  A majority of the remediation and
          testing of the Company's software and hardware has already been
          completed and full completion is anticipated to occur by July 31,
          1999.  To date, the Company has updated or replaced  the
          following financial and accounting systems with Year 2000
          compliant systems:  accounting servers and related hardware,
          accounts payable systems, accounts receivable systems, general
          ledgers, cash management programs and payroll systems.  In
          addition, the Company has updated the network software located in
          the Company's two offices and replaced substantially all of the
          desk-top personal computers located therein.  The construction
          server and data base are expected to be upgraded by the end of
          March 1999.  

               However, even if the Company is successful in becoming year
          2000 compliant, the Company remains at risk from year 2000
          failures caused by key third parties.  The Company has therefore
          initiated efforts with key third parties to assess and wherever
          possible remediate Year 2000 issues.  In most cases, the Company


                                      21
     <PAGE>


          will be relying upon statements from such entities as to the Year 
          2000 readiness of their systems and will not attempt any
          independent verification.  To date, the Company has not received
          sufficient information from such entities to complete its
          assessment of their year 2000 compliance.  In addition, the
          Company cannot predict the outcome of other companies'
          remediation efforts.

               Year 2000 Costs - The total cost associated with the Year
          2000 Project to become Year 2000 compliant is not expected to be
          material to the Company's financial position.   The Company
          currently plans to complete the Year 2000 Project by July 31,
          1999.   The cost of the Company's total Year 2000 Project is
          based on presently available information.  The Company does not
          separately track the internal costs incurred for the Year 2000
          Project.  Such costs are principally the related payroll costs
          for its information systems group.  The total remaining cost of
          the year 2000 Project is estimated at approximately $50,000. 
          Substantially all of this $50,000 is related to the cost to 
          replace  software and computers.  To date, the Company incurred
          approximately $10,000  related to the Year 2000 Project. 
          Substantially all of this $10,000  is related to the cost to
          replace software and computers.  The costs of the project and the
          date on which the Company plans to complete the Year 2000
          modifications are based on management's best estimates, which
          were derived utilizing numerous assumptions of future events
          including the continued availability of certain resources, third
          parties' Year 2000 preparedness and other factors.

               Risks - The failure to correct a material Year 2000 problem
          could result in an interruption in, or a failure of, certain
          normal business activities or operations.  The Company believes
          that all material Year 2000 problems which are within its control
          will be corrected by July 31, 1999 and therefore such problems
          are not anticipated to have a material adverse affect on the
          Company's financial position and results of operations.  Even if
          the Company successfully remediates its year 2000 issues, it can
          be materially and adversely affected by failures of third parties
          to remediate their own Year 2000 issues.  The Company believes
          that the most reasonably likely worst case scenario is the loss
          of utility service (telecommunications and power) at the
          Company's corporate offices, and all or some of the adult living
          communities it operates. Based upon procedures which are
          currently in place and the contingency plans which are being
          prepared and anticipated to be put in place, such a scenario is
          not expected to have a material adverse affect on the Company's
          financial position and results of operations.

               Contingency Plans - Contingency plans are anticipated to be
          prepared so that the Company's critical business processes can be
          expected to continue to function on January 1, 2000 and beyond. 
          Such plans are anticipated to be developed by July 31, 1999. 
          These plans will attempt to mitigate both internal risks as well
          as potential risks due to business relationships with third
          parties.  

           NEW ACCOUNTING PRONOUNCEMENTS

               Statement No. 131, "Disclosures about Segments of an
          Enterprise and Related Information" establishes standards for the
          way that public business enterprises report information about
          operating segments in annual financial statements and requires
          that those enterprises report selected information about
          operating segments in interim financial reports issued to
          shareholders.  It also establishes standards for related
          disclosures about products and services, geographic areas, and
          major customers.  In accordance with Statement No. 131, the
          Company has elected not to apply this statement to its interim
          financial statements in Fiscal 1998; however, comparative
          information for interim periods in Fiscal 1998 will be reported
          in financial statements for interim periods in Fiscal 1999. 
          Segment information will be provided based upon the Company's
          primary revenue sources.

               In February 1998, the FASB issued Statement No. 132,
          "Employers' Disclosures about Pensions and Other Postretirement
          Benefits".  Statement No. 132 is effective for fiscal years
          beginning after December 15, 1997.  Statement No. 132 revises
          employers' disclosure requirements concerning pension and other
          postretirement benefit plans by standardizing such disclosure
          requirements to the extent practicable, requires additional
          information on changes in the benefit obligations and fair values
          of plan assets that will facilitate financial analysis, and
          eliminates certain disclosures that are no longer as useful as
          they were when Statements No. 87, "Employers' Accounting for
          Pensions", No. 88, "Employers' Accounting for Settlements and
          Curtailments of Defined Benefit Pension Plans and for Termination


                                      22
     <PAGE>


          Benefits", and No. 106, "Employers' Accounting for Postretirement
          Benefits Other Than Pensions", were issued.  Statement No. 132
          suggests combined formats for presentation of pension and other
          postretirement benefit disclosures and permits reduced
          disclosures for nonpublic entities.  Statement No. 132 will not
          have any material effect on disclosures presented by the Company.

               In June of 1998, the FASB issued Statement No. 133,
          "Accounting for Derivative Instruments and Hedging Activities." 
          This statement establishes accounting and reporting standards for
          derivative instruments, including certain derivative instruments
          embedded in other contracts, and for hedging activities.  It is
          effective for all fiscal quarters of fiscal years beginning after
          June 15, 1999. The Company's use of derivative instruments has
          consisted of a treasury bill lock related to a specific debt
          financing. While the Company has not completed its analysis of
          Statement No. 133 and has not made a decision regarding the
          timing of adoption, it does not believe that adoption will have a
          material effect on its financial position and results of
          operations based on its current use of derivative instruments. 


          ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                    RISK.

               NOT APPLICABLE

                             PART II - OTHER INFORMATION.

          ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

          The effective date of the registration statements (Nos. 333-05955
          and 333-43331) for the Company's initial public offering of its
          common stock, $.01 par value, was March 13, 1998.  The offering
          commenced on March 16, 1998.  The managing underwriter of the
          offering was Royce Investment Group, Inc. ("Royce").  Pursuant to
          the offering, the Company sold to the public 2,800,000 shares of
          its common stock at an initial offering price of $9.50 per share. 
          The aggregate price of the offering registered by the Company was
          $26.6 million.  On April 29, 1998, pursuant to an over-allotment
          option granted to the underwriters, John Luciani and Bernard M.
          Rodin (the "Selling Shareholders") each sold 173,030 shares of
          the Company's common stock to the public at a price of $9.50 per
          share.  The aggregate price of the shares offered by and
          registered on behalf of the Selling Shareholders was $3,287,600. 
          Under the terms of the offering, the Company incurred
          underwriting discounts of $1.6 million, and the Selling
          Shareholders incurred aggregate underwriting discounts of
          $197,250.  The Company incurred the following expenses in
          connection with the offering:  (i) a non-accountable expense
          allowance paid to Royce in the amount of $798,000, (ii) a
          consulting fee paid to Royce in the amount of $266,000, and (iii)
          other expenses related to the offering in the amount of $1.5
          million.

          The net proceeds that the Company received as a result of the
          offering were 22.3 million.  As of October  31, 1998, the
          Company's net proceeds have been used as follows:  $15.3 million
          has been used to purchase a series of treasury bills pending
          application of the funds, $6.9 million has been used for the
          purchase of land and towards the construction of plant, building
          and facilities and $100,000 has been used for working capital.


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     <PAGE>


          ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.

               (a)  Exhibits

                Exhibit Number          Description of Exhibit
                --------------          ----------------------
                (27)                    Financial Data Schedule


               (b)  Reports on Form 8-K
                    A Form 8-K was filed on October 13, 1998. Under Item
                    4--Change in Registrant's Certifying Accountant, the
                    Company announced the appointment of BDO Seidman, LLP
                    as the Company's independent accountants and the
                    Company's decision not to continue the engagement of
                    Deloitte & Touche LLP.


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     <PAGE>


                                      SIGNATURE


               Pursuant to the requirements of the Securities Exchange Act
          of 1934, the registrant has duly caused this report to be signed
          on its behalf by the undersigned, thereunto duly authorized.


                                        GRAND COURT LIFESTYLES, INC.
                                        (Registrant)


                                        /s/ Bernard M. Rodin
                                        --------------------
                                        Bernard M. Rodin
                                        Chief Financial Officer
                                        and Principal Financial Officer


          Dated: December 15, 1998



                                      25
     <PAGE>

                                    EXHIBIT INDEX
                                    -------------


          Exhibit 27                    Financial Data Schedule.



                                      

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