1996-07-24_Proxy_0000950133-96-001134

J. Roderick Heller, III has served as Director, President and Chief
Executive Officer of the Company since its organization in 1986 and has served
as Chairman of the Board since 1988. From 1982 until 1985, Mr. Heller served
as President and Chief Executive Officer of Bristol Compressors, Inc., a
Bristol, Virginia-based company involved in the manufacturing of air
conditioning compressors. From 1971 until 1982, he was a partner in the
Washington, D.C. law firm of Wilmer, Cutler & Pickering. Mr. Heller is a
director of Auto-Trol Technology Corporation and a number of nonprofit
organizations, including public television station WETA, the National Trust for
Historic Preservation and The Civil War Trust.

Richard S. Bodman has served as a director of the Company since August
1995. He has been Managing General Partner of AT&T Ventures, a high technology
venture capital partnership, since May 1996. Mr. Bodman previously served as
Senior Vice President of AT&T for Corporation Strategy and Development from
1990 to May 1996. Mr. Bodman is a director and Chairman of the Compensation
Committee of Tyco International, Inc. and served as a director of Reed Elsevier
and Lin Television Corporation.

John W. Creighton, Jr. has served as a director of the Company since
August 1995. He has served as Chief Executive Officer of Weyerhaeuser Company
since 1991. Mr. Creighton joined Weyerhaeuser Company in 1970 and was elected
Vice President in December of that year, Executive Vice President in 1985 and
President and Director in 1988. He also served as President of Weyerhaeuser
Real Estate Company from 1983 to 1989. Mr. Creighton previously served as a
director of NHP from 1986 to 1988 and as a director of National Corporation for
Housing Partnership (“NCHP”) from 1981 to 1988. Mr. Creighton serves as a
director of Washington Energy Company, Portland General Corporation, Unocal
Corporation and Quality Food Centers, Inc.

Lloyd N. Cutler has served as a director of the Company since August
1995. He is Senior Counsel at the law firm of Wilmer, Cutler & Pickering, a
position he has held since September 1994 and from 1990 to March 1994. Mr.
Cutler served as Special Counsel to President Clinton from March 1994 through
September 1994 and Counsel to President Carter from 1979 to 1980. Mr. Cutler
previously served as a director of the Company from 1987 until March 1994.

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Michael R. Eisenson has served as a director of the Company since
1990. Since December 1993, Mr. Eisenson has been President and Chief Executive
Officer of Harvard Private Capital Group, Inc. (“Harvard Private Capital”),
which manages the direct investment and private equities portfolio of the
Harvard University endowment fund. Harvard Private Capital is the investment
advisor for Demeter Holdings Corporation (“Demeter”). Mr. Eisenson joined
Harvard Private Capital in 1986. Mr. Eisenson is a Director of ImmunoGen,
Inc., Harken Energy Corporation, and Somatix Therapy Corporation.

Tim R. Palmer has served as a director of the Company since 1990. Mr.
Palmer joined Harvard Private Capital in 1990 and is currently a Managing
Director. From 1987 to 1990, Mr. Palmer was Manager, Business Development at
The Field Corporation, a private investment firm. Mr. Palmer is a director of
PriCellular Corporation.

Herbert S. Winokur, Jr. has served as a director of the Company since
1991. Since 1987, he has served as the President of Winokur & Associates,
Inc., an investment and management services firm, and Winokur Holdings, Inc.,
which is the managing general partner of Capricorn Investors, L.P.
(“Capricorn”), a private investment partnership. Mr. Winokur is the Chairman
of DynCorp and serves as a director of Enron Corporation and NacRe Corporation.

During the fiscal year ended December 31, 1995, the NHP Board of
Directors held five meetings and acted by written consent on five additional
occasions. Each of the directors attended at least 75% of the meetings held
during such director’s term.

There are three committees of the Board of Directors: the Compensation
Committee, the Audit Committee and the Conflicts Committee.

The Compensation Committee reviews salary policies and compensation of
officers and other members of management and approves compensation plans. The
Compensation Committee also administers the Company’s stock option plans.
Messrs. Eisenson, Winokur, and Creighton are the members of the Compensation
Committee. During the fiscal year ended December 31, 1995, the Compensation
Committee met on one occasion and acted by written consent on one occasion.
See “Executive Compensation – Compensation Committee Report on Executive
Compensation.”

The Audit Committee reviews with management and the Company’s
independent public accountants the Company’s financial statements, the
accounting principles applied in their preparation, the scope of the audit, any
comments made by the public accountants upon the financial condition of the
Company and its accounting controls and procedures, and such other matters as
the Committee deems appropriate. Messrs. Palmer, Bodman, Creighton and Winokur
are the members of the Audit Committee. During the fiscal year ended December
31, 1995, the Audit Committee met on two occasions.

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The Conflicts Committee monitors dealings between the Company and NHP
Partners, Inc. and its affiliates that may present a conflict of interest.
Messrs. Bodman, Creighton and Cutler are the members of the Conflicts
Committee. During the fiscal year ended December 31, 1995, the Conflicts
Committee had two meetings.

The Board of Directors recommends that shareholders vote FOR each of
the nominees to the Board of Directors.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

The following table sets forth as of June 14, 1996 the number and
percentage of outstanding shares of the Company’s Common Stock beneficially
owned by (i) all persons known by the Company to own beneficially more than 5%
of the Company’s Common Stock, (ii) each director and each executive officer
who is a stockholder, and (iii) all directors and executive officers as a
group. The business address of each of the following is 8065 Leesburg Pike,
Vienna, Virginia 22182 unless otherwise specified.

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– ———————

* Less than 1%

(1) Includes 176,250 shares subject to options that are exercisable
currently or within 60 days of the date of this statement and 101,250 shares
held in trusts for the benefit of Mr. Heller’s children. Mr. Heller disclaims
beneficial ownership of the shares in these trusts. The total excludes shares
Mr. Heller has the right to acquire pursuant to a performance vesting option.

(2) Includes shares held by Demeter Holdings Corporation, for which
Messrs. Eisenson and Palmer serve as representatives on the Company’s Board of
Directors. Messrs. Eisenson and Palmer disclaim beneficial ownership of the
shares held by Demeter.

(3) Includes all shares held by Capricorn Investors, L.P., for which Mr.
Winokur serves as a representative on the Company’s Board of Directors. Mr.
Winokur disclaims beneficial ownership of the shares held by Capricorn.

(4) Includes 16,000 shares subject to options that are exercisable
currently or within 60 days of the date of this statement.

(5) Includes 31,000 shares subject to options that are exercisable
currently or within 60 days of the date of this statement.

(6) Includes 78,000 shares subject to options that are exercisable
currently or within 60 days of the date of this statement.

(7) Includes 71,000 shares subject to options that are exercisable
currently or within 60 days of the date of this statement.

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(8) Includes 28,000 shares subject to options that are exercisable
currently or within 60 days of the date of this statement.

(9) Includes 3,000 shares subject to options that are exercisable
currently or within 60 days of the date of this statement.

(10) Includes 3,000 shares subject to options that are exercisable
currently or within 60 days of the date of this statement.

(11) Includes 3,000 shares subject to options that are exercisable
currently or within 60 days of the date of this statement.

(12) Includes 2,000 shares subject to options that are exercisable
currently or within 60 days of the date of this statement.

(13) Includes all shares set forth above other than those held by Warburg,
Pincus Counsellors, Inc. The reported amount excludes 465,000 shares of Common
Stock reserved for issuance to executive officers under the Company’s Stock
Option Plans that are not exercisable within 60 days of the date of this
report.

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EXECUTIVE OFFICERS

The executive officers of the Company as of June 14, 1996 are as
follows:

Mr. Heller has been Chief Executive Officer and a director of the
Company since its inception in 1986. See “Election of Directors.”

Linda G. Davenport has served as Executive Vice President of the
Company since March 1994. Ms. Davenport served as Executive Vice President and
Chief Operating Officer of National Corporation for Housing Partnerships
(“NCHP”) from 1990 to January 1994.

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Ann Torre Grant has served as Executive Vice President, Chief
Financial Officer and Treasurer of NHP since February 1995. She was Vice
President and Treasurer of USAir, Inc. and USAir Group, Inc. from 1991 through
January 1995, and held other finance positions at the airline between 1988 and
1991.

Robert M. Greenfield has served as Executive Vice President,
Acquisitions of NHP since March 1994. He joined NCHP in October 1991 as Senior
Vice President. From 1990 to 1991, Mr. Greenfield was a consultant in
corporate strategy for the Boston Consulting Group. From 1991 to 1994, he was a
principal in Schindler Greenfield, Inc. and OCC, Inc., closely held real estate
development firms. In February of 1992, Mr. Greenfield and his wife filed for
protection under Chapter 7 of the United States Bankruptcy Code as a result of
their inability to meet certain direct and guaranteed obligations on borrowings
by or on behalf of Schindler Greenfield, Inc. and its affiliates.

J. Robert Hiner has served as Executive Vice President of NHP
Management Company since October 1993 and as Executive Vice President,
Management Company Operations of the Company since August 1995. He previously
served as Senior Vice President of NHP Management Company from 1991 to 1993.
During 1990, Mr. Hiner served as President of Shadwell-Jefferson Property
Management, Inc., a retail property management company.

Shekar Narasimhan has served as an Executive Vice President of NHP
since the Company’s acquisition of Washington Mortgage Financial Group, Ltd.
(“WMF”), a mortgage banking and servicing company, in April 1996. Mr.
Narasimhan has served as President and CEO of WMF since 1990.

William R. Sullivan has served as Executive Vice President, Customer
Services of NHP since May 1996. Prior to joining NHP, from 1995, Mr. Sullivan
was President of Care Investors, Inc., where he was involved in developing, in
partnership with the Johns Hopkins University School of Medicine, specialized
disease management programs for the chronically ill. From 1990 to 1995 Mr.
Sullivan was Chief Executive Officer of Sky Alland, Inc., a marketing
information services company.

Joel F. Bonder has served as Senior Vice President and General Counsel
of the Company since April 1994. Mr. Bonder also served as Vice President and
Deputy General Counsel from June 1991 to March 1994 and as Associate General
Counsel from 1986 to 1991.

Christine Freeland has served as Senior Vice President of NHP
Management Company since February 1995 and as Senior Vice President of the
Company since August 1995. She previously served as Regional Vice President of
NHP Management Company from 1990 to 1995.

Richard M. Powell has served as Senior Vice President of NHP since
February 1996. He is primarily responsible for identifying third-party equity
partnerships in the Company’s

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acquisition program. Prior to joining NHP, Mr. Powell was vice president of
commercial real estate services with Barnes Morris Pardoe & Foster from 1987 to
1996.

Eric N. Ross has served as Senior Vice President, Asset Management of
NHP since May 1996. He is responsible for delivery of asset management
services to NHP’s affiliated ownership organization and to other multifamily
owners. Previously, Mr. Ross served as Vice President, Finance from March 1995
to May 1996 and Vice President, Asset Management, from September 1992 to March
1995. Prior to joining NHP in 1992, Mr. Ross was Assistant Vice President in
Asset Management for Winthrop Financial Associates.

Joseph P. Stefan has served as President of Property Services Group,
Inc. (which administers the Company’s Buyers Access(R) program) since 1986
and as Senior Vice President of NHP since August 1995.

Charles S. Wilkins, Jr. has served as Senior Vice President of NCHP
since September 1988 and as Senior Vice President of NHP since August 1995 and
is currently responsible for legislative and regulatory affairs.

Jeffrey J. Ochs has served as Vice President and Chief Accounting
Officer of NHP since September 1995. From 1994 until September 1995, Mr. Ochs
was Assistant Controller of USAir, Inc. From 1987 to 1994, he held various
accounting positions with USAir, Inc.

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EXECUTIVE COMPENSATION

The following table sets forth information with respect to the
compensation paid by the Company for services rendered during the years ended
December 31, 1995 and 1994 to the Chief Executive Officer and to each of the
four other most highly compensated executive officers of the Company (the
“Named Officers”).

SUMMARY COMPENSATION TABLE

– ——————–

(1) The amounts reported below were paid in 1996 and 1995 with respect to
the years ended December 31, 1995 and December 31, 1994, respectively.
Messrs. Heller, Hiner and Greenfield and Ms. Davenport were paid
$140,000, $40,000, $65,000 and $30,000, respectively, in bonuses in
1994 with respect to the year ended December 31, 1993.

(2) These amounts represent NHP’s payment of life insurance premiums and
matching and discretionary contributions to the NHP 401(k) Retirement
Plan.

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STOCK OPTIONS

The following table sets forth certain information regarding options
granted to the named officers during the year ended December 31, 1995.

OPTIONS GRANT IN LAST FISCAL YEAR

– ————————

(1) The number of options issued in 1995 reflects the Board’s
consideration of the total number of options already held by each
named officer under earlier stock option plans. All options become
exercisable over a five year period, with one-fifth of the options
becoming exercisable at the end of each year except as follows. Mr.
Heller’s 120,000 options are subject to accelerated vesting in certain
circumstances as described under “Employment and Related Contracts,”
below. Ms. Grant’s options are exercisable 20% six months after the
date of grant and 20% each year thereafter. Of the 55,000 options
granted to Mr. Greenfield, 25,000 were issued in replacement of
options awarded upon his initial employment and rescinded and are
exercisable immediately, and the remainder become exercisable over
five years, with one-fifth of the options becoming exercisable at the
end of each year.

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OPTION EXERCISES AND HOLDINGS

The following table sets forth certain information regarding
unexercised options held by the Named Officers at December 31, 1995. No
options were exercised by the Named Officers during the year ended December 31,
1995.

– —————–

(1) Calculated on the closing price of the underlying securities on
December 29, 1995 ($18.50) minus the exercise price.

DIRECTORS COMPENSATION

Non-management directors are entitled to compensation in the amount of
$20,000 per year for their service as directors, plus $1,000 for each board
meeting in excess of six meetings per year. One-half of the annual amount is
paid in the form of shares of NHP common stock. Each non-management director
of the Company received compensation of $5,000 for the period August 18, 1995
through December 31, 1995 and 1,500 shares of NHP common stock for the period
August 18, 1995 through December 31, 1996, and will receive $10,000 for
calendar year 1996. Messrs. Eisenson’s and Palmer’s cash compensation is paid
to Harvard Management Company; their stock compensation is issued to Demeter.
Mr. Winokur’s cash and stock compensation is issued to Capricorn.

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EMPLOYMENT AND RELATED CONTRACTS

On August 18, 1995, the Company granted Mr. Heller performance vesting
options to purchase 120,000 shares of common stock at a price equal to $16 per
share. The options vest in 2005, subject to acceleration of vesting under
certain circumstances. Acceleration of vesting will occur as follows upon a
control transfer: options with respect to 40,000 shares will vest upon a
control transfer if, upon such occurrence, the stock has appreciated from $16
per share at a compound annual rate (the “Appreciation Rate”) in excess of 20%;
options with respect to 80,000 shares will vest upon a control transfer if the
Appreciation Rate is in excess of 22.5%; and options with respect to 120,000
shares will vest upon a control transfer if the Appreciation Rate is in excess
of 25%. A control transfer is defined as an event in which Demeter, Capricorn
and Mr. Heller have “meaningful liquidity,” including a sale of interests after
which the purchaser owns more than 50% of the issued and outstanding shares of
the Company, or a series of offerings as a result of which shareholders not
affiliated with Demeter, Capricorn or Mr. Heller own more than 50% of the
issued and outstanding shares of the Company.

The Company has entered into employment contracts with three officers.
In January 1995, the Company entered into an agreement with Ms. Grant, the
Executive Vice President, Chief Financial Officer and Treasurer of the Company,
establishing Ms. Grant’s base compensation as $225,000 and agreeing to issue
to her a stock option for 80,000 shares under the 1995 Plan. The agreement
also provides that Ms. Grant’s employment could be terminated at anytime on or
before December 31, 1997, by NHP or Ms. Grant, subject to Ms. Grant’s right to
receive severance pay under certain circumstances equal to one year’s base
salary in effect at the time of such event plus the greater of (a) 20% of her
base salary and (b) the bonus she received with respect to the immediately
preceding fiscal year.

In February 1996, the Company entered into an agreement with Mr.
Powell, Senior Vice President, Equity Services, establishing Mr. Powell’s base
compensation as $180,000 and agreeing to issue to him a stock option for 60,000
shares under the 1995 Plan. The agreement also provides that Mr. Powell’s
employment could be terminated at anytime on or before December 31, 1997, by
NHP or Mr. Powell, subject to Mr. Powell’s right to receive severance pay under
certain circumstances equal to one year’s base salary in effect at the time of
such event plus the greater of (a) 20% of his base salary and (b) the bonus he
received with respect to the immediately preceding fiscal year.

In April 1996, the Company entered into an agreement with Mr.
Sullivan, Executive Vice President, Customer Services, establishing Mr.
Sullivan’s base compensation as $200,000 and agreeing to issue to him a stock
option for 40,000 shares under the 1995 Plan and 120,000 performance vesting
options. The performance vesting options vest upon achievement of certain
target levels of EBITDA attributable to Mr. Sullivan’s business unit during
specific 12-month periods and terminate on April 30, 2001, unless all or a
portion of them have vested. The agreement also provides that Mr. Sullivan’s
employment could be

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terminated at anytime on or before April 15, 1997, by NHP, subject to Mr.
Sullivan’s right to receive severance pay under certain circumstances equal to
one-half of one year’s salary in effect at the time of such event.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Board of Directors has created a Compensation Committee which
consists of Messrs. Eisenson, Winokur and Creighton. The Compensation
Committee is charged with determining the compensation of all executive
officers. No member of the Compensation Committee has ever been an officer of
the Company or any of its subsidiaries. Mr. Eisenson and Mr. Winokur are
officers of Demeter and Capricorn, respectively, the controlling shareholders
of the Company. Demeter and Capricorn have engaged in a variety of
transactions with the Company, as described under “Certain Relationships and
Related Transactions.”

PERFORMANCE GRAPH

Set forth below is a line graph comparing the yearly percentage change
in the cumulative total stockholder return on the Company’s Common Stock
against the cumulative total return of the Nasdaq Market Index and the Media
General Industry Group Index for Real Estate Operators and Lessors for the
period commencing August 15, 1995 and ending December 31, 1995.

The performance graph assumes that an investment of $100 was made in the
Company’s Common Stock and in each Index on August 15, 1995, and that all
dividends were reinvested. Total stockholder return is measured by dividing
total dividends (assuming dividend reinvestment) plus share price change for a
period by the share price at the beginning of the measurement period.

[graph omitted]

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COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee of the Board of Directors (the “Committee”)
is composed entirely of non-management directors. The Chief Executive Officer
of the Company initiates recommendations with respect to base salary, bonus and
stock option awards for all executive officers other than himself, which
recommendations are reviewed by the Committee. The Committee makes
recommendations to the Board concerning compensation paid or awarded to the
Company’s executive officers.

The Committee’s goal is to attract, motivate, and retain an executive
management team that can take full advantage of the Company’s opportunities for
growth and achieve long-term success in an increasingly competitive business
environment, thereby increasing stockholder value. The Committee believes that
linking a significant portion of an executive’s current and potential net worth
to the Company’s success, as reflected in the stock price, ensures that the
interests of management are closely aligned with that of shareholders.
Accordingly, the Company maintains a stock option plan and intends to implement
stock ownership guidelines for all executive and senior officers participating
in the Company’s 1995 Incentive Stock Option Plan. The guidelines will require
such officers to purchase a minimum number of the Company’s shares and to
achieve additional established ownership goals over a set period of years, with
progress toward meeting those goals reviewed annually. Achievement of guideline
levels of ownership will be considered when future long-term incentive or bonus
awards are made.

In deciding on initial base salary for an individual, the Committee
considers determinants of the individual’s market value, including experience,
education, accomplishments and reputation, as well as the level of
responsibility to be assumed. The Committee’s approach is to offer salaries it
believes to be fair and competitive with those of executives with similar
responsibilities at companies it considers to be comparable in terms of assets,
net revenues, and cash flows, based upon such information as the Committee may
acquire from annual reports and proxy materials of such other companies,
business and industry publications, and other sources as may be available from
time to time. In deciding whether to increase the compensation of an
individual the Committee considers the overall contribution of the employee to
the performance of the Company, experience gained by the employee and market
conditions.

In determining annual bonuses, the Committee considers each
individual’s area of responsibility and the specific goals that were achieved
in that area of responsibility. For any given executive officer, such goals
may include growth in number of units managed by the Company, growth in the
Company’s earnings before interest, taxes, depreciation and amortization,
growth in the Company’s revenues generated on either an absolute or per unit
basis, and completion of major acquisitions or other significant corporate
transactions that promote achieving the Company’s objectives.

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In addition to base salary and bonuses, the Committee recommends the
award of stock options under the Company’s 1995 Incentive Stock Option Plan.
In that regard, during the fiscal year ended December 31, 1995 and primarily in
connection with the Company’s IPO, the Committee granted options to purchase
591,250 shares of common stock, of which 20,000 were issued after the closing
of the IPO and 87,500 went to employees hired during the year. Executive
officers received options with respect to 548,750 shares of common stock. The
determination to award options on initial employment is based on the same
factors as initial salary award. The determination to award additional options
is based primarily on such individual’s performance and as an incentive for
future performance.

Applying these factors to each individual’s case is a judgment
process, exercised by the Committee with the advice of management. No specific
relationship exists between the Company’s performance and the compensation of
an individual executive officer. There is no intent to relate compensation to
the Company’s stock price performance, either absolute or relative to peer
groups, except as that relationship is implicit in the stock-based compensation
plans.

Chief Executive Officer’s Compensation. For his services as the
Company’s president and chief executive officer, Mr. Heller’s compensation has
been determined in accordance with the compensation policies outlined above.
The Committee awarded Mr. Heller a bonus of $192,500 for the fiscal year ended
December 31, 1995. In addition, effective March 1, 1996, Mr. Heller’s base
salary was increased from $345,961 to $360,500 per year. The bonus and
increase in salary are based on the Committee’s assessment of Mr. Heller’s role
in the Company’s performance in 1995. In particular, the Committee considered
Mr. Heller’s leadership in successfully completing the sale of the Company’s
real estate subsidiaries and the related initial public offering of shares of
the Company, the increase in units managed during the year, and the increase in
annual EBITDA.

Compensation Deduction Limit. The Committee has considered the $1
million limit on deductible executive compensation that is not
performance-based. While it is possible that this limit could, in certain
circumstances, prevent the Company from deducting a portion of the executive
compensation expense relating to performance vesting options granted to Mr.
Heller in 1995, the Committee believes that such compensation is justified on
the basis of Mr. Heller’s value to the Company and its shareholders. The
Committee does not believe that the $1 million limit will prevent the Company
from deducting any other executive compensation expenses established in 1995.

John W. Creighton, Jr.
Michael R. Eisenson
Herbert S. Winokur, Jr.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Since January 1, 1995, the Company engaged in the following
transactions and is a party to the following agreements with entities in which
its directors or executive officers have the interests described.

SALE OF THE REAL ESTATE COMPANIES

At the time of NHP’s initial public offering (“IPO”), the Company sold
those of its subsidiaries which held all of the Company’s direct and indirect
interests in property-owning partnerships along with its captive insurance
subsidiary and certain other related assets (collectively, the “Real Estate
Companies”, to entities owned and controlled by Demeter (with which Messrs.
Eisenson and Palmer are affiliated), Capricorn (with which Mr. Winokur is
affiliated) and Mr. Heller. Subsequently, Demeter assigned certain of its
interests in certain of the Real Estate Companies to Phemus Corporation, an
affiliate of Demeter and a wholly-owned subsidiary of the President and Fellows
of Harvard College. The purchasing entities paid an aggregate of approximately
$9.1 million in the form of cancellation of indebtedness of NHP to Demeter,
Capricorn and Mr. Heller in exchange for 100% of the equity interest in the
Real Estate Companies. In addition, the Real Estate Companies retained all
liabilities associated with their assets and assumed approximately $5.3 million
of obligations of the Company. In addition, the Real Estate Companies agreed
to indemnify the Company for any taxes incurred by the Company arising from the
sale to the extent such taxes exceed the sum of (i) $2.5 million and (ii) an
amount equal to the present value of the estimated alternative minimum tax
credit benefits that will be available to NHP as a result of the sale.

At the time of the sale of the Real Estate Companies, certain
intercompany balances existed between the Real Estate Companies and NHP. The
net amount of these balances was approximately $59,000 owed to the Real Estate
Companies by NHP. Subsequent to the sale, the Real Estate Companies incurred
obligations to NHP as described below, and the amount owed the Real Estate
Companies was offset against these obligations.

MANAGEMENT FEES

Pursuant to a Master Property Management Agreement between NHP and the
Real Estate Companies, the Real Estate Companies have agreed to cause the
Company to be retained as the property manager of all multifamily properties
owned by the Real Estate Companies, their subsidiaries or any affiliate
controlled by the Real Estate Companies or their subsidiaries, subject to
certain exceptions. Pursuant to this agreement, the Company manages
approximately 435 properties and received approximately $31.2 million in
management fees. In addition, the Master Property Management Agreement requires
the Real

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Estate Companies to pay NHP a termination fee upon sale or other defined
dispositions of a property managed by NHP in certain circumstances unless there
is no termination of management fees with respect to the property for 36 months
after disposition. The amount of the fee is 200% of the annual fees the Company
and its subsidiaries receive with respect to the property, reduced on a pro
rata basis to the extent the Company receives management fees for periods less
than 36 months after disposition. The Real Estate Company incurred obligations
to NHP of approximately $0.2 million in termination fees pursuant to this
agreement in the year ended December 31, 1995.

FINANCIAL AND ADVISORY SERVICES

The Company has agreed to provide to the Real Estate Companies, their
subsidiaries and their controlled affiliates, administrative services and
advice regarding acquisition, financing, asset restructuring, disposition and
similar activities relating to investments in multifamily properties. The
services provided by the Company to the Real Estate Companies include
accounting, data processing, insurance administration, payroll, personnel
administration, investor administrative and reporting, investment, tax and
legal services. The Real Estate Companies are required to reimburse the Company
for its costs of providing these services. Either the Company or the Real
Estate Companies may terminate this relationship on 30-days’ written notice.
The Real Estate Companies incurred obligations to NHP of approximately $1.2
million pursuant to this agreement in the year ended December 31, 1995, and
$1.1 million as of May 31, 1996.

PROPERTY OCCUPANCY

The Real Estate Companies lease office space in Washington, D.C., a
portion of which was occupied by the Company as its headquarters facility
through June 14, 1996. In connection with the sale of the Real Estate
Companies, the Company agreed to reimburse to the Real Estate Companies a
portion of the costs incurred from the Real Estate Companies in leasing this
space. Under a separate agreement, the Real Estate Companies were required to
reimburse the Company for the cost of space then leased by the Company in its
Reston, Virginia offices and allocable to the services provided to the Real
Estate Companies. The Company and the Real Estate Companies subsequently agreed
that the respective obligations to reimburse leasing costs would completely
offset one another, so that no amount would be due either party. The Company
has relocated all of its operations to its new offices in Vienna, Virginia, and
no longer occupies space in the Washington, D.C. offices leased by the Real
Estate Companies. Effective June 15, 1996, the Real Estate Companies are
obligated to reimburse the Company for their allocable portion, if any, of the
cost of occupying space in the Company’s new Vienna, Virginia headquarters.

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INDEMNIFICATION

The Real Estate Companies have agreed to indemnity the Company against
any loss directly or indirectly caused by, relating to, based upon, arising out
of, or incurred in connection with the Company’s ownership (as opposed to
management), through the Real Estate Companies, of properties prior to, on and
after the date of the IPO, and the management contracts for individual
properties generally contain standard indemnification provisions providing for
indemnity by and to the Company. The Real Estate Companies have also agreed to
indemnify the Company against any environmental liability with respect to any
property in which the Real Estate Companies have had, have or acquire an
interest, unless such liability results from the direct introduction of toxic
substances into a property by the Company after the IPO. The owners of the
Real Estate Companies have agreed to provide a line of credit to the Real
Estate Companies in an aggregate amount of $5.5 million, to be available until
August 1998. The line of credit will be available to satisfy the Real Estate
Companies’ indemnification obligations to NHP and, with the consent of NHP, for
other uses.

The Company remains the guarantor (along with the Real Estate
Companies) of a portion of the indebtedness on two properties and the guarantor
of certain obligations relating to the sale of limited partnership interests in
another property. The Real Estate Companies are prohibited from taking any
action that would increase the maximum exposure under these guarantees above
the current maximum level of approximately $4 million, and the Real Estate
Companies have agreed to indemnify NHP for the full amount of any liability it
incurs with respect to these guarantees. There can be no assurance that the
Real Estate Companies will be able to satisfy their indemnity obligations. The
Company believes that its ultimate exposure to liability under these guarantees
is not material.

TAX ALLOCATION AGREEMENT

In connection with the sale of the Real Estate Companies, the Company
and the Real Estate Companies entered into a tax allocation agreement. Pursuant
to this agreement, the Company will be required to bear liability for only the
first $2.5 million in taxes arising from the transaction plus an amount equal
to the present value of the estimated alternative minimum tax credit benefits
that will be available to the Company as a result of the sale of the Real
Estate Companies. The Real Estate Companies have indemnified the Company for
any taxes arising from the sale in excess of this amount including any taxes
payable on tax indemnification payments from the Real Estate Companies.
Pursuant to this agreement, through December 31, 1995, NHP paid approximately
$45,000 in taxes incurred by the Real Estate Companies in connection with the
sale of the Real Estate Companies.

The Company and/or the properties to which the Company has provided
services may be liable for certain past state sales and use taxes, including
interest and penalties thereon. Pursuant to the tax allocation agreement, the
properties owned by partnerships of which the

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Real Estate Companies are the general partners, partnerships owning such
properties and/or the general partners thereof will be responsible for any such
taxes and interest that are assessed against the Company with respect to such
properties, or that are assessed against the properties but cannot be paid by
the properties. However, pursuant to this arrangement, the Company will be
responsible for any penalties that are assessed with respect to such taxes. As
of December 31, 1995, no payments have been made with respect to such taxes. In
the Company’s opinion, the resolution of these matters will not have a material
adverse effect on the financial condition or results of operations of the
Company.

WORKING CAPITAL ADVANCES

The Company has provided advances of working capital to the Real
Estate Companies to offset certain of the obligations described above and to
meet short-term capital needs of the Real Estate Companies. Such advances are
payable upon demand and incur interest at the rate equal to the prime rate plus
1% (currently 9.25%), accruing from the end of the month in which the advance
is made. As of May 31, 1996, the Real Estate Companies owed the Company
approximately $3.4 million pursuant to this arrangement.

GUILFORD ACQUISITION

The Real Estate Companies completed the Guilford Acquisition in
January 1996, by which the Real Estate Companies acquired, for approximately
$4.8 million, the general partnership interests and certain limited partnership
interest in partnerships that own 14 properties containing 2,995 units. In
conjunction with this acquisition by the Real Estate Companies, the Company
purchased from the Real Estate Companies for $2.6 million the right to provide
property management and other services to each property for a period of four to
five years, commencing in December 1995.

SOUTHPORT ACQUISITION

In December 1995, the Real Estate Companies entered into a binding
agreement to acquire from Southport Financial Corporation the general partner
interests in partnerships that own 14 properties containing 2,140 units. The
Company began managing 12 of these properties containing 1,857 units in
November 1995 and will begin managing the remaining two properties containing
283 units upon the receipt of the necessary consent. The Company acquired the
right to manage all 14 of the Southport properties from the Real Estate
Companies for $4.0 million. The Company manages the Southport properties
pursuant to long-term contracts terminable only for cause, and has a right of
first refusal with respect to the sale of any of these properties or the Real
Estate Companies’ general partnership interests in partnerships owning these
properties.

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RESCORP ACQUISITION

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

SHAREHOLDER LOAN

In connection with a variety of transactions since January 1993,
Demeter, Capricorn and Mr. Heller loaned an aggregate amount of approximately
$12.1 million to the Company (the “Shareholder Loans”). As of the time of the
IPO, the principal amounts outstanding to Demeter, Capricorn and Mr. Heller
were $9,456,198, $2,321,023 and $347,990, respectively, and interest and
premiums were $1,926,873, $464,571 and $60,179, respectively. Approximately
$9.1 million of these obligations were canceled as consideration for the
acquisition of interests in the Real Estate Companies. The remaining
approximately $5 million was repaid out of the proceeds of the offering and a
draw on the Company’s revolving credit facility.

LEGAL SERVICES

Lloyd N. Cutler is Senior Counsel to the law firm of Wilmer, Cutler &
Pickering. Wilmer, Cutler & Pickering has provided legal advice to the Company
with respect to the IPO, the sale of the Real Estate Companies and other
matters.

2. PROPOSAL TO APPROVE THE INCREASE BY 400,000 SHARES
FOR A TOTAL OF 1,200,000 SHARES AVAILABLE FOR ISSUANCE UNDER THE
COMPANY’S 1995 INCENTIVE STOCK OPTION PLAN (THE “1995 PLAN”).

The Board of Directors has approved an increase of 400,000 shares in
the number of shares of Common Stock available for issuance under the 1995
Plan. If approved by the stockholders, the number of shares currently
available for grant under the 1995 Plan would be increased from 800,000 to
1,200,000 shares.

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SUMMARY OF THE 1995 INCENTIVE STOCK OPTION PLAN

General Information Regarding the Plan. The 1995 Incentive Stock
Option Plan of NHP Incorporated (the “1995 Plan”) was adopted by the Board of
Directors of NHP Incorporated (the “Company”) on February 8, 1995 and was
thereafter approved by the stockholders of the Company on May 30, 1995. The
1995 Plan currently provides for the granting of options (“Options”) to
purchase an aggregate of up to 800,000 shares of the Company’s common stock,
subject to adjustment for stock splits and other changes in the Company’s
capital structure. The 1995 Plan is to remain in effect for the granting of
options until February 8, 2005 and for the subsequent exercise of Options,
unless it is sooner terminated by the Company’s Board of Directors.

The purpose of the 1995 Plan is to enable the Company to attract,
retain and motivate its employees by providing for or increasing their
proprietary interests in the Company.

Participation. Options may be granted under the 1995 Plan to all
employees of the Company (approximately 5,300 persons) in the discretion of the
Compensation Committee of the Board of Directors (the “Compensation
Committee”). The 1995 Plan does not limit the number of Options that may be
granted to an individual by its terms, but in order to qualify as incentive
stock options for federal income tax purposes the aggregate fair market value
of common stock (determined at the time the option is granted) with respect to
which incentive stock options are exercisable for the first time by an employee
during any calendar year may not exceed $100,000. During the year ended
December 31, 1995, 591,250 options were awarded, including options awarded to
Named Officers in the amounts shown under “Executive Compensation,” above.

Shares to be issued upon exercise of an Option under the 1995 Plan may
be authorized but unissued shares of common stock or previously issued shares
of common stock reacquired by the Company, including shares purchased on the
open market. Shares reserved under an Option that for any reason expires or is
terminated, in whole or in part, shall again be available for the purposes of
the 1995 Plan.

Administration. The 1995 Plan is administered by the Board of
Directors which has, pursuant to the terms of the 1995 Plan, delegated its
responsibilities to the Compensation Committee. The members of the
Compensation Committee are appointed by and serve at the discretion of the
Board of Directors of the Company and their tenure can be terminated at any
time. In its discretion the Board may appoint another and different committee
to administer the 1995 Plan. The Committee currently consists of Michael R.
Eisenson, Herbert S. Winokur, Jr. and John W. Creighton, Jr., who are
“disinterested persons” within the meaning of applicable regulations. The
Compensation Committee, subject to the express provisions of the 1995 Plan,
shall have authority to select the individuals who receive Options and
determine the terms of the Options, including the number of shares of common
stock subject to an Option, the exercise price of the Options and the term
during which the Option shall be in effect.

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Provisions of Options. Each Option shall be reflected in an agreement
with the optionee (an “Incentive Stock Option Agreement”). The Compensation
Committee shall determine the provisions of each such agreement subject to the
following:

(a) The exercise price to be paid for a share of
common stock shall not be less than 100% of the fair market value of
the common stock at the time the Option is granted. The exercise
price under any Option shall not be less than 110% of the fair market
value of the common stock at the time the Option is granted if the
optionee owns common stock possessing more than 10 percent of the
total combined voting power of all classes of the Company’s stock on
the date of grant.

(b) The term of an Option may not exceed 10 years
from the date it is granted. No portion of an Option that is granted
to an individual who, at the date of grant, owns common stock
possessing more than 10% of the total combined voting power of all
classes of the Company’s stock shall be exercisable after the
expiration of five years from the date of grant.

(c) Except as specifically provided in the
Incentive Stock Option Agreement pursuant to which an Option is
granted, an Option may not be transferred or assigned, voluntarily,
involuntarily or by operation of law (including, without limitation,
the laws of bankruptcy, intestacy, decent and distribution or
succession), and may be exercised only by the optionee or his or her
estate upon the optionee’s death.

(d) The exercise price of Options must be paid in
the form of a good check or in accordance with the terms of any
Incentive Stock Option Agreement executed by the optionee.

Termination and Amendment. The Board of Directors, in its discretion
and at any time, may amend or terminate the 1995 Plan; however, no modification
or amendment may be made without the approval of the stockholders of the
Company if such modification or amendment would increase the maximum aggregate
number of shares that may be issued under the 1995 Plan. Neither termination
of the 1995 Plan, nor any modification or amendment thereof, may adversely
affect or alter any rights or obligation with respect to any Option or
Incentive Stock Option Agreement then in effect, except to the extent that any
such action shall be required or desirable (in the opinion of the Company or
its counsel) in order to comply with the Internal Revenue Code of 1986, as
amended, or any rule or regulation promulgated or proposed thereunder.

Subject to any required shareholder approval, the number of shares
represented by the unexercised portion of an outstanding Option, and the number
of shares authorized or reserved for issuance under the 1995 Plan, as well as
the exercise price of outstanding options, shall be proportionally adjusted for
(a) a division, combination or reclassification of any of the shares of Common
Stock or (b) a dividend payable in shares of common stock.

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Tax Consequences. Options granted under the 1995 Plan will be
incentive stock options within the meaning of Section 422(b) of the Internal
Revenue Code of 1986, as amended (the “Code”).

An employee realizes no income upon the grant of an incentive stock
option. An optionee who holds his shares for two years after the grant of the
Option and for one year after he receives the shares upon its exercise will not
incur any federal income tax liability as a result of the exercise of the
Option (except that the spread between the Option exercise price and the fair
market value of the common stock at the time of exercise will be includable in
his alternative minimum taxable income), and he will realize taxable long-term
capital gain upon a subsequent sale of his shares at a price greater than the
Option price. No deduction will be allowable to the Company for federal income
tax purposes in connection with the grant or exercise of an incentive stock
option. However, if the optionee sells his shares without complying with the
above holding periods, he will have ordinary compensation income in the year of
sale equal to the difference between the Option price and the value of the
common stock when the Option was exercised (or, in certain cases, the sale
price, if lower). The Company would be entitled to a federal income tax
deduction in the amount of such income.

REASONS FOR THE PROPOSED INCREASE

The Company maintains two employee stock option plans, the 1995 Plan
adopted in 1995 and the 1990 Plan adopted in 1990. As of December 31, 1995,
1,096,250 options to purchase shares of Common Stock were outstanding under the
Company’s stock option plans, 55,000 shares have been issued pursuant to the
exercise of options, options to purchase 401,500 shares of Common Stock have
lapsed, and before giving effect to the proposed increase recommended for
approval at this meeting, options to purchase 67,750 shares of Common Stock
were reserved and available for future grant under such stock option plans.

Incentive stock option plans are intended to promote the best
interests of the Company and its stockholders by enabling the Company to
attract and retain persons of superior ability as senior and executive
officers, providing an incentive to officers by affording them an equity
participation in the Company, and rewarding officers who contribute to the
progress and earnings of the Company. The Board of Directors believes that the
shares currently available for grant under the Company’s 1995 Plan are not
sufficient for the Company’s stock option program. Providing employees with an
opportunity to participate in an increase in stock value not only encourages
equity ownership by management, but also more closely aligns management
interests with the interests of all stockholders.

The Board of Directors recommends a vote FOR the increase in shares of
Common Stock available under the 1995 Plan.

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3. PROPOSAL TO RATIFY THE SELECTION OF INDEPENDENT PUBLIC
ACCOUNTANTS

The Company has selected Arthur Andersen LLP, which has served as the
Company’s auditor since 1994, to examine the financial statements of the
Company for fiscal 1996. The Company expects that representatives of Arthur
Andersen LLP will be present at the Annual Meeting and available to respond to
appropriate questions and such representatives will be given the opportunity to
make a statement if they desire to do so.

The Board of Directors recommends a vote FOR ratification of the
appointment of Arthur Andersen LLP.

FINANCIAL INFORMATION

The audited financial statements and related financial and business
information of the Company for its fiscal years ended December 31, 1995, 1994
and 1993 are contained in the Company’s Annual Report on Form 10-K, a copy of
which is being delivered to Shareholders with this Proxy Statement.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934 requires the
Company’s officers and directors and persons who beneficially own more than 10%
of the Company’s Common Stock to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc. Based solely on its review of the
copies of such reports received by it, and written representations from certain
reporting persons that no Forms 5 were required for those persons, the Company
believes that during the fiscal year ended December 31, 1995 all filing
requirements applicable to its officers, directors and such 10% beneficial
owners were complied with, except that the Forms 4 required with respect to the
issuance of 1,500 shares to each non-employee director on November 1, 1995 were
not filed on behalf of each of Messrs. Bodman, Creighton and Cutler and Demeter
and Capricorn, but such transactions were reported on Forms 5 filed on February
15, 1996.

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ADJOURNMENT OF MEETING

In the event that sufficient votes in favor of the election of the
nominees for director (the “Nominees”) or any other matter presented hereunder
are not received by July 24, 1996, the persons named as proxies may propose one
or more adjournments of the meeting to permit further solicitation of proxies.
Any such adjournment will require the affirmative vote of a majority of the
shares cast on the question in person or by proxy at the session of the meeting
to be adjourned. The persons named as proxies will vote in favor of such
adjournment those proxies which they are entitled to vote in favor of the
Nominees and all other such matters. They will vote against any such
adjournment those proxies withholding authority to vote on any Nominee and
voting against or abstaining with respect to all other such matters. The
Company will pay the costs of any additional solicitation and of any adjourned
meetings.

SHAREHOLDER PROPOSALS

Shareholder proposals intended to be presented at the 1997 Annual
Meeting of Stockholders must be received at NHP principal executive offices not
later than February 24, 1997.

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DETACH HERE NHP F
– ——————————————————————————–

NHP INCORPORATED
8065 Leesburg Pike, Suite 400
P Vienna, VA 22182-2738
R THIS PROXY IS SOLICITED ON BEHALF OF
O THE BOARD OF DIRECTORS
X
Y
The undersigned hereby appoints Joel F. Bonder and Ann Torre Grant as
proxies, each with full power of substitution, and hereby authorizes them or
either of them to represent and to vote as designated below all the shares of
Common Stock of NHP Incorporated, held of record by the undersigned on June 14,
1996, at the Annual Meeting of Stockholders to be held July 24, 1996, or at any
adjournment thereof.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED IN FAVOR OF ELECTING THE NOMINEES LISTED AS DIRECTORS AND
“FOR” ITEMS 1-4 ON THE REVERSE SIDE. ANY PROXY WHICH IS RETURNED CONTAINING A
DIRECTION TO VOTE WITH RESPECT TO A MATTER AS TO WHICH THE STOCKHOLDER IS NOT
ENTITLED TO VOTE WILL BE DISREGARDED WITH RESPECT TO THAT PARTICULAR MATTER.

————–
CONTINUED AND TO BE SIGNED ON RESERVE SIDE SEE REVERSE
SIDE
————–
31
DETACH HERE NHP F
– ——————————————————————————–

– —- Please mark
X votes as in
– —- this example.

1. ELECTION OF SEVEN DIRECTORS
NOMINEES: J. Roderick Heller, III, John W. Creighton, Jr.,
Michael R. Eisenson, Herbert S. Winokur, Jr., Richard S.
Bodman, Lloyd N. Cutler, Tim R. Palmer

FOR WITHHELD
——– ——–

——– ——–

——–

——– ———————————
For all nominees except as noted above

FOR AGAINST ABSTAIN
2. AMENDMENT TO NHP INCOR- ——– ——– ——–
PORATED 1995 INCENTIVE
STOCK OPTION PLAN. ——– ——– ——–

3. APPOINTMENT OF INDEPEN- ——– ——– ——–
DENT ACCOUNTANTS.
——– ——– ——–

4. In their discretion, the proxies are authorized to
vote upon such other business as may properly
come before the meeting.

MARK HERE ——–
FOR ADDRESS
CHANGE AND ——–
NOTE AT LEFT

Please sign exactly as your name appears hereon. Joint
owners should each sign. If acting as attorney, executor,
trustee or in any other representative capacity, sign name
and title.

Signature: Date: Signature: Date:
—————— ———– ————– ——-



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