Title of Each Class Name of Each Exchange

on which Registered

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

Common Stock, $0.01 Par Value

Indicate by check mark whether the registrant (1) has filed all reports

required to be filed by Section 13 or 15(d) of the Securities Exchange

Act of 1934 during the preceding 12 months (or for such shorter period

that the registrant was required to file such reports), and (2) has been

subject to such filing requirements for the past 90 days. Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. /X/

The aggregate market value of the voting stock held by nonaffiliates of the registrant was $131,665,608 at March 7, 1996, calculated in accordance with the Securities and Exchange Commission rules as to beneficial ownership.

12,652,439 shares of the registrant's common stock were outstanding at March 7, 1996.

DOCUMENTS INCORPORATED BY REFERENCE: None

Item 8. NHP INCORPORATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(RESTATED)

INDEX

Page

NHP Incorporated

Report of Independent Public Accountants ................................ F-1 Index of 1994 Auditors' Reports ......................................... F-2 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994 (as restated for 1996 and 1995) .................... F-12 Consolidated Balance Sheets as of December 31, 1996 and 1995 (both as restated) ............................................................. F-13 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 (as restated for 1996 and 1995)..................... F-14 Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended December 31, 1996, 1995 and 1994 (as restated for 1996 and 1995).. F-16 Notes to Consolidated Financial Statements................................ F-17

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of NHP Incorporated:

We have audited the accompanying consolidated balance sheets of NHP Incorporated (formerly NHP, Inc.), a Delaware corporation, and subsidiaries (the "Company") as of December 31, 1996 and 1995, (both as restated--See Note 2 and Note 5) and the related consolidated statements of operations, shareholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1996 (as restated for 1996 and 1995--See Note 2 and Note 5). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the 1994 financial statements of certain real estate partnerships whose operating results are included in "income (loss) from discontinued real estate operations, net of income taxes," in the accompanying 1994 consolidated financial statements. The net losses of these real estate partnerships ($1,706,000) represent 10% of 1994 net income. The financial statements of these real estate partnerships were audited by other auditors whose reports have been furnished to us and our opinion, insofar as it relates to the amounts (including the 1994 gross revenues disclosed in Note 2) included in the consolidated financial statements for these real estate partnerships, is based solely on the reports of the other auditors.

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

In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NHP Incorporated and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles.

/s/ Arthur Andersen LLP

Washington, D.C.,

April 23, 1997 (except with respect to the matters

discussed in Note 5 and "Discontinued Real Estate Operations"

in Note 2 as to which the dates are October 3, 1997 and

October 21, 1997, respectively)

INDEX OF 1994 AUDITORS' REPORTS

* Anders, Minkler & Diehl, LLP

Caroline Associates I

Columbus Square Associates I

Columbus Square Associates II

Pershing Waterman Phase I

PW III Associates

PW IV Associates

PW V Associates

PW VI Associates

Savoy Court Associates

Wigar, Ltd.

Arthur Andersen LLP

NHP Incorporated

* Dauby O'Connor & Zaleski, LLC

Brookview Apartments Company Limited

Clover Ridge East Limited Partnership

Colony Apartments Company Limited

East Hampton Limited Partnership

Edgewood II Associates

Fairburn & Gordon Associates, Phase I

Fairburn & Gordon Associates, Phase II

Laing Village

Oakland City/West End Associates, Ltd.

Orangeburg Manor

Parkways Associates

Pleasant Valley Apartments, Ltd.

Sandy Springs Associates, Ltd.

The Oak Park Partnership

The Rogers Park Partnership

Tiffany Rehab Associates

Village Green Apartments Company Limited

Vineville Towers Associates, Ltd.

Westgate Apartments

* Deloitte & Touche LLP

107-145 West 135th Street Associates

Algonquin Tower Limited Partnership

All Hallows Associates

Allentown Towne House Limited Partnership

Anglers Manor Associates

Antioch Apartments, Ltd.

Arvada House

Audobon Park Associates

Baldwin Oaks Elderly, Ltd.

Baldwin Towers Associates

Basswood Manor Limited Partnership

Bayview Hunters Point Apartments

Bensalem Gardens Associates

Berkley Limited Partnership

Bloomsburg Elderly Associates

Boynton Beach Limited Partnership

Briarwood Apartments

* Incorporated by reference from Exhibit 99 to the Registration Statement on Form S-1 (File No. 33-93110) of NHP Incorporated.

INDEX OF 1994 AUDITORS' REPORTS

Brightwood Manor Associates

Brinton Manor No. 1 Associates

Brinton Towers Associates

Brookside Apartments Associates

Buena Vista Apartments, Ltd.

Cabell Associates of Lakeview

California Square Limited Partnership

California Square II Limited Partnership

Campbell Heights Associates

Canterbury Gardens Associates

Capital Park Limited Partnership

Caroline Arms Limited Partnership

Center Square Associates

Central Village Associates

Chapel NDP

Cheek Road Limited Partnership

Cheyenne Village Apartments, Ltd.

Clay Courts Associates

College Heights

College Park Apartments

College Park Associates

Community Developers of High Point

Congress Park Associates II

Copperwood Limited

Copperwood II Limited

Cottonwood Apartments

Cumberland Court Associates

Cypress Gardens, Limited

Darby Townhouses Associates

Darbytown Development Associates

Delcar-S, Ltd.

Delcar-T, Ltd.

DIP Limited Partnership

DIP Limited Partnership - II

DIP Limited Partnership - III

Discovery Limited Partnership

Doral Gardens Associates

Duquesne Associates No. 1

Eastman Associates

Edmond Estates Limited Partnership

Elden Limited Partnership

Elm Creek Limited Partnership

Esbro Limited Partnership

Fairmeadows Limited Partnership

Fairmont #1 Limited Partnership

Fairmont #2 Limited Partnership

Fairview Homes Associates

Fairwood Associates

Federal Square Village

* Incorporated by reference from Exhibit 99 to the Registration Statement on Form S-1 (File No. 33-93110) of NHP Incorporated.

INDEX OF 1994 AUDITORS' REPORTS

Field Associates

Forest Green Limited Partnership

Forest Park Elderly Associates

Forrester Gardens, Ltd.

Fort Carson Associates

Foxwood Manor Associates

Franklin Chapel Hill Associates

Franklin Eagle Rock Associates

Franklin Northwoods Associates

Franklin Park Limited Partnership

Franklin Pheasant Ridge Associates

Franklin Ridgewood Associates

Franklin Woods Associates

Friendset Housing Company

Frio Housing, Ltd.

G. W. Carver Limited

Galion Limited Partnership

Garfield Hill Associates

Gateway Village Associates

Gladys Hampton Houses Associates

Golden Apartments I

Golden Apartments II

Grandview Apartments

Greater Mount Calvary Terrace, Ltd.

Greater Richmond Community Development Corp. I and Associates

Greater Richmond Community Development Corp. II and Associates

Green Mountain Manor Limited Partnership

Griffith Limited Partnership

Gulfway Limited Partnership

H.R.H. Properties, Ltd.

Hamilton Gardens, Ltd.

Hamilton Heights Associates

Harold House Limited Partnership

Hatillo Housing Associates

Hickory Ridge Associates, Ltd.

Hillcrest Green Apartments, Ltd.

Hillside Village Associates

Hilltop Apartments Associates

Hilltop Limited Partnership

Hopkins Renaissance Associates

Hudson Terrace Associates

Hurbell II Limited Partnership

Indian Valley I Limited Partnership

Indian Valley II Limited Partnership

Indian Valley III Limited Partnership

Ingram Square Apartments, Ltd.

Jamestown Village Associates

Jersey Park Associates

JFK Associates

Johnston Square Associates

* Incorporated by reference from Exhibit 99 to the Registration Statement on Form S-1 (File No. 33-93110) of NHP Incorporated.

INDEX OF 1994 AUDITORS' REPORTS

JVL Limited

JVL 16 Associates

JVL 18 Associates

JVL 19 Associates

Kennedy Homes Limited Partnership

Kenneth Arms Apartments

Key Parkway West Associates

Kimberly Associates Limited Partnership

Knollcrest Apartments

La Salle Apartments

La Vista Associates

Lafayette Manor Associates

Lafayette Towne Elderly, Ltd.

Lafayette Towne Family, Ltd.

Lake Forest Apartments

Langenheim Associates

Las Americas Housing Associates

Lassen Associates

Laurel Gardens

Lewisburg Associates

Lewisburg Elderly Associates

Leyden Limited Partnership

Lincmar Associates

Lincoln Park Associates

Lock Haven Elderly Associates

Lock Haven Gardens Associates

Loring Towers Apartments Limited Partnership

M & P Development Company

Madison Hill Limited Partnership

Manzanita Arms Apartments

Maple Hill Associates

Maple Park East Limited Partnership

Maple Park West Limited Partnership

Mayfair Manor Limited Partnership

Meadowood Apartments - Phase I (Meadowood Associates)

Meadowood Apartments - Phase II (Meadowood Associates)

Meadowood Associates III, Ltd.

Meadows Apartments Limited Partnership

Meadows East Apartments Limited Partnership

Menlo Limited Partnership

Merced Commons I

Merced Commons II

Mill Street Associates

Miramar Housing Associates

Montblanc Garden Apartments Associates

Montblanc Housing Associates

Morrisania Towers Housing Company

Moss Gardens Ltd.

Murphy Blair Associates III

New Lake Village Apartments

* Incorporated by reference from Exhibit 99 to the Registration Statement on Form S-1 (File No. 33-93110) of NHP Incorporated.

INDEX OF 1994 AUDITORS' REPORTS

New West 111th Street Housing Company

New West 111th Street Two Associates

Newton Hill Limited Partnership

Northgate Village Limited Partnership

Northlake Terrace Associates

Northwest Terrace Associates

Oakland Village Townhouse Associates

Ocala Place, Ltd.

Olde Rivertowne Venture

One Lytle Place

One West Conway Associates

Orange Village Associates

Overbrook Park, Ltd.

Palm House Limited Partnership

Park Avenue West I Limited Partnership

Park Avenue West II Limited Partnership

Park Creek Limited Partnership

Pavillion Associates

Place One Limited Partnership

Portland Plaza Partnership

Portner Place Associates

Post Street Associates

Pride Gardens Limited Partnership

Pueblo Apartments Associates, Ltd.

Rancho Arms Apartments

Retirement Manor Associates

RI-15 Limited Partnership

Richlieu Associates

River Front Apartments Limited Partnership

River Woods Associates

Riverview II Associates

Rockwell Limited Partnership

Rolling Meadows Of Ada, Ltd.

Royal Towers Limited Partnership

Ruffin Road Associates

Rutherford Park Townhouses Associates

San Jose Limited Partnership

San Juan Apartments

San Juan Del Centro Limited Partnership

Sencit Towne House Limited Partnership

Sherman Terrace Associates

Shoreview Apartments

Site 10 Community Alliance Associates

Sleepy Hollow Apartments

SNI Development Company

Southmont Apartments

Southridge Apartments Limited Partnership

Southward Limited Partnership

Spring Meadow Limited Partnership

Springfield Limited Partnership

* Incorporated by reference from Exhibit 99 to the Registration Statement on Form S-1 (File No. 33-93110) of NHP Incorporated.

INDEX OF 1994 AUDITORS' REPORTS

Spruce Limited Partnership

Stafford Apartments

Stock Island Limited Partnership

Storey Manor Associates

Strawbridge Square Associates Limited Partnership

Summersong Townhouses Limited Partnership

Sunrise Associates

Sunset Plaza Apartments

Susquehanna View Limited Partnership

Timberlake Apartments Limited Partnership

Timuquana Park Associates

Tinker Creek Limited Partnership

Town North

Treeslope Apartments Associates

Trinity Apartments

Trinity Hills Village Apartments

Trinity Towers - 14th Street Associates, Ltd.

Tumast Associates

United Handicap Federation Apartment Associates

United House Associates

United Housing Partners - Carbondale, Ltd.

United Redevelopment Associates

University Plaza Associates

Vantage 78

Verdes Del Oriente

Villa De Guadalupe Associates

Village Circle Apartments, Ltd.

Village Green Limited Partnership

Village Park II

Vistas De San Juan Associates

Waico Apartments Associates

Waico Phase II Associates

Walden Oaks Associates

Walmsley Terrace Associates

Walnut Hills Associates, Ltd.

Wash-West Properties

Washington Manor Limited Partnership

Waterman Limited Partnership

Waters Towers Associates

West Oak Village Limited Partnership

Whitefield Place, Ltd.

Woodmark Limited Partnership

Yadkin Associates

* Edwards Leap & Sauer

Buffalo Village Associates

Genessee Gardens Associates

Ida Tower

* Incorporated by reference from Exhibit 99 to the Registration Statement on Form S-1 (File No. 33-93110) of NHP Incorporated.

INDEX OF 1994 AUDITORS' REPORTS

* George A. Hieronymus & Company, LLC

Athen Arms Associates

Colonial Terrace I Associates

Colonial Terrace II Associates

* Goldenberg Rosenthal Friedlander, LLP

Baisley Park Associates

Brunswick Village Limited Partnership

Churchview Gardens Limited Partnership

Harris Gardens Limited Partnership

Hawksworth Limited Partnership

Hollows Associates

Kimberton Apartments Associates

Washington Northgate Limited Partnership

Washington Westgate Limited Partnership

Windsor Apartments Associates

* Hansen, Hunter & Kibbee, P.C.

Haines Associates Limited Partnership

King-Bell Associates

Monmouth Associates Limited Partnership

Pendleton Riverside Apartments, Oreg., Ltd.

Penn Hall Associates Limited Partnership

Rodeo Drive Limited Partnership

South Mountain Terrace, Ltd.

Woodland Apartments, Oreg., Ltd.

* J.H. Cohn, LLP

Marlboro Greens Limited Partnership

* J.A. Plumer & Co., P.A.

630 East Lincoln Avenue Associates

Aspen Stratford Apartments Company B

Aspen Stratford Apartments Company C

Benjamin Banneker Plaza Associates

Brightwood Limited Partnership

Cambridge Heights Apartments, Ltd.

Carter Associates Limited Partnership

Cherry Estates

Christopher Court Housing Company

Concord House Associates

Duke Manor Associates

Elderly Housing Associates Ltd. Partnership

Forest Apartments Associates

Gate Manor Apartments, Ltd.

Greenfield Apartments Limited Partnership

Greenfield North Apartments Limited Partnership

Haili Associates

Houston Aristocrat Apartments, Ltd.

Kapuna Associates

* Incorporated by reference from Exhibit 99 to the Registration Statement on Form S-1 (File No. 33-93110) of NHP Incorporated.

INDEX OF 1994 AUDITORS' REPORTS

Kinloch Urban East Housing

Koolau Housing Associates

Lakeview Arms Associates

Lee-Hy Manor Associates Limited Partnership

Locust Park Associates

Loring Towers Associates

Mahoning Associates

Milliken Apartments Company

Monument Street Limited Partnership

Neighborhoods of the Universities Lock Street Apartments Company

Oak Hollow South Associates

Orchard Mews Associates

Oxford Place Associates

Pittsfield Neighborhood Associates

Prince Street Towers Limited Partnership

Sencit-Lebanon Company

St. Nicholas Associates

Tamarac Pines, Ltd.

Tamarac Pines II, Ltd.

Taunton Green Associates

Taunton II Associates

Tompkins Terrace Associates

Waipahu Associates

Washington Chinatown Associates

Woodcrest Apartments, Ltd.

Worchester Episcopal Housing Company

* Marks Shron & Company, LLP

Two Bridges Associates

* Reznick Fedder & Silverman

Beautiful Village Associates Redevelopment Company

Branchwood Towers Limited Partnership

Citrus Park Associates, Ltd.

Community Circle II Limited

Copperstone Limited Partnership

Diakonia Associates Limited Partnership

Easton Terrace I Associates

Easton Terrace II Associates

Eastridge Apartments

Emory Grove Associates Limited Partnership

First Alexandria Associates

Flatbush NSA Associates

Franklin Square School Associates

Gates Mill I Limited Partnership

Grosvenor House Associates Limited Partnership

Harris Park Limited Partnership

Hollybush Gardens I

Hollybush Gardens II

Intown West Associates Limited Partnership

* Incorporated by reference from Exhibit 99 to the Registration Statement on Form S-1 (File No. 33-93110) of NHP Incorporated.

INDEX OF 1994 AUDITORS' REPORTS

Lake Avenue Associates

Lake Crossing Limited Partnership

Lakehaven Associates One

Lakehaven Associates Two

Linden Court Associates

Loudoun House Limited Partnership

Monaco Arms Associates I

Monaco Arms Associates II

Muske Limited Partnership

Natick Associates

Oakcrest Terrace Apartments

Oakwood Limited Partnership

Parkview Associates

Queenstown Apartments Limited Partnership

Rancho Townhouse Associates

Ruscombe Gardens Limited Partnership

Sencit-Jacksonville Company LTD

Sheffield Associates

Snap IV Limited Partnership

Tara Bridge Limited Partnership

Twin Towers Associates

Tyee Associates Limited Partnership

Urbanization Maria Lopez Housing Company

Westminster Associates

Wollaston Manor Associates

Woodside Village Limited Partnership

* Russell Thompson Butler & Houston

Chesterfield Housing Associates

Community Developers Of Princeville

Crosland Housing Associates

Eastcourt Village Partners

Eustis Apartments, Ltd.

Grove Park Villas, Ltd.

Hemingway Housing Associates

Highlands Village II

Housing Assistance of Mt. Dora, Ltd.

Housing Assistance of Orange City, Ltd.

Housing Assistance of Sebring, Ltd.

Housing Assistance of Vero Beach, Ltd.

Hurbell I Limited Partnership

Hurbell IV Limited Partnership

Lakeview Villas, Ltd.

Mccoll Housing Associates

Miami Elderly Associates

Orange City Villas II, Ltd.

Parkview Apartments, Ltd.

Parkview Arms Associates I

Parkview Arms Associates II

Registry Square, Ltd.

* Incorporated by reference from Exhibit 99 to the Registration Statement on Form S-1 (File No. 33-93110) of NHP Incorporated.

INDEX OF 1994 AUDITORS' REPORTS

South Hiawassee Village, Ltd.

St. George Villas

The Meadows Apartments

Townview Towers I Partnership, Ltd.

Twin Gables Associates

United Housing Partners Cuthbert, Ltd.

United Housing Partners Elmwood, Ltd.

United Housing Partners Morristown, Ltd.

United Housing Partners Welch, Ltd.

VOA-Nicollet Towers Associates

Woodside Villas of Arcadia, Ltd.

* Incorporated by reference from Exhibit 99 to the Registration Statement on Form S-1 (File No. 33-93110) of NHP Incorporated.

NHP INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Year Ended December 31,

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

(Restated) (Restated)

1996 1995 1994

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

Revenue, substantially all from

related parties

Property management services $ 54,632 $ 48,336 $ 40,953

On-site personnel, general and

administrative

cost reimbursement 127,266 117,249 98,158

Administrative and reporting fees 4,593 4,148 3,680

Other 8,488 4,941 4,505

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

Total revenue 194,979 174,674 147,296

Expenses

Salaries and benefits

On-site employees 124,138 113,100 93,560

Off-site employees 26,641 22,371 19,099

Other general and administrative 14,074 11,899 10,968

Costs charged to the Real Estate Companies 3,128 4,149 4,598

Amortization of purchased management

contracts 4,562 3,076 2,043

Other depreciation and amortization 1,759 727 481

Non-recurring expenses -- 45 1,806

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

Total expenses 174,302 155,367 132,555

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

Operating income 20,677 19,307 14,741

Interest income 747 292 121

Interest expense (3,982) (5,788) (5,857)

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

Income from continuing operations before

income taxes and extraordinary item 17,442 13,811 9,005

Income tax (provision) benefit (6,977) 17,802 --

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

Income from continuing operations before

extraordinary item 10,465 31,613 9,005

Income (loss) from discontinued operations, net

of income tax (provision) benefit of ($1,144),

$2,515 and $0 in 1996, 1995 and 1994,

respectively 1,155 (3,771) 7,490

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

Income before extraordinary item 11,620 27,842 16,495

Extraordinary item, net of income taxes -

(see Note 16) -- (400) --

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

Net income $ 11,620 $ 27,442 $ 16,495

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

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

Net income (loss) per common share:

Continuing operations before extraordinary

item $ .82 $ 3.27 $ 1.11

Discontinued operations .09 (.38) .93

Extraordinary item -- (.04) --

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

Net income $ .91 $ 2.85 $ 2.04

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

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

The accompanying notes are an integral part of these consolidated statements.

NHP INCORPORATED

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS)

December 31,

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

(Restated) (Restated)

ASSETS 1996 1995

---- ----

Cash and cash equivalents $ 4,779 $ 5,996

Receivables, net, substantially all from related parties 15,270 12,809

On-site cost reimbursement receivable, substantially all from related parties 3,816 2,747

Current portion of net deferred tax asset 6,357 5,916

Other current assets 1,355 277

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

Total current assets 31,577 27,745

Purchased management contracts, net 43,718 34,568

Net assets of discontinued operations 23,400 --

Goodwill, net 5,887 --

Property, equipment and capitalized software, net 10,415 3,523

Investment in real estate held for sale 84,871 --

Other assets 10,832 4,483

Net deferred tax asset 7,441 14,451

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

Total Assets $218,141 $ 84,770

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

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

LIABILITIES AND SHAREHOLDERS' EQUITY

Current portion of long-term debt, including amounts payable to related

parties of $143 and $356 in 1996 and 1995, respectively $ 720 $ 412

Accounts payable 3,947 4,063

Accrued expenses, including amounts associated with related parties of

$4,090 and $4,365 in 1996 and 1995, respectively 11,452 10,001

Accrued on-site salaries and benefits 3,816 2,747

Deferred revenues and other 3,400 2,232

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

Total current liabilities 23,335 19,455

Long-term debt, including amounts payable to related parties of

$0 and $139 in 1996 and 1995, respectively 62,607 23,278

Real estate related debt 71,152 --

Other long-term liabilities 5,034 2,883

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

Total liabilities 162,128 45,616

Commitments and contingencies (Note 14)

Shareholders' equity

Common stock, $0.01 par value, 25,000,000 shares authorized;

12,586,629 and 12,264,675 shares issued and outstanding in

1996 and 1995, respectively 126 123

Additional paid-in capital 133,337 128,101

Accumulated deficit (77,450) (89,070)

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

Total shareholders' equity 56,013 39,154

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

Total Liabilities and Shareholders' Equity $218,141 $ 84,770

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

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

The accompanying notes are an integral part of these consolidated statements.

NHP INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

Year Ended December 31,

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

(Restated) (Restated)

1996 1995 1994

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

Cash Flows From Operating Activities:

Net income $ 11,620 $ 27,442 $ 16,495

Extraordinary item, net of income taxes -- 400 --

Discontinued operations, net of income taxes (1,155) 3,771 (7,490)

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

Income before extraordinary item and

discontinued operations 10,465 31,613 9,005

Depreciation and amortization 6,321 3,803 2,524

Income taxes 5,997 (18,744) --

Increase in receivables, substantially all from

related parties (3,529) (5,893) (2,389)

(Increase) decrease in other assets (1,646) (1,477) 160

Increase (decrease) in accounts payable and

accrued expenses 3,057 (293) 886

Increase in deferred revenues and other

liabilities 1,124 515 76

Other 176 176 1,630

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

Net cash provided by continuing operations 21,965 9,700 11,892

Net cash used in discontinued operations (164) (8,554) (217)

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

Net cash provided by operating activities 21,801 1,146 11,675

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

Cash Flows From Investing Activities:

Purchase of businesses (19,763) -- --

Investment in real estate held for sale, net

of debt assumed (13,719) -- --

Purchase of management contracts (8,798) (13,809) (2,059)

Purchase of long-term notes receivable (8,374) -- --

Purchase of fixed assets (6,161) (2,217) (2,484)

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

Net cash used in investing activities (56,815) (16,026) (4,543)

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

Cash Flows From Financing Activities:

Additional borrowings 53,000 33,207 133

Repayments of debt (19,471) (61,466) (6,000)

Borrowings from related parties -- 1,119 3,903

Repayments of notes payable to related parties (352) (10,369) (332)

Repurchases of common stock from related parties -- (375) (808)

Proceeds from issuance of common stock, net -- 51,987 --

Proceeds from option exercises 1,211 -- --

Proceeds from sale of stock to related parties -- -- 343

Payment of financing, offering and disposition

costs (591) (5,317) (1,515)

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

Net cash provided by (used in) financing

activities 33,797 8,786 (4,276)

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

(Decrease) increase in cash and cash equivalents (1,217) (6,094) 2,856

Cash and cash equivalents, beginning of period 5,996 12,090 9,234

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

Cash and cash equivalents, end of period $ 4,779 $ 5,996 $ 12,090

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

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

The accompanying notes are an integral part of these consolidated statements.

Year Ended December 31,

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

(Restated)

1996 1995 1994

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

Supplemental Disclosures of Cash Flow Information:

Cash interest payments $ 4,448 $ 6,537 $ 4,607

Cash income tax payments $ 2,380 $ 942 $ 49

Non-cash items:

Notes payable given as consideration for

acquisitions $ 6,293 $ -- $ --

Stock issued in acquisition of NHP

Financial Services, Ltd. $ 3,780 $ -- $ --

Acquisition of leasehold improvements and

other fixed assets through lease incentives $ 2,217 $ -- $ --

Reduction in notes payable to related parties

in consideration for the sale of the Real

Estate Companies $ -- $ 9,129 $ --

Assumption of Real Estate related debt for

Great Atlantic portfolio $ 71,152 $ -- $ --

The accompanying notes are an integral part of these consolidated statements.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (RESTATED)

Common Stock Additional

------------------------ Paid-In Accumulated Treasury

Shares Par Value Capital Deficit Stock Total

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

Balance, January 1, 1994 8,030,925 $ 80 $ 69,343 $ (133,007) $ -- $(63,584)

Sale of common stock 32,500 -- 343 -- -- 343

Repurchase of common stock -- -- -- -- (808) (808)

Retirement of treasury stock (76,500) -- (808) -- 808 --

Net income -- -- -- 16,495 -- 16,495

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

Balance, December 31, 1994 7,986,925 80 68,878 (116,512) -- (47,554)

Stock option compensation -- -- 583 -- -- 583

Repurchase of common stock -- -- -- -- (375) (375)

Retirement of treasury stock (31,250) -- (375) -- 375 --

Issuance of common stock

in public offering, net 4,300,000 43 48,198 -- -- 48,241

Issuance of common stock

to Directors 9,000 -- 127 -- -- 127

Sale of Real Estate Companies

(Note 1) (Restated) -- -- 10,690 -- -- 10,690

Net income (Restated) -- -- -- 27,442 -- 27,442

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

Balance, December 31, 1995 12,264,675 123 128,101 (89,070) -- 39,154

Stock issued in acquisition 210,000 2 3,778 -- -- 3,780

Exercise of stock options 111,954 1 1,497 -- (39) 1,459

Retirement of treasury stock -- -- (39) -- 39 --

Net income -- -- -- 11,620 -- 11,620

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

Balance, December 31, 1996 12,586,629 $126 $ 133,337 $ (77,450) $ - $ 56,013

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

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

The accompanying notes are an integral part of these consolidated statements.

(1) NATURE OF BUSINESS AND ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of NHP Incorporated and its wholly-owned subsidiaries (the "Company"). On August 18, 1995, the Company sold those of its subsidiaries which held all of the Company's direct and indirect interests in property-owning partnerships, along with its captive insurance subsidiary and certain other related assets (collectively referred to as the "Real Estate Companies") to the two controlling shareholders of the Company, Demeter Holdings Corporation ("Demeter") and Capricorn Investors, L.P. ("Capricorn"), and J. Roderick Heller, III, the Chairman, President and Chief Executive Officer of the Company ("Mr. Heller"). The consolidated financial statements include the accounts of the Real Estate Companies through August 18, 1995, presented as discontinued operations in accordance with generally accepted accounting principles ("GAAP"). The Company continues to provide services to the Real Estate Companies and, therefore, intercompany revenues and expenses between the Company and the Real Estate Companies have not been eliminated from the Company's revenues and expenses in the consolidated financial statements for the periods prior to August 18, 1995. All other material intercompany accounts and transactions have been eliminated in consolidation.

As of April 1, 1996, NHP Incorporated closed the acquisition of all of the outstanding capital stock of WMF Holdings, Ltd., which was subsequently renamed NHP Financial Services, Ltd., for consideration of approximately $21 million in the form of $16.8 million in cash and 210,000 shares of the Company's common stock. NHP Financial Services, Ltd. is the owner of Washington Mortgage Financial Group, Ltd. ("Washington Mortgage Financial") of Fairfax County, Virginia, one of the nation's leading multifamily mortgage originators and servicers (collectively, "NHP Financial Services"). Included in Washington Mortgage Financial is WMF/Huntoon, Paige Associates Limited ("WMF/Huntoon, Paige"), a leading FHA mortgage originator and servicer located in Edison, New Jersey.

On April 19, 1997, the Company's Board of Directors approved a plan to spin-off NHP Financial Services (the Company's former Financial Services business segment) to the Company's current shareholders. Accordingly, the accompanying financial statements have been restated to reflect NHP Financial Services as discontinued operations in accordance with GAAP. Previously reported revenue related to the Financial Services business segment of $24.8 million is now included in net income from discontinued operations. For further discussion, see Note 2.

NATURE OF BUSINESS

The Company's continuing operations provide a broad array of real estate services nationwide including property management and asset management as well as related services including equity investments, purchasing, risk management and home health care.

The Company provides a full range of property management and related services to owners of multifamily rental housing properties, primarily properties owned by partnerships in which the Real Estate Companies have an ownership interest. The properties served by the Company are located in urban, suburban and rural areas throughout various regions of the United States other than the Northwest region. This reduces the impact of local economic cycles on the overall operations of the Company. The Company provides services to both "conventional" (market rate) and "affordable" properties. Affordable properties receive some form of Federal and/or state assistance and are generally restricted to low or moderate income tenants.

Approximately 64% of the properties and 44% of the units managed by the Company as of December 31, 1996 are affordable properties and units. A substantial portion of the affordable properties were built or acquired by the owners with the assistance of programs administered by the United States Department of Housing and Urban Development ("HUD") that provide mortgage insurance, favorable financing terms, 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.

For the past several years, various proposals have been advanced by HUD, the Congress and others proposing the restructuring of Section 8 of the United States Housing Act of 1937 ("Section 8"). These proposals generally seek to lower subsidized rents to market levels and to lower required debt service costs as needed to ensure financial viability at the reduced rents, but vary greatly as to how that result is to be achieved. Some proposals include a phase-out of project-based subsidies on a property-by-property basis upon expiration of a property's Housing Assistance Payments Contract ("HAP Contract"), with a conversion to a tenant-based subsidy. Under a tenant-based system, rent vouchers would be issued to qualified tenants who then could elect to reside at a property of their choice, provided the tenant has the financial ability to pay the difference between the selected property's monthly rent and the value of the voucher, which would be established based on HUD's regulated fair market rent for that geographic area.

Congress has not yet accepted any of these restructuring proposals and instead has elected to renew expiring Section 8 HAP Contracts for one year terms, generally at existing rents. While the Company does not believe that the proposed changes would result in a significant number of tenants relocating from properties managed by the Company, there can be no assurance that the proposed changes would not significantly affect the Company's management portfolio. Furthermore, there can be no assurance that changes in federal subsidies will not be more restrictive than those currently proposed or that other changes in policy will not occur. Any such changes could have an adverse effect on the Company's property management revenues.

DEPENDENCE ON THE REAL ESTATE COMPANIES FOR PROPERTY SERVICES REVENUES

The Company is, and will continue to be, substantially dependent on revenue from services provided to properties controlled by the Real Estate Companies. Approximately 67% of the Company's property management revenue in 1996 was derived from fees for services provided to properties controlled by the Real Estate Companies. Pursuant to the agreements with the Real Estate Companies discussed in Note 13, the Real Estate Companies are required for a period of at least 25 years, subject to certain conditions, to cause the Company to be selected to provide services to each of the properties the Real Estate Companies control and properties they may control in the future.

ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

PROPERTY SERVICES - REVENUE AND EXPENSES

The Company recognizes property management, Buyers Access-Registered Trademark-, tax credit investment and insurance advisory fee revenues as services are rendered and the revenue is earned. Administrative and reporting fees are earned for providing administrative services to certain partnerships in which the Real Estate Companies have ownership interest. These fees are payable only to the extent distributable cash flow of the partnerships, as defined, is available. The Company accrues these fees as services are rendered and establishes a reserve equal to the amount of accrued fees that are not assured of being paid. Prepayments received on service contracts are deferred and recognized as revenue when the related services are performed. Revenues from Preferred Home Health are recognized as services are performed. Property management services revenue includes direct management fees, central accounting fees, computer fees and asset management fees as well as various other fees earned in conjunction with the management of properties. Buyers Access-Registered Trademark- revenue, tax credit investment revenue, revenues from Preferred Home Health and insurance advisory fee revenue are included in other revenue on the Consolidated Statement of Operations.

Personnel hired to provide operating and management services to the individual properties which the Company manages are employees of the Company ("On-site Employees"). All payroll costs, including payroll taxes and benefits, relating to On-site Employees are reimbursable to the Company by the individual properties. These costs,

which totaled $124.1, $113.1, and $93.6 million for the years ended December 31, 1996, 1995 and 1994, respectively, have been reflected as operating expenses, and the related reimbursements have been included in operating revenue as part of on-site personnel, general and administrative cost reimbursements. The Company accrues as a liability amounts charged to the individual properties for On-site Employee benefits (health insurance and 401(k) Plan employer contributions) which have not yet been paid to third party providers of services. All other employees of the Company are classified as "Off-site Employees."

The Company also provides asset management, finance, accounting and tax services to the Real Estate Companies on a cost reimbursable basis. The costs charged back to the Real Estate Companies have been reflected as operating expenses and the related reimbursements have been included in operating revenue as part of on-site personnel, general and administrative cost reimbursements in the accompanying consolidated financial statements and amounted to $3.1, $4.1 and $4.6 million for the years ended December 31, 1996, 1995 and 1994, respectively.

INCOME TAXES

The benefit (provision) for income taxes includes Federal and state income taxes currently payable and those deferred or prepaid because of temporary differences between financial statement and tax bases of assets and liabilities. The net deferred tax asset relates primarily to net operating loss carryforwards ("NOLs") recognized by the Company subsequent to the sale of the Real Estate Companies. For further discussion see Note 9.

NET INCOME PER SHARE

Net income per share is computed using the weighted average number of common shares and equivalents outstanding during each period. Common share equivalents are attributable primarily to outstanding stock options. The weighted average shares and equivalents used in the per share calculations were 12,729,636, 9,644,745, and 8,094,733 for the years ended December 31, 1996, 1995 and 1994, respectively. As there is not a material difference (less than 3%) between net income per share and fully-diluted net income per share, only net income per share is presented.

In February 1995, the Company's Board of Directors declared a 25 for 1 split of the Company's common stock. All share and per share amounts have been restated to reflect the stock split.

On August 18, 1995, the Company completed an initial public offering ("IPO") of 4.3 million shares of common stock and received net proceeds of approximately $52.0 million. The net proceeds were used in their entirety to repay certain of the Company's outstanding debt (see Note 8).

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with initial maturities of 90 days or less to be cash equivalents.

RECEIVABLES

Receivables, which are substantially all from related parties, are stated net of an allowance for doubtful accounts of $2.5 and $1.6 million at December 31, 1996 and 1995, respectively.

PURCHASED MANAGEMENT CONTRACTS

The cost of acquiring the rights to manage multifamily real estate properties is capitalized and amortized over the shorter of 15 years or the estimated life of the management contracts which include projected renewals. Purchased management contracts are being amortized over terms ranging from 1 to 15 years. The Company periodically reevaluates its assumptions regarding projected renewals for the purpose of determining the need to adjust the estimated life of management contracts. Purchased management contracts are stated net of accumulated amortization of $11.9 and $8.4 million at December 31, 1996 and 1995, respectively.

GOODWILL

Goodwill represents the excess of the cost of acquired businesses over the fair value of their tangible and identified intangible assets. Goodwill was recorded in conjunction with the Goldberg acquisition described in Note 4. Goodwill is being amortized on a straight-line basis over 10 years. The Company reviews the carrying value of goodwill for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill is stated net of accumulated amortization of $0.3 million at December 31, 1996.

PROPERTY, EQUIPMENT AND CAPITALIZED SOFTWARE

Property and equipment is carried at cost, net of accumulated depreciation, and includes all major renewals and betterments. Maintenance, repairs and minor replacements are expensed as incurred. Depreciation expense is computed on the straight-line basis over the estimated useful lives of the related assets, or the lesser of useful life or lease term for leasehold improvements. The lives used for calculating depreciation vary from 5 to 7 years.

Computer software purchased from or developed by outside vendors is capitalized and is carried at cost net of accumulated amortization. Amortization expense is computed on a straight-line basis over the shorter of the estimated useful life of the software or five years.

OTHER ASSETS

Other assets includes notes receivable, deferred acquisition costs, deferred financing costs and other non-current assets.

NOTES RECEIVABLE - In conjunction with the 1996 Goldberg Acquisition discussed in Note 4, the Company purchased two notes receivable. The two notes bear interest at 9% and 9.75% and are due from the project limited partnerships of two Florida rental retirement communities to the extent the properties have net cash flow available for payment. The 9% note was recorded at its face value of $5.1 million, which approximates fair value. The 9.75% note has a face value of $7.4 million and was recorded at its estimated fair value of $3.3 million, net of a discount of $4.1 million. The discount is being amortized into interest income over 15 years using a method that approximates the effective interest method. The net balance as of December 31, 1996, on these notes receivable, including approximately $0.5 million of which is considered current and is included in other current assets on the Consolidated Balance Sheet, was $8.4 million. The Company recognized $0.4 million of interest income on these notes in 1996.

DEFERRED FINANCING COSTS - Certain costs of obtaining the financing arrangements described in Note 8 have been deferred and are being amortized to interest expense over the remaining term of the related debt. In 1995, the Company recorded as an extraordinary item the write off of deferred financing costs related to the Company's previous credit facility (see Note 16). Deferred financing costs, net of accumulated amortization, were $0.4 and $0.6 million as of December 31, 1996 and 1995, respectively.

DEFERRED ACQUISITION COSTS - Certain costs related to the investigation, pursuit and negotiation of potential acquisitions are deferred until the acquisition is consummated or until the Company determines that it will no longer pursue a particular acquisition. Deferred costs associated with a completed acquisition are considered part of the acquisition price and are allocated, along with the costs incurred at closing, to the asset or assets acquired. Costs associated with potential acquisitions that are determined to no longer be viable are expensed in the period of the determination. Deferred acquisition costs were $0.7 and $2.6 million at December 31, 1996 and 1995, respectively.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform with the current year presentation.

NEW ACCOUNTING STANDARD

The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," on January 1, 1996. These statements did not have an effect on the Company's financial position or results of operations. See Note 11 for further discussion of SFAS No. 123.

In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share," which will change the reporting of earnings per share effective in the fourth quarter of 1997. Basic earnings per share will not include stock options as common stock equivalents and will be higher than previously reported primary earnings per share. Diluted earnings per share will equal previously reported primary earnings per share under the Company's current capital structure.

(2) DISCONTINUED OPERATIONS

NHP FINANCIAL SERVICES

On April 19, 1997, the Company's Board of Directors approved a plan to distribute shares of NHP Financial Services (formerly the Company's Financial Services business segment) to the Company's existing shareholders pursuant to the terms of a Rights Agreement approved by the Board of Directors on that date. Pursuant to the Rights Agreement, the Company will issue to its stockholders rights to receive a distribution of one-third of a share of NHP Financial Services for each right at the earlier of the time of the AIMCO merger discussed in Note 3, or on December 1, 1997, if the AIMCO merger has not occurred by that date. NHP Financial Services is also expected to issue shares constituting approximately 11.5% of its common equity in a private transaction on or shortly after the distribution to the Company's stockholders. The Company has received a commitment, subject to certain conditions, to purchase 546,498 shares of NHP Financial Services for an aggregate purchase price of $5 million on or shortly after the distribution, which is equivalent to $9.15 per share. The distribution is conditioned on the consent of lenders under the Company's credit agreement. As a result of the distribution, each holder of shares of the Company's common stock at the time of the AIMCO merger will receive shares in NHP Financial Services in addition to the merger consideration described in Note 3. The Company anticipates that the rights will be distributed approximately May 9 to stockholders of record of the Company on May 2, 1997.

Following the distribution of shares of NHP Financial Services, NHP Incorporated and NHP Financial Services will operate independently and neither will have any stock ownership in the other. In conjunction with the distribution of shares of NHP Financial Services, NHP Incorporated and NHP Financial Services will enter into a separation agreement that will govern their ongoing relationship. The separation agreement will provide, in part, for NHP Financial Services to assume all liabilities relating to the business and operations of NHP Financial Services prior to distribution (except for the costs of the distribution) and to indemnify NHP Incorporated for such liabilities and all expenses and costs and losses related thereto, all on terms reasonably acceptable to AIMCO. In addition, the separation agreement will also provide for the settlement, at or prior to the distribution of shares, of any intercompany amounts owed by NHP Financial Services to NHP Incorporated through retention by NHP Financial Services of Excess Free Cash flow, as defined by the AIMCO merger agreement, generated by NHP Incorporated during 1997, through the date of the AIMCO merger, and/or repayment of the remaining amounts by NHP Financial Services. The intercompany balance due from NHP Financial Services to NHP Incorporated, of approximately $9 million as of April 1997, relates primarily to advances to NHP Financial Services related to the Proctor and Askew acquisitions, which are discussed further in Notes 4 and 17, respectively, and intercompany cash tax allocations.

The operating results of NHP Financial Services for the nine-month period since acquisition are summarized below (in thousands):

April 1 - December 31,

1996

Gross Revenue $24,848

Income before taxes $ 2,299

Provision for income taxes (1,144)

Net income $ 1,155

Net income per share $ .09

The assets and liabilities of NHP Financial Services as of December 31, 1996, are summarized below (in thousands):

1996

Current assets $51,060

Noncurrent assets 34,304

Total assets $85,364

Current liabilities $52,254

Noncurrent liabilities 9,710

Total liabilities 61,964

Net assets of discontinued operations $23,400

DISCONTINUED REAL ESTATE OPERATIONS

On June 14, 1994, the Company's Board of Directors approved a plan (the "Plan") to dispose of the Company's real estate operations immediately prior to an IPO of the Company's common stock. On August 18, 1995, the Company completed its IPO and sold the Real Estate Companies. In consideration for the sale of the Real Estate Companies, Demeter, Capricorn and Mr. Heller canceled $9.1 million of indebtedness owed to them by the Company. The 1995 financial statements of a partnership accounted for by The Real Estate Companies using the equity method have been restated to expense in 1995 the cost of acquiring the management contracts related to certain multifamily properties. The acquisition cost was originally capitalized by the partnership and amortized over a 70-month period. The Company's 1995 financial statements have been restated to reflect the Company's share of the partnership's restated loss. The effect of the restatement was to increase the loss from discontinued operations, net of income taxes of $1.2 million, by $1.8 million in the accompanying 1995 consolidated statement of operations. The restatement also had the effect of increasing the net liabilities of the Real Estate Companies as of the date of the sale which resulted in the Company receiving an additional net gain on sale of $1.8 million. The net liabilities of the Real Estate Companies as of the date of the sale were $6.4 million (restated) and transaction costs related to the sale, including taxes of $2.3 million, were $4.8 million, which resulted in the Company recording a net gain on the sale of the Real Estate Companies of $10.7 million (restated). The gain was recorded as a direct adjustment to additional paid-in capital.

The Real Estate Companies' operations consist primarily of the ownership of general and limited partnership interests (generally 1% to 5%) in approximately 700 affordable and conventional multifamily housing properties located in 38 states, the District of Columbia and Puerto Rico. The Real Estate Companies also own majority interests in several real estate partnerships (primarily multifamily housing properties), interests in joint ventures (primarily land and single family housing developments) and a "captive" insurance company which are consolidated with the accounts of the Real Estate Companies for financial reporting purposes.

In addition to managing the majority of the properties for which the Real Estate Companies act as general partner, the Company provides asset management, finance, accounting and tax services to the Real Estate Companies on a cost-reimbursable basis. For further discussion of transactions with the Real Estate Companies, see Note 13.

The operating results of the discontinued real estate operations are summarized below (in thousands):

Year Ended December 31,

(Restated)

1996 1995 1994

Gross revenues -- $23,874 $35,121

Net income (loss) before

extraordinary item, net of minority

interest and net of an income tax

benefit of $2,515 for 1995 and $0

for 1994 -- $(3,771) $ 7,490

The net income (loss) before extraordinary item includes $1.0 and $12.0 million for the years ended December 31, 1995 and 1994, respectively, of gains resulting from sales and foreclosures of properties owned by real estate partnerships for which the Real Estate Companies act as general partner.

(3) CHANGE IN CONTROL AND MERGER AGREEMENT

On April 21, 1997, the Company announced that it had entered into a definitive Merger Agreement pursuant to which the Company will be acquired by Apartment Investment and Management Company ("AIMCO"), a real estate investment trust whose shares are traded on the New York Stock Exchange (AIV-NYSE). Upon completion of the merger, each of the Company's stockholders will receive for each share of Company common stock, at the stockholder's election, either (i) a combination of .37383 shares of AIMCO common stock and $10.00 cash per share of Company common stock, or (ii) .74766 shares of AIMCO common stock. The merger is conditioned on the approval of the Company's stockholders and AIMCO stockholders, the completion of the transactions between AIMCO and the majority stockholders of the Company described below, and customary state and federal regulatory and other approvals.

AIMCO has separately entered into a Stock Purchase Agreement with Demeter and Capricorn, who together hold a majority of the outstanding shares of the Company's common stock. Pursuant to the Stock Purchase Agreement, AIMCO will acquire all of the Company's common stock currently held by Demeter and Capricorn. AIMCO will pay Demeter $20 in cash per share for 50% of the Company shares held directly and indirectly by Demeter. For the remainder of Demeter's shares and Capricorn's shares, AIMCO will pay .74766 shares of AIMCO common stock per share of Company common stock. The closing under the Stock Purchase Agreement is expected to occur in May 1997. Upon completion of AIMCO's purchase of shares held by Demeter and Capricorn, AIMCO will hold a majority of the issued and outstanding shares of the Company's common stock. The merger will, however, require approval by two-thirds vote of all shares of Company common stock held by persons other than AIMCO. Stockholder meetings to approve the merger are expected to be held in late summer.

The Company has also been informed that AIMCO is negotiating a definitive agreement with Demeter and Capricorn to acquire interests in certain real estate properties owned or controlled by the Real Estate Companies, which are controlled by Demeter and Capricorn, most of which properties are managed by the Company pursuant to a long-term property management contract. Both the Company's and AIMCO's obligations to complete the merger are conditioned on signing the definitive agreement relating to the sale of real estate interests and the management agreement remaining in effect. As consideration for AIMCO's executing the Merger Agreement, the Company has waived, effective May 3, 1997, its right of first refusal to purchase the real estate being sold to AIMCO, subject to the condition that a definitive real estate agreement be signed by AIMCO and Demeter by May 31 on terms substantially in accordance with those described to the Company's Board of Directors.

(4) ACQUISITIONS AND NEW BUSINESS

CONTINUING OPERATIONS

GOLDBERG ACQUISITION

As of July 12, 1996, the Company, directly and through subsidiaries, acquired the long-term management rights and certain notes receivable from two Florida rental retirement communities as well as all of the outstanding stock of Preferred Home Health, Inc. (the "Goldberg Acquisition"). In addition, the Real Estate Companies acquired certain other notes receivable from one of the properties and subsequently acquired all of the issued and outstanding stock of the corporate general partners of the limited partnership owners of the two properties. The Company and the Real Estate Companies acquired these assets from affiliates of the Stephen A. Goldberg Company of Washington, D.C. and certain other individuals. The cost of the Company's portion of the acquisition, including transaction costs, was approximately $16.3 million in cash and $4.0 million in long-term notes. The purchase price was funded through additional borrowings under the Company's revolving credit facility. The transaction was accounted for under the purchase method of accounting. All assets acquired were recorded at their estimated fair value. The excess of the purchase price over the fair value of the net assets acquired was approximately $6.2 million and has been recorded as goodwill. Preferred Home Health, Inc. is a provider of home health care services to residents of multifamily rental retirement communities.

GUILFORD

The Real Estate Companies completed the Guilford Acquisition in January 1996, by which the Real Estate Companies acquired the general partnership interests and certain limited partnership interests in partnerships that own 14 properties containing 2,995 units. In conjunction with this acquisition by the Real Estate Companies, the Company paid the Real Estate Companies $2.6 million ($1.5 million of which was paid in December 1995) to enter into property management contracts with each property for a period of four to five years, commencing in December 1995.

SOUTHPORT

In December 1995, the Real Estate Companies entered into a binding agreement to acquire from Southport Financial Corporation the general partner interests in partnerships that own 14 properties containing 2,140 units. The Company began managing 12 of these properties containing 1,857 units in November 1995 and began managing the remaining two properties containing 283 units in early 1996. The Company acquired the right to manage all 14 of the Southport properties for $4.0 million, approximately $3.0 million of which will be paid in various quarterly installments through the year 2000. The Company manages the Southport properties pursuant to long-term contracts terminable only for cause, and will have a right of first refusal with respect to the sale of any of these properties or the Real Estate Companies' general partnership interests in partnerships owning these properties.

RESCORP

On October 31, 1995, the Company acquired from Rescorp Realty, Inc. and transferred to the Real Estate Companies the stock of entities owning the general partnership interests in 11 properties. The Company manages these properties pursuant to long-term contracts terminable only for cause, and has a right of first refusal with respect to the sale of any of these properties or the Real Estate Companies' general partnership interests in partnerships owning these properties. The Company also entered into short-term property management contracts with respect to four other properties, which are owned by unaffiliated owners. The 15 properties have an aggregate of 2,578 units. The Company paid Rescorp approximately $2.4 million in connection with the acquisition, and transferred the general partnership interests to the Real Estate Companies in exchange for the Real Estate Companies assuming the cost and responsibilities of the general partner.

HALL

In February 1995, the Company and the Real Estate Companies substantially completed the Hall Acquisition. In the Hall Acquisition, the Company and the Real Estate Companies acquired, for $12.5 million (of which $4.0 million was allocated to management rights), a 50% common equity interest in a joint venture which, in turn, owns an interest in a portfolio of 32 apartment properties containing 8,028 units and the associated property management rights. Each property is owned by a limited partnership, the managing general partner of which is an affiliate of the Real Estate Companies. As managing general partner, each of these affiliates has entered into a management contract with the Company having a term coinciding with the term of the current financing of the properties, or approximately 5.75 years.

CONGRESS

On December 31, 1994, the Company and the Real Estate Companies entered into a binding agreement to purchase for $6.7 million from Congress Realty Companies the general partner interests, property management rights and rights to certain receivables related to a 13-property portfolio containing 4,301 units. The acquisition was accounted for as a 1994 transaction using the purchase method of accounting. Substantially all of the purchase price was paid in January 1995.

See also Note 17 for discussion of 1997 acquisitions.

DISCONTINUED OPERATIONS

NHP FINANCIAL SERVICES

As previously discussed, as of April 1, 1996, NHP Incorporated acquired NHP Financial Services, for consideration of approximately $21 million in the form of $16.8 million in cash and 210,000 shares of the Company's common stock. The transaction has been accounted for under the purchase method of accounting. All assets acquired were recorded at their estimated fair value which resulted in recording an identifiable intangible asset of approximately $19.1 million related to acquired servicing rights. The excess of the purchase price over the fair value of the net assets acquired was approximately $5.0 million and has been recorded as goodwill. The goodwill is being amortized over seven years. The acquired servicing rights are being amortized over periods up to seven years. All purchase price allocations have been recorded by NHP Financial Services and are included in the net assets of discontinued operations on the Consolidated Balance Sheet.

At closing, the 210,000 shares of the Company's common stock were placed in an escrow account as security for the satisfaction of claims by the Company under the stock purchase agreement against the former owner of NHP Financial Services (the "Seller"). Claims will be paid, subject in certain instances to a deductible, from the escrow by returning the number of shares to the Company equal to the value of the claim, as determined by the then current market value of the Company's common stock. 105,000 shares were released to the Seller on April 1, 1997. One-half of the shares remaining in the escrow will be released to the Seller on April 1, 1998, with the remaining shares to be released to the Seller on April 1, 1999.

PROCTOR & ASSOCIATES

As of December 31, 1996, Washington Mortgage Financial acquired Detroit-based Proctor & Associates ("Proctor"), the 37th largest commercial mortgage banking firm in the nation, according to June 30, 1996, data published by the Mortgage Banking Association, for $3.7 million. Included in the transaction is Proctor's $1.1 billion loan servicing portfolio of multifamily, retail, and office building mortgages, as well as the firm's fifteen active correspondent relationships with life insurance companies. Proctor originated nearly $180 million in commercial mortgage loans in 1996. The purchase has been accounted for under the purchase method of accounting by Washington Mortgage Financial. All assets acquired were recorded at their estimated fair value. The excess of the purchase price over the fair value of the net assets acquired was $3.1 million and has been recorded as goodwill by Washington Mortgage Financial and is included in net assets of discontinued operations on the Consolidated Balance Sheet.

AMERICAN CAPITAL RESOURCE, INC.

On May 13, 1996, WMF/Huntoon Paige, a subsidiary of Washington Mortgage Financial, completed the purchase of a portion of the loan production pipeline, as well as certain other assets, of American Capital Resource, Inc. ("ACR") for approximately $2.2 million plus potential future payments based on realization of the pipeline through August 1997. The acquisition has been accounted for under the purchase method of accounting. In addition, during 1996 WMF/Huntoon Paige also purchased the servicing rights to various loans from ACR for a total of $2.0 million.

(5) INVESTMENT IN REAL ESTATE HELD FOR SALE

TRANSACTION AND ACCOUNTING

On May 16, 1996, the Company acquired 12 multifamily properties containing 2,905 apartment units, including the right to manage the units on a long-term basis, from affiliates of Great Atlantic Management, Inc. for a purchase price (including transaction costs) of approximately 86.8 million (the "Great Atlantic Acquisition"), in the form of approximately $71.2 million in third-party nonrecourse debt and $15.6 million in cash. The Company made this acquisition with the intention of selling the real estate ownership interests to third-party investors while retaining the management rights to the properties. Accordingly, the Company has reported on the Consolidated Balance Sheet its ownership interests in the Great Atlantic properties as an investment in real estate held for sale, which is reported at the lower of carrying value or fair value less estimated costs to sell. Previously, the investment in real estate was presented on the Consolidated Balance Sheet net of the associated debt, as discussed further below. The consolidated financial statements have been restated to separately report the real estate related debt as a liability. 1996 earnings from these properties since the date of acquisition, excluding depreciation, was $0.1 million. The recognition of the Company's pro rata share of these earnings increased the Company's investment. This increase was offset by the establishment of a valuation allowance to reduce the recorded investment to the lower of carrying value or fair value less estimated cost to sell which resulted in no net income being recognized related to these properties.

DESCRIPTION OF REAL ESTATE RELATED DEBT

The Company owns all of the limited and general partnership interests in the limited partnerships that in turn own the local partnerships (the partnerships that own and are responsible for the operations of the real estate). Eleven of the twelve local partnerships participate in joint financing, which was executed simultaneously with the acquisition. This financing consisted of three separate but related loans: (1) a senior mortgage loan; (2) a junior mortgage loan; and (3) a partnership loan, all of which are nonrecourse to the Company. The junior mortgage loan was paid in full on December 31, 1996. The remaining loans are discussed below.

SENIOR MORTGAGE LOAN consists of eleven separate notes with an original face value totaling $55.3 million. The outstanding balance as of December 31, 1996, is $51.0 million. Interest is payable monthly at a rate of 8.53% per annum. There are no required principal payments until the loans mature on May 31, 2001. Principal may not be repaid prior to May 31, 1998, without the consent of the lender.

THE PARTNERSHIP LOAN is evidenced by a single note, maturing June 3, 2001. The borrowers are the eleven limited partnerships which own the majority limited partner interests in the local partnerships, which in turn own the real estate. The note allocates the principal among the limited partnerships, but each is jointly and severally liable for the indebtedness. The partnership loan includes two tiers, totaling $15.9 million. The first tier partnership loan amount is $9.9 million. Interest at a rate of 8.53% per annum is payable monthly. There are no required principal payments until the loan matures. Principal may not be prepaid until May 31, 1998, and then only if the second tier of the partnership loan has been retired. The second tier partnership loan amount is $6.0 million. The interest rate is the amount that would give the lender a pre-tax rate of return of 16%. Interest is paid at a rate of 12.588%. The difference is recorded by the partnerships as a deferred payable. There are no required principal payments until May 31, 1998. Thereafter, monthly principal payments are required in an amount equal to the lesser of 35% of monthly cash flow or $41,666. Any shortfall is deferred. In subsequent months, if 35% of monthly cash flow is greater than $41,666, the excess is applied to reduce prior deferred amounts. Principal prepayments are permitted prior to May 31, 1998, by paying a prepayment premium of 3% of the amount prepaid.

Concurrent with the closing of the loan, the local partnerships entered into a guaranty agreement making them jointly and severally liable for the senior mortgage notes payable. Under the terms of this contract, each of the senior note mortgagors unconditionally guarantee the full and prompt payment of all amounts due under the senior mortgage loans. Under a related contribution agreement, the guarantors have agreed to allow funds from the cash collateral account to be used to satisfy any shortfall of an affiliate partnership. A separate guaranty agreement was entered into by the limited partnerships related to the partnerhip loan, with similar terms.

The liability of the local partnerships under the senior mortgage note and the guaranty, and the liability of the limited partnerships under the partnership note and guaranty, is limited to the underlying value of the real estate collateral plus amounts deposited with the lender. The partnerships are also required to make monthly escrow deposites with the lender.

The twelfth property has a separate mortgage note payable with a remaining balance as of December 31, 1996, of $4.3 million. The mortgage note payable is secured by a deed of trust on the real estate. The note bears interest at a rate of 7.95%. Principal and interest payments are payable by the local partnership in equal monthly installments of $35,794 to June 2016. Principal amounts due on the mortgage payable are $0.1 million per year for the years 1997 through 2001 and $3.7 million thereafter. The liability of the local partnership under the mortgage note is limited to the underlying value of the real estate collateral plus other amounts deposited with the lender.

(6) PROPERTY, EQUIPMENT AND CAPITALIZED SOFTWARE

Property, equipment and capitalized software consist of the following

(in thousands):

December 31,

1996 1995

Property and equipment $ 6,315 $ 3,393

Leasehold improvements 2,347 268

Capitalized software 4,112 1,642

12,774 5,303

Less accumulated depreciation and amortization 2,359 1,780

$10,415 $ 3,523

(7) ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

December 31,

1996 1995

Accrued personnel and payroll costs $ 8,839 $ 7,990

Other 2,613 2,011

$11,452 $10,001

(8) LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

December 31,

1996 1995

Lines of credit:

$75 million Credit Facility $57,000 $23,000

Notes payable - Goldberg 4,000 --

Notes payable - Southport (net of unamortized

discount of $364 and $42 in 1996 and 1995,

respectively) 2,184 195

Note payable to Oxford 143 495

63,327 23,690

Less current portion (720) (412)

Long-term debt $62,607 $23,278

CREDIT FACILITY - CONTINUING OPERATIONS

In August 1995, the Company entered into a $75.0 million, three-year unsecured revolving credit facility (the "Credit Facility") with a group of banks. At the end of two years, the Company may extend the Credit Facility (as a revolving facility) for a fourth year or may convert it at the end of the second year to a two-year term loan with equal quarterly installments based on a five year amortization schedule and the remaining balance (approximately 60%) due at the end of the two-year term. Availability under the Credit Facility is subject to the Company's compliance with

various financial ratios, operating covenants and other customary conditions. The Credit Facility restricts the payment of dividends by the Company unless the Company's ratio of income from continuing operations before interest, income taxes, depreciation and amortization ("EBITDA") to interest expense is greater than 3 to 1. In 1996, interest on the Credit Facility was equal to 175 basis points over the London Interbank Offered Rate ("LIBOR") in effect from time to time. In 1996, the Credit Facility also required the payment of a commitment fee of 37.5 basis points per annum on the unused portion of the Credit Facility. During 1996, the Credit Facility required that any other borrowings be subordinated to the Credit Facility except up to $10 million of borrowings made in connection with the acquisition of assets that will result in additional management rights for the Company, Washington Mortgage Financial's Warehouse Line (described below), and any indebtedness of Washington Mortgage Financial incurred in the acquisition of mortgage loans or mortgage servicing rights. As of December 31, 1996, the Company had outstanding $6.2 million of additional unsubordinated borrowings from third parties. The Credit Facility limits the amount of loans or other advances by the Company to the Real Estate Companies to a total of $10 million. At December 31, 1996, $40 thousand was due directly from the Real Estate Companies. In February 1997, the terms of the Credit Facility were amended. See Note 17 for discussion of the changes in significant terms.

At December 31, 1996, the Company classified all borrowings under the Credit Facility due within one year as long-term. The Company has both the intent and the ability, through the Credit Facility, to refinance these amounts on a long-term basis.

LONG-TERM DEBT AND LINES OF CREDIT- DISCONTINUED OPERATIONS

The following is a discussion of the long-term debt and lines of credit related to NHP Financial Services (formerly the Company's Financial Services business segment). Any amounts outstanding as of December 31, 1996, related to these items are included in the net assets of discontinued operations on the Consolidated Balance Sheet.

During the third quarter of 1996, Washington Mortgage Financial renegotiated the terms of its existing warehouse line of credit (the "Warehouse Line"), which is used for the purpose of originating loans. The Warehouse Line was increased from $80 million to $150 million. The interest rate on the Warehouse Line was 1 to 1 1/2 percent during 1996 to the extent compensating balances are maintained or LIBOR plus 1 to 1 1/2 percent for amounts borrowed in excess of compensating balances. The Warehouse Line is secured by mortgage loans held for sale and is repaid upon sale of the mortgage loans. The Warehouse Line expires in August 1997, at which time the Company expects to extend it or replace it with a similar line of credit. As of December 31, 1996, Washington Mortgage Financial had drawn $39.9 million on the Warehouse Line.

Washington Mortgage Financial has an additional warehouse agreement providing $15 million of revolving credit at 1 1/2 to 1 5/8 percent to the extent compensating balances are maintained and the prime rate for amounts borrowed in excess of compensating balances. As of December 31, 1996, Washington Mortgage Financial had no amounts outstanding under this line of credit. Interest is payable monthly. This warehouse line of credit is secured by mortgage loans held for sale and is paid upon sale of the mortgage loans.

Washington Mortgage Financial has a separate line of credit which was used exclusively for acquisition of mortgage servicing rights (the "Servicing Acquisition Line"). The interest rate on the Servicing Acquisition Line in 1996 was 3 to 3 1/2 percent to the extent compensating balances are maintained or LIBOR plus 3 to 3 1/2 percent for amounts borrowed in excess of compensating balances. In October 1996, the Servicing Acquisition Line was converted to a term loan which is to be repaid in quarterly installments, based on a 10-year amortization schedule, with the remaining balance due in June 2001. The Servicing Acquisition Line is collateralized by servicing rights relating to loans with an approximate unpaid principal balance of $1.1 billion. The original commitment amount of the Servicing Acquisition Line was $10 million and as of December 31, 1996, Washington Mortgage Financial had drawn $6.2 million on this line. Because this line has been converted to a term loan, Washington Mortgage Financial cannot borrow any additional amounts under this line.

Washington Mortgage Financial also has a revolving credit agreement providing $10 million of revolving credit to be used for servicing acquisitions or working capital advances (the "Working Capital Line"). Interest on the Working Capital Line is 3 1/2 percent to the extent compensating balances are maintained or LIBOR plus 3 1/2

percent for amounts borrowed in excess of compensating balances. The Working Capital Line is renewable annually through June 2001 and requires monthly interest payments. Any principal balance outstanding at June 2001 would be converted to a term loan due in quarterly installments through June 2006. The Working Capital Line is collateralized by the same assets as the Servicing Acquisition Line. As of December 31, 1996, Washington Mortgage Financial had no amounts outstanding under the Working Capital Line.