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 JULY 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,                      33431
          Suite 350, Boca Raton, Florida
          (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 September 8, 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 JULY 31, 1998


                                                                       PAGE

          PART I - FINANCIAL INFORMATION

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

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

                    Consolidated Statements of Operations 
                    for the three and six months ended July 
                    31, 1997 and 1998

                    Consolidated Statements of Cash Flows 
                    for the six months ended July 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 . . . . . . . . . . . . . . . .   18

          PART II - OTHER INFORMATION

          Item 2:   Changes in Securities and Use of Proceeds . . . .   19
          Item 6:   Exhibits and Reports on Form 8-K  . . . . . . . .   19


                                      1
     <PAGE>


                            PART I - FINANCIAL INFORMATION

          ITEM 1.   FINANCIAL STATEMENTS

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

                                                     January     July 31,
                                                       31,     (unaudited)
                                                    ---------  -----------

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

           Cash and cash equivalents . . . . . . . $ 11,964     $ 27,516

           Notes and receivables - net . . . . . .  231,140      238,717

           Investments in partnerships . . . . . .    3,924        4,459

           Construction in progress  . . . . . . .   26,241        6,132

           Buildings, furniture and 
            equipment - net  . . . . . . . . . . .       --       32,416
                                                    
           Other assets - net  . . . . . . . . . .   22,530       19,744
                                                   --------     --------
                                               
           Total assets  . . . . . . . . . . . . . $295,799     $328,984
                                                   ========     ========

           LIABILITIES AND STOCKHOLDERS' EQUITY

           Loans and accrued interest payable  . . $161,850     $168,111

           Construction loan payable . . . . . . .   22,595       28,968

           Notes and commissions payable . . . . .    5,299        5,187

           Other liabilities . . . . . . . . . . .    3,531        7,158
                                                  
           Deferred income . . . . . . . . . . . .   76,112       79,218
                                                   --------     --------
                                               
           Total liabilities . . . . . . . . . . .  269,387      288,642
                                                   --------     --------

           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       73,453
                                                  
           Accumulated deficit                      (24,927)     (33,289)
                                                   --------     --------
                                                
           TOTAL STOCKHOLDERS' EQUITY  . . . . . .   26,412       40,342
                                                   --------     --------

           Total liabilities and             
            stockholders' equity . . . . . . . . . $295,799     $328,984
                                                   ========     ========

          See Notes to Consolidated Financial Statements.


                                      2
     <PAGE>


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

                                    Three months ended      Six months ended
                                         July 31,               July 31,
                                       (unaudited)            (unaudited)
                                    -------------------   -------------------

                                      1997       1998       1997       1998
                                      ----       ----       ----       ----
          Revenues:
            Sales . . . . . . . .   $ 11,239   $  7,481   $ 20,918   $ 17,961
            Syndication fee income     2,661      1,912      4,643      4,087
            Deferred income earned       231        207        461        415
            Interest income . . .      2,143      3,598      5,614      7,487
            Property management
             fees from related
             parties  . . . . . .        469        724      1,177      1,712
            Equity in earnings
             from partnerships  .        118        164        232        322
            Adult living rental
             revenues . . . . . .         --      1,171         --      1,589
            Other income  . . . .        283        665        283      1,350
                                     -------    -------    -------    -------
                                      17,144     15,922     33,328     34,923
                                     -------    -------    -------    -------
          Cost and Expenses:
            Cost of sales . . . .      7,527     10,210     15,068     18,576
            Selling . . . . . . .      2,225      1,522      4,383      3,632
            Interest  . . . . . .      4,438      5,280      8,788     10,750
            General and
             administrative . . .      2,221      2,597      4,063      5,081
            Write off of
             registration costs .      3,107         --      3,107         --
            Adult living operating
             expenses . . . . . .         --      1,219         --      2,165
            Officers' compensation       300        300        600        600
            Depreciation and  
             amortization . . . .        782      1,301      1,596      2,388
                                     -------    -------    -------    -------
                                      20,600     22,429     37,605     43,192
                                     -------    -------    -------    -------
          Net loss before
           provision for taxes  .     (3,456)    (6,507)    (4,277)    (8,269)
           
          Provision for taxes . .         --         53         --         93
                                     -------    -------    -------    -------
                                
          Net loss  . . . . . . .     (3,456)    (6,560)    (4,277)    (8,362) 
                                     =======    =======    =======    =======
              
          Loss per common share 
           (basic and diluted)  .    $  (.19)   $  (.37)   $  (.24)   $  (.47)
                                     =======    =======    =======    =======

          Pro forma weighted 
           average common shares      17,800     17,800     17,800     17,800
                                     =======    =======    =======    =======


          See Notes to Consolidated Financial Statements.


                                      3
     <PAGE>


          CONSOLIDATED STATEMENTS OF CASH FLOWS
          (In Thousands)
          -------------------------------------------------------------------

                                                       Six months ended
                                                     July 31, (unaudited)
                                                    ----------------------
                                                       1997        1998
                                                     --------    --------

           Cash flows used from operating activities:
                                                 
             Net loss  . . . . . . . . . . . . . . . $ (4,277)  $ (8,362)
                                                     --------   --------
             Adjustments to reconcile net income to
              net cash provided by operating
              activities:
              Depreciation and amortization  . . . .    1,596      2,388
              Deferred income earned . . . . . . . .     (461)      (415)
              Write off of registration costs  . . .    3,107         --

             Changes in operating assets and liabilities:
              Accrued interest on notes and
               receivables   . . . . . . . . . . . .     (450)     4,695
              Notes and receivables  . . . . . . . .  (10,391)   (12,272)
              Commissions payable  . . . . . . . . .     (159)        49
              Other liabilities  . . . . . . . . . .     (334)     3,627
              Deferred income  . . . . . . . . . . .     (470)     3,521
                                                     --------   --------
                                                       (7,562)     1,593
                                                     --------   --------
              Net cash used by operating
                 activities  . . . . . . . . . . . .  (11,839)    (6,769)
                                                     --------   --------

           Cash flows used from investing activities:
             Increase in investments . . . . . . . .     (408)      (535)
             Building, furniture and equipment . . .       --     (7,725)
             Construction in progress  . . . . . . .   (5,851)    (4,706)
                                                     --------   --------

              Net cash used by investing activities    (6,259)   (12,966)
                                                     --------   --------

           Cash flows provided by financing activities:
             Payments on loans payable . . . . . . .  (13,806)   (11,712)
             Proceeds from loans payable   . . . . .   23,158     17,973
             Proceeds from construction loan payable    7,822      6,373
             Increase in other assets  . . . . . . .   (1,135)       522
             Payments of notes payable . . . . . . .      (93)      (161)
             Net proceeds from initial public 
              offering . . . . . . . . . . . . . . .       --     22,292
                                                     --------   --------

              Net cash provided by financing
               activities  . . . . . . . . . . . . .   15,946     35,287
                                                     --------   --------

             (Decrease) increase in cash and cash
              equivalents  . . . . . . . . . . . . .   (2,152)    15,552

             Cash and cash equivalents, beginning of
              period . . . . . . . . . . . . . . . .   14,111     11,964
                                                     --------   --------

             Cash and cash equivalents, end of 
              period . . . . . . . . . . . . . . . . $ 11,959   $ 27,516 
                                                     ========   ========
             Supplemental information:

              Interest paid  . . . . . . . . . . . . $  9,015   $ 10,508
                                                     ========   ========


          See Notes to Consolidated Financial Statements.


                                      4
     <PAGE>


          GRAND COURT LIFESTYLES, INC. AND SUBSIDIARIES
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE THREE AND SIX MONTHS ENDED JULY 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 July  31, 1997 and 1998 are unaudited.
          The  results  of  operations  for the  interim  periods  are  not
          necessarily  indicative  of the  results  of  operations 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.  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.  


          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  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 July 29,  1998, $4,900 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 30 day, 90 day and 180 day 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.   The Company has never  managed the
               property  owned  by  the Second  Partnership  and  is not  a
               general  partner  in the  Second  Partnership  or the  First
               Partnership.   A predecessor  of the Company  was a  general
               partner of the  Second Partnership.   The Company has  never
               been  a  general partner  of  the  First Partnership.    The
               defendants  in the  suits  were the  First Partnership,  the
               general  partners  of  the  First  Partnership,  the  Second
               Partnership, two affiliates of  the Company, and the Company
               (collectively  the "Defendants").   The Plaintiff  alleged a
               breach  of  the First  Partnership's  partnership agreement,
               negligent  misrepresentation,  fraud, negligence,  breach of
               guarantee  and mail  fraud.   The  Plaintiff sought  (i) the
               return  of  his  original  investment  ($100),  (ii)  market
               interest  on such  investment for  the period  1987-1997 and
               (iii) unspecified damages.  The parties have  entered into a
               stipulation dismissing this lawsuit, with prejudice, without
               payment of any kind by the Company.

               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.  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  then
               distributes  these  amounts  to  the  Investing  Partnership


                                      6
     <PAGE>


               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  38
               Syndicated  adult living  communities  and one  nursing home
               that  it  manages by  utilizing  mortgage  financing and  by
               arranging  for  Syndications  of 42  Investing  Partnerships
               formed to  acquire interests  in the 38  Owning Partnerships
               that own the  adult living communities and the nursing home.
               The 38  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  33  of  the   42  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  $31.8   million  in
               principal amount of mortgage debt relating to six Syndicated
               adult living communities and the one Syndicated nursing home
               managed by the Company as of July  31, 1998.  In the case of
               the   general  partner   liabilities  of   the  wholly-owned
               entities, the only assets of the Company at risk of loss are
               the general partner interests in the specific properties.

               As 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 $34,774 has been
               funded as of July 31, 1998. 

               The Capstone financing arrangement provides that the Company
               will operate these four adult living communities pursuant to
               long-term 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 two  properties
               placed in  service during  the three months  ended July  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
               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


                                      7
     <PAGE>


               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 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.
               Because the Company  does not currently utilize  derivatives
               or  engage   in  hedging  activities,  management  does  not
               anticipate  that implementation of  this statement will have
               material effect on the Company's financial statements.

          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.

               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:


                                      8
     <PAGE>


               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.

               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.

               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.

          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


                                      9
     <PAGE>


          Company's revenues.  Due, in part, to anticipated start-up losses
          from the Company's newly  developed adult living communities, the
          Company anticipates that it will incur losses for Fiscal 1998.

               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.  

               The Company  has instituted  a development plan  pursuant to
          which  it  has  completed  construction  of  seven  adult  living
          communities as  of September 3, 1998,  has commenced construction
          on   two   additional  communities   and   intends  to   commence
          construction  on between  30 and 34  additional new  adult living
          communities over the next two years.  The Company plans to own or
          lease   pursuant  to  long-term   operating  leases   or  similar
          arrangements  the   adult  living  communities  that   are  being
          developed  under the plan.   The Company will  manage and operate
          each  of the newly developed  communities.  The  Company does not
          intend  to  Syndicate any  of  its newly  developed  adult living
          communities.  The  Company estimates that the  cost of developing
          each new adult living  community (including reserves necessary to
          carry  the  community  through  its  lease-up  period)  utilizing
          mortgage  financing  will  be  approximately  $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 two communities currently under construction by the end of
          Fiscal 1998 and expects to complete construction of the remaining
          community  under construction by the end of the second quarter of
          Fiscal  1999.  These two adult living communities, along with the
          seven communities  already completed pursuant to  the development
          plan, contain an aggregate of 1,189 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.


                                      10
     <PAGE>


          EARNINGS

               The Company recorded  a net  loss of $6.6  million and  $8.4
          million  for  the  three and  six  months  ended  July 31,  1998,
          respectively, compared to  a net  loss of $3.5  million and  $4.3
          million  for  the  three and  six  months  ended  July 31,  1997,
          respectively. 

          RESULTS OF OPERATION

          .  Revenues

               Total  revenues for the three months ended July 31, 1998 was
          $15.9 million as compared  to $17.1 million for the  three months
          ended July 31, 1997,  representing a decrease of $1.2  million or
          15.9%.  Total revenues for the six months ended July 31, 1998 was
          $34.9 million as  compared to  $33.3 million for  the six  months
          ended  July 31, 1997, representing an increase of $1.6 million or
          4.8%.

               Sales  income for the three  months ended July  31, 1998 was
          $7.5  million as compared to  $11.2 million for  the three months
          ended July 31, 1997,  representing a decrease of $3.7  million or
          33.0%.  Sales income for  the six months ended July 31,  1998 was
          $18.0 million as  compared to  $20.9 million for  the six  months
          ended July 31, 1997,  representing a decrease of $2.9  million or
          13.9%.  The decreases  are primarily attributable to the  sale of
          fewer  partnership units in the  three and six  months ended July
          31, 1998 as compared  to the number of partnership units  sold in
          the three and six months ended July 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
          for its interest in the Operating Partnership, to (b) the initial
          cash flow  of the property.   In the three months  ended July 31,
          1998, the terms of the Syndications completed were less favorable
          than the terms of the Syndications in the three months ended July
          31,  1997 and the properties syndicated in the three months ended
          July  31, 1998 had lower  initial cash flows  than the properties
          Syndicated in the  three months ended July 31, 1997.   In the six
          months ended  July  31,  1998,  the  terms  of  the  Syndications
          completed were less  favorable than the terms of the Syndications
          in  the  six  months ended  July  31,  1997,  but the  properties
          Syndicated  in the  six months  ended July  31, 1998  had greater
          initial  cash  flow in  the six  months  ended July  31,  1998 as
          compared to the  properties Syndicated  in the  six months  ended
          July 31, 1997.

               Syndication  fee income for the  three months ended July 31,
          1998 was $1.9 million as compared  to $2.7 million for the  three
          months ended July 31, 1997,  representing a decrease of  $800,000
          or 30.0%.  Syndication  fee income for the six months  ended July
          31, 1998 was $4.1 million as  compared to $4.6 million in the six
          months ended July  31, 1997, representing a  decrease of $500,000
          or 10.9%.  The decreases are attributable to less commissions and
          professional  fees paid on a lower sales  volume in the three and
          six months ended July 31,  1998 as compared to the three  and six
          months ended July 31, 1997.

               Interest income for the three months ended July 31, 1998 was
          $3.6 million as  compared to  $2.1 million for  the three  months
          ended  July 31, 1997, representing an increase of $1.5 million or
          71.4%.  The increase is primarily attributable to interest income
          realized on Multi-Family  Notes as  a result  of excess  proceeds
          received  as a result of mortgage debt refinancings on six Multi-
          Family  Properties  in the  three  months  ended  July 31,  1998.
          Interest  income for the six months ended  July 31, 1998 was $7.5
          million as compared to $5.6 million for the six months ended July
          31, 1997, representing an increase of $1.9 million or 33.9%.  The
          increase is primarily attributable to interest income realized on
          Multi-Family Notes as a  result of excess proceeds received  as a
          result  of   mortgage  debt  refinancings   on  six  Multi-Family
          Properties in the  six months  ended July 31,  1998 and  interest
          earned  on the  Company's  net proceeds  from its  initial public
          offering.

               Property  management fees from  related parties was $700,000
          in  the three months ended July 31,  1998 as compared to $500,000
          in the three months ended July 31, 1997, representing an increase
          of  $200,000  or  40%.   Property  management  fees  from related
          parties was  $1.7 million for the six  months ended July 31, 1998
          as  compared to  $1.2 million  in the six  months ended  July 31,
          1997,  representing  an  increase  of  $500,000  or  41.7%.   The
          increase is  primarily attributable  to the cash  flows from  the
          underlying Owning  Partnerships exceeding  the specified  rate of


                                      11
     <PAGE>


          return to the limited partners in the three and  six months ended
          July 31,  1998 as compared to the three and six months ended July
          31, 1997.

               Equity  in earnings  from partnerships  was $200,000  in the
          three months ended July 31,  1998 as compared to $100,000 in  the
          three months  ended July 31,  1997, representing  an increase  of
          $100,000 or  100%.   Equity  in  earnings from  partnerships  was
          $300,000 in  the six  months ended July  31, 1998 as  compared to
          $200,000 in the six  months ended July 31, 1997,  representing an
          increase of $100,000 or  50%.  The increases are  attributable to
          the  Syndication of  additional properties  in which  the Company
          retains a partnership interest.

               Adult  living  rental revenues  was  $1.2  million and  $1.6
          million  in the  three  and  six  months  ended  July  31,  1998,
          respectively.   There were no adult living rental revenues in the
          three and  six months  ended July  31, 1997  because none  of the
          Company's  newly developed  adult living  rental communities  had
          been completed during such periods.  

               Other income was $700,000 in the three months ended July 31,
          1998  as compared to $300,000 in the  three months ended July 31,
          1997, representing  an increase  of $400,000 or  133.33%.   Other
          income was $1.4 million in the six months ended July 31, 1998, as
          compared  to  $300,000 in  the six  months  ended July  31, 1997,
          representing an increase of  $1.1 million or 366.67%.   The other
          income in the  three and six months ended July 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 three and  six months ended  July 31, 1998.   The
          other  income in  the three and  six months ended  July 31, 1997,
          respectively, 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
          July 31, 1998  was $10.2 million as compared to  $7.5 million for
          the three months ended July 31, 1997, representing an increase of
          $2.7 million or  36%.  The  increase is attributable  to (i)  the
          establishment of additional deffered income liabilities resulting
          primarily from a  slight decrease  in the average   occupancy  of
          certain  adult living  communities and  an increase  in operating
          expenses of the same adult living communities (ii) less favorable
          mortgage financing  for the adult  living community  acquisitions
          (requiring the expenditure of more cash to acquire the Syndicated
          adult  living  communities)   and  (iii)  increased   funding  of
          Management Contract  Obligations as  partially offset by  a lower
          aggregate  cash  portion  of  the purchase  prices  plus  related
          transaction costs  and expenses  of the adult  living communities
          acquired and Syndicated in  the three Months ended July  31, 1998
          do   to  more   favorable  terms   for  adult   living  community
          acquisitions ( in  view of the  relationship between the  initial
          cash flow generated by the properties and their purchase  prices)
          as  compared to those acquired and Syndicated in the three months
          ended July 31, 1997.  Cost of sales for the six months ended July
          31,  1998 was $18.6 million as compared  to $ 15.1 million in the
          six  months ended July 31, 1997, representing an increase of $3.5
          million  or  23.2%.  The   increase  is  attributable to (i) the
          establishment   of  deferred  income  liabilities  (ii)  increase
          funding  of  Management    Contract Obligations  and  (iii)  less
          favorable  mortgage  financing  for  the  adult  living community
          acquisitions (requiring  the expenditure of more  cash to acquire
          the Syndicated adult living communities) as partially offset by a
          lower aggregate  cash portion of the purchase prices plus related
          transaction costs  and expenses  of the adult  living communities
          acquired and Syndicated in  the six months ended July 31, 1998 do
          to more  favorable terms for adult  living community acquisitions
          (in view  of  the  relationship between  the  initial  cash  flow
          generated  by  the  properties  and  their  purchase  prices)  as
          compared to those acquired and Syndicated in the six months ended
          July 31, 1997  and a  decrease in general  transaction costs  and
          expenses in  the six months  ended July  31, 1998 as  compared to
          July  31,  1997.  Costs  of  sales  and  selling  expenses  as  a
          percentage  of  sales and  syndication fee  income for  the three
          months ended July 31, 1998 was 124.9% as compared to 70.2% in the
          three  months  ended July  31, 1997.  Cost  of sales  and selling
          expenses  as a percentage of sales and syndication fee income for
          the six  months ended  July 31,  1998 was  100.7% as  compared to
          76.1%  in the six  months ended July 31,  1997. The increases are
          attributable to  sales and syndication fee  income decreasing and
          costs of sales and selling expenses increasing for such periods.


                                      12
     <PAGE>


               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
          three and six months ended July 31, 1998 as compared to the three
          and six months ended July 31,  1997 the Company believes that the
          general   trend  towards   less   favorable   acquisition   terms
          experienced during  the last several  years will continue  in the
          future.  Although the  Company was  not  able to  obtain mortgage
          financing for as  great a percentage of the purchase price in the
          three and six months ended July 31, 1998 as for the three and six
          months  ended July  31,  1997, the  Company  continued to  obtain
          mortgage  financing   with  preferred  interest  rates   on  such
          mortgages.  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
          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 July 31, 1998 was
          $1.5 million as  compared to  $2.2 million for  the three  months
          ended July  31,  1997, representing  a  decrease of  $700,000  or
          31.8%.   Selling expense for the six  months  ended July 31, 1998
          was $3.6 million  as compared to $4.4 million for  the six months
          ended  July 31,  1997,  representing a  decrease  of $800,000  or
          18.2%.    The decreases  are attributable to  a lower  commission
          rate paid  on a lower  sales volume in  the three and  six months
          ended July 31, 1998 as compared to the three and six months ended
          July 31, 1997.  

          .  Interest Expense

               Interest expense  for the three  months ended July  31, 1998
          was $5.3 million  as compared to $4.4 million in the three months
          ended  July  31, 1997,  representing an  increase of  $900,000 or
          20.5%.  Interest expense  for the six months ended July  31, 1998
          was $10.8 million as compared to $8.8 million for  the six months
          ended  July 31, 1997, representing an increase of $2.0 million or
          22.7%.    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  six months
          ended July 31, 1998 as compared to the three and six months ended
          July 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  six
          months ended July 31, 1998.  Such interest was capitalized during
          the periods these communities  were under construction.  Interest
          expense  included  interest  on  debentures  ("Debenture  Debt") 
          which  had  an  average  interest  rate  of  12.05% per annum  in
          the  six months ended July  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  six months ended  July
          31,  1998  and  1997,  total  interest  expense  with respect  to
          Debenture Debt  was approximately $3.9 million  and $4.1 million,
          respectively   and  the   Purchase   Note   Collateral   produced
          approximately  $2.3  million   and  $900,000,  respectively,   of
          interest and  related payments  to the  Company,  which was  $1.6
          million  and $3.2  million,  respectively, less  than the  amount
          required to pay interest on the Debenture Debt.

          .  General and Administrative Expenses

               General and  administrative expenses  were $2.6  million for
          the three months ended July 31,  1998 as compared to $2.2 million
          for  the  three  months  ended  July  31,  1997,  representing an
          increase  of  $400,000  or  18.2%.   General  and  administrative
          expenses for the six months ended July 31, 1998 were $5.1 million
          as  compared to  $4.1 million for  the six months  ended July 31,
          1997, representing an  increase of  $1.0 million or  24.4%.   The
          increases  are   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


                                      13
     <PAGE>


          Company's  portfolio  of  Syndicated  and newly  developed  adult
          living communities, which portfolio, in the aggregate, was larger
          in  the  three  and six  months  ended  July  31,  1998 than  the
          Company's  portfolio in the three  and six months  ended July 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.

          .  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 $1.2  million  and  $2.2
          million  in the  three  and  six  months  ended  July  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 six months ended July
          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 July 31,  1998 was $1.3
          million as compared to  $800,000 for the three months  ended July
          31,  1997,  representing  an   increase  of  $500,000  or  62.5%.
          Depreciation  and amortization for the  six months ended July 31,
          1998  was $2.4  million as  compared to  $1.6 million in  the six
          months ended July 31, 1997, representing an  increase of $800,000
          or  50%.   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  six months  ended  July 31,  1998, as
          compared to the three  and six months ended  July 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  six months
          ended July 31, 1998 were $6.8  million and were comprised of  (i)
          net loss of $8.4 million plus (ii) adjustments for non-cash items
          of $2.0 million less (iii) the net change in operating assets and
          liabilities of $400,000.   The adjustments for  non-cash items is
          comprised  of  depreciation  and amortization  of  $2.4  million,
          offset by  deferred income earned of $400,000.  The net change in
          operating  assets  and  liabilities  of  $400,000  was primarily 
          attributable  to an  increase in notes  and receivables and accrued
          interest on notes and receivables of $7.7 million as offset  by an 
          increase  of other  liabilities  of $3.6  million.  Approximately  
          71% 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 
          20% of the increase in  "notes and receivables" was primarily 
          attributable to an increase in advances made  to Owning


                                      14
     <PAGE>


          Partnerships   which   own  Syndicated   multi-family  properties
          ("Multi-Family   Owning  Partnerships").   Cash  flows   used  by
          operating  activities for the six months ended July 31, 1997 were
          $11.8  million  and  were comprised  of:  (i)  net  loss of  $4.3
          million plus (ii) adjustments for  non-cash items of $4.2 million
          less (iii) the  net change in operating assets and liabilities of
          $11.7 million.   The adjustments for non-cash  items is comprised
          of depreciation  and amortization  of $1.6 million,  write-off of
          registration  costs of $3.1 million   less deferred income earned
          of $500,000.  

               Net cash  used by  investing activities  for the  six months
          ended July 31, 1998 of $13.0 million was comprised of an increase
          of building, furniture and equipment of $7.7 million, an increase
          in  the cost  of  the adult  living  communities the  Company  is
          constructing of $4.7  million, and an increase  in investments in
          general  partner   interests  in  adult  living   communities  of
          $600,000.    Net cash  used by  investing  activities in  the six
          months ended July 31, 1997  of $6.3 million was comprised  of the
          increase  in the cost of the adult living communities the Company
          is constructing of  $5.9 million and the  increase in investments
          in  general  partner interests  in  adult  living communities  of
          $400,000.

               Net cash provided by financing activities for the six months
          ended  July  31,  1998 of  $35.3  million  was  comprised of  (i)
          proceeds from the issuance of new debt of $18.0 million less debt
          prepayments of $11.7 million plus (ii) proceeds from construction
          mortgage financing of  $6.4 million, less (iii) payments of notes
          payable of $200,000  plus (iv)  the decrease in  other assets  of
          $500,000 plus (v) the net proceeds of the initial public offering
          of $22.3 million.  Net cash  used by financing activities for the
          six months ended July 31, 1997 of $15.9  million was comprised of
          (i) proceeds from the issuance of new debt of $23.2  million less
          debt  prepayments  of  $13.8  million  plus  (ii)  proceeds  from
          construction  mortgage financing  of  $7.8  million,  less  (iii)
          payments of notes payable  of $100,000 less (iv) the  increase in
          other assets of $1.2 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 July 31, 1998, the Company has
          increased Investor Note Debt from $24.2 million to $28.4 million,
          increased Unsecured Debt  from $66.2 million to $68.9 million and
          reduced debenture debt from $65.5 million to $64.8 million.  As a
          result,  total  indebtedness  increased  from  $160.9  million to
          $167.1 million and the  Company had cash and cash  equivalents at
          July 31, 1998 of $27.5 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, of which  the Company repaid $2.2 million  through the
          collection of  investor notes  and intends  to pay the  remaining
          $100,000 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  $6.8 million
          has  been repaid.    The Company  expects  to repay  the  balance
          through funds  generated  by the  Company's  business  operations
          and/or to refinance by the issuance of new debt.

               During the  year ended  January 31, 1998 and the six months 
          ended July 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 
          July 31, 1998, total  funding under such first mortgage loans 
          amounted to $13.3 million and $19.7 million,  respectivly.  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 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  mortage loans
          bear  interest  at the  rate of  13.125% per annum.  These second
          mortage loans mature between November 2001 and March 2002.


                                      15
     <PAGE>


               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 July 31, 1998 the Company had a net worth
          of  $40.3 million.    Pursuant to  the  Capstone agreements,  the
          Company is required to maintain a net worth of no less than $37.6
          million.   Certain obligations  of the Company  contain covenants
          requiring the Company to maintain maximum ratios of the Company's
          liabilities to  its  net worth.   The  most restrictive  covenant
          requires  that the Company maintain a ratio of "loans and accrued
          interest payable" to consolidated net worth of no more  than 7 to
          1.  At January 31, 1998 and July 31, 1998, the Company's loan and
          accrued interest to consolidated net worth ratio was 6.1 to 1 and
          3.8  to 1, respectively.  In addition, certain obligations of the
          Company  provide that  an event  of default  will arise  upon the
          occurrence  of  a  material   adverse  change  in  the  financial
          condition of the Company  or upon a default in  other obligations
          of the Company.

               The Company has utilized mortgage financing and Syndications
          to arrange for  the acquisitions of the  adult living communities
          it  operates  and intends  to continue  this practice  for future
          acquisitions of  existing adult living communities.   The Company
          does  not intend  to Syndicate  its newly  developed communities.
          The  limited partnership agreements of the Investing Partnerships
          provide that the limited  partners are entitled to receive  for a
          period not to exceed  five-years specified distributions equal to
          11%  to 12%  per annum  of their  then paid-in  scheduled capital
          contributions.   Pursuant  to the  management contracts  with the
          Owning Partnerships,  for such five-year period,  the Company has
          Management  Contract Obligations.   During  the six  months ended
          July 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 $5.1  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 $3.4 million.   The $3.4 million of
          funding  that  was required  in  respect  to Management  Contract
          Obligations  for the six months ended July 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 $6.8 million for the remaining portion of
          Fiscal 1998, which  will increase  to $19.0 in  Fiscal 1999,  and
          decrease  to  $18.7 million  in  Fiscal 2000,  decrease  to $14.2
          million in Fiscal  2001 and  decrease to $6.0  million in  Fiscal
          2002, and decrease to $200,000  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
          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.


                                      16
     <PAGE>


               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 six months  ended July 31, 1998,
          the Company  had advanced an aggregate  of approximately $542,000
          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  69.9%  for  the  six  months  ended  July  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 169  Purchase Notes ("Multi-Family Notes")
          which are secured by controlling interests in Multi-Family Owning
          Partnerships  which own  126  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 July  31, 1998,  the recorded
          value, net of  deferred income, of Multi-Family  Notes was $107.7
          million.  All but approximately $2.3 million of the $61.8 million
          of advances  included in the "notes and  receivables" recorded on
          the Company's  Consolidated Balance  Sheet as  of  July 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
          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 held these six mortgages
          for  a  number of  years without  taking  any action  to  sell or
          foreclose on  these  mortgages.    There  can  be  no  assurance,
          however,  that  HUD  will   not  change  its  policies  regarding
          defaulted mortgages  with or without workout  agreements and take
          actions to  sell or foreclose on these mortgages.  As of July 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
          $32.8 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.   In view of
          the  foregoing, it  is  possible that  the fourteen  Multi-Family
          Owning Partnerships which are in  default of their mortgages will


                                      17
     <PAGE>


          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
          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, one of such Multi-Family Owning
          Partnerships  has  a commitment  for such  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.  In July,  1998, the Company
          acquired  an  adult  living  community in  South  Miami,  Florida
          containing  96 apartment units and has entered into a contract to
          purchase  an  adult   living  community  in  Carrolton,   Georgia
          containing  68 apartment  units.   The Company  regularly obtains
          acquisition  mortgage financing  from three  different commercial
          mortgage  lenders  and,  in view  of  its  ready  access to  such
          mortgage financing,  has not  sought any specific  commitments or
          letters   of  intent   with   regard   to  future,   unidentified
          acquisitions.    Similarly,  the  Company believes  that  it  has
          sufficient ability to arrange  for acquisitions of existing adult
          living communities in part by Syndications.


                                      18
     <PAGE>


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

               The Company  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 8  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  8 months  at its  projected rate  of development.
          There can be no assurance that funds generated by these potential
          sources will be available or sufficient to complete the Company's
          development  plan.     In  addition,  there   are  a  number   of
          circumstances beyond the Company's  control and which the Company
          cannot  predict  that  may  result  in  the  Company's  financial
          resources  being inadequate  to  meet  its  needs.    A  lack  of
          available funds may require  the Company to delay, scale  back or
          eliminate some of the adult living communities that are currently
          contemplated in its development plan.  

               The first new communities  being constructed pursuant to the
          Company's development  plan are in Texas.   The Company completed
          construction with mortgage financing for up to $7.0 million on an
          adult living community in  Corpus Christi, Texas, for up  to $7.3
          million on  an adult living community in Temple, Texas and for up
          to  $7.6  million on  an adult  living  community in  Round Rock,
          Texas, respectively.  The Company has commenced construction with
          construction  financing  for  $7.1  million on  an  adult  living
          community  in  Tyler,  Texas   and  commenced  construction  with
          construction financing for $7.8 on  an adult living community  in
          Overland Park, Kansas.  The Company has acquired additional sites
          in   Amarillo,  Fort   Bend  County   and  League   City,  Texas,
          respectively, has  options to  acquire sites in  Crestview Hills,
          Kentucky and Jackson, Tennessee,  respectively and is negotiating
          with several  additional lenders  to obtain financing  to develop
          these sites.

               The Company  has, and may  in the future,  utilize long-term
          lease  financing   arrangements  to   develop  and  operate   new
          communities.  The  Company has  obtained 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.

          .  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


                                      19
     <PAGE>


          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
          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.  Because the Company  does not currently 
          utilize  derivatives or engage in hedging activities,  management  
          does not anticipate  that implementation of  this statement will 
          have material effect on the Company's financial statements.


          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  amount 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  July 31, 1998, the Company's
          net proceeds have been  used as follows:  $17.3  million has been
          used to purchase  a series of 30 day, 90 day and 180 day treasury
          bills  pending application  of the  funds, $4.9 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.


          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

                    None.


                                      20
     <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: September 14, 1998


                                      21
     <PAGE>


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


          Exhibit 27                    Financial Data Schedule.




                                      22