AV Homes, Inc. – ‘424B1’ on 1/29/98

As of:  Thursday, 1/29/98   ·   Accession #:  950123-98-692   ·   File #:  333-41923

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Prospectus   —   Rule 424(b)(1)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B1       Avatar Holdings Inc.                                  89    506K 

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                                              Filed Pursuant to Rule 424(b)(1)
                                        Registration No. 333-41923

$100,000,000

AVATAR HOLDINGS INC.
7% CONVERTIBLE SUBORDINATED NOTES DUE 2005
------------------------

     The 7% Convertible Subordinated Notes due 2005 (the "Notes") offered hereby
(the "Offering") are convertible at any time prior to maturity at the option of 
the holder, unless previously redeemed, into shares of Common Stock, par value  
$1.00 per share (the "Common Stock"), of Avatar Holdings Inc. ("Avatar") at a   
conversion price of $31.80 per share, subject to adjustment in certain events.  
See "Description of the Notes -- Conversion Rights." On January 27, 1998, the   
last reported sale price for the Common Stock on The Nasdaq National Market     
(Symbol: AVTR) was $26 per share.                                               

 Interest on the Notes is payable on April 1 and October 1 of each year,
commencing on April 1, 1998. The Notes are not redeemable by Avatar prior to    
April 6, 2001. On or after April 6, 2001, the Notes are redeemable, in whole or 
in part, at the option of Avatar on at least 30 days' prior written notice, at  
the redemption prices set forth herein, plus accrued and unpaid interest, to the
date of redemption. Upon the occurrence of a Change in Control (as defined),    
holders of Notes can require Avatar to repurchase their Notes, in whole or in   
part, at a purchase price equal to 100% of the principal amount thereof plus    
accrued and unpaid interest through the date of repurchase. See "Description of 
the Notes -- Certain Rights to Require Repurchase of Notes". The Notes are      
unsecured obligations of Avatar and are subordinated in right of payment to all 
Senior Indebtedness (as defined) of Avatar and are effectively subordinated to  
all liabilities of Avatar's subsidiaries. As of November 30, 1997, Senior       
Indebtedness of Avatar was $48.0 million, of which $33.0 million will be repaid 
or retired with the net proceeds from the Offering, and the aggregate amount of 
indebtedness and other balance sheet liabilities of Avatar's subsidiaries to    
which the Notes are effectively subordinated was $116.5 million, which includes 
$38.7 million of indebtedness of Avatar's utilities subsidiaries. See           
"Capitalization" for a description of certain liabilities of Avatar and its     
subsidiaries. The Indenture will not restrict the ability of Avatar or its      
subsidiaries to incur any indebtedness or liabilities. See "Description of the  
Notes -- Subordination."                                                        

     Leon Levy, Chairman of the Board of Avatar and a general partner of Odyssey
Partners, L.P. (which is a principal stockholder of Avatar), has advised the    
Company of his intention to purchase $20.0 million aggregate principal amount of
Notes offered hereby, net of underwriting fees and commissions.                 

The Notes have been approved for quotation on The Nasdaq Stock Market 
("Nasdaq") under the symbol "AVTRG."                                            

FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS IN EVALUATING AN INVESTMENT IN THE NOTES,
SEE "RISK FACTORS" BEGINNING ON PAGE 10.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES 
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. 

                                                        [Enlarge/Download Table]

=========================================================================================================
                                                PRICE TO            UNDERWRITING          PROCEEDS TO    
                                                 PUBLIC            DISCOUNT(1)(2)          COMPANY(3)    
---------------------------------------------------------------------------------------------------------
                                                                                                         
Per Note.................................         100%                   3%                   97%        
Total(4).................................     $100,000,000           $2,400,000           $97,000,000    
=========================================================================================================

(1) Avatar has agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See 
"Underwriting."                                                         
(2) Assumes the purchase of $20,000,000 aggregate principal amount of the Notes 
by Leon Levy which will not be subject to any Underwriting Discount.    
(3) Before deducting expenses of the Offering payable by Avatar estimated at    
$758,925.                                                               
(4) The Underwriters have been granted an option, exercisable within 30 days of 
the date hereof, to purchase from Avatar up to an additional $15,000,000
aggregate principal amount of Notes at the Price to Public less the     
   Underwriting Discount, for the purpose of covering over-allotments, if any.
    If the Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount and Proceeds to Avatar will be $115,000,000,      
$2,850,000 and $111,550,000, respectively. See "Underwriting."          

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

    The Notes are offered by the Underwriters when, as and if delivered to and
accepted by them, subject to their right to withdraw, cancel or reject orders in
whole or in part and subject to certain conditions. It is expected that delivery
of the Notes will be made against payment on or about February 2, 1998 at the   
offices of CIBC Oppenheimer Corp., CIBC Oppenheimer Tower, One World Financial  
Center, New York, New York 10281.                                               
------------------------

CIBC OPPENHEIMER                                    SBC WARBURG DILLON READ INC.

The date of this Prospectus is January 28, 1998.

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   CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, THE COMMON 
STOCK, OR BOTH. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH 
THE OFFERING, MAY BID FOR AND PURCHASE THE NOTES, THE COMMON STOCK, OR BOTH, IN 
THE OPEN MARKET AND MAY IMPOSE PENALTY BIDS DURING AND AFTER THE OFFERING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."                            

 IN CONNECTION WITH THIS OFFERING THE UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK AND/OR THE NOTES ON THE NASDAQ   
STOCK MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES   
EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."                           

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 

   The following documents filed with the Securities and Exchange Commission
(the "Commission") by Avatar (File No. 0-7616) pursuant to the Securities       
Exchange Act of 1934, as amended (the "Exchange Act"), are incorporated by      
reference in this Prospectus:                                                   

       (i) Avatar's Annual Report on Form 10-K for the year ended December
31, 1996 (the "1996 10-K");                                           

     (ii) Avatar's Quarterly Reports on Form 10-Q for the period ended
September 30, 1997 (the "September 30 10-Q") and for the periods ended
March 31 and June 30, 1997;                                           

          (iii) Avatar's Proxy Statement dated April 29, 1997 in connection with
its Annual Meeting of Stockholders held on May 29, 1997; and          

       (iv) the description of Avatar's Common Stock contained in Avatar's
   Registration Statement on Form 8-A filed with the Commission, pursuant to
Section 12 of the Exchange Act, on October 15, 1980, including any    
 amendment or report filed for the purpose of updating such description.

All documents and reports filed by Avatar pursuant to Section 13(a), 13(c), 14  
or 15(d) of the Exchange Act after the date of this Prospectus shall be deemed  
to be incorporated by reference in this Prospectus and to be a part hereof from 
the date of filing of such documents or reports. Any statement contained in a   
document incorporated or deemed to be incorporated by reference herein shall be 
deemed to be modified or superseded for purposes of this Prospectus to the      
extent that a statement contained herein or in any other subsequently filed     
document which also is or is deemed to be incorporated by reference herein      
modifies or supersedes such statement. Any such statement so modified or        
superseded shall not be deemed, except as so modified or replaced, to constitute
a part of this Prospectus.                                                      

     This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. Copies of any such documents, other than exhibits 
to such documents unless they are specifically incorporated by reference, are   
available, without charge, to any person to whom this Prospectus is delivered,  
upon written or oral request directed to Juanita I. Kerrigan, Vice President and
Secretary, Avatar Holdings Inc., 255 Alhambra Circle, Coral Gables, Florida     
33134, telephone: (305) 442-7000 (ext. 229).                                    

AVAILABLE INFORMATION 

  Avatar is subject to the informational requirements of the Exchange Act,
and, with respect to the indentures relating to Avatar's 8% Senior Debentures   
due 2000 and 9% Senior Debentures due 2000, the Trust Indenture Act of 1939, as 
amended, and in accordance therewith files reports, proxy statements and other  
information with the Commission. The reports, proxy statements and other        
information filed with the Commission, as well as the Registration Statement (as
defined below), may be inspected and copied at the public reference facilities  
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and the     
Commission's Regional Offices at 7 World Trade Center, Suite 1300, New York, New
York 10048 and at                                                               

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500 West Madison Street, Suite 1400, Chicago, Illinois 60601-2511. Copies of    
such material also can be obtained by mail from the Public Reference Section of 
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed    
rates. The Commission maintains a Web site that contains reports, proxy and     
information statements and other information regarding reporting companies under
the Exchange Act including Avatar, at http://www.sec.gov.                       

  Avatar has filed a Registration Statement on Form S-3 (the "Registration
Statement") with the Commission under the Securities Act of 1933, as amended    
(the "Securities Act"), with respect to the securities offered hereby. As       
permitted by the rules and regulations of the Commission, this Prospectus omits 
certain information contained in the Registration Statement and incorporates by 
reference certain additional information previously filed with the Commission.  
Reference is hereby made to the Registration Statement and related exhibits for 
further information with respect to Avatar and the Notes. Such additional       
information can be inspected at and obtained from the Commission in the manner  
set forth above. Statements contained in this Prospectus or in any document     
incorporated by reference herein as to the terms of any contract or other       
document referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed 
as an exhibit to the Registration Statement or such other document, each such   
statement being qualified in all respects by such reference.                    

FORWARD-LOOKING STATEMENTS

Certain statements in this Prospectus under the captions "Prospectus  
Summary," "The Company," "Risk Factors," "Use of Proceeds," "Management's       
Discussion and Analysis of Results of Operations and Financial Condition,"      
"Business" and elsewhere constitute "forward-looking statements" within the     
meaning of the Private Securities Litigation Reform Act of 1995. Such           
forward-looking statements involve known and unknown risks, uncertainties and   
other important factors that could cause the actual results, performance or     
achievements of results to differ materially from any future results,           
performance or achievements expressed or implied by such forward-looking        
statements. Such risks, uncertainties and other important factors include, among
others: implementation of the Company's new business strategy; shifts in        
demographic trends affecting retirement communities and other real estate       
development; the level of immigration and in-migration to the Company's regional
market areas; national and local economic conditions and events, including      
employment levels, interest rates, consumer confidence, the availability of     
mortgage financing and demand for new and existing housing; the Company's access
to future financing; competition; changes in, or the failure or inability to    
comply with, government regulations; and other factors referenced in this       
Prospectus. See "Risk Factors."                                                 

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PROSPECTUS SUMMARY

The following is qualified in its entirety by, and should be read in  
conjunction with, the more detailed information and financial statements        
elsewhere in this Prospectus or incorporated herein by reference. Unless        
otherwise noted, all financial information, share and per share data in this    
Prospectus assume no exercise of the Underwriters' over-allotment option and no 
issuance of shares of Common Stock covered by Avatar's options outstanding as of
the date hereof. Except as otherwise noted, as used in this Prospectus, the term
"Company" refers to Avatar and its consolidated subsidiaries.                   

THE COMPANY 

GENERAL                                                                         

  The Company is engaged in two principal business activities: real estate
development and the ownership and operation of water and wastewater utilities.  
The Company owns and develops land, primarily in various locations in Florida   
and Arizona. Current and planned real estate operations include: the            
development, sale and management of active adult/retirement communities; the    
development and sale of single- and multi-family homes and communities; and the 
development, leasing and management of improved commercial and industrial       
properties.                                                                     

The Company's substantial land holdings represent the potential for   
residential development of 102,000 to more than 145,000 single- and multi-family
units. These land holdings include over 32,600 developed or developable acres,  
of which 26,400 acres have been platted and/or zoned for the building of over   
43,000 single-family homes and over 38,200 multi-family units, and approximately
6,200 acres of partially developed and developable land which have not been     
platted on which the Company anticipates developing more than an additional     
20,800 residential units. In addition, the Company owns over 3,000 acres of land
upon which over 42.7 million square feet of commercial and industrial property  
may be built.                                                                   

 The Company's major land holdings are located in Poinciana (near Disney
World and Orlando), Cape Coral on Florida's west coast (near Fort Myers and     
Naples), Ocala Springs in central Florida, Harbor Islands (one of the last large
undeveloped properties along the Intracoastal Waterway, on Florida's east coast 
near Ft. Lauderdale), and Rio Rico, south of Tucson, Arizona.                   

     Utilities operations include the purification and distribution of water and
the treatment and disposal of wastewater through plants in Florida and Arizona  
and contract management services for affiliated and unaffiliated water and      
wastewater utilities.                                                           

NEW REAL ESTATE BUSINESS STRATEGY                                               

During the third quarter of 1997, new management of the Company began 
implementing a real estate business strategy designed to capitalize on the      
Company's competitive strengths and current and projected demographic trends in 
Florida and Arizona and which focuses on real estate businesses which have      
potentially higher profit margins.                                              

  Strategy.  The Company's new real estate business strategy is focused on
three primary areas:                                                            

        - Development and management of active adult/retirement communities;

          - Development of upscale custom and semi-custom homes and communities;
and                                                     

- Development of its commercial and industrial properties.  

  Competitive Advantages.  The Company believes that it has four principal
competitive advantages:                                                         

- It owns large contiguous tracts of land.                  

          - Its land holdings are substantially zoned and/or platted, are either
         exempt from applicable regulatory requirements or such regulatory
        requirements have been substantially fulfilled, and have overall
       vesting with regard to costly and time-consuming regulatory and
growth management                                       

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requirements such as concurrency, development of regional impact studies and    
regulatory planning and environmental permitting.                               

- Its extensive land holdings are substantially debt-free.  

   - It has expended more than $150 million on land infrastructure
            improvements, including roads, drainage and utilities installations,
           and has invested substantial funds in the development of amenities,
      such as parks and other open areas, club houses, golf courses,
            swimming pools, tennis courts, hotels, shopping centers and marinas.

Demographic Trends.  The Company believes that it will benefit from a 
number of recent and anticipated demographic trends:                            

         - The continued high population growth of both Florida and Arizona as
       a result of the growing number of retirees choosing Florida and
         Arizona for retirement or second homes, population migration from
          the Caribbean and Latin America to Florida and increasing commerce
between the U.S. and Latin America.                     

       - The growth of the greater Orlando metropolitan area as a business
and entertainment center.                               

        - The aging of the "baby-boom" generation, which management believes
            will significantly increase demand for amenitized pre-retirement and
retirement communities.                                 

  The Company's new real estate business strategy focuses on three primary
businesses:                                                                     

Development and Management of Active Adult/Retirement Communities               

  A substantial portion of the Company's land holdings is located in areas
where management believes there is significant opportunity to develop active    
adult/retirement communities. The Company owns more than 10,700 acres in several
large contiguous parcels which are entirely debt-free and which it believes are 
suitable for the development of active adult/retirement communities and upon    
which an estimated 36,200 units may be built.                                   

  To assist in the development of its active adult/retirement communities,
the Company recently entered into a consulting contract with H. Irwin Levy, the 
founder of the Century Village concept of active adult/ retirement communities, 
and acquired an option to purchase the rights to the Century Village name. At   
the same time, the Company hired the entire Century Village executive management
team: the Chief Operating Officer, the Chief Financial Officer, and the heads of
marketing and construction. Century Village is one of the nation's leading      
developers of active adult/retirement communities. Collectively, these          
executives have been responsible for the development of approximately 50,000    
housing units in approximately 20 communities, including four Century Village   
communities located in southeast Florida.                                       

     Over the next five years, the Company intends to create a brand name in the
active adult/retirement community business and to distinguish its active        
adult/retirement communities from those of other developers by establishing a   
consumer product-oriented approach. Specifically, the Company intends to develop
resort-like communities with a broad array of amenities and entertainment,      
sports, recreational, social, educational and cultural activities. Each         
community will be designed and operated as a lifestyle experience developed for 
its particular location and market. In addition, management seeks to identify   
additional sites which are suitable for development of active adult/retirement  
communities and anticipates that it will acquire such sites for cash or stock or
develop them through joint venture or management arrangements.                  

Development of Upscale Custom and Semi-Custom Homes and Communities             

Certain of the Company's land holdings are suitable for development of
upscale custom and semi-custom homes and communities. The Company estimates that
approximately 2,000 upscale homes may be developed on its homesites which are   
located along or near fresh or salt water. The Company has targeted custom and  
semi-custom homebuilding as an important component of its new real estate       
strategy because this business has potentially higher profit margins than the   
sale of mid-priced single-family homes and because the Company                  

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believes that it possesses the requisite levels of technical expertise and      
experience in upscale and custom homebuilding.                                  

    In order to expand its upscale homebuilding business, the Company recently
acquired certain assets of Brookman-Fels, Jeff Ian, Inc. ("Brookman-Fels"), a   
well-known regional developer of custom and semi-custom homes and single-family 
residential communities in south Florida, and entered into employment contracts 
with its three principals, Jonathan Fels, Michael Levy and Bernard Offenberg.   
Brookman-Fels is one of south Florida's leading custom homebuilders and a winner
of many national design awards, including being named one of America's Best     
Builders by the National Association of Homebuilders in 1994. Founded in 1980,  
Brookman-Fels was responsible for developing some of south Florida's most       
successful upscale communities such as Oak Hammock, Arboretum, The Sanctuary and
Treasure Trove. In addition, Brookman-Fels has gained recognition for building  
single-family luxury homes in such upscale south Florida areas as Pinecrest, Old
Cutler, Cocoplum, Snapper Creek, Miami Beach, Plantation Acres and Weston's     
Windmill Ranches. Brookman-Fels has developed more than 600 single-family homes,
representing over $250 million in sales.                                        

Development of Commercial and Industrial Properties                             

  The development of commercial and industrial properties is a significant
element in the Company's long-term business strategy. The Company owns over     
3,000 acres of land which are zoned and/or planned for over 42.7 million square 
feet of commercial and industrial property. A substantial portion of the        
Company's commercial and industrial properties is located in areas of Florida   
which have historically experienced, and are projected to continue to           
experience, high rates of population growth. In addition, the development by    
both the Company and other developers of homes and planned communities is       
expected to generate further population growth. The Company anticipates that    
this growth will create additional demand for its commercial and industrial     
properties. Similarly, further development of the Company's commercial and      
industrial properties is expected to generate employment, recreational and      
entertainment opportunities and, therefore, to increase demand for the Company's
residential communities.                                                        

UTILITIES BUSINESS                                                              

The Company's utilities business provides for the purification,       
distribution and sale of water for public and private use and the treatment and 
disposal of wastewater. The Company owns and operates 17 water utilities plants 
serving more than 42,000 customers and 12 wastewater treatment facilities       
serving more than 32,000 customers residing in seven communities, which include 
the Company's communities of Poinciana, Florida and Rio Rico, Arizona. The      
Company also provides meter reading and customer-related services to its own    
utilities operating units, as well as to 26 unaffiliated companies and public   
utilities.                                                                      

The Company believes that its utilities operations will benefit from  
population growth from development by both the Company and other developers of  
homes and planned communities within the areas which are serviced by the        
utilities facilities. For the year ended December 31, 1996 and the nine months  
ended September 30, 1997, the Company's utilities had EBITDA of $10.5 million   
and $9.5 million, respectively.                                                 

DEVELOPMENT OF MID-PRICED HOMES AND COMMUNITIES                                 

    Prior to the third quarter of 1997, the Company's business plan emphasized
the construction and sale of mid-priced single-family homes. Although the       
Company has implemented a new real estate strategy emphasizing potentially      
higher profit-margin businesses, it intends to continue the construction and    
sale of mid-priced homes, both on scattered lots and on contiguous parcels as   
part of planned communities.                                                    

RECENT OCCURRENCE                                                               

In connection with the Company's new business strategy, the new senior
executives employed in December 1997 who are responsible for residential        
development, have revised the existing development plan for the Harbor Islands  
community. As a result, the Company intends to incur non-cash charges           
attributable to such revised development program against current income of      
approximately $15.0 million for the fourth                                      

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quarter of 1997. See "Management's Discussion and Analysis of Financial         
Condition and Results of Operations -- Recent Occurrence."                      
------------------------

     Leon Levy, Chairman of the Board of Avatar and a general partner of Odyssey
Partners, L.P., a private investment partnership ("Odyssey"), has advised the   
Company of his intention to purchase $20 million aggregate principal amount of  
the Notes offered hereby, net of underwriting fees and commissions. At November 
30, 1997, Mr. Levy owned approximately 3.0% of Avatar's Common Stock, and       
Odyssey owned approximately 23.0% of Avatar's Common Stock.                     

  Avatar, a Delaware corporation, is located at 255 Alhambra Circle, Coral
Gables, Florida 33134, and its telephone number is (305) 442-7000.              

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THE OFFERING

Securities Offered.........  $100 million principal amount of 7% Convertible    
                            Subordinated Notes due 2005 (the "Notes"), plus up
                       to an additional $15 million principal amount
                         issuable upon the exercise of the Underwriters'
over-allotment option.

Maturity...................  April 1, 2005.                                     

Payment of Interest........  April 1 and October 1, commencing April 1, 1998.   

Conversion.................  The Notes are convertible into Common Stock of     
                           Avatar at the option of the holder at any time at
                            or before maturity, unless previously redeemed, at
                            a conversion price of $31.80 per share, subject to
                           adjustment in certain events. See "Description of
          the Notes -- Conversion Rights."

Optional Redemption........  The Notes will be redeemable, in whole or in part, 
                          at the option of Avatar, at any time on or after
                          April 6, 2001 at the redemption prices set forth
                            herein, together with accrued interest to the date
                of redemption. See "Description of the
        Notes -- Optional Redemption."

Repurchase at Holder's                                                          
Option.....................  Upon the occurrence of a Change in Control (as     
                             defined), holders of Notes may elect to require the
                           Company to repurchase their Notes, in whole or in
                        part, at a purchase price equal to 100% of the
                          principal amount thereof plus accrued and unpaid
                           interest through the date of repurchase. The term
                           Change in Control is limited to certain specified
                             transactions and does not include other events that
                           might adversely affect the financial condition of
                       Avatar or result in a downgrade in the credit
                 rating (if any) of the Notes. See "Risk
                            Factors -- Limitations on Repurchase of Notes Upon
                      a Change in Control" and "Description of the
                          Notes -- Certain Rights to Require Repurchase of
Notes."               

Subordination..............  The Notes are subordinated to all present and      
                      future Senior Indebtedness of Avatar and are
                          effectively subordinated to all indebtedness and
                            other liabilities of subsidiaries of Avatar. As of
                          November 30, 1997, Senior Indebtedness of Avatar
                           was $48.0 million, of which $33.0 million will be
                            repaid or retired with proceeds from the Offering,
                            and the aggregate amount of indebtedness and other
                            balance sheet liabilities of Avatar's subsidiaries
                             to which the Notes are effectively subordinated was
                             $116.5 million. See "Capitalization." The Indenture
                        will not restrict the ability of Avatar or its
                   subsidiaries to incur any indebtedness or
              liabilities. See "Description of the
                      Notes -- Subordination" and "Risk Factors --
                             Subordination of Notes; Holding Company Structure."

Use of Proceeds............  Avatar will use the net proceeds from the Offering 
                             to retire certain Senior Indebtedness, to fund real
                            estate development and acquisition activities, and
                             for working capital and general corporate purposes.
See "Use of Proceeds."

Market for Notes...........  The Notes have been approved for quotation on      
          Nasdaq under the symbol "AVTRG."

Common Stock Trading.......  The Common Stock is traded on The Nasdaq National  
         Market under the symbol "AVTR."

RISK FACTORS

For a discussion of certain factors that should be considered by      
prospective purchasers in evaluating an investment in the Notes, see "Risk      
Factors."                                                                       

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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

                                                        [Enlarge/Download Table]

                                                                                                         NINE MONTHS ENDED    
                                                          YEAR ENDED DECEMBER 31,                          SEPTEMBER 30,      
                                       -------------------------------------------------------------   ---------------------- 
                                         1992         1993         1994         1995         1996        1996         1997    
                                       ---------    ---------    ---------    ---------    ---------   ---------    --------- 
                                                                                                            (UNAUDITED)       
                                                                                                                              
INCOME STATEMENT DATA:                                                                                                        

Real estate revenues:                                                                                                         
  Homebuilding........................ $   6,077    $   7,268    $   7,400    $  13,260    $  49,672   $  34,412    $  40,975 
  Other, including deferred gross                                                                                             
    profit............................    28,483       31,451       33,232       34,237       46,477      27,548       22,319 
Real estate expenses..................   (44,900)     (47,494)     (48,954)     (58,626)     (91,939)    (61,525)     (66,308)
                                       ---------    ---------    ---------    ---------    ---------   ---------    --------- 
Real estate, net......................   (10,340)      (8,775)      (8,322)     (11,129)       4,210         435       (3,014)

Utilities revenues....................    53,209       45,957       28,664       29,669       32,749      24,245       26,153 
Utilities operating expenses..........   (36,772)     (34,781)     (24,651)     (24,923)     (25,505)    (19,022)     (19,207)
Utilities interest                                                                                                            
  expense -- direct...................    (6,780)      (5,832)      (3,312)      (3,031)      (3,288)     (2,427)      (2,539)
Utilities other expenses(1)...........    (1,544)      (1,261)        (811)        (811)        (814)       (611)        (518)
                                       ---------    ---------    ---------    ---------    ---------   ---------    --------- 
Utilities, net........................     8,113        4,083         (110)         904        3,142       2,185        3,889 
Other revenues and expenses:                                                                                                  
Gain on sale of subsidiaries..........        --       21,822(2)        --           --           --          --           -- 
Other revenues........................       996        5,565          564          663        2,405         471          601 
General and administrative expenses...    (7,809)      (8,620)     (10,224)      (9,210)      (8,784)     (6,660)      (6,919)
Interest income and trading account                                                                                           
  profit, net.........................    16,396       13,985       11,467       16,339       10,056       8,082        4,367 
Corporate and real estate interest                                                                                            
  expense.............................   (11,698)      (9,824)      (7,848)      (8,487)      (8,765)     (5,926)      (6,204)
                                       ---------    ---------    ---------    ---------    ---------   ---------    --------- 
Net income (loss)..................... $  (6,744)   $   4,898    $ (14,621)   $ (10,339)   $   1,040   $  (1,340)   $  (6,581)
                                       =========    =========    =========    =========    =========   =========    ========= 
Earnings (loss) per share............. $   (0.91)   $    0.50    $   (1.61)   $   (1.14)   $    0.11   $   (0.15)   $   (0.72)
Weighted average number of shares                                                                                             
  outstanding......................... 7,403,848    9,840,251    9,095,102    9,095,102    9,095,102   9,095,102    9,095,102 

OTHER DATA:                                                                                                                   

EBITDA(3)............................. $  19,341    $  39,840    $   2,194    $   7,053    $  19,356   $  11,728    $   7,127 
Number of residential units                                                                                                   
  sold(4)(5)..........................       N/A          N/A          101          243          444         362          472 
Number of residential units                                                                                                   
  closed(6)...........................        73           91           86          150          293         192          316 
Number of residential units in                                                                                                
  backlog(4)(7).......................       N/A          N/A           59          152          303         322          459 

                                                        [Enlarge/Download Table]

                                                                                             SEPTEMBER 30, 1997    
                                                                           DECEMBER 31,  --------------------------
                                                                               1996       ACTUAL     AS ADJUSTED(8)
                                                                           ------------  --------    --------------
                                                                                                (UNAUDITED)        
                                                                                                                   
BALANCE SHEET DATA:                                                                                                
Total assets..............................................................   $443,185    $449,251       $516,279   
Notes, mortgages and other debt(9):                                                                                
  Corporate...............................................................     33,148      44,669        114,350   
  Real estate.............................................................     27,462      35,728         35,728   
  Notes collateralized by contracts and mortgage notes receivables........     36,030      26,766         26,766   
  Utilities...............................................................     42,152      38,747         38,747   
Stockholders' equity......................................................    159,452     152,871        150,218   

(Notes on following page) 

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---------------                                                                 
(1) Other expenses relate to preferred stock dividends of utilities             
subsidiaries.                                                           
(2) In 1993 the Company sold its midwest water utilities located in Indiana,    
Missouri, Ohio, and Michigan for an aggregate of $62,000.               

(3) EBITDA represents income (loss) before interest, income taxes, depreciation 
and amortization (including amortization of intangible assets and       
contributions in aid of construction). EBITDA is frequently used by     
   securities analysts and is presented here to provide additional information
about the Company's operations. EBITDA is not a measurement presented in
 accordance with generally accepted accounting principles ("GAAP"). EBITDA
should not be considered in isolation or as a substitute for net income 
  (loss), cash flow provided by operating activities or other income or cash
 flow data prepared in accordance with GAAP or as a measure of a company's
profitability or liquidity.                                             

(4) Data not available for years noted.                                         

(5) Indicates the number of residential units for which an agreement of sale has
been executed during each period.                                       

(6) Indicates the number of residential units for which a closing has taken     
place during each period.                                               

(7) Indicates the aggregate number of residential units sold which were subject 
 to an executed agreement of sale but had not closed as of the end of each
period.                                                                 

(8) Adjusted to reflect the issuance of Notes offered hereby and the application
of the net proceeds therefrom.                                          

(9) Does not include debt related to discontinued vacation ownership operations 
of $10,191 and $14,973 at December 31, 1996 and September 30, 1997,     
   respectively. It is anticipated that upon the sale of such operations, such
 debt will be assumed by the purchaser of the Company's vacation ownership
operations.                                                             

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RISK FACTORS

An investment in the Notes offered by this Prospectus involves a high 
degree of risk. In addition, this Prospectus contains forward-looking statements
that involve risks and uncertainties. Discussions containing such               
forward-looking statements may be found in the material set forth under         
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of  
Financial Condition and Results of Operations," and "Business" as well as       
elsewhere in this Prospectus. The Company's actual results could differ         
materially from those anticipated in these forward-looking statements as a      
result of certain factors, including those set forth in the following risk      
factors and elsewhere in the Prospectus. Accordingly, prospective investors     
should consider carefully the following risk factors, in addition to the other  
information concerning the Company and its business contained in this           
Prospectus, before purchasing the Notes.                                        

HISTORY OF LOSSES; NEGATIVE CASH FLOW                                           

    The Company has had negative cash flows and negative ratios of earnings to
fixed charges and has incurred significant operating and net losses. Net losses 
for 1994 and 1995 were approximately $14.6 million and $10.3 million,           
respectively. As of September 30, 1997, the Company had an accumulated deficit  
of $5.1 million. The Company historically has sold non-strategic assets to fund 
its operating deficits and has utilized short-term borrowings to provide working
capital.                                                                        

Real estate development requires investment of substantial capital, a 
significant portion of which is expended before any revenues may be realized.   
The Company does not anticipate that it will achieve or sustain profitability or
positive cash flows from operating activities until the year 2000. If the       
Company cannot achieve operating profitability or positive cash flows from      
operating activities, it may not be able to service the Notes or meet its other 
debt service or working capital requirements.                                   

NEW REAL ESTATE BUSINESS STRATEGY                                               

   The Company's recently adopted real estate business strategy is unproven,
with little or no operating history to serve as the basis for a prediction of   
its probable success or failure. Implementation of the business strategy has    
required, and will continue to require, among other things, the addition of new 
management personnel and employees, as well as the development of additional    
expertise by existing management personnel and employees and the expenditure of 
significant amounts of capital. The loss of the services of certain members of  
the Company's senior management team could have a material adverse effect on the
Company and, in particular, on the success of the new real estate business      
strategy. In addition, the Company's ability to manage growth and to redeploy   
its resources effectively will require it to continue to implement and improve  
its operational, financial and sales systems. There can be no assurance that the
Company will be able to compete successfully with its current or potential      
competitors or that the implementation of the new business strategy will be     
successful.                                                                     

REAL ESTATE, ECONOMIC AND OTHER CONDITIONS GENERALLY                            

   The real estate industry is highly cyclical and is affected by changes in
national, global and local economic conditions and events, such as employment   
levels, availability of financing, interest rates, consumer confidence and the  
demand for housing and other types of construction. Real estate developers are  
subject to various risks, many of which are outside the control of the          
developer, including real estate market conditions (both where its communities  
and homebuilding operations are located and in areas where its potential        
customers reside), and changing demographic conditions, adverse weather         
conditions and natural disasters, such as hurricanes, tornados and wildfires,   
delays in construction schedules, cost overruns, changes in government          
regulations or requirements, increases in real estate taxes and other local     
government fees and availability and cost of land, materials and labor. The     
occurrence of any of the foregoing could have a material adverse effect on the  
financial condition of the Company.                                             

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INTEREST RATES; MORTGAGE FINANCING                                              

   Certain purchasers of the Company's homes finance their purchases through
third-party lenders providing mortgage financing. In general, housing demand is 
dependent on home equity, consumer savings and third-party financing and will be
adversely affected by increases in interest rates, unavailability of mortgage   
financing, increasing housing costs and unemployment levels. The amount or value
of discretionary income and savings, including retirement assets, available to  
home purchasers can be affected by a decline in the capital markets. If mortgage
interest rates increase or the capital markets decline or undergo a major       
correction, the ability of prospective buyers to finance home purchases will be 
adversely affected, which may have an adverse effect on the financial condition 
of the Company.                                                                 

GEOGRAPHIC CONCENTRATION                                                        

    The Company's development activities are primarily focused on locations in
Florida and therefore depend to a significant degree on the levels of           
immigration to Florida from outside the United States and in-migration to       
Florida from within the United States in addition to other local market         
conditions. The Company's geographic concentration and limited number of        
projects may create increased vulnerability to regional economic downturns or   
other adverse project-specific matters. A decline in the economy in Florida     
could have an adverse effect on the financial condition of the Company.         

DEVELOPMENT OF COMMUNITIES                                                      

The Company's communities will be developed over time. Therefore, the 
medium- and long-term future of the Company will be dependent on the Company's  
ability to develop and market future communities successfully. Committing the   
financial and managerial resources to develop a community involves significant  
risks. Before a community generates any revenues, material expenditures are     
required, among other things, to obtain development approvals to construct      
project infrastructure, recreation centers, model homes and sales facilities    
and, where opportunities are suitable and appropriate, to acquire land. It      
generally takes several years for a community development to achieve cumulative 
positive cash flow. No assurance can be given that the Company will successfully
develop and market communities in the future. The inability of the Company to   
develop and market its communities successfully and to generate positive cash   
flows from such operations in a timely manner would have an adverse effect on   
the ability of the Company to service its debt, including the Notes, and to meet
its working capital requirements.                                               

ACCESS TO FINANCING                                                             

   The Company's business is capital intensive and requires expenditures for
land and infrastructure development, housing construction and working capital.  
Accordingly, the Company anticipates incurring additional indebtedness to fund  
its real estate development activities. As of November 30, 1997, the Company's  
total consolidated indebtedness was $164.5 million, of which $33.0 million will 
be repaid or retired with proceeds from this Offering. There can be no assurance
that the amounts available from internally generated funds, cash on hand, the   
Company's existing credit facilities, sale of non-strategic assets and the net  
proceeds from the Offering will be sufficient to fund the Company's anticipated 
operations. The Company may be required to seek additional capital in the form  
of equity or debt financing from a variety of potential sources, including      
additional bank financing and sales of debt or equity securities. No assurance  
can be given that such financing will be available or, if available, will be on 
terms favorable to the Company. If the Company is not successful in obtaining   
sufficient capital to fund the implementation of its business strategy and other
expenditures, development projects may be delayed or abandoned. Any such delay  
or abandonment could result in a reduction in sales and would adversely affect  
the Company's future results of operations. See "Management's Discussion and    
Analysis of Financial Condition and Results of Operations -- Liquidity and      
Capital Resources."                                                             

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DEBT COVENANTS                                                                  

 Under its credit facilities the Company is subject to certain covenants
that restrict its operational and financial flexibility, including covenants    
requiring the maintenance of certain financial ratios and restrictions on       
distributions, indebtedness, liens, acquisitions and other significant actions. 
Failure to comply with certain covenants would, among other things, permit the  
Company's lenders to accelerate the maturity of the obligations thereunder and  
could result in cross-defaults permitting the acceleration of debt under other  
Company credit facilities. See "Management's Discussion and Analysis of         
Financial Condition and Results of Operations -- Liquidity and Capital          
Resources."                                                                     

JOINT VENTURE RISKS                                                             

     In connection with its new business strategy, the Company has entered into,
and in the future will continue to seek, joint venture arrangements with        
entities whose complementary resources or other business strengths will         
contribute to the competitive position of the Company. A joint venture may      
involve special risks associated with the possibility that a venture partner (i)
at any time may have economic or business interests or goals that are           
inconsistent with those of the Company, (ii) may take actions contrary to the   
instructions or requests of the Company or contrary to the Company's policies or
objectives with respect to its real estate investments or (iii) could experience
financial difficulties.                                                         

Actions by a venture partner of the Company may have the result of    
subjecting property owned by the joint venture to liabilities in excess of those
contemplated by the terms of the joint venture agreement or have other adverse  
consequences. As a participant in certain joint ventures, the Company may be    
jointly and severally liable for the debts and liabilities of the joint venture.
No assurance can be given that any joint venture arrangements entered into by   
the Company will achieve the results anticipated or otherwise prove successful. 

PERIOD-TO-PERIOD FLUCTUATIONS                                                   

    The Company's real estate projects are long-term in nature. Sales activity
at the Company's newly planned retirement communities and other real estate     
developments varies from period to period, and the ultimate success of any      
community cannot be determined from results in any particular period or periods.
A community may generate significantly higher sales levels at inception (whether
because of local pent-up demand or other reasons) than it does during later     
periods over the life of the community. Revenues and earnings of the Company    
will also be affected by period-to-period fluctuations in the mix of product,   
subdivisions and home closings among the Company's communities and conventional 
homebuilding operations. Thus, the timing and amount of revenues arising from   
capital expenditures are subject to considerable uncertainty. The inability of  
the Company to manage effectively its cash flows from operations would have an  
adverse effect on its ability to service its debt, including the Notes, and to  
meet its working capital requirements.                                          

COMPETITION                                                                     

  The Company's homebuilding, planned community development and other real
estate operations are subject to substantial existing and potential competition 
(including increased competition from a number of national homebuilders that are
entering or expanding their presence in planned community development). Some of 
the Company's current and potential competitors have longer operating histories 
and greater financial, sales, marketing, technical and other competitive        
resources. Existing and future competition may have an adverse effect on the    
financial condition of the Company.                                             

GOVERNMENTAL REGULATION AND ENVIRONMENTAL CONSIDERATIONS                        

 The Company's business is subject to extensive federal, state and local
regulatory requirements, the broad discretion that governmental agencies have in
administering those requirements and "no growth" or "slow growth" policies, all 
of which can prevent, delay, make uneconomic or significantly increase the costs
of its developments. Various governmental approvals and permits are required    
throughout the development process (to the extent they have not already been    
obtained), and no assurance can be given as to the receipt (or timing of        
receipt) of these approvals or permits. The incurrence of substantial compliance
costs and the imposition of                                                     

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delays and other regulatory burdens on the Company could have a material adverse
effect on the operations of the Company.                                        

    Furthermore, various federal, state and local laws subject property owners
or operators to liability for the costs of removal or remediation of certain    
hazardous substances released on a property. Such laws often impose liability   
without regard to whether the owner knew of, or was responsible for, the release
of the hazardous substances. The presence of such hazardous substance at one or 
more of the Company's properties, and the requirement to remove or remediate    
such substances, may result in significant cost to the Company.                 

SUBORDINATION OF NOTES; HOLDING COMPANY STRUCTURE                               

 The Notes are subordinate in right of payment to all current and future
Senior Indebtedness of Avatar. Senior Indebtedness consists of all indebtedness 
of Avatar, whether existing on or created or incurred after the date of the     
issuance of the Notes, that is not made subordinate to or pari passu with the   
Notes by the instrument creating the indebtedness. As of November 30, 1997,     
Avatar had Senior Indebtedness in the amount of approximately $48.0 million,    
which includes approximately $15.0 million outstanding under Avatar's $20.0     
million credit facility. The Indenture does not limit the amount of additional  
indebtedness, including Senior Indebtedness, which Avatar can create, incur,    
assume or guarantee. Because the Notes are subordinated, in the event of        
insolvency, bankruptcy, liquidation, reorganization, dissolution or winding up  
of the business of Avatar or upon a default in payment with respect to any      
Senior Indebtedness of Avatar or any other event of default with respect to such
indebtedness resulting in the acceleration thereof, the assets of Avatar will be
available to pay the amounts due on the Notes only after all Senior Indebtedness
of Avatar has been paid in full. See "Description of the                        
Notes -- Subordination."                                                        

Avatar is a holding company whose principal assets are the shares of  
capital stock of its real estate and utilities subsidiaries. Because Avatar does
not generate any operating revenues of its own, it depends on dividends,        
advances and payments from its subsidiaries to fund its activities and meet its 
cash needs, including its debt service requirements. The subsidiaries are       
separate and distinct legal entities and have no obligation, contingent or      
otherwise, to pay any amounts due pursuant to the Notes or to make funds        
available therefor. Their ability to pay dividends or make other payments or    
advances to Avatar will depend on their operating results and will be subject to
various business considerations, applicable state laws, restricted payments and 
other debt covenants governing certain project financing arrangements of the    
subsidiaries and, in the case of the water and wastewater utilities, government 
regulations restricting payments of dividends and other distributions to parent 
companies.                                                                      

The Notes will be effectively subordinated in right of payment to all 
existing and future indebtedness and liabilities of Avatar's subsidiaries. As of
November 30, 1997, the aggregate amount of indebtedness and other balance sheet 
liabilities of Avatar's subsidiaries to which the Notes are effectively         
subordinated was approximately $116.5 million, including $38.7 million of       
indebtedness from utilities operations. Consequently, in the event of a         
bankruptcy, liquidation, dissolution, reorganization or similar proceeding with 
respect to Avatar's subsidiaries, the holders of any indebtedness of Avatar's   
subsidiaries may be entitled to payment thereof from the assets of such         
subsidiaries prior to the holders of any general unsecured obligation of Avatar,
including the Notes.                                                            

LIMITATIONS ON REPURCHASE OF NOTES UPON A CHANGE IN CONTROL                     

 In the event of a Change in Control, each holder of Notes will have the
right, at the holder's option, to require Avatar to repurchase all or a portion 
of such holder's Notes at a price equal to 100% of the principal amount thereof 
plus accrued and unpaid interest to the date of repurchase. Avatar's ability to 
repurchase the Notes upon a Change in Control may be limited by the terms of    
Avatar's Senior Indebtedness and the subordination provisions of the Indenture. 
Further, the ability of Avatar to repurchase Notes upon a Change in Control will
be dependent on the availability of sufficient funds and subject to compliance  
with applicable securities laws. Accordingly, there can be no assurance that    
Avatar will be able to repurchase the Notes upon a Change in Control. The term  
"Change in Control" is defined to include only certain specified transactions   
and does not include other events, such as a highly-leveraged business          
combination not involving a Change in Control, that would adversely affect the  
holders of Notes.                                                               

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SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET PRICE 

    Sale of substantial amounts of shares in the public market or the prospect
of such sale could adversely affect the market price of Avatar's Common Stock.  
As of November 30, 1997, Avatar had 9,170,102 shares of Common Stock            
outstanding, of which 6,705,097 shares are currently available for public sale  
without restriction. Avatar's officers and directors and Odyssey, who           
beneficially own an aggregate of 2,390,005 shares of Common Stock and an option 
which will become exercisable for the purchase of 45,000 shares of Common Stock,
have agreed not to sell, distribute, pledge, grant any option for the sale of,  
or otherwise dispose of, directly or indirectly, or encumber or exercise        
registration rights with respect to such securities for 180 days after the date 
of the Offering without the prior written consent of CIBC Oppenheimer Corp. In  
its sole discretion and at any time without notice, CIBC Oppenheimer Corp. may  
release all or any portion of the shares subject to these restrictions. The     
Company intends to grant to Leon Levy registration rights with respect to the   
Notes, the shares of Common Stock issuable upon conversion thereof and all      
shares of Common Stock which he currently owns, excluding shares held through   
his ownership or other interest in, or receivable upon liquidation of, Odyssey. 
If such registration rights are exercised, a large number of shares of Common   
Stock could be sold in the public market. Such sale (or the perception that such
sale could occur) could have an adverse effect on the market price for Avatar's 
Common Stock. See "Underwriting."                                               

ANTI-TAKEOVER ISSUES                                                            

The Board of Directors of Avatar may issue up to 5,000,000 shares of  
Preferred Stock in the future without stockholder approval upon such terms as   
the Board of Directors may determine. The rights of the holders of Common Stock 
will be subject to, and may be adversely affected by, the rights of the holders 
of any Preferred Stock that may be issued in the future. The issuance of        
Preferred Stock, while providing flexibility in connection with possible        
acquisitions and other corporate purposes, could have the effect of delaying or 
preventing a change in control of the Company without further action by the     
stockholders. Avatar has no present plans to issue any shares of Preferred      
Stock. Avatar is also subject to the anti-takeover provisions of Section 203 of 
the Delaware General Corporation Law (the "DGCL"), which prohibits Avatar from  
engaging in a "business combination" with an "interested stockholder" for a     
period of three years after the date of the transaction in which the person     
became an interested stockholder, unless the business combination is approved in
a prescribed manner. The application of Section 203 of the DGCL also could have 
the effect of delaying or preventing a change in control of the Company. In     
addition, the Change in Control repurchase feature of the Notes may also, in    
certain circumstances, discourage or make more difficult a sale or takeover of  
the Company.                                                                    

NO PRIOR MARKET FOR THE NOTES                                                   

  Although the Notes have been approved for quotation on Nasdaq, the Notes
are a new issue of securities, have no established trading market and may not be
widely distributed. The Company has been advised by the Underwriters that they  
currently intend to make a market in the Notes. However, such entities are not  
obligated to do so and any market-making activity may be discontinued at any    
time without notice. In addition, any such market-making activity will be       
subject to the limits imposed by the Securities Act and the Exchange Act.       
Accordingly, no assurance can be given as to the liquidity of, or trading market
for, the Notes or that the Notes will not trade below their face amount.        

POSSIBLE VOLATILITY OF STOCK PRICE                                              

The market price for the Common Stock may be volatile and subject to  
fluctuations resulting from news announcements concerning the Company or its    
industry, general securities market conditions or other factors.                

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USE OF PROCEEDS 

The net proceeds derived from the Offering are estimated to be        
approximately $96.2 million ($110.8 million if the Underwriters' over-allotment 
option is exercised in full). The net proceeds of the Offering will be used to  
retire the $33.0 million aggregate principal amount of Avatar's 8% Senior       
Debentures due 2000 and 9% Senior Debentures due 2000, and, together with       
Avatar's existing cash and cash generated from operations, to fund real estate  
development and acquisition activities and for working capital and general      
corporate purposes.                                                             

   Pending application, the net proceeds of the Offering will be invested in
short-term, high quality investments.                                           

PRICE RANGE OF COMMON STOCK 

 The Common Stock is traded on The Nasdaq National Market. The following
table sets forth through December 31, 1997, the high and low closing prices for 
the Common Stock as reported by The Nasdaq National Market.                     

                                                        [Enlarge/Download Table]

                                                                      HIGH       LOW    
                                                                      -----     -----   
                                                                                        
1995                                                                                    
  1st Quarter........................................................   37 1/2    35 1/4
  2nd Quarter........................................................   37 3/4    35 1/2
  3rd Quarter........................................................   38 1/4    35    
  4th Quarter........................................................   38        34 1/4
1996                                                                                    
  1st Quarter........................................................   40 1/2    32 5/8
  2nd Quarter........................................................   40 1/4    34 1/4
  3rd Quarter........................................................   34 3/4    29 1/2
  4th Quarter........................................................   32 1/2    30    
1997                                                                                    
  1st Quarter........................................................   38        32    
  2nd Quarter........................................................   34 3/8    30 3/8
  3rd Quarter........................................................   36 3/4    29 1/2
  4th Quarter........................................................   34 3/4    27    

 On January 27, 1998, the closing price of the Common Stock was $26. The
number of record holders of Common Stock as of January 23, 1998 was 7,848. The  
number of record holders may not be representative of the number of beneficial  
owners because many shares are held by depositories, brokers or other nominees. 

DIVIDEND POLICY 

    The Company does not currently pay cash dividends on its Common Stock. Its
current dividend policy is to retain earnings to support the growth of its      
businesses. In addition, the Company is restricted from paying cash dividends   
under the terms of certain of its loan agreements.                              

     The terms of the Notes do not restrict the Company from paying dividends on
its Common Stock. However, under certain circumstances, distributions of cash or
property to holders of Common Stock may result in an adjustment in the          
conversion price of the Notes. See "Description of the Notes."                  

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CAPITALIZATION

     The following table sets forth the unaudited consolidated capitalization of
the Company at September 30, 1997 (except as otherwise noted), and as adjusted  
to give effect to the sale of the Notes.                                        

  This table should be read in conjunction with the Company's consolidated
financial statements, including the notes thereto, included elsewhere or        
incorporated by reference in the Prospectus.                                    

                                                        [Enlarge/Download Table]

                                                                           SEPTEMBER 30, 1997      
                                                                        ------------------------   
                                                                         ACTUAL      AS ADJUSTED   
                                                                        --------     -----------   
                                                                         (DOLLARS IN THOUSANDS)    
                                                                                                   
NOTES, MORTGAGE NOTES AND OTHER DEBT:                                                              
CORPORATE:                                                                                         
  Bank credit lines...................................................  $ 14,350      $  14,350    
  8% Senior Debentures due 2000, net of unamortized discount of                                    
     $750.............................................................     6,876             --    
  9% Senior Debentures due 2000, net of unamortized discount of                                    
     $1,903...........................................................    23,442             --    
   % Convertible Subordinated Notes due 2005..........................        --        100,000    
                                                                        --------     -----------   
Total corporate.......................................................  $ 44,668      $ 114,350    
REAL ESTATE:                                                                                       
  Development and construction loans, interest rates ranging from 8%                               
     to 10.5%(1)......................................................  $ 29,746      $  29,746    
  Mortgage note obligations, interest rates ranging from 8.8% to 10%,                              
     due from 1997 - 2002.............................................     5,982          5,982    
  Bank credit lines...................................................    26,766         26,766    
                                                                        --------     -----------   
Total real estate.....................................................  $ 62,494      $  62,494    

UTILITIES:                                                                                         
  Bank credit lines...................................................  $    325      $     325    
  Utilities first mortgage bonds due serially from 1997 - 2007,                                    
     interest rates ranging from 7.8% to 9.2%.........................    14,730         14,730    
          7.3% utilities senior notes due 2000 - 2010.................    18,000         18,000    
          Utilities promissory notes due 2002 - 2004..................     5,692          5,692    
                                                                        --------     -----------   
Total utilities.......................................................  $ 38,747      $  38,747    

STOCKHOLDERS' EQUITY:                                                                              
  Common stock, $1 par value, 15,500,000 shares authorized, 12,715,448                             
     issued...........................................................  $ 12,715      $  12,715    
  Additional paid-in capital..........................................   207,271        207,271    
  Retained earnings (deficit).........................................    (5,142)        (7,795)(2)
                                                                        --------     -----------   
                                                                         214,844        212,191    
  Less cost of 3,620,346 treasury shares..............................    61,973         61,973    
                                                                        --------     -----------   
     Total stockholders' equity.......................................   152,871        150,218    
                                                                        --------     -----------   
          Total capitalization........................................  $298,780      $ 365,809    
                                                                        ========      =========    

---------------                                                                 
(1) Does not include $15.0 million of debt related to the Company's discontinued
vacation ownership operations. It is anticipated that upon sale of such 
  operations, such debt will be assumed by the purchaser of such operations.

(2) The increased deficit reflects the write-off of the aggregate net           
    unamortized discount on the 8% and 9% Senior Debentures which will be repaid
with a portion of the net proceeds from the Offering.                   

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SELECTED FINANCIAL DATA 

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

     The following selected financial data for the five years ended December 31,
1996 are derived from the consolidated financial statements of the Company which
have been audited by Ernst & Young LLP, independent auditors. The financial data
for the nine month periods ended September 30, 1996 and 1997 are derived from   
unaudited financial statements of the Company. The unaudited financial          
statements include all adjustments, consisting of normal recurring adjustments, 
which the Company considers necessary for a fair presentation of the financial  
position and the results of operations for these periods.                       

Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the entire year  
ended December 31, 1997. The data should be read in conjunction with the        
consolidated financial statements, related notes, and other financial           
information included herein and incorporated by reference. Such financial       
information should also be read in conjunction with the Company's consolidated  
historical financial statements (and accompanying notes and schedules) and      
Management's Discussion and Analysis of Financial Condition and Results of      
Operations included in this Prospectus, the 1996 10-K and the September 30 10-Q.

                                                        [Enlarge/Download Table]

                                                                                             NINE MONTHS ENDED  
                                                   YEAR ENDED DECEMBER 31,                     SEPTEMBER 30,    
                                     ----------------------------------------------------   ------------------- 
                                       1992       1993       1994       1995       1996       1996       1997   
                                     --------   --------   --------   --------   --------   --------   -------- 
                                                                                                (UNAUDITED)     
                                                                                                                
INCOME STATEMENT DATA(1):                                                                                       
Revenues:                                                                                                       
Real estate sales................... $ 34,794   $ 39,997   $ 42,351   $ 48,217   $ 93,510   $ 60,373   $ 60,284 
Deferred gross profit...............     (234)    (1,278)    (1,719)      (720)     2,639      1,587      3,010 
Utilities revenues..................   53,209     45,957     28,664     29,669     32,749     24,245     26,153 
Interest income.....................   16,396     13,985     11,125      9,427      7,846      6,035      4,110 
Gain on sale of subsidiaries........       --     21,822(2)       --        --         --         --         -- 
Trading account profit, net.........       --         --        342      6,912      2,210      2,047        257 
Other revenues......................      996      5,565        564        663      2,405        471        601 
                                     --------   --------   --------   --------   --------   --------   -------- 
     Total revenues.................  105,161    126,048     81,327     94,168    141,359     94,758     94,415 
Expenses:                                                                                                       
Real estate expenses................   44,900     47,494     48,954     58,626     91,939     61,525     66,308 
Utilities expenses..................   36,772     34,781     24,651     24,923     25,505     19,022     19,207 
General and administrative                                                                                      
  expenses..........................    7,809      8,620     10,224      9,210      8,784      6,660      6,919 
Interest expense....................   18,478     15,656     11,160     11,518     12,053      8,353      8,743 
Other expenses(3)...................    1,544      1,261        811        811        814        611        518 
                                     --------   --------   --------   --------   --------   --------   -------- 
     Total expenses.................  109,503    107,812     95,800    105,088    139,095     96,171    101,695 
Income (loss) from continuing                                                                                   
  operations before income taxes....   (4,342)    18,236    (14,473)   (10,920)     2,264     (1,413)    (7,280)
Provision for income taxes..........       --     12,762         --         --         --         --         -- 
                                     --------   --------   --------   --------   --------   --------   -------- 
Income (loss) from continuing                                                                                   
  operations........................   (4,342)     5,474    (14,473)   (10,920)     2,264     (1,413)    (7,280)
Extraordinary item:                                                                                             
Loss on extinguishment of 8%                                                                                    
  debentures........................   (2,402)        --         --         --         --         --         -- 
Cumulative effect of change in                                                                                  
  method of accounting for income                                                                               
  taxes.............................       --       (964)        --         --         --         --         -- 
Cumulative effect of change in                                                                                  
  method of accounting for                                                                                      
  investments (net of income taxes                                                                              
  of $238)..........................       --        388         --         --         --         --         -- 
Discontinued operations(4):                                                                                     
Income (loss) from vacation                                                                                     
  ownership operations, net of tax                                                                              
  expense...........................       --         --       (148)       581     (1,224)        73        699 
                                     --------   --------   --------   --------   --------   --------   -------- 
Net income (loss)................... $ (6,744)  $  4,898   $(14,621)  $(10,339)  $  1,040   $ (1,340)  $ (6,581)
                                     ========   ========   ========   ========   ========   ========   ======== 

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                                                        [Enlarge/Download Table]

                                                                                             NINE MONTHS ENDED  
                                                   YEAR ENDED DECEMBER 31,                     SEPTEMBER 30,    
                                     ----------------------------------------------------   ------------------- 
                                       1992       1993       1994       1995       1996       1996       1997   
                                     --------   --------   --------   --------   --------   --------   -------- 
                                                                                                (UNAUDITED)     
                                                                                                                
Earnings (loss) per share........... $  (0.91)  $   0.50   $  (1.61)  $  (1.14)  $   0.11   $  (0.15)  $  (0.72)
Weighted average number of shares                                                                               
  outstanding....................... 7,403,848  9,840,251  9,095,102  9,095,102  9,095,102  9,095,102  9,095,102
OTHER DATA:                                                                                                     
EBITDA(5)........................... $ 19,341   $ 39,840   $  2,194   $  7,053   $ 19,356   $ 11,728   $  7,127 
Ratio of earnings to fixed                                                                                      
  charges(6)........................     0.79       2.06      (0.18)      0.14       1.17       0.85       0.24 
BALANCE SHEET DATA:                                                                                             
Cash (including restricted cash).... $  4,253   $  8,620   $  6,037   $  4,439   $  8,046   $  7,488   $  5,039 
Investments -- trading..............   17,314     51,184     51,582     48,258      4,535      4,365      4,358 
Total assets........................  474,448    457,747    446,577    470,632    443,185    442,558    449,251 
Notes, mortgages and other                                                                                      
  debt(7)...........................  194,416    135,557    139,827    165,665    138,792    143,935    145,910 
Stockholders' equity................  144,639    183,372    168,751    158,412    159,452    157,072    152,871 

---------------                                                                 
(1) The Company's consolidated financial statements as of December 31, 1996 and 
  1995 and for each of the three years in the period ended December 31, 1996
have been reclassified to show the effect of discontinued operations for
which a disposition plan was adopted in the third quarter of 1997.      

(2) In 1993 the Company sold its midwest water utilities located in Indiana,    
Missouri, Ohio and Michigan for an aggregate of $62,000.                

(3) Other expenses relate to preferred stock dividends of subsidiaries.         

(4) Vacation ownership operations commenced in 1994, and the Company is         
currently negotiating the sale of this business.                        

(5) EBITDA represents income (loss) before interest, income taxes, depreciation 
and amortization (including amortization of intangible assets and       
contributions in aid of construction). EBITDA is frequently used by     
   securities analysts and is presented here to provide additional information
about the Company's operations. EBITDA is not a measurement presented in
  accordance with GAAP. EBITDA should not be considered in isolation or as a
    substitute for net income (loss), cash flow provided by operating activities
  or other income or cash flow data prepared in accordance with GAAP or as a
measure of a company's profitability or liquidity.                      

(6) For purposes of calculating the ratio of earnings to fixed charges (i)      
earnings represent pretax income from continuing operations plus fixed  
charges and (ii) fixed charges consist of interest on all indebtedness, 
including amortization of debt expense and discount relating to any     
 indebtedness, that portion of rental expense (one-fifth) that the Company
believes to be representative of interest, and preferred stock dividend 
requirements of Avatar's subsidiaries. The Company's earnings were      
insufficient to cover fixed charges, and the deficiencies in coverage   
amounted to $4,300, $14,500 and $10,900 for the years ended December 31,
    1992, 1994 and 1995, respectively, and $1,400 and $7,300 for the nine months
ended September 30, 1996 and 1997, respectively.                        

(7) Does not include debt related to discontinued vacation ownership operations 
of $1,135, $6,931 and $10,191 at December 31, 1994, 1995 and 1996,      
respectively, and $9,221 and $14,973 at September 30, 1996 and 1997,    
   respectively. It is anticipated that upon the sale of such operations, such
 debt will be assumed by the purchaser of the Company's vacation ownership
operations.                                                             

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS 
OF OPERATIONS AND FINANCIAL CONDITION 

The following discussion should be read in conjunction with the       
Consolidated Financial Statements, including the notes thereto, included        
elsewhere or incorporated by reference in this Prospectus.                      

OVERVIEW                                                                        

     The Company is engaged in a number of real estate related businesses and in
the ownership and operation of water and wastewater utilities.                  

     Since 1980 the Company has expended more than $150.0 million to improve its
land holdings by installing infrastructure, such as roads, sewers, landscaping, 
utility lines and drainage. In addition, the Company has expended substantial   
funds to build or improve golf courses, hotels, tennis courts, shopping centers 
and other amenities on its properties.                                          

    Until 1994, through its national and international retail installment land
sales program, the Company was primarily engaged in the business of selling     
lots. In 1993 the Company expanded into the homebuilding business, and, until   
the third quarter of 1997, the Company's real estate business plan emphasized   
the sale of individual homesites and the construction and sale of mid-priced    
single family homes. This strategy increased annual closings of home sales from 
86 in 1994 to 293 in 1996 and increased home sale revenues from $7.4 million in 
1994 to $50.0 million in 1996. In 1996 the Company decided to terminate its     
national and international retail installment land sales program. The Company is
still in the process of winding down this program and collecting related        
receivables which, as of September 30, 1997, were approximately $45.0 million   
and which collateralize debt of approximately $26.8 million.                    

While the Company intends to remain in the mid-priced homebuilding    
business, the Company's new management has implemented a new real estate        
business strategy to capitalize on its distinct competitive advantages and      
emphasize higher profit margin businesses. Under its new strategy, the Company  
intends to concentrate on development and management of active adult/retirement 
and other planned communities, construction of custom and semi-custom homes and 
development and acquisition of commercial and industrial properties. As a       
consequence of implementing its new real estate business strategy, the Company  
believes that its operations and the financial results thereof will change      
significantly over the next several years. Accordingly, the results of          
operations reflected in the historical financial statements may not be          
indicative of the future results of operations of the Company.                  

RESIDENTIAL DEVELOPMENT.  In 1993 the Company commenced residential   
development activities at its properties in Poinciana and Cape Coral, Florida,  
commenced planning for development of Harbor Islands in Hollywood, Florida, and 
began preliminary plans for homebuilding programs in Rio Rico, Arizona.         

Growth of the Company's homebuilding business is demonstrated by the  
following operating results:                                                    

                                                        [Enlarge/Download Table]

                                                                       NINE MONTHS ENDED 
                                      YEAR ENDED DECEMBER 31,            SEPTEMBER 30,   
                                   ------------------------------     -------------------
                                    1994       1995        1996        1996        1997  
                                   ------     -------     -------     -------     -------
                                                   (DOLLARS IN THOUSANDS)                
                                                                                         
Revenues.......................... $7,400     $13,260     $49,672     $34,412     $40,925
Other data:                                                                              
  Number of units sold............    101         243         444         362         472
  Number of units closed..........     86         150         293         192         316
  Number of units in backlog......     59         152         303         322         459

    COMMERCIAL AND INDUSTRIAL LAND SALES.  Prior to the third quarter of 1997,
the Company's policy was to sell commercial and industrial land at market prices
whenever possible. Under the new real estate business strategy, the Company     
intends to develop land and lease and operate such developed properties rather  
than to                                                                         

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sell them. Revenues from commercial and industrial land sales declined from $4.0
million in 1994 to $1.7 million in 1996. Future demand for commercial and       
industrial land and facilities at the Company's properties is expected to       
increase as the result of the development by both the Company and other         
developers of homes and planned communities.                                    

WATER AND WASTEWATER UTILITIES.  The Company's utilities subsidiaries 
provide water and wastewater treatment services to customers in Florida and     
Arizona. From 1994 to 1996, annual revenues have increased by approximately $4.1
million or 14%. The Company also provides data processing, customer billing and 
related services to affiliated and non-affiliated companies and public entities.

    Growth of the Company's utilities is anticipated to come from increases in
the number of customers as its service areas become more fully developed and    
from third-party management contracts in the Company's meter reading and billing
service business.                                                               

   The following table sets forth revenues and income derived from water and
wastewater utilities for the years ended December 31, 1994, 1995 and 1996 and   
for the nine months ended September 30, 1996 and 1997.                          

                                                        [Enlarge/Download Table]

                                                                               NINE MONTHS ENDED 
                                              YEAR ENDED DECEMBER 31,            SEPTEMBER 30,   
                                          -------------------------------     -------------------
                                           1994        1995        1996        1996        1997  
                                          -------     -------     -------     -------     -------
                                                          (DOLLARS IN THOUSANDS)                 
                                                                                                 
Revenues................................. $28,664     $29,669     $32,749     $24,245     $26,153
  Approximate number of water                                                                    
     customers...........................  38,000      39,000      41,000      41,000      42,000
  Approximate number of wastewater                                                               
     customers...........................  30,000      31,000      32,000      31,000      32,000
Income (loss) before income taxes........ $  (210)    $   804     $ 3,042     $ 2,110     $ 3,814
Income before income taxes and                                                                   
  non-recurring expense.................. $ 1,324     $ 2,054     $ 3,892     $ 2,460     $ 3,814

    RESORT OPERATIONS.  Resort operations are intended to enhance the value of
the Company's land in the communities in which they are located. Such           
operations, which include the Cape Coral Golf and Country Club, the Poinciana   
Golf and Racquet Club and the Rio Rico Resort and Country Club, have generated  
increased revenues on an annual basis, from $13.2 million in 1994 to $16.1      
million in 1996.                                                                

VACATION OWNERSHIP.  While revenues from vacation ownership operations
increased from $1.5 million in 1994 to $11.3 million in 1996, these operations  
are not considered by management to be a complementary component of the         
Company's new business strategy. The Company intends to sell the vacation       
ownership business; in such sale it is anticipated that the purchaser will      
assume approximately $15.0 million of associated debt. As of September 30, 1997,
the vacation ownership business is accounted for as a discontinued operation.   

   RETAIL INSTALLMENT LAND SALES.  Prior to 1997, the Company sold homesites
under retail land sales programs, which were terminated in the second quarter of
1996. Receivables, which collateralize debt of approximately $26.8 million, due 
from such sales aggregated approximately $45.0 as of September 30, 1997 and are 
payable over the next nine years. Revenues from these programs decreased from   
$11.9 in 1994 to $4.0 million in 1996.                                          

   OTHER REAL ESTATE REVENUES.  The Company's rental, leasing and other real
estate revenues, which are primarily generated through the lease of the         
Company's community shopping centers and commercial operations in Cape Coral,   
Poinciana and Rio Rico, the Tarpon Point Marina in Cape Coral, cable television 
operations at Poinciana and property management services, have approximated $5.5
million annually since 1994.                                                    

TRADING ACCOUNT PROFIT.  From 1993 to the fourth quarter of 1997, the 
Company invested unused funds in fixed-income and other debt securities. Prior  
to 1997, trading account profit had declined due to the                         

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Company's use of the principal of its trading account to fund operations and    
maintain and enhance its land holdings. The Company has liquidated its trading  
account and used such funds, net of related debt, as working capital.           

RESULTS OF OPERATIONS                                                           

The following is management's discussion and analysis of certain      
significant factors that have affected the Company during the periods included  
in the accompanying consolidated statements of operations.                      

A summary of the period to period changes in the items included in the
consolidated statements of income is shown below:                               

                                                        [Enlarge/Download Table]

                                                                              NINE MONTHS ENDED 
                                             YEAR ENDED DECEMBER 31,            SEPTEMBER 30,   
                                         -------------------------------     -------------------
                                         1994 AND 1995     1995 AND 1996        1996 AND 1997   
                                         -------------     -------------     -------------------
                                               INCREASE (DECREASE)           INCREASE (DECREASE)
                                         -------------------------------     -------------------
                                            CHANGE            CHANGE               CHANGE       
                                         -------------     -------------     -------------------
                                                         (DOLLARS IN THOUSANDS)                 
                                                                                                
REVENUES                                                                                        
Real estate sales.......................    $ 5,866           $45,293              $   (89)     
Deferred gross profit on homesite                                                               
  sales.................................        999             3,359                1,423      
Utilities revenues......................      1,005             3,080                1,908      
Interest income.........................     (1,698)           (1,581)              (1,925)     
Trading account profit, net.............      6,570            (4,702)              (1,790)     
Other...................................         99             1,742                  130      
                                           --------          --------              -------      
     Total revenues.....................     12,841            47,191                 (343)     
EXPENSES                                                                                        
Real estate expenses....................      9,672            33,313                4,783      
Utilities expenses......................        272               582                  185      
General and administrative expenses.....     (1,014)             (426)                 259      
Interest expense........................        358               535                  390      
Other...................................         --                 3                  (93)     
                                           --------          --------              -------      
     Total expenses.....................      9,288            34,007                5,524      
                                           --------          --------              -------      
Income from continuing operations.......      3,533            13,184               (5,867)     
                                           --------          --------              -------      
(Loss) income from discontinued                                                                 
  operations............................        729            (1,805)                 626      
                                           --------          --------              -------      
Net income..............................    $ 4,262           $11,379              $(5,241)     
                                           ========          ========              =======      

    The Company uses the installment method of profit recognition for homesite
sales. Under the installment method the gross profit on recorded homesite sales 
is deferred and recognized in income of future periods, as principal payments on
contracts are received. Fluctuations in deferred gross profit result from       
deferred gross profit on current homesite sales less recognized deferred gross  
profit on prior years' homesite sales.                                          

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   Data from homebuilding operations for the nine months ended September 30,
1996 and 1997 and for the years ended December 31, 1994, 1995 and 1996 are      
summarized below:                                                               

                                                        [Enlarge/Download Table]

                                                                       NINE MONTHS ENDED 
                                      YEAR ENDED DECEMBER 31,            SEPTEMBER 30,   
                                   ------------------------------     -------------------
                                    1994       1995        1996        1996        1997  
                                   ------     -------     -------     -------     -------
                                                   (DOLLARS IN THOUSANDS)                
                                                                                         
UNITS SOLD, NET                                                                          
  Number of units.................    101         243         444         362         472
  Aggregate dollar volume......... $7,919     $39,917     $59,078     $47,755     $60,586
  Average price per unit.......... $   78     $   164     $   133     $   132     $   128

UNITS CLOSED                                                                             
  Number of units.................     86         150         293         192         316
  Aggregate dollar volume......... $7,354     $12,989     $49,894     $34,358     $41,411
  Average price per unit.......... $   86     $    87     $   170     $   179     $   131

BACKLOG                                                                                  
  Number of units.................     59         152         303         322         459
  Aggregate dollar volume......... $5,050     $31,978     $41,349     $44,674     $60,524
  Average price per unit.......... $   86     $   210     $   136     $   139     $   132

Data from the national and international retail land sales programs,  
terminated in the second quarter of 1996, is set forth below:                   

                                                        [Enlarge/Download Table]

                                                                        NINE MONTHS ENDED
                                        YEAR ENDED DECEMBER 31,           SEPTEMBER 30,  
                                     ------------------------------     -----------------
                                      1994        1995        1996       1996       1997 
                                     -------     -------     ------     ------     ------
                                                    (DOLLARS IN THOUSANDS)               
                                                                                         
RETAIL LAND SALES OPERATIONS DATA                                                        
Sales volume........................ $11,866     $11,424     $3,998     $4,364     $   --
Cost of sales.......................   1,879       1,923        705        718         --
Selling expense.....................   6,440       6,697      3,773      3,522         --
Deferred gross profit...............  (1,719)       (720)     2,639      1,587      3,010
Interest income.....................  11,125       9,427      7,846      6,035      4,110
Loss on contract cancellations......   1,281       1,257      1,035        856        872
Contract servicing expense..........     729         768        785        623        437
Interest expense....................   2,876       2,781      2,865      2,242      2,173

                                                        [Enlarge/Download Table]

                                               DECEMBER 31,            SEPTEMBER 30,   
                                            -------------------     -------------------
                                             1995        1996        1996        1997  
                                            -------     -------     -------     -------
                                                      (DOLLARS IN THOUSANDS)           
                                                                                       
Principal amount of contracts and mortgage                                             
  notes receivable........................  $82,521     $61,534     $68,484     $45,021
Debt collateralized by contracts and                                                   
  mortgages receivable....................   28,630      36,030      32,284      26,766

NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO                                
NINE MONTHS ENDED SEPTEMBER 30, 1996                                            

     Operations for the nine month period ended September 30, 1997 resulted in a
net loss of $6.6 million or $.72 per share, compared to a net loss of $1.3      
million or $.15 per share for the same period of 1996. The decrease in operating
results was primarily attributable to a decrease in real estate operating       
results and trading account profits as well as an increase in net interest      
expense, partially offset by an increase in deferred gross profit recognition   
and utilities operating results.                                                

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    The Company's real estate revenues for the nine months ended September 30,
1997 decreased $89,000 or 0.2%, while real estate expenses increased $4.8       
million or 7.8% when compared to the same period of 1996. The decrease in real  
estate revenues is generally a result of the reduced closings at the Company's  
Harbor Islands project and the termination of the retail land sales program,    
partially mitigated by the overall increase in closings of homes sold. The      
increase in real estate expenses, when compared to the same period of 1996, is  
essentially a result of increased selling expenses associated with the increased
homebuilding sales volume as well as nonrecurring expenditures associated with  
product development at the Company's Poinciana project. The aggregate dollar    
volume of homes sold increased to $60.6 million from $47.8 million or 26.8%.    

   Utilities revenues for the nine months ended September 30, 1997 increased
$1.9 million or 7.9% when compared to the same period of 1996, primarily due to 
customer growth, the implementation of rate increases that were not effective   
during the first nine months of 1996, and increased revenues from contract      
services. Utilities expenses for the nine months ended September 30, 1997       
increased $185,000 or 1.0% when compared to the same period of 1996, primarily  
due to increases in general, and administrative expenses and operating expenses,
mitigated by a decrease in legal fees.                                          

     Interest income for the nine months ended September 30, 1997 decreased $1.9
million or 31.9% when compared to the same period for 1996. The decline in      
interest income is attributable to lower average aggregate amounts outstanding  
in the Company's contract and mortgage notes receivable portfolio. The Company's
contracts and mortgage notes receivable portfolio amounted to $45.0 million at  
September 30, 1997, compared to $68.5 million at September 30, 1996.            

   Trading account profit, net, for the nine months ended September 30, 1997
decreased $1.8 million or 87.4% compared to the same period for 1996, primarily 
due to the lower average balance of investment securities. Trading account      
profit represents interest income and realized and unrealized gains and losses  
related to the trading investment portfolio, net of commissions payable to      
brokers.                                                                        

General and administrative expenses for the nine month period ended   
September 30, 1997 increased $259,000 or 3.9% compared to the same period of    
1996. The increase for the nine months ended September 30, 1997 is primarily    
attributable to increased executive compensation, as well as an increase in the 
accrual for incentive compensation.                                             

 Interest expense for the nine months ended September 30, 1997 increased
$390,000 or 4.7%, compared to the same period of 1996, primarily attributable to
a reduction in capitalized interest, as well as additional borrowings.          

YEAR ENDED DECEMBER 31, 1996 COMPARED TO                                        
YEAR ENDED DECEMBER 31, 1995 AND                                                
YEAR ENDED DECEMBER 31, 1994                                                    

     Operations for the years ended December 31, 1996, 1995 and 1994 resulted in
pre-tax income (loss) of $1.0 million, ($10.3 million) and ($14.6 million),     
respectively. The improvement in income (loss) from continuing operations before
income taxes for 1996 compared to 1995 is primarily attributable to an increase 
in real estate contribution margin, recognition of deferred gross profit on     
homesite sales, and improved utilities contribution margins which was partially 
mitigated by a decrease in net trading account profits. The decrease in pre-tax 
loss during 1995 compared to 1994 is primarily attributable to an increase in   
the pre-tax gain from net trading account profits of $6.6 million which was     
partially mitigated by increased selling expenses and start-up costs            
attributable to housing programs.                                               

 Gross real estate revenues increased $45.3 million or 93.9% during 1996
when compared to 1995 and $5.9 million or 13.9% during 1995 when compared to    
1994. The increase in real estate revenues for 1996 when compared to 1995 is    
primarily a result of increased homebuilding, the sale of the recreation        
facilities and other assets at the Company's former Barefoot Bay community and a
bulk land sale at Leisure Lakes. Homebuilding revenues increased $36.4 million  
or 274.6% in 1996 when compared to 1995. The improvement in homebuilding        
revenues is primarily due to closings at the Company's Harbor Islands project,  
as well as the other sites. Harbor Islands closed 70 units with sales volume of 
$27.3 million during 1996 compared to no                                        

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closings in 1995. Housing units closed, excluding Harbor Islands totaled 223    
units with sales volume of $22.6 million compared to 150 units with a sales     
volume of $13.0 million in 1995. The increase in real estate revenues for 1995  
when compared to 1994 is primarily a result of increased closings. Housing      
revenues increased $5.9 million or 79.2% in 1995 when compared to 1994. Real    
estate expenses increased $33.3 million or 58.8% in 1996 when compared to 1995  
and $9.7 million or 19.8% in 1995 when compared to 1994. The increase in real   
estate expenses for 1996 is primarily a result of increased real estate revenues
and an inventory write down of the Company's Banyan Bay property. The increase  
in real estate expenses for 1995 when compared to 1994 is primarily a result of 
increased selling expenses and start-up costs attributable to increased housing 
programs. Homebuilding margins for 1996 were comparable to those of 1995 and    
1994.                                                                           

     The average selling price of housing units closed for 1996 was $170,000, an
increase of 95.0% when compared to 1995. This increase is due to closings at    
Harbor Islands, which had an average selling price on closed units of $390,000  
for 1996 compared to no closings in 1995. The 1995 average selling prices of    
housing units closed were consistent with 1994 levels. The average selling price
of housing units in backlog of $136,000 at December 31, 1996 decreased by 35.0% 
from 1995 prices due to the reduced number of sales in backlog at Harbor        
Islands. The average selling price of housing units in backlog of $210,000 at   
December 31, 1995 increased by 144.0% over 1994 prices due to sales at Harbor   
Islands, which had an average sales price of $412,000.                          

Utilities revenues increased $3.1 million or 10.4% during 1996 when   
compared to 1995 and $1.0 million or 3.5% during 1995 when compared to 1994.    
Utilities expenses increased $582,000 or 2.3% during 1996 when compared to 1995 
and $272,000 or 1.1% during 1995 when compared to 1994. Utilities revenues      
increased as a result of rate increases, customer growth and increased contract 
management operations. Utilities expenses increased correspondingly to the      
customer growth.                                                                

   Interest income decreased $1.6 million or 16.8% during 1996 when compared
to 1995 and $1.7 million or 15.3% during 1995 when compared to 1994. The        
declines in interest income are primarily attributable to lower average         
aggregate balances of the Company's contracts and mortgage notes receivable     
portfolio caused by collections, cancellations and reductions in new land sales.
The average balance of the Company's receivables portfolio was $72.3 million,   
$90.7 million, and $106.8 million for 1996, 1995 and 1994, respectively.        

    Trading account profit, net, decreased $4.7 million for 1996 when compared
to 1995 and increased $6.6 million in 1995 when compared to 1994. Trading       
account profit, net, represents interest income and realized and unrealized     
gains and losses related to the trading investment portfolio, net of commissions
payable to investment advisors.                                                 

     Other revenues for 1996 include a sale of water rights at Rio Rico for $1.6
million.                                                                        

General and administrative expenses decreased $426,000 or 4.6% in 1996
compared to 1995 and $1.0 million or 9.9% in 1995 compared to 1994. The decrease
for 1996 compared to 1995 results primarily from a reduction in the accrual for 
incentive compensation recorded for executive officers. The decrease for 1995   
compared to 1994 results from reductions in the accrual for incentive           
compensation recorded for executive officers and expenses related to a legal    
settlement in 1994.                                                             

   Interest expense increased $535,000 or 4.6% in 1996 when compared to 1995
and $358,000 or 3.2% in 1995 when compared to 1994. The increase in 1996 when   
compared to 1995 is primarily due to an increase in interest expense in the     
homebuilding operations, mitigated in part by a decrease in the outstanding     
balance of notes, mortgage notes and other debt, as well as an increase in      
capitalization of interest which totaled $4.0 million in 1996. The increase in  
1995 is primarily due to the increase in the outstanding balance of notes,      
mortgage notes and other debt, which was partially offset by capitalization of  
interest associated with the development and construction costs of approximately
$3.2 million for 1995 and $1.6 million for 1994.                                

LIQUIDITY AND CAPITAL RESOURCES                                                 

    The Company's primary business activities are capital intensive in nature.
Significant capital resources are required to finance homebuilding construction 
in process, infrastructure for roads, water and wastewater utilities, selling   
expenses and working capital needs, including funding of debt service           
requirements, operating                                                         

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deficits and the carrying cost of land. The Company anticipates capital         
expenditures totalling approximately $36.0 million for 1998. Of this amount,    
approximately $16.0 million of the Company's total capital expenditures relates 
to the Company's real estate business, primarily for infrastructure and         
amenities. Approximately $20.0 million relates to the Company's utilities       
businesses and will be funded by cash flow provided by the utilities businesses 
and additional borrowings by the Company's utilities subsidiaries. The Company  
intends to develop and manage several active adult/retirement communities that  
are likely to require significant capital resources. In addition, the Company   
anticipates that it will need to expand its utilities operations to accommodate 
the population increases in the communities it serves.                          

   Historically, the Company has funded operating deficits and its liquidity
requirements through the sale of non-strategic assets, homebuilding project     
borrowings, utilities borrowings and general corporate borrowings. The Company  
does not anticipate that its new real estate business strategy will achieve or  
sustain profitability or positive cash flow until the year 2000 or later.       
Accordingly, the Company will use the net proceeds of the Offering, the proceeds
of the sale of non-strategic assets, and real estate project borrowings to fund 
the Company's operating deficits and the carrying cost of land.                 

   At September 30, 1997, the Company's secured real estate lines of credit,
exclusive of timeshare credit facilities, amounted to $26.8 million all of which
were fully utilized. These real estate lines, which are secured by contracts and
mortgage receivables aggregating $45.0 million, mature with respect to $21.0    
million in the second quarter of 1998 and $5.8 million in the second quarter of 
2001. Corporate secured lines of credit were $23.4 million at September 30, 1997
and the unused and available portions were $9.0 million. One of the corporate   
lines in the amount of $3.4 million was repaid in the fourth quarter of 1997.   
The other corporate line in the amount of $20.0 million matures in the third    
quarter of 1998.                                                                

At September 30, 1997, utilities unsecured lines of credit were $15.0 
million and the unused and available portion was $14.7 million. The utilities   
lines mature in the second quarter of 2000.                                     

     Management does not anticipate a significant increase in interest rates for
1998, and, accordingly, does not expect the Company's primary business          
activities to be adversely affected by interest rates. A high interest rate     
environment would be likely to adversely affect the Company's real estate       
results of operations and liquidity because of its negative impact on the       
housing industry and because certain of the Company's debt obligations are tied 
to prevailing interest rates. Increases in interest rates affecting the         
Company's utilities operations generally are passed on to the consumer through  
the regulatory process.                                                         

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS                                  

    In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share", which is required to be adopted on December 
31, 1997. At that time, the Company will be required to change the method       
currently used to compute earnings per share, disclose both primary and diluted 
earnings per share and restate all prior periods. Under the new requirements,   
primary earnings per share will be renamed basic earnings per share and will    
exclude the dilutive effect of stock options. The impact of SFAS No. 128 on both
primary and diluted earnings per share is not expected to be significant.       

    In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for  
the reporting of financial information from operating segments in annual and    
interim financial statements issued to shareholders. SFAS No. 131 also          
establishes standards for related disclosures with respect to products and      
services, geographic areas of operations and major customers. SFAS No. 131,     
which is effective for fiscal years beginning after December 15, 1997, will have
no impact on the Company's consolidated results of operations, financial        
position or cash flows. However, SFAS No. 131 may affect reported segments and  
the Company is reviewing this matter.                                           

RECENT OCCURRENCE                                                               

In connection with the Company's new business strategy, the new senior
executives employed in December 1997 who are responsible for residential        
development, have revised the existing development plan                         

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for the Harbor Islands community. As a result, it has been determined that there
are present "indicators of impairment" within the meaning of FAS 121 Accounting 
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. FAS 121 requires impairment losses to be recorded on long-lived assets used 
in operations when indicators of impairment are present and the undiscounted    
cash flows estimated to be generated by these assets are less than the assets'  
carrying amount. FAS 121 also addresses the accounting for long-lived assets    
that are expected to be disposed of, and requires that assets to be disposed of 
be reported in the balance sheet at the lower of their carrying amount or fair  
value less the estimated cost of sale. The Company intends to report an         
impairment loss of approximately $15.0 million to the carrying value of its     
Harbor Islands community for the fourth quarter of 1997.                        

     That portion of the Harbor Islands community that the Company does not plan
to develop has been valued based on an independent appraisal less the estimated 
cost of sale. Certain land held for future development by the Company has been  
valued at the estimated discounted cash flows in accordance with FAS 121 as the 
undiscounted cash flows were less than the carrying amount of the assets.       

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BUSINESS

GENERAL                                                                         

  The Company is engaged in two principal business activities: real estate
development and the ownership and operation of water and wastewater utilities.  
The Company owns and develops land, primarily in various locations in Florida   
and Arizona. Current and planned real estate operations include: the            
development, sale and management of active adult/retirement communities; the    
development and sale of single- and multi-family homes and communities; and the 
development, leasing and management of improved commercial and industrial       
properties.                                                                     

The Company's substantial land holdings represent the potential for   
residential development of 102,000 to more than 145,000 single- and multi-family
units. These land holdings include over 32,600 developed or developable acres,  
of which 26,400 acres have been platted and/or zoned for the building of over   
43,000 single-family homes and over 38,200 multi-family units, and approximately
6,200 acres of partially developed and developable land which have not been     
platted on which the Company anticipates developing more than an additional     
20,800 residential units. In addition, the Company owns over 3,000 acres of land
upon which over 42.7 million square feet of commercial/industrial property may  
be built.                                                                       

 The Company's major land holdings are located in Poinciana (near Disney
World and Orlando), Cape Coral on Florida's west coast (near Fort Myers and     
Naples), Ocala Springs in central Florida, Harbor Islands (one of the last large
undeveloped properties along the Intracoastal Waterway, on Florida's east coast 
near Ft. Lauderdale), and Rio Rico, south of Tucson, Arizona.                   

     Utilities operations include the purification and distribution of water and
the treatment and disposal of wastewater through plants in Florida and Arizona  
and contract management services for affiliated and unaffiliated water and      
wastewater utilities.                                                           

     The Company's assets totalled over $449.0 million as of September 30, 1997.

NEW REAL ESTATE BUSINESS STRATEGY                                               

During the third quarter of 1997, new management of the Company began 
implementing a real estate business strategy designed to capitalize on the      
Company's competitive strengths and current and projected demographic trends in 
Florida and Arizona and which focuses on real estate businesses which have      
potentially higher profit margins.                                              

  STRATEGY.  The Company's new real estate business strategy is focused on
three primary areas:                                                            

        - Development and management of active adult/retirement communities;

          - Development of upscale custom and semi-custom homes and communities;
and                                                     

- Development of its commercial and industrial properties.  

  COMPETITIVE ADVANTAGES.  The Company believes that it has four principal
competitive advantages:                                                         

- It owns large contiguous tracts of land.                  

          - Its land holdings are substantially zoned and/or platted, are either
         exempt from applicable regulatory requirements or such regulatory
        requirements have been substantially fulfilled, and have overall
       vesting with regard to costly and time-consuming regulatory and
          growth management requirements such as concurrency, development of
         regional impact studies and regulatory planning and environmental
permitting.                                             

- Its extensive land holdings are substantially debt-free.  

     - It has expended more than $150.0 million on land infrastructure
            improvements, including roads, drainage and utilities installations,
and has invested substantial funds in the development of

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amenities, such as parks and other open areas, club houses, golf courses,       
swimming pools, tennis courts, hotels, shopping centers and marinas.            

DEMOGRAPHIC TRENDS.  The Company believes that it will benefit from a 
number of favorable long-term trends in the geographic areas in which the       
Company's land holdings are located. Such trends include:                       

Projected Population Growth                                           

  - Florida ranks as the fourth most populous state (U.S. Census
Bureau).                                                

        - Florida is projected to become the third most populous state after
       California and Texas, surpassing New York by 2015. (U.S. Census
Bureau).                                                

- By 2025 Florida's population is projected to increase by  
     approximately 6.0 million, or 41.0%, the majority of which is
           attributable to immigration and in-migration. (U.S. Census Bureau).

          - The bulk of the Company's homebuilding activities is concentrated in
         five counties in central and southern Florida which have averaged
         approximately 14.0% annual growth in population since 1990. (U.S.
Census Bureau).                                         

          - Arizona is projected to be ranked sixth among the states in terms of
            the largest net population increase and among the 10 fastest growing
         states ranked by percentage population growth for the period from
1995 to 2025. (U.S. Census Bureau).                     

Retirement Age Demographics                                           

    - Aging of the "baby-boom" generation should increase demand for
amenitized pre-retirement and retirement communities.   

Growth of Orlando as a Business and Entertainment Center              

   - Orlando is one of the fastest growing major markets in the United
        States, driven primarily by its central location in Florida, dynamic
    tourist industry and relatively low cost of living. (Melaniphy &
     Associates). The Company's Poinciana community is located just 21
miles from Orlando and nine miles from Disney World.        

Latin American Commerce                                               

        - Florida and Arizona have benefited economically from the growth in
commerce between the U.S. and Latin America.            

     The Company's new real estate strategy focuses on three primary businesses:

DEVELOPMENT AND MANAGEMENT OF ACTIVE ADULT/RETIREMENT COMMUNITIES               

  A substantial portion of the Company's land holdings is located in areas
where management believes there is significant opportunity to develop active    
adult/retirement communities. The Company owns more than 10,700 acres in several
large contiguous parcels which are entirely debt-free and which it believes are 
suitable for the development of active adult/retirement communities, and upon   
which an estimated 36,200 units may be built.                                   

     To assist in the development of its active adult/retirement communities, in
October 1997, the Company entered into a consulting contract with H. Irwin Levy,
the founder of the Century Village concept of active adult/retirement           
communities, and acquired an option to purchase the rights to the Century       
Village name. At the same time, the Company hired the entire Century Village    
executive management team: the Chief Operating Officer, the Chief Financial     
Officer, and the heads of marketing and construction. Century Village is one of 
the nation's leading developers of active adult/retirement communities.         
Collectively, these executives have been responsible for the development of     
approximately 50,000 housing units in approximately 20 communities, including   
four Century Village communities located in southeast Florida. As an incentive  
to                                                                              

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establish and grow the Company's active adult/retirement community business,    
these executives were granted stock appreciation rights which are based on the  
increase in the fair market value of the common stock of the Company's          
newly-formed subsidiary, Avatar Retirement Communities, Inc.                    

     Over the next five years, the Company intends to create a brand name in the
active adult/retirement community business and to distinguish its active        
adult/retirement communities from those of other developers by establishing a   
consumer product-oriented approach. Specifically, the Company intends to develop
resort-like communities with a broad array of amenities and entertainment,      
sports, recreational, social, educational and cultural activities. Each         
community will be designed and operated as a lifestyle experience developed for 
its particular location and market. The Company believes that its extensive land
holdings will enable it to offer its customers more land and amenities than its 
competitors. Through the use of market research and other marketing techniques, 
the Company intends to identify those amenities, home styles and features,      
community layouts and other factors that will attract buyers. In addition,      
management seeks to identify additional sites which are suitable for development
of active adult/retirement communities and anticipates that it will acquire such
sites for cash or stock or develop them through joint venture or management     
arrangements.                                                                   

The Company is formulating a plan to develop its first active         
adult/retirement community at Poinciana. The Company anticipates obtaining      
appropriate land use approvals without any significant delay and commencing     
construction in mid-1999, with the first closings of home sales scheduled to    
occur during mid-2000. It is expected that development of active                
adult/retirement communities at Cape Coral, Ocala Springs and Rio Rico will     
commence approximately 6 to 18 months after the initial phase of development at 
Poinciana is completed.                                                         

     The following is a description of the locations where the Company initially
plans to develop active adult/retirement communities:                           

     POINCIANA, FLORIDA:  At Poinciana, located in central Florida approximately
21 miles south of Orlando and ten miles from Disney World, the Company has      
approximately 18,000 acres of land, of which at least 4,300 acres of large      
contiguous entirely debt-free parcels are suitable for active adult/retirement  
community development of up to 15,000 units.                                    

 From 1990 to 1996, Poinciana experienced population growth of more than
332% and is one of Florida's fastest growing master-planned communities.        
Management believes that Poinciana should remain a growing market for real      
estate development due to the rapid growth of Orlando as a business and         
entertainment center.                                                           

In addition to the 4,300 acres planned for active adult/retirement    
community development, the Company owns more than 1,900 acres of land for       
residential development and approximately 1,900 acres of land zoned and/or      
planned for industrial and commercial development of up to 28.9 million square  
feet.                                                                           

Recreational facilities owned and operated by the Company at Poinciana
include a golf and racquet club with a swimming pool, restaurant, 18-hole Devlin
Von-Hagge championship golf course, tennis courts, a community center and a     
series of nature walks and trails. At Poinciana, the Company also owns and      
operates a cable television subsidiary and water and wastewater facilities.     

CAPE CORAL, FLORIDA:  At Cape Coral, located on Florida's west coast  
several miles from Fort Myers, the Company owns approximately 3,900 acres, of   
which approximately 700 acres are suitable for an active adult/retirement       
community development of at least 3,000 units.                                  

  Cape Coral is a 60,700-acre, canal-laced community in southwest Florida,
which has experienced rapid population growth. Since its incorporation in 1970, 
the city's population has grown from 11,470 to 91,560 as of September 1997.     

The Company owns 5,300 single-family homesites and 400 acres zoned for
commercial and industrial development into as much as 6.1 million square feet.  
This community was recognized as one of Money Magazine's top spots in its "Best 
Places to Live in America" 1997 annual survey.                                  

The Company's construction activities in Cape Coral include gated and 
waterfront communities, featuring such high-end amenities as private yacht      
mooring, with direct deep water access to the Gulf of                           

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Mexico. Recreational facilities at Cape Coral include two marinas: the 175-slip 
Tarpon Point Marina with dockmaster facilities, and the Camelot Marina which,   
upon completion, will include 76 boat slips. Other amenities owned and operated 
by the Company include the recently renovated Cape Coral Golf and Tennis Resort,
featuring an 18-hole championship golf course, a 9-hole executive golf course,  
eight tennis courts and a 100-room hotel.                                       

     OCALA SPRINGS, FLORIDA:  At Ocala Springs, located in north-central Florida
five miles northeast of Ocala in Marion County, Florida, the Company owns       
approximately 4,600 acres of land, of which approximately 4,200 acres would     
accommodate an active adult/retirement community of at least 14,700 units. The  
remaining 400 acres would be available for development of a golf course,        
recreational facilities and up to 2.9 million square feet of commercial and     
industrial facilities.                                                          

RIO RICO, ARIZONA:  At Rio Rico, the Company owns approximately 16,000
acres of land, of which approximately 1,500 acres represent an opportunity to   
develop an active adult/retirement community of approximately 3,500 units.      

  Of the Company's land holdings, 8,900 acres are developed or developable
for a variety of uses, including the 1,500 acres considered suitable for an     
active adult/retirement community, as well as approximately 300 acres designated
for development of commercial and industrial facilities of up to 4.7 million    
square feet.                                                                    

   The Company owns and operates a 180-room hotel complex, which was rated a
Four-Diamond resort by the American Automobile Association, an 18-hole Robert   
Trent Jones designed championship golf course and a swim and racquet club.      

DEVELOPMENT OF UPSCALE CUSTOM AND SEMI-CUSTOM HOMES AND COMMUNITIES             

Certain of the Company's land holdings are suitable for development of
upscale custom and semi-custom homes and communities. The Company estimates that
approximately 2,000 upscale homes may be developed on its homesites which are   
located along or near fresh or salt water. The Company has targeted custom and  
semi-custom homebuilding as an important component of its new real estate       
strategy because this business has higher profit margins than the sale of       
mid-priced single-family homes and because the Company believes that it         
possesses the requisite levels of technical expertise and experience in upscale 
and custom homebuilding.                                                        

    In order to expand its upscale homebuilding business, the Company recently
acquired certain assets of Brookman-Fels, a well-known regional developer of    
custom and semi-custom homes and single-family residential communities in south 
Florida, and entered into employment contracts with its three principals,       
Jonathan Fels, Michael Levy and Bernard Offenberg. Brookman-Fels is one of south
Florida's leading custom homebuilders and a winner of many national design      
awards, including being named one of America's Best Builders by the National    
Association of Homebuilders in 1994. Founded in 1980, Brookman-Fels was         
responsible for developing some of south Florida's most successful upscale      
communities such as Oak Hammock, Arboretum, The Sanctuary and Treasure Trove. In
addition, Brookman-Fels has gained recognition for building single-family luxury
homes in such upscale south Florida areas as Pinecrest, Old Cutler, Cocoplum,   
Snapper Creek, Miami Beach, Plantation Acres and Weston's Windmill Ranches.     
Brookman-Fels has developed more than 600 single-family homes, representing over
$250.0 million in sales. In addition, the Company recently employed Michael     
Greenberg, a former executive of Toll Brothers, a national homebuilder. Jonathan
Fels, Michael Greenberg, Michael Levy and Bernard Offenberg constitute the      
senior management team of the Company's homebuilding business.                  

  The Company is developing upscale home communities at its Harbor Islands
and Cape Coral properties. As part of its long-term business plan, the Company  
also expects to acquire additional sites for cash or stock to build upscale     
homes and communities or to develop such sites through joint ventures and       
management arrangements.                                                        

     HARBOR ISLANDS, FLORIDA:  Harbor Islands is a gated, master-planned boating
and tennis community, located along the Intracoastal Waterway in the City of    
Hollywood, Florida. The community encompasses approximately 192 acres and is one
of the largest undeveloped tracts of land on the Intracoastal Waterway in south 
Florida. When completed, Harbor Islands will consist of distinctive, separate   
Mediterranean-style                                                             

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villages on three connected islands. The community includes 30 acres conveyed to
the City of Hollywood for future parks. Community amenities include a clubhouse 
with fitness center, pool, jacuzzi and lighted tennis courts and, when          
completed, will also include a 196-boat slip marina and yacht club.             

The property is currently under development, with 94 semi-custom homes
having been built as of September 30, 1997, and another 18 homes under          
construction. The Company has zoning permits for up to 2,400 residential units, 
including single-family homes, town-homes, villas and mid- and high-rise        
condominium units. It is anticipated that homes will be priced in the $275,000  
to over $1.0 million range.                                                     

 CAPE CORAL, FLORIDA:  The Company's land holdings include approximately
1,500 homesites, located along or near fresh or salt water, which are ideally   
suited for upscale homes. Homes priced in excess of $200,000 are currently being
developed by the Company.                                                       

DEVELOPMENT OF COMMERCIAL AND INDUSTRIAL PROPERTIES                             

  The development of commercial and industrial properties is a significant
element in the Company's long-term business strategy. The Company owns over     
3,000 acres of land which are zoned and/or planned for over 42.7 million square 
feet of commercial and industrial property. A substantial portion of the        
Company's commercial property is located in areas of Florida which have         
historically experienced, and are projected to continue to experience, high     
rates of population growth. In addition, the development by both the Company and
other developers of homes and planned communities is expected to generate       
further population growth. The Company anticipates that this growth will create 
additional demand for its commercial and industrial properties. Similarly,      
further development of the Company's commercial and industrial properties is    
expected to generate employment, recreational and entertainment opportunities   
and, therefore, increased demand for the Company's residential communities.     

     POINCIANA:  The Company owns approximately 1,900 acres zoned and/or planned
for the development of up to 28.9 million square feet of commercial and         
industrial property in Poinciana. As central Florida continues to experience    
business expansion and low industrial vacancy rates, the Company's Poinciana    
Office and Industrial Park is well located to attract light manufacturing and   
distribution facilities. With over 1.2 million square feet of office and        
industrial space currently under-roof, 700 acres of the 1,200-acre park remain  
available for future development.                                               

  CAPE CORAL:  In Cape Coral, the Company owns over 400 acres suitable for
the development of up to 6.2 million square feet of commercial and industrial   
space. The Company's existing commercial operations include a 70,000 square foot
neighborhood shopping center, which was 98.0% occupied as of September 30, 1997.

RIO RICO:  In Rio Rico, the Company has developed the South Industrial
Park, a one million square foot industrial park which houses more than 40       
commercial and industrial enterprises. Another 300 acres remain available for   
the development of up to 4.7 million square feet of commercial and industrial   
space.                                                                          

 Such properties may be developed through internal operations or through
joint ventures with third parties. In addition, the Company may acquire         
additional land holdings for development of commercial and industrial properties
or developed or partially developed commercial or industrial properties.        

OTHER REAL ESTATE ASSETS                                                        

     The Company owns additional real estate that includes more than 9,800 acres
which are not currently considered primary properties for future development.   
These properties (listed below) may be available for sale unless changing       
circumstances indicate development would benefit the Company's operations.      

 GOLDEN GATE, FLORIDA:  The Company's land holdings in Golden Gate City,
located just east of Naples, Florida includes 42 homesites, 48 acres of land    
zoned for multi-family use and 12 acres of commercially zoned land. Remaining   
land holdings at Golden Gate Estates and Golden Gate Acres consist of 144       
homesites and over 9,000 undeveloped acres.                                     

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    BANYAN BAY, FLORIDA:  Located in Marion County, along the St. Lucie River,
this property consists of 250 acres suitable for the development of a           
water-oriented planned community.                                               

    WOODLAND HILLS, CALIFORNIA:  This 350-acre tract of land is located in the
mountains of northwestern Los Angeles County. The land is planned for 59 luxury 
homesites.                                                                      
------------------------

   The chart on the following page summarizes the Company's land holdings as
of September 30, 1997:                                                          

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AVATAR HOLDINGS INC.

SUMMARY TABLE OF DEVELOPMENT SITES
(NUMBERS EXPRESSED IN ACRES EXCEPT FOR REFERENCES TO POTENTIAL UNITS) 

                                                        [Enlarge/Download Table]

                                                                           PARTIALLY                                
                                                                         DEVELOPED AND                   RESIDENTIAL
                  LOCATION                      TOTAL    DEVELOPED (A)    DEVELOPABLE    UNDEVELOPABLE    DEVELOPED 
--------------------------------------------------------------------------------------------------------------------
                                                                                                                    
 POINCIANA, FLORIDA(C)                                                                                              
  (21 miles south of Orlando and 10 miles                                                                           
    south of Walt Disney World)..............  18,256         2,675           5,434          10,147         1,893   
 CAPE CORAL, FLORIDA(D)                                                                                             
  (7 miles west of Fort Myers and 32 miles                                                                          
    north of Naples).........................   3,976         2,485           1,238             253         2,192   
 OCALA SPRINGS, FLORIDA                                                                                             
  (5 miles northeast of Ocala)...............   4,663                         4,663                                 
 RIO RICO, ARIZONA(E)                                                                                               
  (51 miles south of Tucson).................  16,184         4,957           3,965           7,262         4,670   
 BANYAN BAY, FLORIDA                                                                                                
  (Marion County)............................     250                           250                                 
 HARBOR ISLANDS(F)                                                                                                  
  (Hollywood, Florida).......................     169            83              43              43            77   
 BAREFOOT BAY, FLORIDA                                                                                              
  (midway between Vero Beach and                                                                                    
    Melbourne)...............................     124            23              98               3            16   
 GOLDEN GATE CITY, ESTATES AND ACRES, FLORIDA                                                                       
  (7 miles east of Naples)...................   9,214           192           9,022                           180   
 LEISURE LAKES, FLORIDA                                                                                             
  (5 miles northwest of Lake Placid).........     201           198               3                           198   
 WOODLAND HILLS, CALIFORNIA                                                                                         
  (Northwestern Los Angeles County)..........     349                           349                                 
 OTHER FLORIDA PROPERTIES....................   2,510                                         2,510                 
                                               ------        ------          ------          ------         -----   
 TOTALS......................................  55,896        10,613          25,065          20,218         9,226   


                                                   RESIDENTIAL                                                      
                                               PARTIALLY DEVELOPED   POTENTIAL UNITS (B)     COMMERCIAL/INDUSTRIAL  
                  LOCATION                       AND DEVELOPABLE           (RANGE)         DEVELOPED/DEVELOPABLE(G) 
--------------------------------------------------------------------------------------------------------------------
                                                                                                                    
 POINCIANA, FLORIDA(C)                                                                                              
  (21 miles south of Orlando and 10 miles                                                                           
    south of Walt Disney World)..............          4,322          44,345 - 51,437          782         1,112    
 CAPE CORAL, FLORIDA(D)                                                                                             
  (7 miles west of Fort Myers and 32 miles                                                                          
    north of Naples).........................          1,124          11,517 - 16,717          293           114    
 OCALA SPRINGS, FLORIDA                                                                                             
  (5 miles northeast of Ocala)...............          4,279               14,700                            384    
 RIO RICO, ARIZONA(E)                                                                                               
  (51 miles south of Tucson).................          3,944          23,679 - 51,864          287            21    
 BANYAN BAY, FLORIDA                                                                                                
  (Marion County)............................            250            876 - 2,754                                 
 HARBOR ISLANDS(F)                                                                                                  
  (Hollywood, Florida).......................             43           1,703 - 2,303             6                  
 BAREFOOT BAY, FLORIDA                                                                                              
  (midway between Vero Beach and                                                                                    
    Melbourne)...............................             64             353 - 397               7            34    
 GOLDEN GATE CITY, ESTATES AND ACRES, FLORIDA                                                                       
  (7 miles east of Naples)...................          9,022               4,727                12                  
 LEISURE LAKES, FLORIDA                                                                                             
  (5 miles northwest of Lake Placid).........              3                281                                     
 WOODLAND HILLS, CALIFORNIA                                                                                         
  (Northwestern Los Angeles County)..........            349                 59                                     
 OTHER FLORIDA PROPERTIES....................                                                                       
                                                      ------         -----------------       -----         -----    
 TOTALS......................................         23,400         102,240 - 145,239       1,387         1,665    

Notes:                                                                          

(A) Developed acreage is defined as land which has infrastructure         
improvements, including roads and utility installations.          

   (B) Potential units represents the aggregate of single and multi-family zoned
     homesites, plus unzoned acreage at a single-family conversion factor of
     3.5 for average potential units and a multi-family conversion factor of
11.0 for average potential units.                                 

(C) Avatar-owned amenities include: The Poinciana Golf and Racquet Club,  
featuring a Bruce Devlin Robert Von Hagge designed par 72, 18-hole
       championship golf course, a driving range, putting greens, half-way house
       and pro shop, a full-service restaurant, banquet and meeting rooms. Other
       amenities include an olympic-size swimming pool, lighted Har-Tru and hard
 tennis courts, shuffleboard, volleyball courts, pool bar, grill and
children's playground.                                            

 (D) Avatar-owned amenities include: The 100 room Cape Coral Golf and Tennis
   Resort, which features a recently renovated, Dick Wilson designed, 18
    hole championship golf course, 8 lighted Har-Tru tennis courts, heated
       pool with pool bar and grill. Other amenities are a 9-hole executive golf
       course, the 175-slip Tarpon Point Marina with dockmaster's facilities and
the Camelot Marina.                                               

  (E) Avatar-owned amenities include: The Four-Diamond rated 180 room Rio Rico
       Resort, which features a Robert Trent Jones Sr. championship golf course,
a full pro-shop, driving range, and putting greens. The recently  
 renovated resort also includes a tennis center with lighted courts,
      horseback riding, a heated olympic size pool, sauna, jacuzzi and fitness
center, dining room, lounge and banquet/meeting facilities.       

 (F) Amenities include: Swimming pool, tennis courts, recreation center, and
fitness center.                                                   

(G) Commercial and industrial properties at Poinciana, Cape Coral, Ocala  
Springs and Rio Rico are developed or developable into up to 28.9 
million, 6.2 million, 2.9 million and 4.7 million square feet,    
respectively.                                                     

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UTILITIES BUSINESS                                                              

The Company's utilities business provides for the purification,       
distribution and sale of water for public and private use and the treatment and 
disposal of wastewater. The Company owns and operates 17 water utilities plants 
serving more than 42,000 customers and 12 wastewater treatment facilities       
serving more than 32,000 customers residing in seven communities, which include 
the Company's communities of Poinciana, Florida and Rio Rico, Arizona. The      
Company also provides meter reading and customer-related services to its own    
utilities operating units, as well as to 26 unaffiliated companies and public   
utilities.                                                                      

The Company believes that its utilities operations will benefit from  
population growth from development by both the Company and other developers of  
homes and planned communities within the areas which are serviced by the        
utilities facilities. For the year ended December 31, 1996 and the nine months  
ended September 30, 1997, the Company's utilities had EBITDA of $10.5 million   
and $9.5 million, respectively.                                                 

DEVELOPMENT OF MID-PRICED HOMES AND COMMUNITIES                                 

    Prior to the third quarter of 1997, the Company's business plan emphasized
the construction and sale of mid-priced single-family homes. In 1996, the       
Company sold 293 homes, generating revenues of $50.0 million, the majority of   
which were mid-priced single-family homes. Sales of mid-priced homes represented
45.0% of homebuilding revenues in 1996. Although the Company has implemented a  
new real estate strategy emphasizing potentially higher profit-margin           
businesses, it intends to continue the construction and sale of mid-priced      
homes, both on scattered lots and on contiguous parcels as part of planned      
communities.                                                                    

  POINCIANA, FLORIDA:  Housing sales at Poinciana during 1996 totalled 269
units. Through the third quarter of 1997, sales were 288 units.                 

CAPE CORAL, FLORIDA:  At Cape Coral the Company sold 97 housing units 
during 1996 and 102 units through the third quarter of 1997.                    

 RIO RICO, ARIZONA:  Housing programs which commenced at Rio Rico during
1996 resulted in sales of 31 units by year end and 49 units through the third   
quarter of 1997.                                                                

OCALA SPRINGS, FLORIDA:  The Company's plans for its 4,600-acre Ocala 
Springs property provide for development of an active adult/retirement community
of approximately 14,700 units, some of which may be converted to conventional   
primary housing depending upon market demand.                                   

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MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY PERSONNEL                                 

The following table sets forth the Directors and executive officers of
Avatar and certain consultants, members of management, and other key personnel  
of Avatar's subsidiaries.                                                       

                                                        [Enlarge/Download Table]

            NAME              AGE                  POSITION(1)                      OFFICER SINCE     
----------------------------  ---  -------------------------------------------  ----------------------
                                                                                                      
AVATAR EXECUTIVE OFFICERS                                                                             
Leon Levy...................  72   Director and Chairman of the Board                  1981           
Gerald D. Kelfer............  52   Chief Executive Officer; President; Vice            1997           
                                   Chairman of the Board; and Director                                
Dennis J. Getman............  53   Executive Vice President and General                1981           
                                   Counsel                                                            
Charles L. McNairy..........  51   Executive Vice President; Treasurer and             1985           
                                   Chief Financial Officer                                            
Juanita I. Kerrigan.........  51   Vice President and Secretary                        1980           
G. Patrick Settles..........  48   Vice President and Assistant General                1983           
                                   Counsel                                                            
Lawrence L. Colditz.........  33   Controller                                          1995           
RETIREMENT COMMUNITIES KEY                                                                            
  PERSONNEL                                                                                           
H. Irwin Levy...............  71   Director and Consultant -- Avatar                 1997(2)          
                                   Retirement Communities, Inc.                                       
Michael S. Rubin............  55   Director and President -- Avatar Retirement         1997           
                                   Communities, Inc.                                                  
Jack Jaiven.................  51   Executive Vice President; Treasurer and             1997           
                                   Chief Financial Officer -- Avatar                                  
                                   Retirement Communities, Inc.                                       
Michael A. Rich.............  51   Executive Vice                                      1997           
                                   President -- Marketing -- Avatar Retirement                        
                                   Communities, Inc.                                                  
James A. Geddes.............  59   Executive Vice President -- Construction --         1997           
                                   Avatar Retirement Communities, Inc.                                
HOMEBUILDING KEY PERSONNEL                                                                            
Jonathan E. Fels............  45   President -- Avatar Properties Inc. and             1997           
                                   Brookman-Fels Communities, Inc.                                    
Michael Greenberg...........  43   Executive Vice President -- Avatar                  1997           
                                   Properties Inc.                                                    
Michael Levy................  39   Executive Vice President and Chief                  1997           
                                   Operating Officer -- Avatar Properties Inc.                        
                                   and Brookman-Fels Communities, Inc.                                
Bernard Offenberg...........  46   Vice President -- Avatar Properties Inc.            1997           
                                   and Brookman-Fels Communities, Inc.                                
                                                                                  DIRECTOR SINCE      
                                                                                ----------------------

OTHER AVATAR DIRECTORS                                                                                
Edwin Jacobson..............  68   Director                                            1992           
Milton Dresner..............  72   Director                                            1995           
Leon T. Kendall.............  69   Director                                            1983           
Martin Meyerson.............  75   Director                                            1981           
Gernot H. Reiners...........  55   Director                                            1997           
Kenneth T. Rosen............  49   Director                                            1994           
Fred Stanton Smith..........  69   Director                                            1980           
Henry King Stanford.........  81   Director                                            1980           

---------------                                                                 
(1) Unless otherwise indicated, each person is an officer or Director of Avatar.

(2) Indicates year in which Mr. Levy became a Director of and consultant to     
Avatar Retirement Communities, Inc.                                     

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     LEON LEVY has served as Chairman of the Board of Avatar since January 1981.
In addition, he is a General Partner of Odyssey. He has also served as Chairman 
of the Board of the New York-based Oppenheimer Funds since December 1994;       
Chairman of the Board of Oppenheimer Management Corp. from 1974 to 1985; and    
Director of S.G. Warburg & Co., Ltd. (Jersey Funds) from February 1983 to       
October 1996.                                                                   

 GERALD D. KELFER has served as President of Avatar since February 1997;
Chief Executive Officer since July 1997; Vice Chairman of the Board of Directors
since December 1996; and a member of the Board of Directors since October 1996. 
He was a principal of Odyssey from July 1994 to February 1997 and Executive Vice
President, Senior General Counsel and Director of Olympia & York Companies      
(U.S.) from 1985 to 1994. Prior to 1985, he was a partner of the law firm of    
Roberts & Holland.                                                              

 DENNIS J. GETMAN has served as Executive Vice President of Avatar since
March 1984 and General Counsel since September 1981. He was Senior Vice         
President from September 1981 to March 1984.                                    

   CHARLES L. MCNAIRY has served as Executive Vice President of Avatar since
September 1993. He has also served as Treasurer and Chief Financial Officer     
since September 1992. He was Senior Vice President from September 1992 to       
September 1993 and, except from April 1987 to September 1988, Vice President -- 
Finance from January 1985 to September 1992.                                    

  JUANITA I. KERRIGAN has served as Vice President and Secretary of Avatar
since September 1980.                                                           

  G. PATRICK SETTLES has served as Vice President of Avatar since November
1986 and Assistant General Counsel since September 1983.                        

LAWRENCE L. COLDITZ has served as Controller of Avatar since September
1995. He was formerly Assistant Controller from October 1992 to September 1995; 
Director of Financial Accounting from October 1991 to October 1992; and         
Accounting Manager from October 1990 to October 1991.                           

H. IRWIN LEVY has served as a Director of, and consultant to, Avatar  
Retirement Communities, Inc. since October 1997. Mr. Levy, who is the founder of
the Century Village concept of active adult/retirement communities, has been    
Chairman of the Board and Chief Executive Officer of Hilcoast Development Corp. 
since August 1992; and was Chairman of the Board and Chief Executive Officer of 
CV Reit from 1985 to July 1992. He is currently of counsel to the West Palm     
Beach law firm of Levy, Kneen, Mariani, Curtin, Wiener, Kornfeld & del Russo.   
Since October 1995, Mr. Levy has been a Director of IMGE, Inc.                  

MICHAEL S. RUBIN has served as a Director and President of Avatar     
Retirement Communities, Inc. since October 1997. He was President and Chief     
Operating Officer of Hilcoast Development Corp. from August 1992 to October     
1997; and Vice President -- Real Estate Management of CV Reit from May 1991 to  
July 1992.                                                                      

 JACK JAIVEN has served as Executive Vice President, Treasurer and Chief
Financial Officer of Avatar Retirement Communities, Inc. since October 1997. He 
was Director, Executive Vice President and Chief Financial Officer of Hilcoast  
Development Corp. from August 1992 to October 1997; and was Vice President and  
Treasurer of CV Reit from December 1988 to July 1992.                           

MICHAEL A. RICH has served as Executive Vice President -- Marketing of
Avatar Retirement Communities, Inc. since October 1997. He was Vice             
President -- Marketing of Hilcoast Development Corp. from August 1992 to October
1997; and Vice President -- Sales and Marketing of F.W.D.C., Inc., a wholly     
owned subsidiary of Cenvill Development Corp., from March 1991 until July 1992. 

   JAMES A. GEDDES has served as Executive Vice President -- Construction of
Avatar Retirement Communities, Inc. since October 1997. He was Vice             
President -- Construction of Hilcoast Development Corp. from August 1992 to     
October 1997. He was also Vice President of Construction of F.W.D.C., Inc. and  
Vice President of Construction of Coconut Creek Developers, Inc., a wholly owned
subsidiary of Hilcoast Development Corp., for more than five years prior to his 
resignation in July 1992.                                                       

JONATHAN E. FELS has served as President of Avatar Properties Inc. and
Brookman-Fels Communities, Inc. since December 1997. He is a founding partner   
and has served as President of the various Brookman-Fels companies since July   
1980. From June 1977 to June 1979, he was a Director of Construction of Adler   
Ross Associates; and from 1976 to 1977, he was Project Manager of Arvida Corp.  
and Cost and Scheduling Engineer of Stone & Webster.                            

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MICHAEL GREENBERG has served as Executive Vice President of Avatar    
Properties Inc. since September 1997. He was Vice President of Toll Brothers    
from February 1995 to September 1997; Assistant Vice President from January 1994
to February 1995; Senior Manager from February 1993 to January 1994 and Project 
Manager from June 1991 to February 1993.                                        

 MICHAEL LEVY has served as Executive Vice President and Chief Operating
Officer of Avatar Properties Inc. and Brookman-Fels Communities, Inc. since     
December 1997. He is a partner and has served as Vice President of the various  
Brookman-Fels companies since April 1983.                                       

 BERNARD OFFENBERG has been Vice President of Avatar Properties Inc. and
Brookman-Fels Communities, Inc. since December 1997. He is a partner and has    
served as Director of Construction of the various Brookman-Fels companies since 
August 1994. He was also a principal and Senior Vice President of Signature     
Capital Corporation, a custom homebuilder, from October 1989 to May 1994; and   
Director of Construction of Shear Homes from April 1987 to October 1989.        

     EDWIN JACOBSON has served as Chairman of Avatar's Executive Committee since
June 1992. He was Chief Executive Officer of Avatar from February 1994 to July  
1997 and President from February 1994 to February 1997. He is also President and
Chief Executive Officer of CMC Heartland Partners, a partnership engaged in the 
real estate industry, since September 1990; and President and Chief Executive   
Officer of Heartland Technology, Inc. (formerly known as Milwaukee Land         
Company), a non-diversified, closed-end management investment company, since    
June 1985. In addition, he was President and Chief Executive Officer of Chicago 
Milwaukee Corporation, an open-end investment company, from June 1985 to May    
1996.                                                                           

MILTON DRESNER has served as a Director of Avatar since July 1995. In 
addition, he is a partner of The Highland Companies, a diversified real estate  
development and managerial organization which he co-founded in 1960; and a      
Director of Hudson General Corporation and Childtime Childcare.                 

LEON T. KENDALL has served as a Director of Avatar since May 1983. In 
addition, he has been a Professor of Finance and Real Estate, Kellogg School of 
Management, Northwestern University, since September 1988. He was Chairman of   
the Board, Mortgage Guaranty Insurance Corporation, and Vice Chairman of the    
Board, MGIC Investment Corporation, from December 1981 to December 1989; and    
currently serves as a Director of Universal Foods Corporation, Asset Management 
Funds, and Chicago Board -- Options Exchange.                                   

MARTIN MEYERSON has served as a Director of Avatar since May 1981. In 
addition, he has been Chairman, University of Pennsylvania Foundation,          
University of Pennsylvania Professor of Public Policy and Planning, and         
President Emeritus, The University of Pennsylvania, since February 1981. He     
served The University of Pennsylvania as its President from 1970 to 1981. He    
also is President of FISCIT (Switzerland/U.S.); a Director of Universal Health  
Services, Inc. and of First Union North; and Chairman of the Board of Directors 
of Marconi International Foundation.                                            

     GERNOT H. REINERS has served as a Director of Avatar since October 1997. He
was a Managing Partner and a member of the Board of Managers of the BHF-BANK AG 
from 1972 to 1997 and Co-Manager of the Bank's New York Branch from 1987 to     
1992.                                                                           

   KENNETH T. ROSEN has served as a Director of Avatar since September 1994.
In addition, he has served the University of California at Berkley as Professor 
of Business Administration since 1979; and as Chairman of the Fisher Center for 
Real Estate and Urban Economics since 1981. He has also served as President of  
Rosen Consulting Group, a real estate consulting business, since 1990; as Chief 
Executive Officer of ERE Rosen Real Estate Securities, a registered investment  
adviser, since February 1995; and as a Director of Golden West Financial        
Corporation, since January 1984, and The PMI Group, Inc., since January 1995.   

     FRED STANTON SMITH has served as a Director of Avatar since September 1980.
In addition, he has been the Vice Chairman of the Board of Directors of The     
Keyes Company, a real estate brokerage, financing, management, insurance and    
development firm, since January 1992. He was President of The Keyes Company; and
currently serves as Director of the Eagle National Bank.                        

HENRY KING STANFORD has served as a Director of Avatar since September
1980. In addition, he has been President Emeritus, The University of Miami,     
since July 1981; and President Emeritus, University of Georgia, since July 1987.
He was President, The University of Miami, from July 1962 to June 1981; and     
Interim President, University of Georgia, from July 1986 to June 1987.          

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PRINCIPAL STOCKHOLDERS

  The following table sets forth at November 30, 1997, certain information
regarding the beneficial ownership of Common Stock held by (i) each person known
by Avatar to own beneficially more than five percent of the outstanding Common  
Stock, (ii) each of Avatar's directors, (iii) certain named executive officers  
and (iv) all directors and executive officers of Avatar as a group:             

                                                        [Enlarge/Download Table]

                                                       BENEFICIAL OWNERSHIP(1)                     
                                                   --------------------------------  STOCK OPTIONS 
                                                   NUMBER OF SHARES         PERCENT   AND SARS(9)  
                                                   ----------------         -------  ------------- 
                                                                                                   
PRINCIPAL STOCKHOLDERS:                                                                            
  Odyssey Partners, L.P. .........................     2,107,763(2)(3)        23.0                 
  Spears, Benzak, Salomon & Farrell, Inc..........     1,887,476(4)           20.6                 
  Ronald Baron....................................       964,282(5)           10.5                 
DIRECTORS AND EXECUTIVE OFFICERS:                                                                  
  Leon Levy.......................................     2,385,758(6)           26.0%                
  Gerald D. Kelfer................................            --                        225,000(10)
  Milton Dresner..................................           500                 *                 
  Edwin Jacobson..................................            --                        225,000(11)
  Leon T. Kendall.................................           200(7)              *                 
  Martin Meyerson.................................         2,347(8)              *                 
  Gernot H. Reiners...............................            --                                   
  Kenneth T. Rosen................................         1,000                 *                 
  Fred Stanton Smith..............................            --                                   
  Henry King Stanford.............................           200                 *                 
  Dennis J. Getman................................            --                         15,000(11)
  Charles L. McNairy..............................            --                         15,000(11)
  G. Patrick Settles..............................            --                                   
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP                                                    
  (CONSISTING OF 15 PERSONS OF WHOM SIX                                                            
  BENEFICIALLY OWN SHARES OF COMMON STOCK)........     2,390,005(6)(7)(8)     26.1                 

---------------                                                                 
   * Indicates beneficial ownership of less than 1% of the outstanding shares of
Common Stock.                                                         

(1) Calculated pursuant to Rule 13d-3(d) of the Exchange Act. Under Rule      
  13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed 
    outstanding for the purpose of calculating the number and percentage owned
   by such person, but not deemed outstanding for the purpose of calculating
    the percentage owned by each other person listed. As of November 30, 1997,
the Company had 9,170,102 shares of Common Stock outstanding. The     
    information as to securities owned by directors and executive officers was
furnished to the Company by such directors and executive officers.    

(2) Does not include shares owned by Leon Levy, Chairman of the Board and     
 member of the Executive Committee of the Company and general partner of
Odyssey. Leon Levy, Jack Nash, Stephen Berger, Joshua Nash and Brian  
  Wruble, by virtue of being general partners of Odyssey, share voting and
  dispositive power with respect to the Common Stock owned by Odyssey and,
    accordingly, may each be deemed to own beneficially the Common Stock owned
     by Odyssey. Each of the aforesaid persons has expressly disclaimed any such
    beneficial ownership (within the meaning of Exchange Act Rule 13d-3(d)(1))
   which exceeds the proportionate interest in the Common Stock which he may
be deemed to own as a general partner of Odyssey. The Company has been
   advised that no other person exercises (or may be deemed to exercise) any
voting or investment control over the Common Stock owned by Odyssey.  
     Odyssey is a private investment partnership located at 31 West 52nd Street,
New York, New York 10019.                                             

(3) By virtue of its present Common Stock ownership, Odyssey may be deemed to 
 be a "control" person of the Company within the meaning of that term as
defined in Rule 12b-2 under the Exchange Act.                         

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(4) Based upon information set forth in the Schedule 13G, dated February 14,  
1997, filed by KeyCorp., the parent holding company of Spears, Benzak,
Salomon & Farrell, Inc. (a registered investment adviser, "Spears,    
   Benzak"), such shares are held for the benefit of various of its clients;
    it has revocable shared dispositive power with such clients; and it has no
 power to vote or direct the vote of such shares. The address of Spears,
Benzak is 45 Rockefeller Plaza, New York, New York 10111.             

(5) Based upon information provided to the Company by Baron Capital, Inc.,    
Ronald Baron owns 15,000 shares of Avatar and may be deemed to own an 
additional 41,000 by reason of his position as a General Partner of an
   investment partnership. Mr. Baron also may be deemed to own an additional
  908,282 shares on behalf of investment advisory clients of Baron Capital
  Management, Inc. and BAMCO, Inc., both registered investment advisers of
   which he is the controlling person, and he expressly disclaims beneficial
    ownership of such shares. The address of Ronald Baron is c/o Baron Capital
Management, 767 Fifth Avenue, New York, New York 10153.               

(6) Includes 2,107,763 shares owned by Odyssey. Mr. Levy is a general partner 
    of Odyssey and, therefore, may be deemed to own beneficially the shares of
Common Stock owned by Odyssey. See Notes (1) and (2).                 

(7) Does not include 200 shares owned by Mr. Kendall's wife for her own       
 account, as to which shares Mr. Kendall disclaims beneficial ownership.

(8) Does not include 847 shares owned by Mr. Meyerson's wife, as to which     
shares Mr. Meyerson disclaims beneficial ownership.                   

 (9) Indicates the aggregate number of underlying shares of Common Stock subject
    to options, warrants, rights or conversion privileges owned by such person
(whether or not exercisable within 60 days) plus, in the case of stock
   appreciation rights ("SARs"), the number of such shares used to calculate
the value of all SARs held by such person.                            

(10) Represents 225,000 shares of Common Stock issuable upon the exercise of    
   stock options, 20% of which become exerciseable on February 13, 1998, and
on each of the four anniversaries thereof.                            

(11) Represents the aggregate number of shares of Common Stock used to calculate
the value of both vested and unvested SARs issued to such person.     

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DESCRIPTION OF THE NOTES

   The Notes will be issued under an indenture to be dated as of February 2,
1998 (the "Indenture") between Avatar and The Chase Manhattan Bank, as trustee  
(the "Trustee"). The summaries of certain provisions of the Notes and the       
Indenture do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all of the provisions of the Indenture,         
including the definitions therein of certain terms. Wherever terms defined in   
the Indenture are referred to in this Prospectus, the applicable definition for 
such terms is incorporated herein by reference. A copy of the proposed form of  
Indenture is filed as an exhibit to the Registration Statement of which this    
Prospectus is a part.                                                           

GENERAL                                                                         

The Notes will be unsecured obligations of Avatar, will be limited to 
$100.0 million in aggregate principal amount (up to $115.0 million if the       
Underwriters' over-allotment option is exercised in full) and will mature on    
April 1, 2005. The Notes will bear interest at the rate per annum shown on the  
front cover hereof from the date of original issuance of Notes under the        
Indenture, or from the most recent Interest Payment Date on which interest has  
been paid or provided for, payable semiannually on April 1 and October 1 of each
year, commencing April 1, 1998, to Holders of record at the close of business on
the relevant Regular Record Date (other than with respect to a Note or portion  
thereof (i) called for redemption on a Redemption Date, or repurchased in       
connection with a Change in Control on a Repurchase Date (as defined below),    
during the period from the Regular Record Date to (but excluding) the next      
succeeding Interest Payment Date (in which case accrued interest shall be       
payable with respect to the Note or portion thereof redeemed or repurchased on  
the relevant Redemption Date or Repurchase Date) or (ii) converted after the    
Regular Record Date and before the next succeeding Interest Payment Date except 
to the extent that, at the time such Note or portion thereof is submitted for   
conversion, such Note or portion thereof was required to be accompanied by funds
equal to interest payable on such succeeding Interest Payment Date on the       
principal amount so converted; see "-- Conversion Rights" below). Interest on   
the Notes will be paid on the basis of a 360-day year of twelve 30-day months.  

Principal of, and premium, if any, and interest on, the Notes will be 
payable (i) in same-day funds on or prior to the payment dates with respect to  
such amounts in the case of Notes held of record by the Depository Trust Company
("DTC") or its nominee and (ii) at the office of the Trustee in New York, New   
York, in the case of Notes held of record by Holders other than DTC or its      
nominee, and the Notes may be surrendered for registration of transfer, exchange
or conversion at the office of the Trustee in New York, New York. Avatar may, at
its option, pay interest on Notes held of record by Holders other than DTC or   
its nominee by checks mailed to the addresses of the Persons entitled thereto as
they appear in the Register for the Notes on the Regular Record Date for that   
interest.                                                                       

   The Notes will be issued only in registered form, without coupons, and in
denominations of $1,000 or any integral multiple thereof. No service fee will be
charged for any registration of transfer or exchange of the Notes, but Avatar   
may require payment of a sum sufficient to cover any tax or other governmental  
charge and any other expenses (including the fees and expenses of the Trustee)  
payable in connection therewith. Avatar is not required (i) to issue, register  
the transfer of or exchange any Notes during a period beginning at the opening  
of business 15 days before the day of the mailing of a notice of redemption and 
ending at the close of business on the day of each mailing or (ii) to register  
the transfer of or exchange any Notes selected for redemption in whole or in    
part, except the unredeemed portion of Notes being redeemed in part or (iii) to 
register the transfer or exchange of any Notes surrendered for conversion or    
repurchase upon the occurrence of a Change in Control.                          

All monies paid by Avatar to the Trustee or any Paying Agent for the  
payment of principal of and premium and interest on any Note which remain       
unclaimed for two years after such principal, premium or interest becomes due   
and payable may be repaid to Avatar. After such repayment, the Holder of such   
Note may, as an unsecured general creditor, look only to Avatar for payment     
thereof.                                                                        

   The Indenture does not contain any covenants or financial restrictions on
the payment of dividends, the incurrence of Senior Indebtedness or the issuance 
or repurchase of securities of Avatar or its subsidiaries. The                  

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Indenture does not contain any covenants or other provisions that would afford  
protection to Holders of the Notes in the event of a highly leveraged           
transaction or a Change in Control of Avatar, except as described below under   
"-- Certain Rights to Require Repurchase of Notes."                             

CONVERSION RIGHTS                                                               

  The Notes will be convertible, in whole or from time to time in part (in
denominations of $1,000 or integral multiples thereof), into shares of Common   
Stock, at the option of the Holder, at any time after 60 days following the     
original issuance of the Notes prior to redemption or final maturity, at the    
conversion price of $31.80 per share, adjusted as described in the following    
paragraph. The right to convert Notes that have been called for redemption will 
terminate at the close of business on the second business day preceding the     
Redemption Date unless Avatar defaults in making the payment due on that        
redemption. See "-- Optional Redemption."                                       

If any Notes are surrendered for conversion during the period from the
close of business on any Regular Record Date to (but excluding) the next        
succeeding Interest Payment Date (except any such Note called for redemption on 
a Redemption Date occurring within such period), those Notes when surrendered   
for conversion must be accompanied by payment to Avatar in New York Clearing    
House funds, or other funds acceptable to Avatar, of an amount equal to the     
interest thereon which the registered Holder on that Regular Record Date is to  
receive. Except as described in the preceding sentence, no interest will be     
payable by Avatar on converted Notes with respect to any Interest Payment Date  
subsequent to the date of conversion. No other payment or adjustment for        
interest or dividends is to be made on conversion. A Note in respect of which a 
Holder is exercising its option to require repurchase upon a Change in Control  
may be converted only if such Holder withdraws its election to exercise its     
option in accordance with the terms of the Indenture.                           

 The initial conversion price will be subject to adjustment upon certain
events, including the following: (i) the subdivision, combination or            
reclassification of outstanding shares of Common Stock; (ii) the issuance of    
Common Stock as a dividend or distribution on capital stock, including Common   
Stock; (iii) the issuance of rights, warrants or options to all holders of      
Common Stock entitling them to subscribe for or purchase shares of Common Stock 
(or securities convertible into Common Stock) at a price per share less than the
then Current Market Price; (iv) the distribution to all holders of Common Stock 
of shares of capital stock of Avatar (other than Common Stock), evidences of    
indebtedness, cash or other assets (including securities, but excluding (a)     
dividends or distributions paid exclusively in cash, (b) dividends or           
distributions provided for in clause (ii) above and (c) rights, warrants and    
options provided for in clause (iii) above); (v) a distribution consisting      
exclusively of cash (excluding any cash distributions referred to in clause (iv)
above or made in connection with a transaction described in the next succeeding 
paragraph) to all holders of Common Stock in an aggregate amount that, together 
with (a) all other cash distributions (excluding any cash distributions referred
to in clause (iv) above and any other distributions in respect of which a       
conversion price adjustment has been made previously) made exclusively within   
the 12 months preceding the record date for that distribution and (b) any cash  
and the fair market value of other consideration (excluding any cash or other   
consideration in respect of which a conversion price adjustment has been made   
previously) paid in respect of any tender offer subject to the provisions of the
Exchange Act, made by Avatar or a subsidiary of Avatar for Common Stock         
consummated within the 12 months preceding that distribution, exceeds 10% of    
Avatar's market capitalization (being at any time the product of the then       
Current Market Price multiplied by the number of shares of Common Stock then    
outstanding) on the record date fixed for determining the shareholders entitled 
to such distribution; and (vi) the consummation of a tender offer made by Avatar
or any subsidiary of Avatar for Common Stock which involves an aggregate        
consideration that, together with (x) any cash and the fair market value of any 
other consideration (excluding any cash or other consideration in respect of    
which a conversion price adjustment has been made previously) paid or payable in
respect of any previous tender offer made by Avatar or a subsidiary of Avatar   
for Common Stock consummated within the 12 months preceding the expiration of   
such tender offer and (y) the aggregate amount of all cash distributions        
(excluding those referred to in (iv) above), exceeds 10% of Avatar's market     
capitalization on the date of consummation of such tender offer. No adjustment  
of the conversion price will be required to be made until cumulative            

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adjustments amount to at least 1.0% of the conversion price, as last adjusted.  
Any adjustment that would otherwise be required to be made will be carried      
forward and taken into account in any subsequent adjustment.                    

In the case of any reclassification of the Common Stock, or any       
consolidation or merger of Avatar with or into any other corporation (other than
one in which no change is made in the outstanding Common Stock), or the sale or 
transfer of all or substantially all the properties and assets of Avatar, or any
compulsory share exchange whereby the Common Stock is converted into other      
securities, cash or property, the Holder of any Note then outstanding will, with
certain exceptions, have the right thereafter to convert that Note only into the
kind and amount of securities, cash and other property receivable upon the      
reclassification, consolidation, merger, sale, transfer or share exchange by a  
holder of the number of shares of Common Stock into which that Note might have  
been converted immediately prior to that reclassification, consolidation,       
merger, sale, transfer or share exchange, provided that the Holder of Notes has 
not exercised any other right of election as to the stock, other securities or  
other property or assets receivable in connection therewith; and, if the right  
of conversion is not exercised, adjustments will be provided for events         
subsequent thereto which are as nearly equivalent as practical to the conversion
price adjustments described above.                                              

     Avatar, in its discretion, will be permitted to reduce the conversion price
in order that any event treated for federal income tax purposes as a dividend of
stock or stock rights will not be taxable to the holders of Common Stock or, if 
that is not possible, to diminish any income taxes that are otherwise payable   
because of that event.                                                          

     Fractional shares of Common Stock will not be issued on conversion, but, in
lieu thereof, Avatar will pay a cash adjustment based on the Closing Price at   
the close of business on the day of conversion.                                 

OPTIONAL REDEMPTION                                                             

The Notes are not entitled to any sinking fund. The Notes are not     
redeemable by Avatar prior to April 6, 2001. Thereafter, the Notes may be       
redeemed at the option of Avatar in whole or in part, at any time and from time 
to time prior to Maturity, upon not less than 30 nor more than 60 days' notice  
to each Holder at the following Redemption Prices (expressed as percentages of  
the principal amount) plus accrued and unpaid interest to the Redemption Date   
(subject to the right of Holders of record on the relevant Regular Record Date  
to receive interest due on an Interest Payment Date that is on or prior to the  
Redemption Date):                                                               

If redeemed during the 12-month period beginning April 1 in the year  
indicated (April 6, in the case of 2001), the redemption price shall be:        

                                                                [Download Table]

                                                    REDEMPTION
                       YEAR                           PRICE   
--------------------------------------------------  ----------
                                                              
2001..............................................      104%  
2002..............................................      103   
2003..............................................      102   
2004..............................................      101   
2005..............................................      100   

 If all accrued and payable interest on the Notes has not been paid, the
Notes may not be redeemed in part and Avatar may not purchase or acquire any    
Notes otherwise than pursuant to a purchase or exchange offer made on the same  
terms to all holders of the Notes. If less than all of the Notes are to be      
redeemed, the Trustee will select those to be redeemed by lot, pro rata or such 
other method as the Trustee in its discretion shall deem appropriate and fair.  

SUBORDINATION                                                                   

  The payment of the principal of and premium, if any, and interest on the
Notes and any other payment obligations of Avatar in respect of the Notes       
(including any obligation to repurchase the Notes) will, to the extent set forth
in the Indenture, be subordinated in right of payment to the prior payment in   
full of all Senior Indebtedness whether outstanding on the date of the Indenture
or thereafter incurred. If there is a payment or distribution of assets to      
creditors on any liquidation, dissolution, winding up, receivership,            
reorganization,                                                                 

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assignment for the benefit of creditors, marshaling of assets and liabilities or
any bankruptcy, insolvency or similar case or proceeding of Avatar, the holders 
of all Senior Indebtedness will be entitled to receive payment in full of all   
Obligations due or to become due or in respect thereof before the Holders of the
Notes will be entitled to receive any payment in respect of the principal of or 
premium, if any, or interest on the Notes, and until all Obligations with       
respect to the Senior Indebtedness are paid in full, any distribution to which  
the Holders of the Notes would be entitled shall be made to the holders of the  
Senior Indebtedness.                                                            

Avatar also may not make any payment (whether by redemption, purchase,
retirement, defeasance or otherwise) upon or in respect of the Notes if (i) a   
default in the payment of the principal of or premium, if any, or interest on   
any Senior Indebtedness (a "Payment Default") occurs and is continuing beyond   
any applicable grace period or (ii) any other default occurs and is continuing  
beyond any applicable grace period with respect to any Designated Senior        
Indebtedness which permits holders of Designated Senior Indebtedness as to which
that default relates to accelerate its maturity (a "Nonpayment Default") and the
Trustee receives notice of that default (a "Payment Blockage Notice") from      
Avatar or other person permitted to give such notice under the Indenture. The   
payments on or in respect of the Notes shall be resumed (i) in the case of a    
Payment Default respecting Senior Indebtedness, on the date on which that       
default is cured or waived and (ii) in the case of a Nonpayment Default         
respecting Designated Senior Indebtedness, the earliest of (a) the date on which
that Nonpayment Default is cured or waived, (b) the date the applicable Payment 
Blockage Notice is retracted by written notice to the Trustee from a            
representative of the holders of the Designated Senior Indebtedness which have  
given that Payment Blockage Notice and (c) 179 days after the date on which the 
applicable Payment Blockage Notice is received by the Trustee, if the maturity  
of such Designated Senior Indebtedness has not been accelerated. No new period  
of payment blockage may be commenced unless and until (i) 365 days have elapsed 
since the date of commencement of the payment blockage period resulting from the
immediately prior Payment Blockage Notice and (ii) all scheduled payments of    
principal, premium, if any, and interest on the Notes that have come due have   
been paid in full in cash. No Nonpayment Default that existed or was continuing 
on the date of delivery of any Payment Blockage Notice to the Trustee shall be, 
or be made, the basis for a subsequent Payment Blockage Notice whether or not   
within a period of 365 days, unless such default shall have been cured or waived
for a period of not less than 90 consecutive days (it being acknowledged that   
any subsequent action, or any breach of any financial covenants for a period    
commencing after receipt by the Trustee of a Payment Blockage Notice, which, in 
either case, would give rise to an event of default pursuant to any provisions  
under which an event of default previously existed or was continuing shall      
constitute a new event of default for this purpose).                            

     If the Maturity of the Notes is accelerated because of an Event of Default,
the Indenture requires Avatar to promptly notify holders of Designated Senior   
Indebtedness of that event.                                                     

   "Senior Indebtedness" is defined in the Indenture as the principal of and
premium, if any, and interest on and other Obligations in respect of (i) all    
indebtedness of Avatar for money borrowed, whether outstanding on the date of   
execution of the Indenture or thereafter created, incurred or assumed, except   
any such other indebtedness that, by the terms of the instrument or instruments 
by which it was created or incurred, expressly provides that it (a) is junior in
right of payment to the Notes or (b) ranks pari passu in right of payment with  
the Notes, and (ii) any amendments, renewals, extensions, modifications,        
refinancings and refundings of any of the foregoing. For purposes of this       
definition, "indebtedness for money borrowed" when used with respect to Avatar  
means (i) any obligation of, or any obligation guaranteed by, Avatar for the    
repayment of borrowed money (including, without limitation, fees, penalties and 
other obligations in respect thereof), whether or not evidenced by bonds,       
debentures, notes or other written instruments, (ii) any deferred payment       
obligation of, or any such obligation guaranteed by, Avatar for the payment of  
the purchase price of property or assets evidenced by a note or similar         
instrument and (iii) any obligation of, or any such obligation guaranteed by,   
Avatar for the payment of rent or other amounts under a lease of property or    
assets, which obligation is required to be classified and accounted for as a    
capitalized lease on the balance sheet of Avatar under generally accepted       
accounting principles. As used in the Indenture: (i) "Obligations" in respect of
the Senior Indebtedness include any principal, interest, premiums, fees,        
indemnifications, reimbursements, damages and other liabilities payable under   
the documentation governing any such indebtedness; and (ii) "Designated Senior  
Indebtedness" means Senior Indebtedness (a) under any debt facility with banks  
or other lenders                                                                

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which provide for revolving credit loans, term loans, receivables financing     
(including through the sale of receivables) or letters of credit to Avatar or   
(b) the principal amount of which is $25.0 million or more and that has been    
designated by Avatar as "Designated Senior Indebtedness."                       

The Notes are obligations exclusively of Avatar. Certain operations of
Avatar are currently conducted through its subsidiaries, which are separate and 
distinct legal entities and have no obligation, contingent or otherwise, to pay 
any amounts due in respect of the Notes or to make any funds available therefor,
whether by dividends, loans or other payments. The ability of any subsidiary of 
Avatar to loan or advance funds or pay dividends to Avatar (i) may be subject to
contractual or statutory restrictions, (ii) will be contingent on the           
subsidiary's earnings and cash flows and (iii) will be subject to various       
business considerations.                                                        

  The Notes will be effectively subordinated to all indebtedness and other
liabilities and commitments (including trade payables and lease obligations) of 
subsidiaries of Avatar. Any right of Avatar to receive assets of any of its     
subsidiaries on the liquidation or reorganization of that subsidiary (and any   
consequent right of the Holders of the Notes to participate in those assets)    
will be effectively subordinated to the claims of that subsidiary's creditors,  
except to the extent that Avatar is itself recognized as a creditor of that     
subsidiary, in which case the claims of Avatar would still be subordinated to   
any security in the assets of that subsidiary and any indebtedness of that      
subsidiary senior to that held by Avatar.                                       

The Indenture does not limit or prohibit the incurrence of (i) Senior 
Indebtedness or (ii) other indebtedness, liabilities or other commitments by    
Avatar or its subsidiaries. As of November 30, 1997, the aggregate amount of    
Senior Indebtedness to which the Notes are subordinated was approximately $48.0 
million, and the aggregate amount of indebtedness and other balance sheet       
liabilities of Avatar's subsidiaries to which the Notes are effectively         
subordinated was approximately $116.5 million. Avatar also expects to incur     
Senior Indebtedness from time to time in the future. See "Capitalization" and   
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations."                                                                    

     In the event that, notwithstanding the foregoing, the Trustee or any Holder
of the Notes receives any payment or distribution of assets of Avatar of any    
kind in contravention of any of the subordination provisions of the Indenture,  
whether in cash, property or securities, including, without limitation, by way  
of set-off or otherwise, in respect of the Notes before all Senior Indebtedness 
is paid in full, then such payment or distribution will be held by the recipient
in trust for the benefit of holders of Senior Indebtedness or their             
representatives to the extent necessary to make payment in full of all Senior   
Indebtedness remaining unpaid, after giving effect to any concurrent payment or 
distribution, or provision therefor, to or for the holders of Senior            
Indebtedness.                                                                   

  Avatar is obligated to pay reasonable compensation to the Trustee and to
indemnify the Trustee against certain losses, liabilities or expenses incurred  
by it in connection with its duties relating to the Notes. The Trustee's claims 
for such payments will generally be senior to those of Holders of the Notes in  
respect of all funds collected or held by the Trustee.                          

CONSOLIDATION, MERGER AND SALE OF ASSETS                                        

    Avatar will not consolidate with or merge into any other Person or convey,
transfer or lease its properties and assets substantially as an entirety to any 
Person in one transaction or a series of related transactions, or permit any    
Person to consolidate with or merge into Avatar, unless (i) if applicable, the  
Person formed by such consolidation or into which Avatar is merged or the Person
or corporation which acquires the properties and assets of Avatar substantially 
as an entirety is a corporation, limited liability company, partnership or trust
organized and validly existing under the laws of the United States or any state 
thereof or the District of Columbia and expressly assumes payment of the        
principal of and premium, if any, and interest on the Notes and the performance 
or observance of each obligation of Avatar under the Indenture, (ii) immediately
after giving effect to such transaction no Event of Default will have occurred  
and be continuing and (iii) such consolidation, merger, conveyance, transfer or 
lease does not adversely affect the validity or enforceability of the Notes.    

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CERTAIN RIGHTS TO REQUIRE REPURCHASE OF NOTES                                   

If any Change in Control (as defined below) occurs after the date of  
issuance of the Notes and on or prior to Maturity, each Holder of Notes will    
have the right, at the Holder's option, to require Avatar to repurchase all or  
any part of the Holder's Notes on the date (the "Repurchase Date") that is 30   
days after the date Avatar gives notice of the Change in Control as described   
below at a price (the "Repurchase Price") equal to 100% of the principal amount 
thereof, together with accrued and unpaid interest to the Repurchase Date. On or
prior to the Repurchase Date, Avatar is required to deposit with the Trustee or 
a Paying Agent an amount of money in same-day funds sufficient to pay the       
Repurchase Price of the Notes to be repaid on the Repurchase Date.              

     Failure by the Company (i) to provide timely notice of a Change in Control,
as provided for below, or (ii) to repurchase the Notes when required will result
in an Event of Default under the Indenture whether or not that repurchase is    
permitted by the subordination provisions of the Indenture.                     

    On or before the 15th day after a Change in Control occurs, Avatar (or the
Trustee at Avatar's request) is obligated to mail to all Holders of Notes a     
notice of that occurrence which states the Repurchase Date, the date by which   
the repurchase right must be exercised, the Repurchase Price and the procedures 
the Holder must follow to exercise its repurchase right. To exercise this right,
a Holder must deliver to Avatar or its designated agent and to the Trustee, on  
or before the close of business on the Repurchase Date, written notice of the   
Holder's exercise of that right, together with the certificates evidencing the  
Notes to be repurchased, duly endorsed for transfer to Avatar. Any such notice  
of exercise may be withdrawn by the Holder by a written notice of withdrawal    
delivered to the Trustee at any time prior to the close of business on the      
Repurchase Date. In addition, if the Repurchase Date falls between any Regular  
Record Date and the next succeeding Interest Payment Date, Notes to be purchased
must be accompanied by payment of an amount equal to the interest thereon that  
is to be paid on such Interest Payment Date.                                    

 A "Change in Control" will occur when: (i) all or substantially all the
assets of Avatar or of Avatar and its subsidiaries, taken as a whole, are sold  
in one transaction or any series of related transactions as an entirety to any  
Person or related group of Persons; (ii) any consolidation or merger of the     
Company occurs (a) in which Avatar is not the continuing or surviving           
corporation (other than a consolidation or merger with a wholly owned subsidiary
of Avatar in which all shares of Common Stock outstanding immediately prior to  
the effectiveness thereof are changed into or exchanged for the same            
consideration) or (b) pursuant to which the Common Stock would be converted into
cash, securities or other property, in each case other than a consolidation or  
merger of Avatar in which the holders of the Common Stock immediately prior to  
the consolidation or merger have, directly or indirectly, at least a majority of
the total voting power of all classes of capital stock entitled to vote         
generally in the election of directors of the continuing or surviving           
corporation immediately after such consolidation or merger in substantially the 
same proportion as their ownership of Common Stock immediately before such      
transaction; (iii) any Person (other than a director, officer or beneficial     
owner currently known by Avatar to own more than 5% of the outstanding Common   
Stock), or any such Persons acting together that would constitute a "group" for 
purposes of Section 13(d) of the Exchange Act, together with any affiliates     
thereof, shall beneficially own (as defined in Exchange Act Rule 13d-3) at least
50% of the total voting power of all classes of capital stock of Avatar entitled
to vote generally in the election of directors of Avatar; (iv) at any time      
during any consecutive two-year period, individuals who at the beginning of that
period constituted the Board of Directors of Avatar (the "Board") (together with
any new directors whose election by the Board or whose nomination for election  
by the stockholders of Avatar was approved by a vote of more than 50% of the    
directors then still in office who were either directors at the beginning of    
that period or whose election or nomination for election was previously so      
approved) cease for any reason to constitute a majority of the Board then in    
office; or (v) the Company is liquidated or dissolved.                          

   The right of Holders to require Avatar to repurchase Notes if a Change in
Control occurs could create an event of default under Senior Indebtedness, as a 
result of which any repurchase could, absent a waiver of such repurchase right, 
be blocked by the subordination provisions of the Indenture. See                
"-- Subordination." Failure by Avatar to repurchase the Notes when required will
result in an Event of Default with respect to the Notes whether or not such     
repurchase is permitted by those subordination provisions. The ability of Avatar
to pay cash to the Holders of Notes upon a repurchase may be limited by certain 
financial covenants contained in                                                

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Senior Indebtedness. No assurance can be given that Avatar would have sufficient
funds to pay the Repurchase Price for all Notes tendered by Holders upon the    
occurrence of a Change in Control.                                              

     The foregoing provisions (i) may not afford Holders protection in the event
of highly leveraged or other transaction involving the Company which may        
adversely affect Holders and (ii) may discourage open market purchases of the   
Common Stock or a non-negotiated tender or exchange offer for such stock and,   
accordingly, may limit a stockholder's ability to realize a premium over the    
market price of the Common Stock in connection with any such transaction.       

EVENTS OF DEFAULT                                                               

 The following are Events of Default with respect to the Notes under the
Indenture: (i) default in the payment of principal of or any premium on any Note
when due (even if such payment is prohibited by the subordination provisions of 
the Indenture); (ii) default in the payment of any interest on any Note when    
due, which default continues for 30 days (even if that payment is prohibited by 
the subordination provisions of the Indenture); (iii) default in the performance
or breach of any other covenant or warranty of Avatar in the Indenture which    
continues for 30 days after written notice as provided in the Indenture; (iv)   
default under one or more bonds, debentures, notes or other evidences of        
indebtedness for money borrowed by Avatar or any of its subsidiaries or under   
one or more mortgages, indentures or instruments under which there may be issued
or by which there may be secured or evidenced any indebtedness for money        
borrowed by Avatar or any of its subsidiaries, whether such indebtedness now    
exists or is hereafter created, which default individually or in the aggregate  
constitutes a failure to pay the principal of indebtedness in excess of $10     
million when due and payable after the expiration of any applicable grace period
with respect thereto or results in indebtedness in excess of $10 million        
becoming or being declared due and payable prior to the date on which it would  
otherwise have become due and payable, without such indebtedness having been    
discharged, or such acceleration having been rescinded or annulled, within a    
period of 30 days after written notice as provided in the Indenture; (v) entry  
of a final judgment or judgments against Avatar or any of its subsidiaries in   
the amount of at least $10 million (net of insurance proceeds) that remain      
undischarged and unstayed for a period of 30 days; and (vi) certain events      
involving bankruptcy or reorganization of or similar events respecting Avatar or
any of its subsidiaries.                                                        

If an Event of Default shall occur and be continuing, the Trustee or  
Holders of not less than 25% in aggregate principal amount of the Outstanding   
Notes may declare the principal of and premium, if any, on all the Notes to be  
due and payable immediately but if a majority in principal amount of Holders of 
Outstanding Notes waive any past default (except the nonpayment of principal of,
premium, if any, and interest on any Note and certain other limitations), then  
such default will cease to exist and any Event of Default arising therefrom will
be deemed cured for every purpose of the Indenture; but no such waiver will     
extend to any subsequent or other default. If an Event of Default occurs and is 
continuing as a result of an event of bankruptcy or reorganization of Avatar or 
any of its subsidiaries, the principal of, premium, if any, and accrued and     
unpaid interest on the Notes will automatically become due and payable without  
any declaration or other act on the part of the Trustee or any Holder of Notes. 
Avatar is required to furnish to the Trustee annually a statement as to the     
performance by Avatar of certain of its obligations under the Indenture and as  
to any default in that performance. The Indenture provides that the Trustee may 
withhold notice to Holders of the Notes of any continuing default (except in the
case of a default in payment of the principal of or premium, if any, or interest
on any Notes) if the Trustee considers it in the interest of Holders of the     
Notes to do so.                                                                 

  Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default occurs and is continuing, the Trustee will  
be under no obligation to exercise any of the rights or powers under the        
Indenture at the request or direction of any of the Holders of the Notes, unless
such Holders have offered to the Trustee security or indemnity satisfactory to  
the Trustee. Subject to such provision for security or indemnification, the     
Holders of a majority in principal amount of the Outstanding Notes will have the
right to direct the time, method and place of conducting any proceeding for any 
remedy available to the Trustee, or exercising any trust or power conferred on  
the Trustee, provided that the Trustee will have the right to decline to follow 
any such direction if the Trustee is advised by counsel that the action or      
proceeding so directed may not lawfully be taken or the Trustee determines that 
the action or proceeding so directed could involve the                          

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Trustee in personal liability or would be unduly prejudicial to the rights of   
the holders not joining in such directions or would conflict with the Indenture.

MODIFICATION OF THE INDENTURE                                                   

   The Indenture contains provisions permitting Avatar and the Trustee, with
the consent of the Holders of not less than a majority in principal amount of   
Outstanding Notes, to modify the Indenture or any supplemental indenture or the 
rights of the Holders of the Notes, except that no such modification shall (i)  
extend the fixed maturity of any Note, reduce the rate or extend the time for   
payment of interest thereon, reduce the principal amount thereof or premium, if 
any, thereon, reduce any amount payable upon redemption or repurchase thereof,  
change the obligation of Avatar to repurchase any Note upon the happening of any
Change in Control in a manner materially adverse to Holders of Notes, impair the
right of a Holder to institute suit for payment thereof, change the currency in 
which the Notes are payable, impair the right to convert the Notes into Common  
Stock subject to the terms set forth in the Indenture, or modify the provisions 
of the Indenture with respect to the subordination of the Notes in a manner     
adverse to the Holders of the Notes in any material respect, without the consent
of each Holder of a Note so affected, or (ii) reduce the aforesaid percentage of
Notes whose Holders are required to consent to any such supplemental indenture, 
without the consent of the Holders of all then Outstanding Notes. The Indenture 
also provides for certain modifications of its terms without the consent of     
Holders of the Notes.                                                           

GOVERNING LAW                                                                   

     The Indenture and the Notes will be governed by and construed in accordance
with the laws of the State of New York, without giving effect to that state's   
conflicts of laws principles.                                                   

BOOK-ENTRY                                                                      

   The Notes will be issued in the form of a global note or notes (together,
the "Global Note") deposited with, or on behalf of, DTC and registered in the   
name of Cede & Co. as DTC's nominee. Owners of beneficial interests in the Notes
represented by the Global Note will hold such interests pursuant to the         
procedures and practices of DTC and must exercise any rights in respect of their
interests (including any right to convert or require repurchase of their        
interests) in accordance with those procedures and practices. Such beneficial   
owners will not be deemed Holders of Notes, and will not be entitled to any     
rights under the Global Note or the Indenture, with respect to the Global Note, 
and Avatar and the Trustee, and any of their respective agents, may treat DTC as
the sole Holder and owner of the Global Note.                                   

DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"      
within the meaning of the New York Banking Law, a member of the Federal Reserve 
System, a "clearing corporation" within the meaning of the New York Uniform     
Commercial Code, and a "clearing agency" registered pursuant to the provisions  
of Section 17A of the Exchange Act. DTC holds securities that its participants  
("Participants") deposit with DTC. DTC also facilitates the settlement among    
Participants of securities transactions, such as transfers and pledges, in      
deposited securities through electronic computerized book-entry changes in      
Participants' accounts, thereby eliminating the need for physical movement of   
securities certificates. Direct Participants include securities brokers and     
dealers (including the Underwriters), banks, trust companies, clearing          
corporations and certain other organizations. DTC is owned by a number of its   
Direct Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access  
to the DTC system is also available to others such as securities brokers and    
dealers, banks and trust companies that clear through or maintain a custodial   
relationship with a Direct Participant, either directly or indirectly. The rules
applicable to DTC and its participants are on file with the Securities and      
Exchange Commission.                                                            

     Unless and until it is exchanged in whole or in part for certificated Notes
in definitive form as set forth below, the Global Note may not be transferred   
except as a whole by DTC to a nominee of DTC, or by a nominee of DTC to DTC or  
another nominee of DTC or by DTC or any such nominee of DTC to a successor      
depository or nominee of such successor depository.                             

The Notes represented by the Global Note will not be exchangeable for 
certificated Notes, provided that if (i) DTC is at any time unwilling, unable or
ineligible to continue as depository (unless the Company has                    

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approved a successor depository within 90 days) or (ii) there shall have        
occurred or be continuing an Event of Default with respect to such Global Note, 
Avatar will issue individual Notes in definitive form in exchange for the Global
Note. In addition, Avatar may at any time and in its sole discretion determine  
not to have a Global Note, and, in such event, will issue individual Notes in   
definitive form in exchange for the Global Note previously representing all such
Notes. In such instances, an owner of a beneficial interest in a Global Note    
will be entitled to physical delivery of Notes in definitive form equal in      
principal amount to such beneficial interest and to have such Notes registered  
in its name. Individual Notes so issued in definitive form will be issued in    
denominations of $1,000 and any larger amount that is an integral multiple of   
$1,000 and will be issued in registered form only, without coupons.             

 Payments of interest on and premium, if any, and principal of the Notes
will be made by Avatar through the Trustee to DTC or its nominee, as the case   
may be, as the registered owner of the Global Note. Neither Avatar nor the      
Trustee will have any responsibility or liability for any aspect of the records 
relating to or payments made on account of beneficial ownership interests of the
Global Note or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests. Avatar expects that DTC, upon receipt of   
any payment of interest premium, if any, or principal in respect of the Global  
Note, will credit the accounts of DTC's Direct Participants with payment in     
amounts proportionate to their respective holdings and not of Avatar, subject to
any statutory or regulatory requirements as may be in effect from time to time  
as shown on the records of DTC. Avatar also expects that payments by            
Participants to owners of beneficial interests in the Global Note will be       
governed by standing customer instructions and customary practices, as is now   
the case with securities held for the accounts of customers in bearer form or   
registered in "street name," and will be the responsibility of such             
Participants.                                                                   

     So long as the Notes are represented by the Global Note, DTC or its nominee
will be the only entity that can exercise a right to repayment pursuant to the  
Holder's option to elect repayment of its Notes or the right of conversion of   
the Notes. Notice by Participants or by owners of beneficial interests in a     
Global Note held through such Participants of the exercise of the option to     
elect repayment, or the right of conversion, of beneficial interests in Notes   
represented by the Global Note must be transmitted to DTC in accordance with its
procedures on a form required by DTC and provided to Participants. In order to  
ensure that DTC's nominee will timely exercise a right to repayment, or the     
right of conversion, with respect to a particular Note, the beneficial owner of 
such Notes must instruct the broker or other participant through which it holds 
an interest in such Notes to notify DTC of its desire to exercise a right to    
repayment, or the right of conversion. Different firms have different cut-off   
times for accepting instructions from their customers and, accordingly, each    
beneficial owner should consult the broker or other Participant through which it
holds an interest in a Note in order to ascertain the cut-off time by which such
an instruction must be given in order for timely notice to be delivered to DTC. 
Avatar will not be liable for any delay in delivery of such notice to DTC.      

MARKET FOR NOTES                                                                

The Notes have been approved for quotation on Nasdaq under the symbol 
"AVTRG."                                                                        

INFORMATION CONCERNING THE TRUSTEE                                              

The Chase Manhattan Bank, as the Trustee under the Indenture, has been
appointed by Avatar as paying agent, conversion agent and registrar with regard 
to the Notes. The Indenture provides that, except during the continuance of an  
Event of Default, the Trustee thereunder will exercise such rights and powers   
vested in it under the Indenture and use the same degree of care and skill in   
its exercise as a prudent person would exercise under the circumstances in the  
conduct of such person's own affairs.                                           

 The Indenture and the provisions of the Trust Indenture Act of 1939, as
amended (the "TIA"), incorporated by reference therein contain certain          
limitations on the rights of the Trustee thereunder, should it become a creditor
of Avatar, to obtain payment of certain claims in certain cases or to realize on
certain property received by it in respect of any such claims, as security or   
otherwise. The Trustee is permitted to engage in other transactions; provided,  
however, that if it acquires any conflicting interest (within the meaning of the
TIA) it must eliminate such conflicting interest or resign.                     

TAXATION OF NOTES                                                               

     See "Certain Federal Income Tax Considerations" for a discussion of certain
federal income tax matters.                                                     

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CERTAIN FEDERAL INCOME TAX CONSEQUENCES 

    The following is a summary of certain of the principal U.S. federal income
tax consequences of the purchase, ownership and disposition of the Notes or     
Common Stock issued on conversion thereof. This discussion is a summary for     
general information only and does not consider all aspects of U.S. federal      
income tax that may be relevant to the purchase, ownership and disposition of   
the Notes or Common Stock by a prospective investor in light of such investor's 
personal circumstances. The discussion also does not address the U.S. federal   
income tax consequences of ownership of Notes or Common Stock not held as       
capital assets within the meaning of Section 1221 of the U.S. Internal Revenue  
Code of 1986, as amended (the "Code"), or the U.S. federal income tax           
consequences to investors subject to special treatment under the U.S. federal   
income tax laws, such as dealers in securities or foreign currency, tax-exempt  
investors, real estate investment trusts, regulated investment companies, banks,
thrifts, insurance companies or other financial institutions, persons that hold 
the Notes or Common Stock as a position in a "straddle", as part of a "synthetic
security" or "hedge", "conversion transaction" or other integrated investment,  
persons that have a "functional currency" other than the U.S. dollar, or        
investors in pass-through entities. In addition, this discussion is generally   
limited to the tax consequences to initial holders. Moreover, the effect of any 
applicable state, local or foreign tax laws is not discussed.                   

   This discussion is based upon the Code, existing and proposed regulations
thereunder, and current administrative rulings and court decisions. All of the  
foregoing is subject to change, possibly on a retroactive basis, and any such   
change could affect the continuing validity of this discussion.                 

PERSONS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE APPLICATION OF FEDERAL INCOME TAX LAWS, AS WELL AS THE  
LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION, TO THEIR PARTICULAR    
SITUATIONS.                                                                     

U.S. HOLDERS

The following discussion is limited to the U.S. federal income tax    
consequences relevant to a holder of a Note that is (i) a citizen or resident   
(as defined in Section 7701(b)(1) of the Code) of the United States, (ii) a     
corporation organized under the laws of the U.S. or any political subdivision   
thereof or therein, (iii) an estate, the income of which is subject to U.S.     
federal income tax regardless of its source, or (iv) a trust with respect to    
which a court within the United States is able to exercise primary supervision  
over its administration and one or more United States persons have the authority
to control all of its substantial decisions (a "U.S. Holder"). Certain U.S.     
federal income tax consequences relevant to a holder other than a U.S. Holder   
are discussed separately below.                                                 

STATED INTEREST                                                                 

    The stated interest on a Note will be taxable to a U.S. Holder as ordinary
interest income either at the time it accrues or is received depending upon such
U.S. Holder's method of accounting for federal income tax purposes. For this    
purpose, interest will be deemed to accrue without regard to conversion of the  
Notes.                                                                          

MARKET DISCOUNT                                                                 

     Gain recognized on the disposition (including a redemption) by a subsequent
purchaser of a Note that has accrued market discount will be treated as ordinary
income, and not capital gain, to the extent of the accrued market discount,     
provided that the amount of the market discount exceeds a statutorily defined de
minimis amount. "Market discount" is defined as the excess, if any, of (i) the  
stated redemption price at maturity over (ii) the tax basis of the debt         
obligation in the hands of the holder immediately after its acquisition.        

   Under the de minimis exception, there is no market discount if the excess
of the stated redemption price at maturity of the obligation over the holder's  
tax basis in the obligation is less than 0.25% of the stated redemption price at
maturity multiplied by the number of complete years after the acquisition date  
to the Note's date of maturity. Unless a holder elects otherwise, the accrued   
market discount would be the amount                                             

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calculated by multiplying the market discount by a fraction, the numerator of   
which is the number of days the obligation has been held by a holder and the    
denominator of which is the number of days after the holder's acquisition of the
obligation up to and including its maturity date.                               

 If a U.S. Holder of a Note acquired at market discount disposes of such
Note in any transaction other than a sale, exchange or involuntary conversion,  
even though not otherwise taxable (e.g., a gift), such U.S. Holder will be      
deemed to have realized an amount equal to the fair market value of the Note and
would be required to recognize as ordinary income any accrued market discount to
the extent of the deemed gain. A U.S. Holder of a Note acquired at a market     
discount may also be required to defer the deduction of all or a portion of the 
interest on any indebtedness incurred or maintained to carry the Note until it  
is disposed of in a taxable transaction.                                        

  A U.S. Holder of a Note acquired at market discount may elect to include
the market discount in income as it accrues. This election would apply to all   
market discount obligations acquired by the electing U.S. Holder on or after the
first day of the first taxable year to which the election applies. The election 
may be revoked only with the consent of the Service. If a U.S. Holder of a Note 
so elects to include market discount in income currently, the above-discussed   
rules with respect to ordinary income recognition resulting from sales and      
certain other disposition transactions and to deferral of interest deductions   
would not apply.                                                                

BOND PREMIUM                                                                    

     If a U.S. Holder purchases a Note at a cost that is in excess of the amount
payable at maturity (which will be determined by reference to an earlier call   
date if the call price would reduce the amount of the premium) (such excess     
being the "bond premium"), a U.S. Holder may elect to amortize such bond premium
on a constant interest basis over the period from the acquisition date to the   
maturity date of such Note (or, in certain circumstances, until an earlier call 
date) and, except as future Treasury Regulations may otherwise provide, reduce  
the amount of interest included in income in respect of the Note by such amount.
A U.S. Holder who elects to amortize bond premium must reduce its adjusted basis
in the Note by the amount of such allowable amortization. An election to        
amortize bond premium would apply to all amortizable bond premiums on all       
taxable bonds held at or acquired after the beginning of the U.S. Holder's      
taxable year as to which the election is made, and may be revoked only with the 
consent of the Service. No amortization is allowed for any premium attributable 
to the conversion feature of the Note.                                          

 If an election to amortize bond premium is not made, a U.S. Holder must
include the full amount of each interest payment in income in accordance with   
its regular method of accounting and will generally receive a tax benefit from  
the bond premium only upon computing its gain or loss upon the sale or other    
disposition or payment of the principal amount of the Note.                     

TAX BASIS                                                                       

   A U.S. Holder's initial tax basis in a Note will be equal to the purchase
price paid by such U.S. Holder for such Note.                                   

SALE OR REDEMPTION                                                              

   Unless a nonrecognition provision applies, the sale, exchange, redemption
(including pursuant to an offer by the Company) or other disposition of a Note  
will be a taxable event for federal income tax purposes. In such event, a U.S.  
Holder will recognize gain or loss equal to the difference between (i) the      
amount of cash plus the fair market value of any other property received upon   
the sale, exchange, redemption or other taxable disposition (other than in      
respect of accrued and unpaid interest thereon) and (ii) the U.S. Holder's      
adjusted tax basis therein (other than any tax basis attributable to accrued and
unpaid interest). Subject to the discussion above under the caption "Market     
Discount", any such gain or loss generally will be short-term, mid-term or      
long-term capital gain or loss depending on the length of time the Note had been
held.                                                                           

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CONVERSION OF THE NOTE INTO COMMON STOCK                                        

No gain or loss will be recognized for federal income tax purposes on 
conversion of Notes solely into shares of Common Stock, except with respect to  
any cash received in lieu of a fractional share or, in the case of both cash and
accrual basis taxpayers, any accrued interest not previously included in income.
A U.S. Holder's tax basis in the Common Stock received upon conversion will     
generally be equal to the U.S. Holder's tax basis in the Notes converted into   
Common Stock less the basis allocated to any fractional share for which cash is 
received, and a U.S. Holder's holding period in the Common Stock will generally 
include the holding period of the Notes converted. Any accrued market discount  
not previously included in income as of the date of the conversion of the Notes 
and not recognized upon the conversion (e.g., as a result of the receipt of cash
in lieu of a fractional interest in the Note) should carry over onto the Common 
Stock received on conversion and be treated as ordinary income upon the         
subsequent disposition of such Common Stock.                                    

ADJUSTMENT OF CONVERSION PRICE                                                  

   Section 305 treats as a distribution taxable as a dividend (to the extent
of the issuing corporation's current or accumulated earnings and profits)       
certain actual or constructive distributions of stock with respect to stock or  
convertible securities. Under Treasury Regulations, an adjustment in the        
conversion price, or the failure to make such an adjustment, may, under certain 
circumstances be treated as a constructive dividend. Generally, a U.S. Holder's 
tax basis in a Note will be increased by the amount of any such constructive    
dividend.                                                                       

BACK-UP WITHHOLDING                                                             

A U.S. Holder of Notes or Common Stock may be subject to "back-up     
withholding" at a rate of 31% with respect to certain "reportable payments"     
including interest payments, dividend payments and, under certain circumstances,
principal payments on the Notes or proceeds from the disposition of Common Stock
issued on conversion of the Notes. These back-up withholding rules apply if the 
U.S. Holder, among other things, (i) fails to furnish a social security number  
or other taxpayer identification number (TIN) certified under penalties of      
perjury within a reasonable time after the request therefor, (ii) furnishes an  
incorrect TIN, (iii) fails to report properly interest or dividends, or (iv)    
under certain circumstances, fails to provide a certified statement, signed     
under penalties of perjury, that the TIN furnished is the correct number and    
that such holder is not subject to back-up withholding. A U.S. Holder who does  
not provide the Company with its correct TIN also may be subject to penalties   
imposed by the Internal Revenue Service ("Service"). Any amount withheld from a 
payment to a U.S. Holder under the back-up withholding rules is creditable      
against the U.S. Holder's federal income tax liability, provided the required   
information is furnished to the Service. Back-up withholding will not apply,    
however, with respect to payments made to certain holders, including            
corporations and tax-exempt organizations, provided their exemption from back-up
withholding is properly established.                                            

   The Company will report to the U.S. Holders of Notes and Common Stock and
to the Service the amount of any "reportable payments" for each calendar year   
and the amount of tax withheld, if any, with respect to such payments.          

NON-U.S. HOLDERS

The following discussion is limited to the U.S. federal income tax    
consequences relevant to a Holder of a Note that is not a U.S. Holder, as       
defined above ("Non-U.S. Holder").                                              

    For purposes of withholding tax on interest and dividends discussed below,
a non-resident alien or other non-resident fiduciary of an estate or trust will 
be considered a Non-U.S. Holder. For purposes of the following discussion,      
interest, dividends and gain on the sale or exchange or other disposition of a  
Note or Common Stock will be considered to be "U.S. trade or business income" if
such income or gain is (i) effectively connected with the conduct of a U.S.     
trade or business or (ii) in the case of a treaty resident, attributable to a   
permanent establishment (or, in the case of an individual, a fixed base) in the 
United States.                                                                  

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STATED INTEREST                                                                 

    Generally any interest paid to a Non-U.S. Holder that is not U.S. trade or
business income will not be subject to U.S. tax if the interest qualifies as    
"portfolio interest". Generally interest on the Notes will qualify as portfolio 
interest if (i) the Non-U.S. Holder does not actually or constructively own 10% 
or more of the total voting power of all voting stock of the Company and is not 
a "controlled foreign corporation" with respect to which the Company is a       
"related person" within the meaning of the Code, and (ii) the beneficial owner  
(a) under penalty of perjury, certifies that the beneficial owner is not a U.S. 
person and such certificate provides the beneficial owner's name and address,   
and (b) is not a bank receiving interest on an extension of credit made pursuant
to a loan agreement made in the ordinary course of its trade or business.       

   The gross amount of payments to a Non-U.S. Holder of interest that do not
qualify for the portfolio interest exception, and that are not U.S. trade or    
business income will be subject to U.S. federal income tax at the rate of 30%,  
unless a U.S. income tax treaty applies to reduce or eliminate withholding. U.S.
trade or business income will be taxed at regular U.S. rates rather than the 30%
gross rate. In the case of a Non-U.S. Holder that is a corporation, such United 
States trade or business income may also be subject to the "branch profits tax" 
(which is generally imposed on a foreign corporation on the actual or deemed    
repatriation from the U.S. of earnings and profits attributable to U.S. trade or
business income) at a rate of 30%. The branch profits tax may not apply (or may 
apply at a reduced rate) if the recipient is a qualified resident of certain    
countries with which the U.S. has an income tax treaty. To claim the benefit of 
a tax treaty or to claim exemption from withholding because the income is U.S.  
trade or business income, the Non-U.S. Holder must provide a properly executed  
Form 1001 or 4224 (or such successor forms as the Service designates), as       
applicable, prior to the payment of interest. These forms must be periodically  
updated. Under final regulations that will be effective for payments after      
December 31, 1998, the Forms 1001 and 4224 may be replaced by Form W-8. Also,   
under the final regulations, a Non-U.S. Holder who is claiming the benefit of a 
treaty in certain circumstances may be required to obtain a U.S. taxpayer       
identification number and to provide certain documentary evidence issued by     
foreign governmental authorities to prove residence in the foreign country.     
Certain special procedures are provided in the final regulations for payments   
through qualified intermediaries.                                               

DIVIDENDS                                                                       

 In general, dividends paid to a Non-U.S. Holder of Common Stock will be
subject to withholding of U.S. federal income tax at a 30% rate unless such is  
reduced by an applicable income tax treaty. Dividends that are connected with   
such holder's conduct of a trade or business in the U.S. (U.S. trade or business
income) are generally subject to the U.S. federal income tax at regular rates,  
but are not generally subject to the 30% withholding tax if the Non-U.S. Holder 
files the appropriate form with the payor, as discussed above. Any U.S. trade or
business income received by a Non-U.S. Holder that is a corporation may also,   
under certain circumstances, be subject to an additional "branch profits tax" at
a 30% rate or such lower rate as may be applicable under an income tax treaty.  
Dividends paid to an address in a foreign country generally are presumed (absent
actual knowledge to the contrary) to be paid to a resident of such country for  
purposes of the withholding discussed above and for purposes of determining the 
applicability of a tax treaty rate. Under final regulations that are effective  
for payments after December 31, 1998, however, a Non-U.S. Holder of Common Stock
who wishes to claim the benefit of an applicable treaty rate would be required  
to satisfy applicable certification and other requirements, which would include 
the requirement that the Non-U.S. Holder file a form which contains the holder's
name and address. In some circumstances, a Non-U.S. Holder may also be required 
to provide a U.S. taxpayer identification number and a certificate of residence 
in the foreign country (or other acceptable proof of such residence) to claim   
the benefits of an applicable treaty rate.                                      

  A Non-U.S. Holder of Common Stock that is eligible for a reduced rate of
U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for a refund   
with the Service.                                                               

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CONVERSION                                                                      

    A Non-U.S. Holder generally will not be subject to U.S. federal income tax
on the conversion of the Notes into Common Stock, except with respect to cash   
(if any) received in lieu of a fractional share or interest not previously      
included in income. Cash in lieu of a fractional share may give rise to gain    
that would be subject to the rules described below for the sale of Notes. Cash  
or Common Stock treated as issued for accrued interest would be treated as      
interest under the rules described above.                                       

SALE, EXCHANGE OR REDEMPTION OF NOTES OR COMMON STOCK                           

    Except as described below and subject to the discussion concerning back-up
withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or    
redemption of a Note or Common Stock generally will not be subject to U.S.      
federal income tax, provided that: (i) such gain is not U.S. trade or business  
income; (ii) the Non-U.S. Holder is not an individual who holds the Note or     
Common Stock as a capital asset, is present in the U.S. for 183 days or more in 
the taxable year of the disposition and who meets certain other requirements;   
(iii) the Non-U.S. Holder is not subject to tax pursuant to the provisions of   
U.S. tax law applicable to certain U.S. expatriates (including certain former   
citizens or residents of the U.S.); (iv) the Notes and the Common Stock are     
"regularly traded on an established securities market" (within the meaning of   
the Regulations under Section 897 of the Code); and (v) the Non-U.S. Holder has 
not held directly or indirectly at any time during the five year period ending  
on the date of the disposition more than 5% of the Notes or the Common Stock, as
the case may be. For this purpose, the determination of whether the Notes or the
Common Stock will be treated as "regularly traded on an established securities  
market" will depend upon the extent of trading volume in the Notes or the Common
Stock as the case may be, or upon the existence of a broker or dealer making a  
market in such Notes or Common Stock.                                           

FEDERAL ESTATE TAX                                                              

  Notes held (or treated as held) by an individual who is not a citizen or
resident of the U.S. (for federal estate tax purposes) at the time of his or her
death will not be subject to the U.S. federal estate tax provided that the      
individual does not actually or constructively own 10% or more of the total     
voting power of all voting stock of the Company and income on the Notes was not 
U.S. trade or business income. Common Stock owned or treated as owned by an     
individual who is not a citizen or resident of the U.S. (for federal estate tax 
purposes) will be included in such individual's estate for U.S. federal income  
tax purposes unless an applicable estate tax treaty otherwise applies.          

INFORMATION REPORTING AND BACK-UP WITHHOLDING                                   

     The Company must report annually to the Service and to each Non-U.S. Holder
any interest or dividend that is subject to withholding, or that is exempt from 
U.S. withholding tax pursuant to a tax treaty, or interest that is exempt from  
U.S. tax under the portfolio interest exception. Copies of these information    
returns may also be made available under the provisions of a specific treaty or 
agreement to the tax authorities of the country in which the Non-U.S. Holder    
resides.                                                                        

   The Treasury Regulations provide that back-up withholding and information
reporting will not apply to payments of principal on the Notes or Common Stock  
by the Company to a Non-U.S. Holder, if the Holder certifies as to its non-U.S. 
status under penalties of perjury or otherwise establishes an exemption         
(provided that neither the Company nor its paying agent has actual knowledge    
that the holder is a U.S. person or that the conditions of any other exemption  
are not, in fact, satisfied).                                                   

   The payment of the proceeds from the disposition of Notes or Common Stock
to or through the U.S. office of any broker, U.S. or foreign, will be subject to
information reporting and possible back-up withholding unless the owner         
certifies as to its non-U.S. status under penalty of perjury or otherwise       
establishes an exemption, provided that the broker does not have actual         
knowledge that the Holder is a U.S. person or that the conditions of any other  
exemptions are not, in fact, satisfied. The payment of the proceeds from the    
disposition of a Note to or through a non-U.S. office of a non-U.S. broker will 
not be subject to information reporting or back-up withholding unless the       
non-U.S. broker has certain types of relationships with the U.S.                

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     In the case of the payment of proceeds from the disposition of the Notes or
Common Stock to or through a non-U.S. office of a broker that is either a U.S.  
person or a U.S. related person, the Treasury Regulations require information   
reporting on the payment unless the broker has documentary evidence in its files
that the owner is a Non-U.S. Holder and the broker has no knowledge to the      
contrary. Back-up withholding will not apply to payments made through foreign   
offices of a broker that is not a U.S. person or a U.S. related person (absent  
actual knowledge that the payee is a U.S. person).                              

    Any amounts withheld under the back-up withholding rules from a payment to
a Non-U.S. Holder will be allowed as a refund or credit against such Non-U.S.   
Holder's U.S. federal income tax liability, provided that the requisite         
procedures are followed.                                                        

THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX  
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY,
EACH INVESTOR SHOULD CONSULT ITS OWN TAX ADVISER AS TO PARTICULAR TAX           
CONSEQUENCES TO IT OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES AND THE    
COMMON STOCK OF THE COMPANY, INCLUDING THE APPLICABILITY AND EFFECT OF ANY      
STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE     
LAWS.                                                                           

THE COMPANY 

EFFECT OF NEW LEGISLATION                                                       

    Under recently enacted legislation, no deduction is permitted for interest
paid or accrued on any indebtedness of a corporation that is "payable in equity"
of the issuer or related party. Debt is treated as payable in equity of the     
issuer if the debt is part of an arrangement designed to result in payment of   
the instrument with or by reference to the equity. Such arrangements could      
include debt instruments that are convertible at the holder's option when it is 
substantially certain that the right will be exercised. However, it is not      
expected that the provision will affect debt with a conversion feature where the
conversion price is significantly higher than the market price of the stock on  
the date of the debt issuance. Accordingly, the Company does not believe that   
its interest deduction will be adversely affected by these rules.               

EFFECT ON TAX CARRYOVERS                                                        

     The Code contains provisions that can reduce the federal income tax benefit
to the Company from its carryovers of net operating losses (and certain tax     
credits) if the ownership of the stock of the Company were to change by more    
than a statutorily prescribed threshhold amount during any three year period.   
While the issuance of the Notes (or their conversion) could contribute to such a
"change in ownership", the Company believes that the effect of the issuance     
and/or conversion of the Notes on such tax benefits should not be material.     

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UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of 
the Underwriters has severally agreed to purchase from the Company, the         
principal amount of Notes set forth opposite the name of such Underwriter below:

                                                                [Download Table]

                                                                 UNDERWRITER 
                                                                 ------------
                                                                             
CIBC Oppenheimer Corp..........................................  $ 66,667,000
SBC Warburg Dillon Read Inc. ..................................  $ 33,333,000
                                                                 ------------
          Total................................................  $100,000,000
                                                                 ============

    The Underwriters propose to offer part of the Notes directly to the public
initially at the public offering price set forth on the cover page of this      
Prospectus and part of the Notes to certain securities dealers at such price    
less a concession not in excess of 1.8% of the principal amount per Note. The   
Underwriters may allow, and such dealers may reallow, a concession not in excess
of 0.3% per Note to certain brokers and dealers. After the Notes are released   
for sale to the public, the offering price and other selling terms may from time
to time be changed by the Underwriters. The Underwriters are obligated to take  
and pay for all of the Notes offered hereby (other than those covered by the    
over-allotment option described below) if any are taken.                        

   The Company has granted the Underwriters an option, exercisable for up to
30 days after the date of this Prospectus, to purchase up to an aggregate of    
$15,000,000 principal amount of additional Notes of the public offering price   
set forth on the cover page hereof, less Underwriters' discounts and            
commissions. If the Underwriters exercise such option, the Underwriters have    
severally agreed, subject to certain conditions, to purchase approximately the  
same percentage of such additional Notes that the principal amount of Notes     
purchased by each of them as shown in the foregoing table bears to the          
$100,000,000 principal amount of Notes offered hereby. The Underwriters may     
exercise such option only to cover over-allotments, if any, incurred in         
connection with the sale of the Notes offered hereby.                           

  Leon Levy, Chairman of the Board of the Company and a General Partner of
Odyssey (a privately-held investment partnership which is a principal           
stockholder of the Company), has advised the Company of his intention to        
purchase $20,000,000 aggregate principal amount of Notes offered hereby, net of 
underwriting fees and commissions.                                              

The Company has agreed to indemnify the Underwriters against certain  
liabilities, including, without limitation, liabilities under the Securities Act
or to contribute to payments which the Underwriters may be required to make in  
respect thereof.                                                                

   The Company has agreed not to offer, sell, contract to sell, or otherwise
dispose of any shares of Common Stock or any securities convertible into or     
exercisable or exchangeable for Common Stock or any rights to acquire Common    
Stock (other than shares issuable upon exercise of outstanding options) for a   
period of 180 days after the date of this Prospectus, without the prior written 
consent of CIBC Oppenheimer Corp. The Company's officers and directors and      
Odyssey have also agreed not to offer, sell, contract to sell, pledge or grant  
any option to purchase or otherwise dispose of such securities for 180 days     
after the date of this Prospectus, without the prior written consent of CIBC    
Oppenheimer Corp. See "Risk Factors -- Shares Eligible for Future Sale."        

    In connection with the Offering and in compliance with applicable law, the
Underwriters may effect transactions which stabilize or maintain the market     
price of the Notes, the Common Stock, or both at levels above those which might 
otherwise prevail in the open market. Specifically, the Underwriters may        
overallot in connection with the Offering creating a short position in the Notes
for their own account. For the purposes of covering a short position or         
stabilizing the price of the Notes, the Underwriters may place bids for the     
Notes, the Common Stock, or both or effect purchases of the Notes, the Common   
Stock, or both in the open market. A short position may also be covered by      
exercise of the over-allotment option described above. The Underwriters are not 
required to engage in any of these activities and any such activities, if       
commenced, may be discontinued at any time.                                     

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The Company has applied to qualify the Notes for quotation on Nasdaq. 
However, the Notes are a new issue of securities, have no established trading   
market and may not be widely distributed. The Company has been advised by the   
Underwriters that they currently intend to make a market in the Notes. However, 
such entities are not obligated to do so, and any market making may be          
discontinued at any time without notice. There can be no assurance as to whether
an active trading market for the Notes will develop.                            

LEGAL OPINIONS

Certain legal matters with respect to the Notes offered hereby will be
passed upon for the Company by Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New
York, New York 10153. Robert Todd Lang, the sole shareholder of a professional  
corporation that is a member of Weil, Gotshal & Manges LLP, is a limited partner
of Odyssey, a principal stockholder of Avatar. As of the date of this           
Prospectus, an aggregate of 12,739 shares of Avatar's Common Stock were owned   
beneficially by certain members of Weil, Gotshal & Manges LLP. Certain legal    
matters will be passed upon for the Underwriters by Morgan, Lewis & Bockius LLP,
101 Park Avenue, New York, New York 10178.                                      

EXPERTS 

     The consolidated financial statements as of December 31, 1996 and 1995, and
for each of the three years in the period ended December 31, 1996, included in  
this Prospectus have been so included in reliance on the report of Ernst & Young
LLP, independent auditors, given on the authority of said firm as experts in    
auditing and accounting.                                                        

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AVATAR HOLDINGS INC. AND SUBSIDIARIES 

INDEX TO FINANCIAL STATEMENTS 

                                                        [Enlarge/Download Table]

                                                                                        PAGE
                                                                                        ----
                                                                                            
Consolidated Financial Statements:                                                          
Report of Independent Certified Public Accountants....................................   F-2
Consolidated Balance Sheets -- December 31, 1996 and December 31, 1995................   F-3
Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and       
  1994................................................................................   F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996,      
  1995 and 1994.......................................................................   F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and       
  1994................................................................................   F-6
Notes to Consolidated Financial Statements for the years ended December 31, 1996, 1995      
  and 1994............................................................................   F-7
Consolidated Balance Sheets (unaudited) -- September 30, 1997 and December 31, 1996...  F-23
Consolidated Statements of Operations (unaudited) -- Nine and three months ended            
  September 30, 1997 and 1996.........................................................  F-24
Consolidated Statements of Cash Flows (unaudited) -- Nine months ended September 30,        
  1997 and 1996.......................................................................  F-25
Notes to Consolidated Financial Statements............................................  F-26

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Stockholders and Board of Directors                                             
Avatar Holdings Inc.                                                            

We have audited the accompanying consolidated balance sheets of Avatar
Holdings Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for 
each of the three years in the period ended December 31, 1996. Our audits also  
included the financial statement schedule listed in the Index at Item 27. These 
financial statements and schedule are the responsibility of the Company's       
management. Our responsibility is to express an opinion on these financial      
statements based on our audits.                                                 

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

 In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Avatar Holdings Inc. and subsidiaries at December 31, 1996 and 1995, and the    
consolidated results of their operations and their cash flows for each of the   
three years in the period ended December 31, 1996, in conformity with generally 
accepted accounting principles. Also in our opinion, the related financial      
statement schedule, when considered in relation to the basic financial          
statements taken as a whole, presents fairly in all material respects the       
information set forth therein.                                                  

                     ERNST & YOUNG LLP

Miami, Florida                                                                  
February 28, 1997 except for Notes H and S,                                     
as to which the dates are March 18, 1997                                    
and December 2, 1997, respectively                                          

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AVATAR HOLDINGS INC. AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS 
(DOLLARS IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                    DECEMBER 31,  DECEMBER 31,
                                                                        1996          1995    
                                                                    ------------  ------------
                                                                                              
ASSETS                                                                                        
Cash...............................................................   $  6,463      $  2,436  
Restricted cash....................................................      1,583         2,003  
Investments -- trading.............................................      4,535        48,258  
Contracts, mortgage notes and other receivables, net...............     45,266        58,272  
Land and other inventories.........................................    162,204       144,907  
Property, plant and equipment, net.................................    186,378       182,614  
Other assets.......................................................     12,916        13,474  
Regulatory assets..................................................      3,768         4,021  
Net assets of discontinued operations..............................     20,072        14,647  
                                                                      --------      --------  
          Total Assets.............................................   $443,185      $470,632  
                                                                      ========      ========  
LIABILITIES AND STOCKHOLDERS' EQUITY                                                          
Liabilities                                                                                   
Notes, mortgage notes and other debt:                                                         
  Real estate and corporate........................................   $ 74,148      $103,408  
  Development and construction loans...............................     22,492        19,093  
  Utilities........................................................     42,152        43,164  
Estimated development liability for sold land......................      8,459        13,033  
Accounts payable...................................................      7,116         8,876  
Accrued and other liabilities......................................     30,842        31,913  
Deferred customer betterment fees..................................     18,430        18,997  
Minority interest in consolidated subsidiaries.....................      9,064         9,060  
Net liabilities of discontinued operations.........................     11,785         8,334  
                                                                      --------      --------  
          Total Liabilities........................................    224,488       255,878  
Commitments and contingent liabilities                                                        
Contributions in aid of construction...............................     59,245        56,342  
STOCKHOLDERS' EQUITY                                                                          
Common Stock, par value $1 per share                                                          
  Authorized: 15,500,000 shares                                                               
  Issued: 12,715,448 shares........................................     12,715        12,715  
Additional paid-in capital.........................................    207,271       207,271  
Retained earnings..................................................      1,439           399  
                                                                      --------      --------  
                                                                       221,425       220,385  
Treasury stock, at cost, 3,620,346 shares..........................     61,973        61,973  
                                                                      --------      --------  
     Total Stockholders' Equity....................................    159,452       158,412  
                                                                      --------      --------  
          Total Liabilities and Stockholders' Equity...............   $443,185      $470,632  
                                                                      ========      ========  

See notes to consolidated financial statements. 

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AVATAR HOLDINGS INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF OPERATIONS 
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

                                                        [Enlarge/Download Table]

                                                              FOR THE YEAR ENDED DECEMBER 31,   
                                                             ---------------------------------- 
                                                               1996         1995         1994   
                                                             --------     --------     -------- 
                                                                                                
REVENUES                                                                                        
Real estate sales..........................................  $ 93,510     $ 48,217     $ 42,351 
Deferred gross profit on homesite sales....................     2,639         (720)      (1,719)
Utility revenues...........................................    32,749       29,669       28,664 
Interest income............................................     7,846        9,427       11,125 
Trading account profit, net................................     2,210        6,912          342 
Other......................................................     2,405          663          564 
                                                             --------     --------     -------- 
          Total revenues...................................   141,359       94,168       81,327 
EXPENSES                                                                                        
Real estate expenses.......................................    91,939       58,626       48,954 
Utility expenses...........................................    25,505       24,923       24,651 
General and administrative expenses........................     8,784        9,210       10,224 
Interest expense...........................................    12,053       11,518       11,160 
Other......................................................       814          811          811 
                                                             --------     --------     -------- 
          Total expenses...................................   139,095      105,088       95,800 
                                                             --------     --------     -------- 
Income (loss) from continuing operations before income                                          
  taxes....................................................     2,264      (10,920)     (14,473)
Provision for income taxes.................................        --           --           -- 
                                                             --------     --------     -------- 
Net income (loss) from continuing operations...............     2,264      (10,920)     (14,473)
Discontinued operations:                                                                        
  Income (loss) from operations, less income tax expense of                                     
     $0....................................................    (1,224)         581         (148)
                                                             --------     --------     -------- 
Net income (loss)..........................................  $  1,040     $(10,339)    $(14,621)
                                                             ========     ========     ======== 
Per share amounts:                                                                              
Net income (loss) from continuing operations...............  $   0.25     $  (1.20)    $  (1.59)
                                                             ========     ========     ======== 
Income (loss) from discontinued operations.................  $  (0.14)    $   0.06     $  (0.02)
                                                             ========     ========     ======== 
Net income (loss)..........................................  $   0.11     $  (1.14)    $  (1.61)
                                                             ========     ========     ======== 

See notes to consolidated financial statements. 

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AVATAR HOLDINGS INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 
(DOLLARS IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                            ADDITIONAL                     
                                                   COMMON    PAID-IN    RETAINED   TREASURY
                                                    STOCK    CAPITAL    EARNINGS    STOCK  
                                                   -------  ----------  --------   --------
                                                                                           
Balance at January 1, 1994........................ $12,715   $ 207,271  $ 25,359   $ 61,973

  Net income......................................      --          --   (14,621)        --
Balance at December 31, 1994......................  12,715     207,271    10,738     61,973

  Net (loss)......................................      --          --   (10,339)        --
                                                   -------    --------   -------    -------
Balance at December 31, 1995......................  12,715     207,271       399     61,973

  Net income......................................      --          --     1,040         --
                                                   -------    --------   -------    -------
Balance at December 31, 1996...................... $12,715   $ 207,271  $  1,439   $ 61,973
                                                   =======    ========   =======    =======

There are 5,000,000 authorized shares of preferred stock, none of which are     
issued.                                                                         

See notes to consolidated financial statements. 

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AVATAR HOLDINGS INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CASH FLOWS 
(DOLLARS IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                       FOR THE YEAR ENDED DECEMBER 31,   
                                                                      ---------------------------------- 
                                                                        1996         1995         1994   
                                                                      --------     --------     -------- 
                                                                                                         
OPERATING ACTIVITIES                                                                                     
Net income (loss).................................................... $  1,040     $(10,339)    $(14,621)
  Adjustments to reconcile net (loss) income to net cash provided by                                     
    (used in) operating activities:                                                                      
    Depreciation and amortization....................................   10,278        9,654        8,453 
    Deferred gross profit............................................   (2,639)         720        1,719 
    Cost of sales not requiring cash.................................    3,956        3,590        3,010 
    Inventory write down.............................................    1,464           --           -- 
    Trading account profit, net......................................   (2,210)      (6,912)        (342)
    Changes in operating assets and liabilities:                                                         
      Restricted cash................................................      420         (731)         170 
      Investments -- trading.........................................   45,554       11,000           -- 
      Principal payments on contracts receivable.....................   14,391       17,571       19,423 
      Receivables....................................................    1,616       (6,560)      (8,748)
      Other receivables..............................................     (362)      (1,174)        (526)
      Inventories....................................................  (27,291)     (34,711)      (6,175)
      Other assets...................................................      884        2,591         (375)
      Assets/liabilities of discontinued operations, net.............   (1,974)      (3,622)         246 
      Accounts payable and accrued and other liabilities.............   (2,766)       4,228        6,612 
                                                                      --------     --------     -------- 
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES..................   42,361      (14,695)       8,846 
INVESTING ACTIVITIES                                                                                     
Investment in property, plant and equipment..........................  (11,465)     (13,473)     (15,530)
                                                                      --------     --------     -------- 
NET CASH USED IN INVESTING ACTIVITIES................................  (11,465)     (13,473)     (15,530)
FINANCING ACTIVITIES                                                                                     
Net proceeds from revolving lines of credit and long-term                                                
  borrowings.........................................................   73,931       68,348       25,342 
Principal payments on revolving lines of credit and long-term                                            
  borrowings......................................................... (100,800)     (42,122)     (21,071)
Purchase of 9% debentures............................................       --         (387)          -- 
                                                                      --------     --------     -------- 
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.................. $(26,869)    $ 25,839     $  4,271 
                                                                      --------     --------     -------- 
INCREASE (DECREASE) IN CASH.......................................... $ (2,413)    $  4,027     $ (2,329)
Cash at beginning of year............................................    2,436        4,765        7,178 
                                                                      --------     --------     -------- 
CASH AT END OF YEAR.................................................. $  6,463     $  2,436     $  4,765 
                                                                      ========     ========     ======== 
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES                                                             
Contributions in aid of construction................................. $  5,584     $  5,000     $  1,344 
                                                                      ========     ========     ======== 
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION                                                           
Cash paid during the period for:                                                                         
Interest -- Continuing operations (net of amount capitalized of                                          
  $3,573, $3,234, and $1,625 in 1996, 1995, and 1994,                                                    
  respectively)...................................................... $  7,702     $  9,336     $ 10,899 
                                                                      ========     ========     ======== 
Interest -- Discontinued operations (net of amount capitalized of                                        
  $430 in 1996 and $0 in 1995 and 1994).............................. $    473     $    221     $     22 
                                                                      ========     ========     ======== 
Income taxes......................................................... $     --     $     --     $    255 
                                                                      ========     ========     ======== 

See notes to consolidated financial statements. 

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AVATAR HOLDINGS INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE DATA)

NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                            

Principles of Consolidation:                                                

    The consolidated financial statements include Avatar Holdings Inc. and its
subsidiaries ("Avatar"). All significant intercompany accounts and transactions 
have been eliminated in consolidation.                                          

General:                                                                    

 Avatar is principally engaged in the business of developing and selling
single and multifamily residential housing, vacation ownership intervals,       
improved and unimproved real estate, and providing water and wastewater utility 
services.                                                                       

Restricted Cash:                                                            

    Restricted cash represents housing deposits of $1,537 and utility deposits
of $46. The housing deposits will become available to the Company when the      
housing contracts close.                                                        

Land Inventories:                                                           

Land inventories are stated at the lower of cost or estimated net     
realizable value. Cost includes expenditures for acquisition, construction,     
development and carrying charges. Interest costs incurred during the period of  
land development, when applicable, are capitalized as part of the cost of such  
projects. Land acquisition costs are allocated to individual land parcels based 
upon the relationship that the estimated sales prices of specific parcels bear  
to the total sales price of the entire community. Construction and development  
costs are added to the value of the specific parcels for which the costs are    
incurred.                                                                       

In March 1995, the FASB issued Statement No. 121, "Accounting for the 
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"   
which requires impairment losses to be recorded on long-lived assets used in    
operations when indicators of impairment are present and the undiscounted cash  
flows estimated to be generated by those assets are less than the assets'       
carrying amount. Statement 121 also addresses the accounting for long-lived     
assets that are expected to be disposed of. The Company adopted Statement 121 in
the first quarter of 1996, and there was no material impact on the Company's    
operations or financial position.                                               

Revenues:                                                                   

     Sales of housing units are recognized in full upon the transfer of title to
a purchaser. Revenues from commercial land and bulk land sales are recognized in
full at closing, provided the purchaser's initial investment is adequate, all   
financing is considered collectible and Avatar is not obligated to perform      
significant future activities.                                                  

    The Company uses the installment method of profit recognition for sales of
homesites, the accrual method of profit recognition for sales of completed      
vacation ownership intervals, and the percentage of completion method for sales 
of those vacation ownership intervals, which are under construction. Under the  
installment method, the gross profit on recorded sales is deferred and          
recognized in income of future periods as principal payments on related         
contracts are received, and deferred profit is included in the balance sheet, as
a reduction of contracts receivable, until recognized. Under the percentage of  
completion method, the gross profit on recorded sales is recognized based upon  
the percentage of construction completed.                                       

Utility revenues are recorded as the service is provided.             

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AVATAR HOLDINGS INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

Property, Plant and Equipment:                                              

Property, plant and equipment are stated at cost and depreciation is  
computed principally by the straight-line method over the estimated useful lives
of the assets. Depreciation, maintenance and operating expenses of equipment    
utilized in the development of land are capitalized as land inventory cost.     

Income Taxes:                                                               

  Income taxes have been provided using the liability method in accordance
with Financial Accounting Standards Board Statement of Financial Accounting     
Standards No. 109, "Accounting for Income Taxes." Under Statement No. 109, the  
liability method is used in accounting for income taxes where deferred income   
tax assets and liabilities are determined based on differences between financial
reporting and tax basis of assets and liabilities and are measured using the    
enacted tax rates and laws that are expected to be in effect when the           
differences reverse.                                                            

  The cumulative effect of adopting Statement No. 109 for Avatar's utility
subsidiaries was not credited or charged to net income, but was recorded as a   
regulatory liability or regulatory asset in accordance with accounting          
procedures applicable to regulated enterprises. The regulatory liabilities and  
regulatory assets will generally be amortized to income or expense over the     
useful lives of the utility systems and reflects probable future revenue        
reductions or increases from ratepayers.                                        

Deferred Customer Betterment Fees:                                          

     Amounts collected from customers for utility improvements are classified as
"Deferred Customer Betterment Fees". These fees will be reclassified to         
"Contributions in Aid of Construction" when service to the customer begins.     

Contributions in Aid of Construction:                                       

Advances from real estate developers and other direct contributions to
utility subsidiaries for plant construction are recorded as "Contributions in   
Aid of Construction". To the extent required by regulatory agencies, the account
balance is amortized over the depreciable life of the utility plant as an offset
to depreciation expense.                                                        

Investments:                                                                

 The Company classifies its entire investment portfolio as trading. This
category is defined as including debt and marketable equity securities held for 
resale in anticipation of earning profits from short-term movements in market   
prices. Trading account securities are carried at fair value that was $4,535 at 
December 31, 1996 and $48,258 at December 31, 1995.                             

Postretirement Benefits:                                                    

    The Company accrues postretirement benefits (such as health care benefits)
during the years an employee provides services. These benefits for retirees are 
currently provided only to the employees of the Company's utility subsidiaries. 

Advertising Costs:                                                          

  Advertising costs are expensed as incurred. For the years ended December
31, 1996, 1995 and 1994, advertising costs totaled $3,758, $3,265 and $1,304,   
respectively.                                                                   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

Net Income/Loss Per Common Share:                                           

  For 1996, 1995 and 1994, net income/loss per common share is computed on
the basis of the weighted average number of shares outstanding of 9,095,102.    

Use of Estimates                                                            

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

Reclassifications:                                                          

   Certain 1995 and 1994 financial statement items have been reclassified to
conform with 1996 presentations.                                                

NOTE B -- REAL ESTATE SALES                                                     

The components of real estate sales are as follows:                   

                                                        [Enlarge/Download Table]

                                                       FOR THE YEAR ENDED DECEMBER 31,
                                                       -------------------------------
                                                        1996        1995        1994  
                                                       -------     -------     -------
                                                                                      
Revenues from homebuilding activities................. $49,672     $13,260     $ 7,400
Resort revenues.......................................  16,087      14,151      13,222
Gross homesite sales*.................................  12,387      12,561      12,271
Proceeds from sales of recreation facility............   8,300          --          --
Rental, leasing, cable and other real estate                                          
  operations..........................................   5,362       5,621       5,457
Commercial/Industrial land sales......................   1,702       2,624       4,001
                                                       -------     -------     -------
  Total real estate sales............................. $93,510     $48,217     $42,351
                                                       =======     =======     =======

---------------                                                                 
* 1996 includes $3,714 of land sales generated by the Homebuilding Division and 
$4,276 for bulk land sales.                                                 

NOTE C -- INVESTMENTS                                                           

 The Company classifies its entire investment portfolio as trading. This
category is defined as including debt and marketable equity securities held for 
resale in anticipation of earning profits from short-term movements in market   
prices. Trading account securities are carried at fair market value and both    
realized and unrealized gains and losses are included in net trading account    
profit. Fair values for actively traded debt securities and equity securities   
are based on quoted market prices on national markets. Fair values for thinly   
traded investment securities are generally based on prices quoted by investment 
brokerage companies.                                                            

Avatar's investment portfolio at December 31, 1996 and 1995 included  
corporate bonds and other bonds rated B- or above by Moody's and/or Standard and
Poor's, non-rated bonds of companies which are in bankruptcy and have defaulted 
as to payments of principal and interest on such bonds, equity securities, money
market accounts and U.S. Government and Agency securities. The portfolio at     
December 31, 1995, also included obligations for securities that had been sold  
that the Company did not own and was, therefore, obligated to purchase at a     
future date. Such obligations were recorded at the fair market value of the     
securities.                                                                     

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

  The following table sets forth the fair values of investments (including
securities sold short which are valued at the cost to purchase as of December   
31):                                                                            

                                                                [Download Table]

                                                                    1996    1995   
                                                                   ------  ------- 
                                                                                   
Corporate bonds................................................... $   --  $21,985 
Non-rated bonds...................................................     77    8,472 
Equity securities.................................................     81    2,045 
Other rated bonds.................................................  2,172    4,753 
Money market accounts.............................................  2,205   11,519 
Less: Securities sold short.......................................     --     (516)
                                                                   ------  ------- 
     Total market value........................................... $4,535  $48,258 
                                                                   ======  ======= 
     Aggregate cost............................................... $3,975  $44,116 
                                                                   ======  ======= 

NOTE D -- CONTRACTS, MORTGAGE NOTES AND OTHER RECEIVABLES                       

    Contracts, mortgage notes and other receivables are summarized as follows:

                                                        [Enlarge/Download Table]

                                                                     DECEMBER 31,    
                                                                  -------------------
                                                                   1996        1995  
                                                                  -------     -------
                                                                                     
Contracts and mortgage notes receivable.......................... $61,534     $82,521
Notes and other receivables......................................   8,543       7,466
                                                                  -------     -------
                                                                   70,077      89,987
                                                                  -------     -------
Less:                                                                                
  Allowance for doubtful accounts................................     848         648
  Market valuation reserve.......................................     140         704
  Deferred gross profit..........................................  21,878      27,589
  Other..........................................................   1,945       2,774
                                                                  -------     -------
                                                                   24,811      31,715
                                                                  -------     -------
                                                                  $45,266     $58,272
                                                                  =======     =======

    Contracts and mortgage notes receivable were generated through the sale of
homesites at various sales offices located throughout the northeast, midwest and
west coast of the United States. A significant portion of the contracts and     
mortgage notes receivable at December 31, 1996, resulted from sales made to     
customers in the northeast.                                                     

   Contracts receivable are collectible primarily over a ten year period and
bear interest at rates primarily ranging from 7 1/2% to 12% per annum (weighted 
average rate 9.9%). The Company generally requires that customers pledge the    
homesites as collateral for contracts and mortgages receivable and such         
collateral can be repossessed by the Company in the event of default. A contract
receivable is considered delinquent if the scheduled installment payment remains
unpaid 30 days after its due date. Delinquent principal amounts of contracts and
mortgage notes receivable at December 31, 1996 and 1995 were $7,099 or 9.6% and 
$11,619 or 13.0%, respectively. Estimated maturities for the five years         
subsequent to 1996 are: 1997 -- $17,142; 1998 -- $14,862; 1999 -- $10,822;      
2000 -- $7,786 and 2001 -- $6,501.                                              

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

NOTE E -- LAND AND OTHER INVENTORIES                                            

Inventories consist of the following:                                 

                                                                [Download Table]

                                                             DECEMBER 31,     
                                                         ---------------------
                                                           1996         1995  
                                                         --------     --------
                                                                              
Land developed and in process of development...........  $105,617     $ 94,196
Land held for future development or sale...............    33,544       34,790
Dwelling units completed or under construction.........    22,270       14,800
Other..................................................       773        1,121
                                                         --------     --------
                                                         $162,204     $144,907
                                                         ========     ========

 In 1996, the Company recorded an impairment loss of $1,464 on a certain
tract of land located at the Company's Banyan Bay site. Fair value was          
determined based on a purchase offer received for the land.                     

NOTE F -- ESTIMATED DEVELOPMENT LIABILITY FOR SOLD LAND                         

The estimated cost to complete consists of required land and utility  
improvements in all areas designated for homesite sales and are summarized as   
follows:                                                                        

                                                                [Download Table]

                                                              DECEMBER 31,    
                                                           -------------------
                                                            1996        1995  
                                                           -------     -------
                                                                              
Gross unexpended costs (net of recoveries of $11,941 in                       
  1996 and $11,495 in 1995)..............................  $11,685     $19,022
Less costs relating to unsold homesites..................    3,226       5,989
                                                           -------     -------
Estimated development liability for sold land............  $ 8,459     $13,033
                                                           =======     =======

   These estimates are based on engineering studies of quantities of work to
be performed based on current estimated costs. These estimates are reevaluated  
annually and adjusted accordingly.                                              

A major portion of the estimated development liability for sold land  
relates to utility extensions for homesites at Avatar's Arizona community (Rio  
Rico) which were sold prior to 1980.                                            

At Rio Rico, Avatar entered into various service and construction     
agreements with Citizens Utilities Company (Citizens), a non-related company,   
generally providing for Avatar to construct certain utility facilities and deed 
them to Citizens. Avatar's expenditures, related to the construction of some of 
these facilities, are expected to be reimbursed from Citizens' present and      
future customers. Some of these reimbursable amounts are determined by specific 
formulas. The recovery of these expenditures is dependent upon the community    
attaining an occupancy and/or usage level sufficient to allow reimbursement     
prior to the expiration of the agreements. During 1993, Avatar purchased        
Citizens Utilities water and wastewater treatment division thereby voiding the  
portion of the existing agreement relating to water and wastewater extensions,  
leaving only the electrical portion.                                            

   Avatar may be obligated to expend approximately $8,394 (current costs) to
complete water and wastewater utility facilities at its Poinciana subdivision.  
These possible future obligations are based on internal engineering studies and 
are not included in the estimated development liability discussed above. As     
such, past and future expenditures are expected to be recovered from customers' 
fees and future revenues.                                                       

  Expenditures, net of recoveries, for homesite improvement costs totaling
$11,685 are estimated as follows: 1997-$3,849 and thereafter-$7,836. Because the
timing of the expenditures after 1997 is dependent upon certain future          
occurrences beyond Avatar's control, projection by year after 1997 is not       
presently practicable.                                                          

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

NOTE G -- PROPERTY, PLANT AND EQUIPMENT                                         

   Property, plant and equipment and accumulated depreciation consist of the
following:                                                                      

                                                                [Download Table]

                                                             DECEMBER 31,     
                                                         ---------------------
                                                           1996         1995  
                                                         --------     --------
                                                                              
Utility land, plant and equipment......................  $230,600     $219,271
Land and improvements..................................    12,395       12,844
Buildings and improvements.............................    17,941       19,165
Machinery, equipment and fixtures......................    13,513       14,803
Other..................................................       639          418
                                                         --------     --------
                                                          275,088      266,501
Less accumulated depreciation..........................    88,710       83,887
                                                         --------     --------
                                                         $186,378     $182,614
                                                         ========     ========

   Depreciation charged to operations during 1996, 1995 and 1994 was $6,315,
$5,833 and $5,655, respectively, net of amortization of contributions and       
advances in aid of construction of $4,289, $4,051 and $2,798 during 1996, 1995  
and 1994, respectively.                                                         

NOTE H -- NOTES, MORTGAGE NOTES AND OTHER DEBT                                  

Notes, mortgage notes and other debt are summarized as follows:       

                                                        [Enlarge/Download Table]

                                                                      DECEMBER 31,    
                                                                  --------------------
                                                                   1996         1995  
                                                                  -------     --------
                                                                                      
Real estate and corporate                                                             
  Bank credit lines.............................................  $39,381     $ 56,024
  8% senior debentures, due 2000, net of unamortized discount of                      
     $899 and $1,080, respectively..............................    6,728        6,547
  9% senior debentures, due 2000, net of unamortized discount of                      
     $2,275 and $2,725, respectively............................   23,070       22,619
  Mortgage note obligations, interest rates from 8.875% to 10%,                       
     due from 1999-2002.........................................    4,969        9,612
  Avatar Homesite Mortgage Trust 1992-2002, 7% Notes............       --        8,606
                                                                  -------     --------
                                                                  $74,148     $103,408
                                                                  =======     ========
Development and construction loans, interest rates from 8% to                         
  10.5%.........................................................  $22,492     $ 19,093
                                                                  =======     ========
Utilities                                                                             
  Bank credit lines.............................................  $ 4,350     $  2,975
  Utility first mortgage bonds due serially from 1997-2007,                           
     interest rates from 7.79% to 9.19%.........................   15,608       16,820
  Utility senior notes, 7.27%, due 2000-2010....................   18,000       18,000
  Utility promissory notes, due 1997-2002.......................    4,194        5,369
                                                                  -------     --------
                                                                  $42,152     $ 43,164
                                                                  =======     ========

   At December 31, 1996, Avatar had secured bank credit lines of $59,379 and
unsecured bank credit lines of $15,000. The unused portions of secured and      
unsecured credit lines were $20,000 and $10,650, respectively, at December 31,  
1996. The weighted average interest rate on short term borrowing at December 31,
1996 was 9.1%. Interest rates for borrowings under these lines range from 6.43% 
to 8.25% on the unsecured bank credit                                           

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

lines and from 8% to 10.5% on the secured bank credit lines at December 31,     
1996. Additionally, certain credit lines provide for fixed rate borrowings      
pursuant to Eurodollar interest rates. Under the terms of these agreements,     
Avatar is restricted from paying dividends and is required to maintain a minimum
net worth, as defined. The secured lines are collateralized by certain real     
property, and contracts and mortgage, notes receivable of $57,436 and           
investments of $3,964 at December 31, 1996.                                     

 In 1992, Avatar issued $51,160 of 7% Mortgage Trust Notes, rated "A" by
Standard & Poor's Corporation, pursuant to the securitization of a portion of   
its homesite receivables. These notes were paid in full during the third quarter
of 1996.                                                                        

   During 1996, an Avatar subsidiary and Stanco Partners Ltd. entered into a
joint venture agreement (the Joint Venture) and acquired Casa Del Mar (CDM), an 
Ormond Beach, Florida beachfront hotel. In connection with the acquisition of   
Casa Del Mar, the Joint Venture entered into a loan agreement with $5,674       
outstanding at December 31, 1996. The debt is guaranteed by a subsidiary of     
Avatar as well as the Joint Venture Partners.                                   

  Maturities of notes, mortgage notes and other debt at December 31, 1996,
are as follows:                                                                 

                                                        [Enlarge/Download Table]

                                                     DEVELOPMENT                      
                                                         AND                          
                                        REAL ESTATE  CONSTRUCTION  UTILITIES   TOTAL  
                                        -----------  -----------   ---------  --------
                                                                                      
1997...................................   $   176      $14,756      $  7,618  $ 22,550
1998...................................    32,813        5,239         2,184    40,236
1999...................................       209          565         2,184     2,958
2000...................................    29,951        1,140         3,821    34,912
2001...................................     6,854           --         3,820    10,674
thereafter.............................     4,145          792        22,525    27,462
                                          -------      -------       -------  --------
                                          $74,148      $22,492      $ 42,152  $138,792
                                          =======      =======       =======  ========

   Maturities for 1997 include approximately $4,350 related to the Company's
bank credit lines.                                                              

    Interest capitalized during 1996, 1995 and 1994 amounted to $4,003, $3,234
and $1,625, respectively.                                                       

Property, plant and equipment and inventory pledged as collateral for 
notes, mortgage notes and other indebtedness had a net book value of            
approximately $159,000 at December 31, 1996.                                    

NOTE I -- MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES                        

As of December 31, 1996 and 1995, preferred stock outstanding is as   
follows:                                                                        

                                                                [Download Table]

                                                               DECEMBER 31,   
                                                             -----------------
                                                              1996       1995 
                                                             ------     ------
                                                                              
9% cumulative preferred stock..............................  $9,000     $9,000
Other......................................................      64         60
                                                             ------     ------
                                                             $9,064     $9,060
                                                             ======     ======

    Avatar's utility subsidiary's 9% cumulative preferred stock issue provides
for redemption to occur no earlier than March 1, 1997, in whole or in part;     
however, a minimum of $1,800 of the preferred stock must be redeemed per annum  
beginning in 1997. A redemption of all outstanding shares shall occur no later  
than March 1, 2001.                                                             

  Charges to operations recorded as "Other Expenses" relating to preferred
stock dividends of subsidiaries amounted to $814 in 1996, $811 in 1995, and $811
in 1994.                                                                        

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AVATAR HOLDINGS INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

NOTE J -- RETIREMENT PLANS                                                      

    Avatar has two defined contribution savings plans that cover substantially
all employees. Under one of the savings plans, Avatar contributes to the plan   
based upon specified percentages of employees' voluntary contributions. The     
other savings plan does not provide for contributions by Avatar.                

     Avatar's non-contributory defined benefit pension plan covers substantially
all employees of its subsidiary, Avatar Utilities Inc. The benefits are based on
years of service and the employees' compensation during the five highest years  
of earnings. Avatar's funding policy is to contribute amounts to the plan       
sufficient to meet the minimum funding requirements set forth in the Employee   
Retirement Income Security Act of 1974.                                         

    The following table sets forth the defined benefit plan's funded status as
of December 31, 1996, 1995 and 1994 and the retirement expense recognized in the
consolidated statements of income for the years then ended.                     

                                                                [Download Table]

                                                         1996      1995      1994   
                                                        -------   -------   ------- 
                                                                                    
Actuarial present value of benefit obligations:                                     
  Accumulated benefit obligation, including vested                                  
     benefits of $3,288, $2,924, and $2,382,                                        
     respectively.....................................  $ 3,367   $ 3,025   $ 2,526 
                                                        =======   =======   ======= 
Projected benefit obligation for services rendered to                               
  date................................................  $(3,885)  $(3,646)  $(3,159)
Plan assets at fair value.............................    4,060     3,642     3,036 
                                                        -------   -------   ------- 
Projected benefit obligation less than (in excess of)                               
  plan assets.........................................      175        (4)     (123)
Unrecognized net gain.................................     (515)     (413)     (413)
Prior service cost not yet recognized in net periodic                               
  pension cost........................................      362       409       456 
Unrecognized net assets at January 1, 1986, net of                                  
  amortization........................................      (58)      (73)      (87)
                                                        -------   -------   ------- 
Accrued pension cost included in accrued and other                                  
  liabilities.........................................  $   (36)  $   (81)  $  (167)
                                                        =======   =======   ======= 
Net retirement cost included the following components:                              
  Defined Benefit Plan:                                                             
     Service cost -- benefits earned during the                                     
       period.........................................  $   204   $   190   $   209 
     Interest cost on projected benefit obligation....      284       250       229 
     Actual return on plan assets.....................     (406)     (495)     (362)
     Net amortization and deferral....................      139       245       169 
                                                        -------   -------   ------- 
     Net pension cost.................................      221       190       245 
  Defined contribution plan...........................      122       117       102 
                                                        -------   -------   ------- 
          Total retirement expense....................  $   343   $   307   $   347 
                                                        =======   =======   ======= 

The actuarial assumptions used in determining the present value of the
projected benefit obligation were: weighted average discount rate of 7.5% in    
1996, 1995 and 1994, rate of increase in future compensation levels of 5% in    
1996, 1995 and 1994, and expected long-term rate of return on plan assets of 8% 
in 1996, 1995 and 1994.                                                         

 Plan assets are invested in the general asset fund of a major insurance
company, which is composed primarily of fixed income securities, and a separate 
account, which is composed of equity securities, public bonds or cash           
equivalents.                                                                    

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

NOTE K -- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS                           

    A utility subsidiary of Avatar sponsors a defined non-contributory benefit
postretirement plan that provides medical and life insurance benefits to both   
salaried and nonsalaried employees after retirement. Participants contribute a  
portion of such benefits. The utility's funding policy for its postretirement   
plan is to fund on a pay-as-you-go basis.                                       

   The following table sets forth the plan's status as of December 31, 1996,
1995 and 1994:                                                                  

                                                                [Download Table]

                                                        1996      1995      1994   
                                                       -------   -------   ------- 
                                                                                   
Accumulated postretirement benefit obligation:                                     
  Retirees............................................ $  (882)  $  (948)  $  (766)
  Fully eligible active plan participants.............    (496)     (768)     (865)
  Other active plan participants......................  (1,460)   (2,299)   (2,307)
                                                       -------   -------   ------- 
                                                        (2,838)   (4,015)   (3,938)
Plan assets at fair value.............................       0         0         0 
                                                       -------   -------   ------- 
Accumulated postretirement benefit obligation in                                   
  excess of plan assets...............................  (2,838)   (4,015)   (3,938)
Unrecognized net gain from past experience different                               
  from that assumed and from changes in assumptions...  (2,281)     (715)     (195)
Unrecognized transition obligation....................   2,645     2,798     2,793 
                                                       -------   -------   ------- 
Accrued postretirement benefit cost................... $(2,474)  $(1,932)  $(1,340)
                                                       =======   =======   ======= 
Net periodic postretirement benefit cost included the                              
  following components:                                                            
  Service cost........................................ $   244   $   273   $   315 
  Interest cost on accumulated postretirement benefit                              
     obligation.......................................     277       283       271 
  Amortization of transition obligation over 20                                    
     years............................................     155       155       155 
  Other...............................................     (88)      (35)      (23)
                                                       -------   -------   ------- 
Net periodic postretirement benefit cost.............. $   588   $   676   $   718 
                                                       =======   =======   ======= 

 For measurement purposes, the annual rate of increase in the per capita
cost of covered health care benefits assumed for 1996, 1995 and 1994 was 10%,   
11% and 12%, respectively; the rate of increase was assumed to decrease         
gradually to 6% by the year 2000 and remain at that level thereafter;           
termination rates calculations, except those at December 31, 1996, used the     
Crocker-Sarason Straight T-6 tables less 51GAM deaths; the T-8 tables were used 
for the December 31, 1996 calculation. This change in termination rates will    
decrease the net periodic benefit cost in future years. The health care cost    
trend rate assumption has a significant effect on the amounts reported. To      
illustrate, increasing the assumed health care cost trend rates by 1 percentage 
point each year would increase the accumulated postretirement benefit obligation
as of December 31, 1996 by $516 and the aggregate of the service and interest   
cost components of net periodic postretirement benefit for the year then ended  
by $113.                                                                        

The weighted average discount rate used in determining the accumulated
postretirement benefit obligation for 1996, 1995 and 1994 was 7.5%, 7.5% and    
8.0%, respectively.                                                             

NOTE L -- LEASE COMMITMENTS                                                     

  Avatar leases the majority of its administration and sales offices under
operating leases that expire at varying times through 2001. Rental expenses for 
the years 1996, 1995 and 1994 were $1,838, $1,562, and                          

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

$1,235, respectively. Minimum rental commitments under noncancelable operating  
leases as of December 31, 1996 were as follows: 1997 -- $2,110; 1998 -- $1,837; 
1999 -- $1,478; 2000 -- $575; 2001 -- $280.                                     

NOTE M -- ACCRUED AND OTHER LIABILITIES                                         

Accrued and other liabilities are summarized as follows:              

                                                                [Download Table]

                                                              DECEMBER 31,    
                                                           -------------------
                                                            1996        1995  
                                                           -------     -------
                                                                              
Property taxes...........................................  $ 5,788     $ 5,886
Customer deposits and advances...........................    5,225       5,596
Interest.................................................    1,027       1,573
Other....................................................   18,802      18,858
                                                            ------      ------
                                                           $30,842     $31,913
                                                            ======      ======

 As of December 31, 1996, the Company had certain incentive compensation
agreements providing for a cash payment (to the extent vested), within ten days 
following the respective fifth anniversary date (payment terms are subject to   
renewal agreements) of the respective agreement (or the termination date, if    
earlier), in an amount equal to the excess of a formula amount based upon the   
closing prices of Avatar common stock during a specified period prior to the    
respective fifth anniversary date (or termination date, if earlier) over the    
closing price of Avatar common stock on the date of the respective agreement.   
Each eligible employee will vest in the rights to this incentive compensation   
with respect to one-fifth thereof in each of the first through fifth            
anniversaries, subject to certain terms and conditions of the contracts should  
their employment status change prior to the fifth anniversary. For the years    
ended December 31, 1996, 1995 and 1994, the Company recorded incentive          
compensation of ($213), $39 and $763, respectively, associated with these       
agreements. The liability for incentive compensation included in other          
liabilities at December 31, 1996 and 1995 is $822 and $1,035, respectively.     

NOTE N -- INCOME TAXES                                                          

 Under the installment method of tax reporting for homesite and vacation
ownership sales, Avatar anticipates that its 1996 consolidated federal income   
tax return will reflect a net operating loss carryforward of approximately      
$40,000, which expires in years 2003 through 2010. In addition, investment tax  
credits and alternative minimum tax credit carryforwards of approximately $5,000
are available, a portion of which expires in years 1997 to 2001. The Internal   
Revenue Service has not examined these carryforwards.                           

   The Company has recorded a valuation allowance of $41,000 with respect to
the deferred income tax assets that remain after offset by the deferred income  
tax liabilities. Included in the valuation allowance for deferred income tax    
assets is approximately $9,000 which, if utilized, will be credited to          
additional paid-in capital.                                                     

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

   Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting  
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred income tax assets and liabilities as of December 31, 1996
and 1995 are as follows:                                                        

                                                                [Download Table]

                                                                  1996       1995   
                                                                --------   -------- 
                                                                                    
Deferred income tax assets                                                          
  Net operating loss carryover................................. $ 15,000   $ 16,000 
  Tax over book basis of land inventory........................   24,000     23,000 
  Unrecoverable land development costs.........................    3,000      4,000 
  Tax over book basis of depreciable assets....................    7,000      7,000 
  Alternative minimum tax and investment tax credit                                 
     carryforward..............................................    5,000      5,000 
  Other........................................................    2,000      2,000 
                                                                --------   -------- 
          Total deferred income taxes..........................   56,000     57,000 
  Valuation allowance for deferred income tax assets...........  (41,000)   (42,000)
                                                                --------   -------- 
Deferred income tax assets after valuation allowance...........   15,000     15,000 
Deferred income tax liabilities                                                     
  Book over tax income recognized on homesite sales............   (3,000)    (4,000)
  Book over tax income recognized on vacation ownership                             
     sales.....................................................   (3,000)    (1,000)
  Deferred carrying charges on utility plant...................   (2,000)    (3,000)
  Other........................................................   (7,000)    (7,000)
                                                                --------   -------- 
Total deferred income tax liabilities..........................  (15,000)   (15,000)
                                                                --------   -------- 
  Net deferred income taxes.................................... $     --   $     -- 
                                                                ========   ======== 

    A reconciliation of income tax expense (credit) from continuing operations
to the expected income tax expense (credit) at the federal statutory rate of 34%
for the year ended December 31 is as follows:                                   

                                                                [Download Table]

                                                        1996      1995      1994   
                                                       -------   -------   ------- 
                                                                                   
Income tax expense (credit) computed at statutory                                  
  rate................................................ $   770   $(3,713)  $(4,921)
Income tax effect of non-deductible dividends on                                   
  preferred stock of subsidiary.......................     277       276       275 
State income tax (credit), net of federal effect......     147      (381)     (515)
Other.................................................    (194)     (182)      161 
Change in valuation allowance on deferred tax                                      
  assets..............................................  (1,000)    4,000     5,000 
                                                       -------   -------   ------- 
Provision for income taxes............................ $    --   $    --   $    -- 
                                                       =======   =======   ======= 

    In years 1988 through 1995, the Company elected the installment method for
recording a substantial amount of its homesite and vacation ownership sales in  
its federal income tax return, which deferred taxable income into future fiscal 
periods. As a result of such election, the Company may be required to pay       
compound interest on certain federal income taxes in future fiscal periods      
attributable to the taxable income deferred under the installment method. The   
Company believes that the potential interest amount, if any, will not be        
material to its financial position and results of operations of the affected    
future periods.                                                                 

NOTE O -- CONTINGENCIES                                                         

    Avatar is involved in various pending litigation matters primarily arising
in the normal course of its business. Although the outcome of these and the     
following matter cannot be determined, management                               

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

believes that the resolution of these matters will not have a material effect on
Avatar's business or financial position.                                        

    On October 1, 1993, the United States, on behalf of the U.S. Environmental
Protection Agency, filed a civil action against Florida Cities Water Company    
("Florida Cities"), a utility subsidiary of Avatar Holdings Inc. ("Avatar"), in 
the U.S. District Court for the Middle District of Florida, United States v.    
Florida Cities Water Company, Civil Action No. 93-281-CIV-FTM-21, alleging that 
Florida Cities' Waterway Estates treatment plant, located in Lee County, Florida
operated in violation of the Federal Clean Water Act ("Act"), 33 U.S.C. sec.1251
et seq. On May 5 and June 26, 1995, the United States amended its complaint to  
include allegations against Florida Cities for violations of the Act at two     
other Florida wastewater treatment plants, Barefoot Bay, located in Brevard     
County, and Carrollwood, located in Hillsborough County. In addition, the       
government amended the complaint to include Avatar, the parent corporation, as a
defendant. A trial was held in March and April 1996. On August 20, 1996, the    
Court issued its final judgment, incorporating earlier rulings. The Court found 
Avatar not liable on any of the government's claims and entered judgment in     
Avatar's favor. The Court found Florida Cities not liable on certain of the     
government's claims, but liable on other claims, and awarded the government $310
in civil penalties against Florida Cities. On October 18, 1996, the government  
filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit. 
Avatar and Florida Cities believe that there are strong arguments to support the
affirmance of the judgment of the District Court on appeal.                     

NOTE P -- FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS                   

                                                        [Enlarge/Download Table]

                                                             FOR THE YEAR ENDED DECEMBER 31,   
                                                            ---------------------------------- 
                                                              1996         1995         1994   
                                                            --------     --------     -------- 
                                                                                               
Revenues:                                                                                      
Real estate                                                                                    
Unaffiliated customers..................................... $108,610     $ 64,499     $ 52,663 
Intersegment...............................................      100          100          100 
                                                            --------     --------     -------- 
                                                             108,710       64,599       52,763 
Utility                                                                                        
Unaffiliated customers.....................................   32,749       29,669       28,664 
                                                            --------     --------     -------- 
                                                              32,749       29,669       28,664 
Elimination of intersegment revenues.......................     (100)        (100)        (100)
                                                            --------     --------     -------- 
Total Revenues............................................. $141,359     $ 94,168     $ 81,327 
                                                            ========     ========     ======== 
Operating profit:                                                                              
Real estate................................................ $  7,987     $ (3,237)    $ (6,415)
Utility....................................................    6,330        3,835        3,102 
                                                            --------     --------     -------- 
Total operating profit.....................................   14,317          598       (3,313)
Interest expense...........................................  (12,053)     (11,518)     (11,160)
                                                            --------     --------     -------- 
Income (loss) from continuing operations before income                                         
  taxes and effect of changes in methods of accounting..... $  2,264     $(10,920)    $(14,473)
                                                            ========     ========     ======== 
Depreciation and amortization:                                                                 
Real estate................................................ $  2,506     $  2,347     $  1,957 
Utility....................................................    3,809        3,486        3,698 
                                                            --------     --------     -------- 
Total...................................................... $  6,315     $  5,833     $  5,655 
                                                            ========     ========     ======== 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

                                                        [Enlarge/Download Table]

                                                             FOR THE YEAR ENDED DECEMBER 31,  
                                                              1996         1995         1994  
                                                            --------     --------     --------
                                                                                              
Capital expenditures:                                                                         
Real estate................................................ $  3,324     $  2,138     $  5,599
Utility....................................................   12,336       17,382       10,745
                                                            --------     --------     --------
                                                            $ 15,660     $ 19,520     $ 16,344
                                                            ========     ========     ========

                                                        [Enlarge/Download Table]

                                                                       DECEMBER 31,           
                                                            ----------------------------------
                                                              1996         1995         1994  
                                                            --------     --------     --------
                                                                                              
Identifiable assets:                                                                          
Real estate................................................ $252,273     $239,459     $221,384
Utility....................................................  186,020      182,661      173,357
                                                            --------     --------     --------
Total Identifiable Assets..................................  438,293      422,120      394,741
General corporate assets...................................    4,892       48,512       51,836
                                                            --------     --------     --------
Total Assets............................................... $443,185     $470,632     $446,577
                                                            ========     ========     ========

---------------                                                                 
(a) Avatar's businesses are primarily conducted in the United States.           

(b) In computing operating profit, interest has been reflected separately.      

(c) Intersegment revenues contain primarily intercompany interest and management
fees charged to affiliates.                                             

(d) Identifiable assets by segment are those assets that are used in the        
  operations of each segment. General corporate assets are principally cash,
receivables and investments.                                            

(e) No significant part of the business is dependent upon a single customer or  
group of customers.                                                     

(f) Cable TV, mortgage and hotel and recreational operations which primarily    
   serve Avatar communities do not qualify individually as separate reportable
segments and are included in the real estate segment.                   

(g) General corporate expenses are included in the real estate segment.         

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

NOTE Q -- FAIR VALUE OF FINANCIAL INSTRUMENTS                                   

The carrying amounts and fair values of the Company's financial       
instruments, all of which are held for purposes other than trading except for   
investments -- trading at December 31, 1996 and 1995, are as follows:           

                                                        [Enlarge/Download Table]

                                                           1996                  1995         
                                                   --------------------  ---------------------
                                                   CARRYING      FAIR    CARRYING       FAIR  
                                                    AMOUNT       VALUE    AMOUNT       VALUE  
                                                   --------     -------  --------     --------
                                                                                              
Cash and restricted cash.......................... $  8,046     $ 8,046  $  4,439     $  4,439
Investments -- trading............................    4,535       4,535    48,258       48,258
Contracts, mortgage notes and other receivables...   45,266      46,365    58,272       59,250
Notes, mortgage notes and other debt:                                                         
Bank credit lines:                                                                            
  Short term bank credit lines....................       --          --    16,799       16,799
  Long term bank credit lines.....................   39,381      39,465    39,225       38,905
                                                    -------     -------   -------      -------
          Total bank credit lines.................   39,381      39,465    56,024       55,704
Mortgage obligations and promissory notes.........    4,969       5,018     9,612        9,888
Senior debentures.................................   29,798      30,936    29,166       30,936
Mortgage trust notes..............................       --          --     8,606        7,107
                                                    -------     -------   -------      -------
          Total real estate and corporate......... $ 74,148     $75,419  $103,408     $103,635
                                                    =======     =======   =======      =======
Development & Construction Loans:                                                             
Short term development and construction loans.....    7,353       7,353     2,916        2,916
Long term development and construction loans......   15,139      24,117    16,177       16,681
                                                    -------     -------   -------      -------
Total development and construction loans.......... $ 22,492     $31,470  $ 19,093     $ 19,597
                                                    =======     =======   =======      =======
Avatar Utilities Inc.:                                                                        
Short term bank credit lines......................    4,350       4,350     2,975        2,975
Mortgage obligations, first mortgage bonds, and                                               
  promissory notes................................   37,802      35,618    40,189       37,851
                                                    -------     -------   -------      -------
Total Utilities................................... $ 42,152     $39,968  $ 43,164     $ 40,826
                                                    =======     =======   =======      =======

    The Company in estimating the fair value of financial instruments used the
following methods and assumptions:                                              

     Cash and restricted cash: The carrying amount reported in the balance
sheet for cash approximates its fair value.                     

    Investments -- trading: The carrying amount in the balance sheet for
investments is at fair market value (See Note A).               

       Contracts, mortgage notes and other receivables: The fair value amounts
    of the Company's contracts, mortgage notes and other receivables are
estimated based on a discounted cash flow analysis.             

 Notes, mortgage notes and other debt: The carrying amounts of the
     Company's borrowings under its short term bank credit lines and short
     term development and construction loans approximate their fair value.
     The fair values of the Company's mortgage obligations, mortgage bonds
      and promissory notes are estimated using discounted cash flow analysis
      based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.                                

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

    Senior and subordinated debentures: The fair values of the Company's
       senior and subordinated debentures are estimated based on quoted market
prices.                                                         

     Mortgage trust notes: The fair value amount of the Company's mortgage
      trust notes are estimated using discounted cash flow analysis based on
the Company's current incremental borrowing rate.               

NOTE R -- QUARTERLY FINANCIAL DATA (UNAUDITED)                                  

Summarized quarterly financial data for 1996 and 1995 is as follows:  

                                                        [Enlarge/Download Table]

                                                                    1996 QUARTER                 
                                                     ------------------------------------------- 
                                                      FIRST      SECOND       THIRD      FOURTH  
                                                     -------     -------     -------     ------- 
                                                                                                 
Net revenues........................................ $27,315     $36,065     $31,378     $46,601 
Expenses............................................  27,975      36,027      32,169      42,924 
                                                     -------     -------     -------     ------- 
(Loss) income before income taxes...................    (660)         38        (791)      3,677 
(Loss) income from discontinued operations..........    (416)         55         434      (1,297)
Provision for income taxes..........................      --          --          --          -- 
                                                     -------     -------     -------     ------- 
Net (loss) income................................... $(1,076)    $    93     $  (357)    $ 2,380 
                                                     =======     =======     =======     ======= 
Per share amounts:                                                                               
  Net (loss) income................................. $ (0.12)    $  0.01     $ (0.04)    $  0.26 
                                                     =======     =======     =======     ======= 

                                                        [Enlarge/Download Table]

                                                                    1995 QUARTER                 
                                                     ------------------------------------------- 
                                                      FIRST      SECOND       THIRD      FOURTH  
                                                     -------     -------     -------     ------- 
                                                                                                 
Net revenues........................................ $24,639     $23,884     $22,336     $22,529 
Expenses............................................  25,137      25,348      25,890      27,933 
                                                     -------     -------     -------     ------- 
(Loss) income before income taxes...................    (386)     (1,594)     (3,464)     (4,895)
Income (loss) from discontinued operations..........     112        (130)         90         509 
Provision for income taxes..........................      --          --          --          -- 
                                                     -------     -------     -------     ------- 
Net (loss) income................................... $  (386)    $(1,594)    $(3,464)    $(4,895)
                                                     =======     =======     =======     ======= 
  Per share amounts:                                                                             
     Net (loss) income.............................. $ (0.04)    $ (0.18)    $ (0.38)    $ (0.54)
                                                     =======     =======     =======     ======= 

   The financial statements for the year ended December 31, 1995 include the
following amounts recorded in the fourth quarter:                               

         (a) a decline due to an adjustment to the market value of investments
of $1,315 (or $.14 per share).                                        

       (b) a provision of $1,250 (or $.14 per share) due to an increase in
the accrual related to pending litigation.                            

NOTE S -- SUBSEQUENT EVENT                                                      

Discontinued Operations                                                     

     During 1997, the Company developed a formal plan for the disposition of its
timeshare business. A letter of intent for the sale of the business was executed
in the third quarter of 1997. The expected sales price is approximately $11.0   
million. Accordingly, net assets and liabilities of the time share business have
been segregated from continuing operations in the accompanying consolidated     
balance sheets, and operating results are segregated and reported as            
discontinued operations in the accompanying consolidated statements of          
operations and cash flows.                                                      

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

 Information relating to the discontinued operations for the years ended
December 31, 1996, 1995 and 1994 are as follows (dollars in thousands):         

                                                        [Enlarge/Download Table]

                                                          FOR THE YEAR ENDED DECEMBER  
                                                                      31,              
                                                         ----------------------------- 
                                                          1996        1995       1994  
                                                         -------     ------     ------ 
                                                                                       
REVENUES                                                                               
Real estate sales....................................... $10,011     $7,764     $1,512 
Deferred gross profit on homesite sales.................      --          7          9 
Interest income.........................................     972        226         -- 
Other...................................................     356         --         -- 
                                                         -------     ------     ------ 
Total revenues..........................................  11,339      7,997      1,521 
EXPENSES                                                                               
Real estate expenses....................................  11,679      7,269      1,622 
General and administrative expenses.....................      --         38         -- 
Interest expense........................................     884        109         47 
                                                         -------     ------     ------ 
Total expenses..........................................  12,563      7,416      1,669 
                                                         -------     ------     ------ 
(Loss) income before income taxes.......................  (1,224)       581       (148)
Provision for income taxes..............................      --         --         -- 
                                                         -------     ------     ------ 
Net (loss) income....................................... $(1,224)    $  581     $ (148)
                                                         =======     ======     ====== 

   The net assets and liabilities of the discontinued operations included in
the accompanying balance sheets as of December 31, 1996 and 1995 are as follows 
(dollars in thousands):                                                         

                                                        [Enlarge/Download Table]

                                                            DECEMBER 31,  DECEMBER 31,
                                                                1996          1995    
                                                            ------------  ------------
                                                                                      
ASSETS                                                                                
Cash.......................................................   $     53      $     31  
Restricted cash............................................        198         2,045  
Contracts, mortgage notes and other receivables, net.......     11,278         6,243  
Land and other inventories.................................      6,007         4,363  
Property, plant and equipment, net.........................        237           230  
Other assets...............................................      2,299         1,735  
                                                               -------       -------  
          Total Assets.....................................   $ 20,072      $ 14,647  
                                                               =======       =======  
LIABILITIES                                                                           
Notes, mortgage notes and other debt:                                                 
  Real estate and corporate................................   $    995      $  1,489  
  Development and construction loan........................      9,196         5,442  
Accounts payable...........................................        349           430  
Accrued and other liabilities..............................      1,245           973  
                                                               -------       -------  
          Total Liabilities................................   $ 11,785      $  8,334  
                                                               =======       =======  

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CONSOLIDATED BALANCE SHEETS -- (UNAUDITED)
(DOLLARS IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                    SEPTEMBER 30,  DECEMBER 31,
                                                                        1997           1996    
                                                                    -------------  ------------
                                                                                               
ASSETS                                                                                         
Cash...............................................................   $   3,311      $  6,463  
Restricted cash....................................................       1,728         1,583  
Investments - trading..............................................       4,358         4,535  
Contracts and mortgage notes receivables, net......................      27,080        38,200  
Other receivables, net.............................................       5,498         7,066  
Land and other inventories.........................................     175,862       162,204  
Property, plant and equipment, net.................................     187,839       186,378  
Other assets.......................................................      13,609        12,916  
Regulatory assets..................................................       3,405         3,768  
Net assets of discontinued operations..............................      26,561        20,072  
                                                                       --------      --------  
          Total Assets.............................................   $ 449,251      $443,185  
                                                                       ========      ========  
LIABILITIES AND STOCKHOLDERS' EQUITY                                                           
Liabilities                                                                                    
Notes, mortgage notes and other debt:                                                          
  Corporate........................................................   $  44,669      $ 33,149  
  Notes, collateralized by contracts and mortgage notes                                        
     receivable....................................................      26,766        36,030  
  Real Estate......................................................      35,727        27,461  
  Utilities........................................................      38,747        42,152  
Estimated development liability for sold land......................       8,778         8,459  
Accounts payable...................................................       5,136         7,116  
Accrued and other liabilites.......................................      33,558        30,842  
Deferred customer betterment fees..................................      17,897        18,430  
Minority interest in consolidated subsidiaries.....................       7,264         9,064  
Net liabilities of discontinued operations.........................      16,235        11,785  
                                                                       --------      --------  
          Total Liabilities........................................     234,777       224,488  
Commitments and contingent liabilities                                                         
Contributions in aid of construction...............................      61,603        59,245  
STOCKHOLDERS' EQUITY                                                                           
Common Stock, par value $1 per share                                                           
  Authorized: 15,500,000 shares                                                                
  Issued: 12,715,448 shares........................................      12,715        12,715  
Additional paid-in capital.........................................     207,271       207,271  
(Deficit) retained earnings........................................      (5,142)        1,439  
                                                                       --------      --------  
                                                                        214,844       221,425  
Treasury stock, at cost, 3,620,346 shares..........................      61,973        61,973  
                                                                       --------      --------  
     Total Stockholders' Equity....................................     152,871       159,452  
                                                                       --------      --------  
          Total Liabilities and Stockholders' Equity...............   $ 449,251      $443,185  
                                                                       ========      ========  

See notes to consolidated financial statements. 

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AVATAR HOLDINGS INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF OPERATIONS 
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 
(UNAUDITED) 
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

                                                        [Enlarge/Download Table]

                                                        NINE MONTHS           THREE MONTHS     
                                                    --------------------   ------------------- 
                                                      1997        1996      1997        1996   
                                                    --------     -------   -------     ------- 
                                                                                               
REVENUES                                                                                       
Real estate sales.................................. $ 60,284     $60,373   $17,535     $19,761 
Deferred gross profit..............................    3,010       1,587       935       1,210 
Utility revenues...................................   26,153      24,245     8,242       7,810 
Interest income....................................    4,110       6,035     1,188       1,918 
Trading account profit, net........................      257       2,047        50         450 
Other..............................................      601         471       217         229 
                                                    --------     -------   -------     ------- 
          Total revenues...........................   94,415      94,758    28,167      31,378 
EXPENSES                                                                                       
Real estate expenses...............................   66,308      61,525    20,955      20,827 
Utility expenses...................................   19,207      19,022     6,315       6,202 
General and administrative expenses................    6,919       6,660     2,141       1,976 
Interest expense...................................    8,743       8,353     3,558       2,961 
Other..............................................      518         611       163         203 
                                                    --------     -------   -------     ------- 
          Total expenses...........................  101,695      96,171    33,132      32,169 
                                                    --------     -------   -------     ------- 
Loss from continuing operations before income                                                  
  taxes............................................   (7,280)     (1,413)   (4,965)       (791)
Provision for income taxes.........................       --          --        --          -- 
                                                    --------     -------   -------     ------- 
Net loss from continuing operations................   (7,280)     (1,413)   (4,965)       (791)
Discontinued operations:                                                                       
  Income (loss) from operations, less income tax                                               
     expenses of $0................................      699          73       (48)        434 
                                                    --------     -------   -------     ------- 
Net loss........................................... $ (6,581)    $(1,340)  $(5,013)    $  (357)
                                                    ========     =======   =======     ======= 
Per share amounts:                                                                             
Net loss from continuing operations................ $  (0.80)    $ (0.16)  $ (0.54)    $ (0.09)
                                                    ========     =======   =======     ======= 
Income (loss) from discontinued operations......... $   0.08     $  0.01   $ (0.01)    $  0.05 
                                                    ========     =======   =======     ======= 
Net loss........................................... $  (0.72)    $ (0.15)  $ (0.55)    $ (0.04)
                                                    ========     =======   =======     ======= 

See notes to consolidated financial statements. 

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AVATAR HOLDINGS INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 
(DOLLARS IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                           1997       1996   
                                                                         --------   -------- 
                                                                                             
OPERATING ACTIVITIES                                                                         
Net loss...............................................................  $ (6,581)  $ (1,340)
Adjustments to reconcile net loss to net cash (used in)                                      
  provided by operating activities:                                                          
  Depreciation and amortization........................................     7,551      7,487 
  Deferred gross profit................................................    (3,010)    (1,587)
  Inventory writedown..................................................       200         -- 
  Cost of homesite sales not requiring cash............................     5,172      3,591 
  Trading account profit, net..........................................      (257)    (2,047)
  Changes in operating assets and liabilities:                                               
     Restricted cash...................................................      (145)     1,418 
     Investments -- trading............................................       528     45,554 
     Principal payments on contracts receivable........................    13,876     10,714 
     Receivables.......................................................       289       (484)
     Other receivables.................................................     1,533       (132)
     Inventories.......................................................   (18,711)   (22,210)
     Other assets......................................................       363       (202)
     Assets/liabilities of discontinued operations, net................    (2,039)    (2,276)
     Accounts payable and accrued and other liabilities................      (584)    (2,116)
                                                                         --------   -------- 
          NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES..........    (1,815)    36,370 
INVESTING ACTIVITIES                                                                         
Investment in property, plant and equipment............................    (6,654)   (10,173)
                                                                         --------   -------- 
          NET CASH USED IN INVESTING ACTIVITIES........................    (6,654)   (10,173)
FINANCING ACTIVITIES                                                                         
Net proceeds from revolving lines of credit and long-term borrowings...    46,070     50,283 
Principal payments on revolving lines of credit and long-term                                
  borrowings...........................................................   (38,953)   (72,013)
Redemption of 9% cumulative preferred stock............................    (1,800)        -- 
                                                                         --------   -------- 
          NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES..........     5,317    (21,730)
                                                                         --------   -------- 
(DECREASE) INCREASE IN CASH............................................    (3,152)     4,467 
Cash at beginning of period............................................     6,463      2,436 
                                                                         --------   -------- 
CASH AT END OF PERIOD..................................................  $  3,311   $  6,903 
                                                                         ========   ======== 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                            
Cash paid during the period for:                                                             
  Interest -- Continuing operations (net of amount capitalized of                            
              $2,289 and $2,850 in 1997 and 1996 respectively).........  $  6,485   $  6,106 
                                                                         --------   -------- 
  Interest -- Discontinued operations (net of amount capitalized of $13                      
              and $127 in 1997 and 1996 respectively)..................  $    811   $    616 
                                                                         ========   ======== 
  Income taxes.........................................................  $     --   $     -- 
                                                                         ========   ======== 
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES                                       
Contributions in aid of construction...................................  $  4,401   $  3,085 
                                                                         ========   ======== 

See notes to consolidated financial statements. 

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AVATAR HOLDINGS INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS)

BASIS OF STATEMENT PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  

   The consolidated balance sheets as of September 30, 1997 and December 31,
1996, and the related consolidated statements of operations for the nine month  
and three month periods ended September 30, 1997 and 1996 and the consolidated  
statements of cash flows for the nine month periods ended September 30, 1997 and
1996 have been prepared in accordance with generally accepted accounting        
principles for interim financial information, the instructions to Form 10-Q and 
Article 10 of Regulation S-X. Accordingly, they do not include all of the       
information and footnotes required by generally accepted accounting principles  
for complete financial statement presentation. In the opinion of management, all
adjustments necessary for a fair presentation of such financial statements have 
been included. Such adjustments consisted only of normal recurring items.       
Interim results are not necessarily indicative of results for a full year.      

For a complete description of the Company's other accounting policies,
refer to Avatar Holdings Inc.'s 1996 Annual Report on Form 10-K and the notes to
Avatar's consolidated financial statements included therein.                    

RECLASSIFICATIONS                                                               

    Certain amounts presented for 1996 have been reclassified in the financial
statements for comparative purposes.                                            

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS                                  

    In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share", which is required to be adopted on December 
31, 1997. At that time, the Company will be required to change the method       
currently used to compute earnings per share, disclose both primary and diluted 
earnings per share and restate all prior periods. Under the new requirements,   
primary earnings per share will be renamed basic earnings per share and will    
exclude the dilutive effect of stock options. The impact of SFAS No. 128 on both
primary and diluted earnings per share, is not expected to be significant.      

    In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for  
the reporting of financial information from operating segments in annual and    
interim financial statements issued to shareholders. SFAS No. 131 also          
establishes standards for related disclosures with respect to products and      
services, geographic areas of operations, and major customers. SFAS No. 131,    
which is effective for fiscal years beginning after December 15, 1997, will have
no impact on the Company's consolidated results of operations, financial        
position or cash flows. However, SFAS No. 131 may affect reported segments and  
the Company is reviewing this matter.                                           

NET (LOSS) INCOME PER COMMON SHARE                                              

For the nine and three months ended September 30, 1997 and 1996, net  
(loss)/ income per common share is computed on the basis of the weighted average
number of shares outstanding of 9,095,102.                                      

RESTRICTED CASH                                                                 

   Restricted cash, at September 30, 1997, includes utility deposits of $57,
as well as housing deposits of $1,671, which have been placed in escrow. The    
housing deposits will become available to the Company when the housing contracts
close. Net assets from discontinued operations, at September 30, 1997, includes 
$332 in restricted cash.                                                        

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AVATAR HOLDINGS INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) 

STOCK OPTIONS                                                                   

   The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations in   
accounting for its employee stock options.                                      

    The Company's 1997 Incentive and Capital Accumulation Plan (the "Incentive
Plan") was adopted by the Incentive Plan Committee, ratified by the Board of    
Directors on February 13, 1997 and approved by the stockholders at the Annual   
Meeting on May 29, 1997. The Incentive Plan makes available 425,000 shares of   
Avatar Common Stock subject to certain adjustments. On February 13, 1997 Avatar 
entered into a Nonqualified Stock Option Agreement with the Company's President 
and granted him an option to purchase 225,000 shares of Avatar Common Stock at  
$34.00 per share (such price being in the judgment of an appointed committee of 
the Board not less than 100% of the Fair Market Value as defined in the         
Incentive Plan). The Option will become exerciseable with respect to 45,000     
shares on February 13, 1998 and on each February 13 thereafter through 2002, and
any unexercised portion of the Option will expire on February 13, 2007.         

USE OF ESTIMATES                                                                

  The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and        
assumptions that affect the amounts reported in the financial statements and    
accompanying notes. Accordingly, actual results could differ from those         
reported.                                                                       

INVESTMENTS -- TRADING                                                          

 The Company classifies all of its investment portfolio as trading. This
category is defined as including debt and marketable equity securities held for 
resale in anticipation of earning profits from short-term movements in market   
prices. Trading account securities are carried at fair market value, and both   
realized and unrealized gains and losses are included in net trading account    
profit. Fair values for actively traded debt securities and equity securities   
are based on quoted market prices on national markets. Fair values for thinly   
traded investment securities are generally based on prices quoted by investment 
brokerage companies.                                                            

   Avatar's investment portfolio at September 30, 1997 and December 31, 1996
included bonds rated B- or above by Moody's and/or Standard & Poor's, non-rated 
bonds and money market accounts. At December 31, 1996, the portfolio also       
included equity securities and non-rated bonds of companies which are in        
bankruptcy and have defaulted as to payments of principal and interest on such  
bonds.                                                                          

The following table sets forth the fair values of investments:        

                                                                [Download Table]

                                                    SEPTEMBER 30,  DECEMBER 31,
                                                        1997           1996    
                                                    -------------  ------------
                                                                               
Non-rated bonds....................................    $   100        $   77   
Equity securities..................................         --            81   
Other rated bonds..................................      2,212         2,172   
Money market accounts..............................      2,046         2,205   
                                                        ------        ------   
          Total market value.......................    $ 4,358        $4,535   
                                                        ======        ======   
          Aggregate cost...........................    $ 3,657        $3,975   
                                                        ======        ======   

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AVATAR HOLDINGS INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) 

CONTRACTS AND MORTGAGE NOTES RECEIVABLES                                        

Contracts and mortgage notes receivable (net of receivables from      
discontinued operations, refer to Discontinued Operations note on page F-30) is 
summarized as follows:                                                          

                                                                [Download Table]

                                                    SEPTEMBER 30,  DECEMBER 31,
                                                        1997           1996    
                                                    -------------  ------------
                                                                               
Contracts and mortgage notes receivable............    $45,021       $ 61,534  
Less:                                                                          
  Deferred gross profit*...........................     17,109         21,878  
  Allowance for doubtful accounts..................        832          1,456  
                                                       -------        -------  
                                                        17,941         23,334  
                                                       -------        -------  
                                                       $27,080       $ 38,200  
                                                       =======        =======  

---------------                                                                 
* Under the installment sales method, the gross profit on recorded sales is     
deferred and recognized in income of future periods as principal payments on
contracts receivable are received; deferred gross profit is included on the 
balance sheet, as a reduction of contracts receivable, until recognized.    

LAND AND OTHER INVENTORIES                                                      

Inventories (net of inventories from discontinued operations, refer to
Discontinued Operations note on page F-30) consist of the following:            

                                                                [Download Table]

                                                    SEPTEMBER 30,  DECEMBER 31,
                                                        1997           1996    
                                                    -------------  ------------
                                                                               
Land developed and in process of development.......   $ 110,715      $105,617  
Land held for future development or sale...........      33,544        33,544  
Dwelling units completed or under construction.....      30,850        22,270  
Other..............................................         753           773  
                                                       --------      --------  
                                                      $ 175,862      $162,204  
                                                       ========      ========  

MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES                                  

    Minority interest in consolidated subsidiaries is represented by preferred
stock of Avatar Utilities' subsidiaries. Total preferred stock outstanding is as
follows:                                                                        

                                                                [Download Table]

                                                    SEPTEMBER 30,  DECEMBER 31,
                                                        1997           1996    
                                                    -------------  ------------
                                                                               
9% Cumulative preferred stock......................    $ 7,200        $9,000   
Other..............................................         64            64   
                                                        ------        ------   
                                                       $ 7,264        $9,064   
                                                        ======        ======   

    Avatar's utility subsidiary's 9% cumulative preferred stock issue provides
for mandatory redemption of a minimum of $1,800 per annum beginning in 1997.    
During the first quarter Avatar redeemed $1,800 of the preferred stock. A       
redemption of all outstanding shares shall occur no later than March 1, 2001.   

Charges to operations recorded as "Other expenses" relate to preferred
stock dividends of subsidiaries for the nine months ended September 30, 1997 and
1996, which amounted to $518 and $611, respectively, and for the three months   
ended September 30, 1997 and 1996, which amounted to $163 and $203,             
respectively.                                                                   

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AVATAR HOLDINGS INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) 

INCOME TAXES                                                                    

   Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting  
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred income tax assets and liabilities as of September 30,    
1997 and 1996 are as follows:                                                   

                                                                [Download Table]

                                                                  1997       1996   
                                                                --------   -------- 
                                                                                    
Deferred income tax assets                                                          
  Net operating loss carryforward.............................. $ 19,000   $ 16,000 
  Tax over book basis of land inventory........................   23,000     24,000 
  Unrecoverable land development costs.........................    3,000      3,000 
  Tax over book basis of depreciable assets....................    6,000      7,000 
  Alternative minimum tax and investment tax credit                                 
     carryforward..............................................    4,000      4,000 
  Other........................................................    3,000      3,000 
                                                                --------   -------- 
          Total deferred income taxes..........................   58,000     57,000 

  Valuation allowance for deferred income tax assets...........  (43,000)   (42,000)
                                                                --------   -------- 
Deferred income tax assets after valuation allowance...........   15,000     15,000 

Deferred income tax liabilities                                                     
  Book over tax income recognized on homesite sales............   (2,000)    (3,000)
  Book over tax income recognized from discontinued                                 
     operations................................................   (4,000)    (3,000)
  Deferred carrying charges on utility plant...................   (2,000)    (2,000)
  Other........................................................   (7,000)    (7,000)
                                                                --------   -------- 
          Total deferred income tax liabilities................  (15,000)   (15,000)
                                                                --------   -------- 
          Net deferred income taxes............................ $      0   $      0 
                                                                ========   ======== 

  A reconciliation of income tax expense before discontinued operations to
the expected income tax expense (credit) at the federal statutory rate of 34%   
for the nine months ended September 30, 1997 and 1996 is as follows:            

                                                                [Download Table]

                                                             1997       1996  
                                                            -------     ----- 
                                                                              
Income tax (credit) computed at statutory rate............  $(2,475)    $(480)
Income tax effect of non-deductible dividends on preferred                    
  stock of subsidiary.....................................      176       207 
State income tax (credit), net of federal effect..........     (265)      (21)
Other, net................................................      564       294 
Change in valuation allowance on deferred tax assets......    2,000        -- 
                                                            -------     ----- 
Provision for income taxes................................  $     0     $   0 
                                                            =======     ===== 

CONTINGENCIES                                                                   

    Avatar is involved in various pending litigation matters primarily arising
in the normal course of its business. Although the outcome of these and the     
following matters cannot be determined, management believes that the resolution 
of these matters will not have a material effect on Avatar's business or        
financial position.                                                             

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AVATAR HOLDINGS INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) 

    On October 1, 1993, the United States, on behalf of the U.S. Environmental
Protection Agency, filed a civil action against Florida Cities Water Company    
("Florida Cities"), a utility subsidiary of Avatar Holdings Inc. ("Avatar"), in 
the U.S. District Court for the Middle District of Florida, United States v.    
Florida Cities Water Company, Civil Action No. 93-281-CIV-FTM-21, alleging that 
Florida Cities' Waterway Estates treatment plant, located in Lee County, Florida
operated in violation of the Federal Clean Water Act ("Act"), 33 U.S.C.         
sec. 1251 et seq. On May 5 and June 26, 1996, the United States amended its     
complaint to include allegations against Florida Cities for violations of the   
Act at two other Florida wastewater treatment plants, Barefoot Bay, located in  
Brevard County, and Carrollwood, located in Hillsborough County. In addition,   
the government amended the complaint to include Avatar, the Parent Corporation, 
as a defendant. A trial was held in March and April 1996. On August 20, 1996,   
the Court issued its final judgment, incorporating earlier rulings. The Court   
found Avatar not liable on any of the government's claims and entered judgment  
in Avatar's favor. The Court found Florida Cities not liable on certain of the  
government's claims, but liable on other claims, and awarded the government $310
in civil penalties against Florida Cities. On October 18, 1996, the government  
filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit. 
In June of 1997, the parties filed a joint motion to dismiss all related appeals
with prejudice. The U.S. Court of Appeals dismissed all appeals with prejudice  
on August 6, 1997, and the civil penalties have been paid by Florida Cities.    

DISCONTINUED OPERATIONS                                                         

     During 1997, the Company developed a formal plan for the disposition of its
timeshare business. In the third quarter of 1997, the Company executed a letter 
of intent to sell this business. The expected sales price is approximately $11.0
million. Accordingly, net assets and liabilities of the timeshare business have 
been segregated from continuing operations in the accompanying consolidated     
balance sheets, and operating results are segregated and reported as            
discontinued operations in the accompanying consolidated statements of          
operations and cash flows.                                                      

    Information relating to the discontinued operations for the nine and three
months ended September 30, 1997 and 1996 are as follows (dollars in thousands): 

                                                        [Enlarge/Download Table]

                                                   NINE MONTHS        THREE MONTHS   
                                                ------------------  -----------------
                                                 1997        1996    1997       1996 
                                                -------     ------  ------     ------
                                                                                     
REVENUES                                                                             
Real estate sales.............................. $ 9,827     $7,824  $3,412     $4,293
Interest income................................   1,228        632     479        263
Other..........................................     284        292      43         64
                                                -------     ------  ------     ------
          Total revenues.......................  11,339      8,748   3,934      4,620
EXPENSES                                                                             
Real estate expenses...........................   9,476      8,200   3,516      4,093
Interest expense...............................   1,164        475     466         93
                                                -------     ------  ------     ------
          Total expenses.......................  10,640      8,675   3,982      4,186
Income (loss) before income taxes..............     699         73     (48)       434
Provision for income taxes.....................      --         --      --         --
                                                -------     ------  ------     ------
Net income (loss).............................. $   699     $   73  $  (48)    $  434
                                                =======     ======  ======     ======

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AVATAR HOLDINGS INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) 

   The net assets and liabilities of the discontinued operations included in
the accompanying consolidated balance sheets as of September 30, 1997 and       
December 31, 1996 is as follows:                                                

                                                        [Enlarge/Download Table]

                                                              SEPTEMBER 30,  DECEMBER 31,
                                                                  1997           1996    
                                                              -------------  ------------
                                                                                         
ASSETS                                                                                   
Cash.........................................................    $    49       $     53  
Restricted cash..............................................        332            198  
Contracts, mortgage notes and other receivables, net.........     15,452         11,278  
Land and other inventories...................................      8,024          6,007  
Property, plant and equipment, net...........................        278            237  
Other assets.................................................      2,426          2,299  
                                                                  ------         ------  
          Total Assets.......................................    $26,561       $ 20,072  
                                                                  ======         ======  
LIABILITIES                                                                              
Notes, mortgage notes and other debt:                                                    
  Real estate................................................    $14,973       $ 10,191  
Accounts payable.............................................        785            349  
Accrued and other liabilities................................        477          1,245  
                                                                  ------         ------  
          Total Liabilities..................................    $16,235       $ 11,785  
                                                                  ======         ======  

SUBSEQUENT EVENT                                                                

  In accordance with the Company's plan to develop active adult/retirement
communities at various properties, the Company acquired, on October 3, 1997, key
executives, systems and software from Hilcoast Development Corp. (Hilcoast), the
developers of Century Village, in exchange for 75,000 shares of Avatar Common   
Stock. Additionally, Avatar acquired an option to purchase from a direct wholly 
owned subsidiary of Hilcoast, all rights to use the name "Century Village",     
together with any trademarks or other intellectual property rights. The option  
is exercisable by the Company until October 3, 1998, and upon closing the       
purchase, the Company would be obligated to issue a number of shares of Avatar  
Common Stock having a fair market value on the day immediately preceding the    
closing equal to $1,719.                                                        

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============================================================                    

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY  
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE      
COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR SOLICITATION OF ANY OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN    
WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE     
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY    
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE   
DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY             
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE      
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED  
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.                        

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

TABLE OF CONTENTS 

                                                                [Download Table]

                                                        PAGE
                                                        ----
                                                            
Incorporation of Certain Documents by Reference.......    1 
Available Information.................................    1 
Forward-looking Statements............................    2 
Prospectus Summary....................................    3 
Risk Factors..........................................   10 
Use of Proceeds.......................................   15 
Price Range of Common Stock...........................   15 
Dividend Policy.......................................   15 
Capitalization........................................   16 
Selected Financial Data...............................   17 
Management's Discussion and Analysis of Results of          
  Operations and Financial Condition..................   19 
Business..............................................   27 
Management............................................   35 
Principal Stockholders................................   38 
Description of the Notes..............................   40 
Certain Federal Income Tax Consequences...............   49 
Underwriting..........................................   55 
Legal Opinions........................................   56 
Experts...............................................   56 
Index to Financial Statements.........................  F-1 

============================================================                    
============================================================                    
$100,000,000
AVATAR HOLDINGS INC.

7% CONVERTIBLE
SUBORDINATED NOTES DUE 2005 
------------------------

PROSPECTUS
------------------------
CIBC OPPENHEIMER

SBC WARBURG DILLON READ INC.
JANUARY 28, 1998

============================================================                    

Dates Referenced Herein   and   Documents Incorporated by Reference

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