<PAGE>

                                     THE COMPANY
LIBERTY HOMES, INC. and Subsidiaries design, manufacture and sell a broad line
of single and multi-section manufactured homes to numerous independent dealers
throughout most of the United States.  The Company currently operates
manufacturing plants in Syracuse, Indiana; Yoder, Kansas; Dorchester, Wisconsin;
Leola, Pennsylvania; Sheridan, Oregon; Ocala, Florida; Statesville, North
Carolina; Hamilton, Alabama; and Tuscumbia, Alabama.  Corporate offices,
including engineering and design facilities, are located in Goshen, Indiana.

                               SELECTED FINANCIAL DATA
                      as of or for the year ending December 31,
                     (Amounts in Thousands Except per Share Data)

<TABLE>
<CAPTION>

                                       1996           1995           1994           1993           1992
                                       ----           ----           ----           ----           ----
<S>                                 <C>            <C>            <C>             <C>            <C>
Net Sales                           $168,139       $164,753       $125,035        $92,623        $66,831
Net income                          $  4,553       $  6,356       $  4,824        $ 3,265        $ 1,330
Net income per share                   $1.06          $1.42          $1.06           $.71           $.29

Total assets                         $72,166        $69,127        $61,013        $56,043        $50,801
Long term obligations                    --             --             --             --             --
Cash dividends per share:
  Class A common stock                  $.28           $.28           $.28           $.25           $.24
  Class B common stock                  $.28           $.28           $.28           $.25           $.23
</TABLE>

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

LIQUIDITY AND CAPITAL RESOURCES - Cash and cash equivalents and short term
investments as of December 31, 1996 and 1995 totaled $23,824,000 and
$25,857,000, respectively.  Working capital was $28,172,000 at year end 1996 and
$30,724,000 at year end 1995.  There was no debt at December 31, 1996 and 1995.
Historically, the Company's financing needs have been met through funds
generated internally.

Capital expenditures during 1996 were $7,245,000 compared to $9,464,000 in 1995.
Capital expenditures were made primarily to increase manufacturing capacity,
adopt new manufacturing processes and to improve manufacturing efficiency.  The
most notable item in 1996 occurred with the construction and December opening of
a production facility in Tuscumbia, Alabama.  During 1995, a second
manufacturing facility was constructed in Dorchester, Wisconsin which began
production in December of that year.

Additionally, the Company continued its efforts to repurchase shares of its
Class A and Class B Common Stock under a program approved by its Board of
Directors in 1994 and amended in 1996.  At the end of 1996, a total of 348,000
Class A Common Shares had been repurchased and cancelled.  The Company plans to
continue such repurchases on the open market or in negotiated transactions at
management's discretion.

During 1996, the Company sold idle plants in Georgia and Pennsylvania.  The
effect of these transactions on the results of operations is discussed below.


                                          20

<PAGE>

During 1997, the Company anticipates that cash flow from operations and cash
reserves will be sufficient to meet the requirements for capital expenditures,
working capital, stock repurchases and dividend payments.

RESULTS OF OPERATIONS - Net sales increased to $168,139,000 in 1996 from
$164,753,000 in 1995, a $3,386,000 or 2% increase.  The net sales in 1995 were
up $39,718,000 or 32% from $125,035,000 in 1994.  Sales for 1996 reflected the
varied market conditions experienced by the Company and the national market.  A
major decline in the Pacific Northwest market resulted in a substantial
reduction in the amount of revenue generated by the Company's Oregon facility.
However, strong sales growth was achieved by the Alabama plant and the two
Wisconsin plants due to market demand.  The remaining Company plants also
increased sales to balance out the Oregon facility's decline.  The markets
served by the Alabama and Kansas facilities provided the majority of 1995 growth
while the Company's sales in the remaining markets grew at a more modest pace
during that year.

Gross profit in 1996, 1995 and 1994 was $21,356,000, $24,172,000 and
$16,872,000, respectively. Gross profit declined in 1996 as a result of the loss
of sales from the Company's Oregon plant.  Although this sales loss was replaced
by the rest of the Company, with the addition of the second Dorchester,
Wisconsin plant, the cost of running nine facilities during 1996 exceeded the
cost of running eight plants during 1995 and caused some gross profit erosion.
Service costs were also up in 1996.  The 1995 increase in gross profit was
principally due to increased sales volume.

Selling, general and administrative expenses have grown as a result of the
Company's expanded business.  These expenses amounted to $15,845,000 in 1996,
$15,183,000 in 1995 and $11,883,000 in 1994 or 9.4%, 9.2% and 9.5% of sales,
respectively.

Interest and other income was $2,034,000 in 1996, $1,557,000 in 1995 and
$2,575,000 in 1994.  During 1996, the Company sold its idle facilities in
Georgia and Pennsylvania for gains of $565,000 and $338,000, respectively.
Included in the 1994 amount is $936,000 of gain on the sale of the Company's
idle Texas facility.  The remaining amounts are from the investment of cash
during the year and variances are due to varying interest rates and the amount
of cash available to invest.

The Company had net income of $4,553,000 in 1996, compared to $6,356,000 in 1995
and $4,824,000 in 1994.  Gross profit and income declined  in 1996 due to the
shift in volume previously discussed.  The Company's second Wisconsin plant,
opened in December, 1995, continued with start-up costs during the first part of
1996, while the start-up costs of the second Alabama plant in late 1996 also had
an adverse effect on income.  The Company's financial services subsidiary,
Arcadian Financial Services, Inc., ceased operations during 1996.  The losses
associated with this closing were immaterial.  Finally, net income from the 1996
sale of idle facilities amounted to $551,000.


                                          21

<PAGE>


                                    CAPITAL STOCK

The Company's Class A and Class B Common Stock are traded on the
over-the-counter market on the NASDAQ National Market System.  As of March 11,
1997, there were approximately 383 holders of record of the Company's Class A
Common Stock and approximately 250 holders of record of the Company's Class B
Common Stock.  The following table shows the high and low closing price per
share for the Company's Class A and Class B Common Stock for each of the
quarters in 1996 and 1995 as reported by the National Association of Securities
Dealers, Inc., as well as cash dividends declared in each quarter in 1996 and
1995.

<TABLE>
<CAPTION>
                                 Price Per Share ($)
                                 -------------------            Cash Dividends
                              1996                1995             per Share
                              ----                ----             ---------
                          High       Low     High       Low     1996      1995
                          ----       ---     ----       ---     ----      ----
<S>                     <C>       <C>      <C>        <C>       <C>       <C>
First Quarter:
  Class A Common        12 1/2    10 3/4    9 3/4     8 3/8     $.07      $.07
  Class B Common        11 3/4    10 1/2    9         8 7/8     $.07      $.07
Second Quarter:
  Class A Common        15        11        9 3/8     8 3/8     $.07      $.07
  Class B Common        13 3/4    10 3/4    8 7/8     8 3/4     $.07      $.07
Third Quarter:
  Class A Common        13 3/4    12        9 7/8     8 1/2     $.07      $.07
  Class B Common        12 3/4    12 1/2    9 1/4     8 1/2     $.07      $.07
Fourth Quarter:
  Class A Common        13 5/8    12 1/4   13 1/4     9 3/8     $.07      $.07
  Class B Common        12 1/2    12 1/2   11 3/4     9 1/2     $.07      $.07
</TABLE>


                                          22

<PAGE>

March 17, 1996



To Our Shareholders:

During 1996, Liberty Homes, Inc. generated net sales of $168,139,000.  This
level of sales represents an increase of $3,386,000 or 2% over 1995.  The
geographical markets served by the Company experienced a wide range of change
and the Company's sales followed accordingly.  The areas served by the Company's
Oregon facility experienced substantial market decline and resulted in much
lower sales by that facility.  Increased sales by the Wisconsin plants and
Alabama plant provided most of the offset to the Oregon reduction.  The
Company's remaining plants increased sales to balance 1996 total net sales with
1995.

Net income dropped $1,803,000 from the 1995 level of $6,356,000 to $4,553,000.
Although the Company maintained level sales, it did so with the added expense of
the Company's second manufacturing plant in Wisconsin, which opened in December,
1995.  Also, the Company experienced start-up costs in its newly opened
Tuscumbia, Alabama plant which began production in December, 1996.

We want to take this opportunity to thank our shareholders, employees and
suppliers for their efforts and continuing support.

Very truly yours,

LIBERTY HOMES, INC.



Edward J. Hussey
President

pkm


                                          23

<PAGE>

CONSOLIDATED BALANCE SHEET
December 31, 1996 and 1995 (Amounts in Thousands)



ASSETS

                                                           1996           1995
                                                           ----           ----
    CURRENT ASSETS:

        Cash and cash equivalents                       $11,174        $10,257

        Short term investments                           12,650         15,600

        Receivables                                       8,540          7,328

        Refundable income taxes                             142            --

        Inventories                                      10,211         10,618

        Deferred tax asset                                2,054          1,841

        Prepayments and other                             1,192          1,009
                                                        -------        -------

          Total current assets                           45,963         46,653
                                                        -------        -------


    PROPERTY, PLANT AND EQUIPMENT:

        Land                                              1,195          1,041

        Buildings and improvements                       23,359         20,823

        Machinery and equipment                          17,413         15,359
                                                        -------        -------

                                                         41,967         37,223

        Less accumulated depreciation                    15,764         14,749
                                                        -------        -------

                                                         26,203         22,474
                                                        -------        -------

                                                        $72,166        $69,127
                                                        -------        -------
                                                        -------        -------

The accompanying notes are an integral part of the consolidated financial
statements.


                                          24

<PAGE>

LIBERTY HOMES, INC.


LIABILITIES

                                                           1996           1995
                                                           ----           ----
    CURRENT LIABILITIES:

        Accounts payable                                $ 3,357        $ 2,573

        Dividends payable                                   295            306

        Income taxes payable                                 31            236

        Accrued compensation & payroll taxes              2,098          2,024

        Other accrued liabilities                        12,010         10,790
                                                        -------        -------

          Total current liabilities                      17,791         15,929
                                                        -------        -------

    DEFERRED INCOME TAXES                                 1,952          2,280
                                                        -------        -------

    CONTINGENT LIABILITIES



SHAREHOLDERS' EQUITY
    CAPITAL STOCK:
        Class A, $1 par value,
         Authorized - 7,500,000 shares
         Issued and outstanding -
         2,477,000 in 1996 and
         2,621,000 in 1995                                2,477          2,621

        Class B, $1 par value,
         convertible to Class A,
         authorized - 3,500,000 shares
         Issued and outstanding -
         1,746,000 in  1996 and
         1,757,000 in 1995                                1,746          1,757

    OTHER CAPITAL                                            83             83

    RETAINED EARNINGS                                    48,117         46,457
                                                        -------        -------

                                                         52,423         50,918
                                                        -------        -------

                                                        $72,166        $69,127
                                                        -------        -------
                                                        -------        -------


                                          25

<PAGE>

CONSOLIDATED STATEMENT OF INCOME
For the Years Ended December 31, 1996, 1995 and 1994
(Amounts in Thousands, Except per Share Data)

                                            1996          1995           1994
                                            ----          ----           ----

Net sales                                $168,139      $164,753       $125,035
Cost of sales                             146,783       140,581        108,163
                                         --------      --------       --------

    Gross profit                           21,356        24,172         16,872
Selling, general and
  administrative expenses                  15,845        15,183         11,883
                                         --------      --------       --------

    Operating income                        5,511         8,989          4,989
Interest and other income                   2,034         1,557          2,575
                                         --------      --------       --------

    Income before income taxes              7,545        10,546          7,564

Income tax expense                          2,992         4,190          2,740
                                         --------      --------       --------

    Net income                           $  4,553      $  6,356       $  4,824
                                         --------      --------       --------
                                         --------      --------       --------

Net income per outstanding
    common share                            $1.06         $1.42          $1.06
                                            -----         -----          -----
                                            -----         -----          -----

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
(Amounts in Thousands)
<TABLE>
<CAPTION>

                                          Class A       Class B
                                           Common        Common         Other        Retained
                                           Stock         Stock         Capital       Earnings        Total
                                           -----         -----         -------       --------        -----
<S>                                       <C>           <C>            <C>           <C>            <C>
Balance, January 1, 1994                   2,776         1,795              83        39,465         44,119
    Repurchase & Cancellation
      of Class A Shares                      (40)                                       (321)          (361)
    Net income for the year                                                            4,824          4,824
    Cash dividends-$.28 per share                                                     (1,280)        (1,280)
                                          ------        ------            ----       -------        -------
Balance, December 31, 1994                 2,736         1,795              83        42,688         47,302
    Conversion from Class B
      to Class A                              38           (38)                                          --
    Repurchase and cancellation
      of Class A Shares                     (153)                                     (1,343)        (1,496)
    Net income for the year                                                            6,356          6,356
    Cash dividends-$.28 per share                                                     (1,244)        (1,244)
                                          ------        ------            ----       -------        -------
Balance December 31, 1995                  2,621         1,757              83        46,457         50,918
    Conversion from Class B
      to Class A                              11           (11)                                          --
    Repurchase and Cancellation
      of Class A Shares                     (155)                                     (1,697)        (1,852)
    Net income for the year                                                            4,553          4,553
    Cash dividends-$.28 per share                                                     (1,196)        (1,196)
                                          ------        ------            ----       -------        -------
Balance December 31, 1996                 $2,477        $1,746            $ 83       $48,117        $52,423
                                          ------        ------            ----       -------        -------
                                          ------        ------            ----       -------        -------
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.


                                          26
<PAGE>

CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
(Amounts in Thousands)

<TABLE>
<CAPTION>

                                                           1996           1995           1994
                                                           ----           ----           ----
<S>                                                      <C>           <C>            <C>
Cash flows from operating activities:
    Net income                                           $4,553        $ 6,356        $ 4,824
                                                        -------        -------        -------
    Adjustments to reconcile net income to net
      cash provided by operating activities:
    Depreciation                                          2,181          1,578          1,197
    Deferred income taxes                                  (541)          (815)          (869)
    Gain on sale of property, plant & equipment            (882)            --           (944)

    Changes in assets and liabilities:
        Receivables                                      (1,212)          (572)        (2,651)
        Refundable income taxes                            (142)           988            881
        Inventories                                         407         (1,257)          (966)
        Prepayments and other                              (183)          (269)           123
        Accounts payable                                    784           (494)         2,671
        Accrued liabilities                               1,283          4,766            657
        Income taxes payable                               (205)           236           (865)
                                                        -------        -------        -------

          Total adjustments                               1,490          4,161           (766)
                                                        -------        -------        -------

    Net cash provided by
        operating activities                              6,043         10,517          4,058
                                                        -------        -------        -------

Cash flows from (used) in investing activities:
    Additions to property, plant & equipment             (7,245)        (9,464)        (4,616)
    Investments in short term investments                    --             --         (3,404)
    Disposal of short term investments                    2,950          3,875             --
    Disposal of property, plant & equipment               2,217            --           2,998
                                                        -------        -------        -------
    Net cash used in investing activities                (2,078)        (5,589)        (5,022)
                                                        -------        -------        -------

Cash flows used in financing activities:
    Cash dividends paid                                  (1,196)        (1,244)        (1,280)
    Retirement of common stock                           (1,852)        (1,496)          (361)
                                                        -------        -------        -------
    Net cash used in financing activities                (3,048)        (2,740)        (1,641)
                                                        -------        -------        -------

Net increase (decrease) in cash and
    cash equivalents                                        917          2,188         (2,605)
Cash and cash equivalents, beginning of year             10,257          8,069         10,674
                                                        -------        -------        -------

Cash and cash equivalents, end of year                  $11,174        $10,257        $ 8,069
                                                        -------        -------        -------
                                                        -------        -------        -------

Supplemental disclosures of cash flow
        information - cash paid during
        the year for income taxes                       $ 3,879        $ 3,793        $ 3,264
                                                        -------        -------        -------
                                                        -------        -------        -------
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.


                                          27

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.  ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries Arcadian Financial Services, Inc., which ceased
operations in 1996 and Irish Homes, Inc., and its majority owned subsidiary,
Waverlee Homes, Inc.  Upon consolidation, all intercompany accounts,
transactions and profits have been eliminated. The minority interests of
Waverlee Homes, Inc. are immaterial.

CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments which are readily
convertible to known amounts of cash and have original maturities within three
months from date of purchase.  These investments are carried at cost which
approximates market value.

SHORT-TERM INVESTMENTS
At December 31, 1996 and 1995, short term investments consisted primarily of
certificates of deposit with original maturities of 90 days to 12 months and
readily convertible to cash.  These investments are carried at cost which
approximate fair market value.  The Company intends to hold the certificates of
deposit until maturity.  The Company's investments were maintained in three
financial institutions at December 31, 1996.

INVENTORIES
Inventories, consisting principally of raw materials, are stated at the lower of
cost or market, with cost determined on a first-in, first-out basis.

PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost.  Depreciation is taken over
the estimated useful life of the asset and is provided principally on the
straight line method, using lives of 25-33 years for buildings and improvements
and 3-10 years for machinery and equipment.  When assets are retired or disposed
of, the related cost and accumulated depreciation is removed from the accounts
and any resulting gain or loss is included in operations.  Operations are
charged with all maintenance, repairs and rearrangement expenses, while
betterments and renewals which increase the productive capacity of assets are
capitalized and depreciated.

PRODUCT WARRANTY COSTS
Estimated warranty obligations are provided at the time of sale.

INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Under this method, deferred income taxes are recognized for the tax consequences
of "temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of ending assets and liabilities.  The effect on deferred taxes of
a change in tax rates is recognized in income in the period that includes the
enactment date.

DELIVERY COSTS
Revenues and expenses related to delivery of the Company's products are included
in selling, general and administrative expenses in the statement of operations.


                                          28

<PAGE>

2.  NATURE OF BUSINESS, RISKS AND UNCERTAINTIES:
The Company designs, manufactures and sells at wholesale a broad line of single
and multi-section manufactured homes to numerous independent dealers in the
United States who utilize floorplan financing arrangements with lending
institutions.

The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain assets, liabilities, revenues and expenses.  Such estimates
primarily relate to unsettled transactions and events as of the date of the
financial statements.  Accordingly, upon settlement, actual amounts may differ
from estimated amounts.  The most notable assumptions included in the financial
statements involve product warranty costs, potential repurchase obligations on
dealer floorplan financing arrangements and reserves set for the Company's
self-funded workers' compensation insurance program and group medical benefit
plan.  The Company maintains excess loss coverage on the workers' compensation
and medical benefit programs through various insurance contracts.

3.  CAPITAL STOCK:
The shares of Class A Common Stock have no voting rights and are not
convertible; the shares of Class B Common Stock have voting rights of one vote
per share and are convertible into Class A Common Stock on a one for one basis.
The Class A Shares may carry a preferential dividend rate.  However, in no event
will the dividend rate be less than the Class B shares.  The weighted average of
all shares outstanding at December 31, 1996, 1995 and 1994 was 4,300,000 shares,
4,467,000 shares and 4,569,000 shares, respectively.  The Board of Directors
have approved a stock repurchase program authorizing the Company to repurchase
up to 500,000 outstanding shares of its Class A and Class B Common Shares on the
open market or in negotiated transactions at management's discretion.  At
December 31, 1996, 348,000 shares of Class A Common Stock had been repurchased
and canceled under this program.

4.  INCOME TAXES:
The net deferred tax liability in the accompanying balance sheet includes the
following amounts of deferred tax assets and liabilities:

(Amounts in Thousands)
                                            1996          1995           1994
                                            ----          ----           ----

Deferred tax asset                        $2,054        $1,841          1,045
Deferred tax (liability)                  (1,952)       (2,280)        (2,290)
Valuation allowance
for deferred tax asset                       --            --              (9)
                                          ------        ------        -------
Net deferred tax asset (liability)        $  102        $ (439)       $(1,254)
                                          ------        ------        -------
                                          ------        ------        -------

The tax effects of principal temporary differences and carry forwards are shown
in the following table:

                                            1996          1995           1994
                                            ----          ----           ----

Nondeductible accruals & reserves         $1,998        $1,781        $   967
Accelerated tax depreciation              (1,896)       (2,220)        (2,244)
State net operating loss carry forward        --            --             18
Other, net                                    --            --             14
                                          ------        ------        -------
    Subtotal                                 102          (439)        (1,245)
Valuation allowances for
deferred tax asset                            --            --             (9)
                                          ------        ------        -------
                                          $  102        $ (439)       $(1,254)
                                          ------        ------        -------
                                          ------        ------        -------


                                          29

<PAGE>

The components of income tax expense are as follows:
(Amounts in Thousands)

                                            1996          1995           1994
                                            ----          ----           ----

Current:
    Federal                              $ 2,915        $4,068         $3,040
    State                                    618           937            569
Deferred:
    Federal                                 (454)         (664)          (705)
    State                                    (87)         (142)          (151)
    Change in valuation allowance             --            (9)           (13)
                                         -------        ------         ------

                                         $ 2,992        $4,190         $2,740
                                         -------        ------         ------
                                         -------        ------         ------

Income tax expense results in effective tax rates of 39.6 percent in 1996; 39.7
percent in 1995; and 36.2 percent in 1994; and reconciles with the statutory
United States federal income tax rate in 1996, 1995 and 1994, of 34 percent, as
follows:

<TABLE>
<CAPTION>

                                                                                    Percent of Income
                                                Income Tax Expense                 Before Income Taxes
                                                ------------------                 -------------------
                                          1996        1995        1994         1996        1995       1994
                                          ----        ----        ----         ----        ----       ----
<S>                                      <C>        <C>         <C>           <C>         <C>        <C>
Income taxes at statutory
    federal rate                         $2,565     $3,586      $2,572         34.0        34.0       34.0
State income taxes, net of
    federal tax effect                      351        519         267          4.6         4.9        3.5
Other                                        76         85         (99)         1.0          .8       (1.3)
                                         ------     ------      ------         ----        ----       ----

                                         $2,992     $4,190      $2,740         39.6        39.7       36.2
                                         ------     ------      ------         ----        ----       ----
                                         ------     ------      ------         ----        ----       ----
</TABLE>

5.  CONTINGENT LIABILITIES:
REPURCHASE OBLIGATIONS
The Company is contingently liable as of December 31, 1996 under terms of
repurchase agreements with various financial institutions which provide for the
repurchase of its homes sold to dealers under floor plan financing arrangements
upon dealer default.  The Company's exposure to loss under such agreements is
reduced by the resale of the repurchased home. The Company has provided for
losses on homes as of December 31, 1996 for which it has received or expects
notification of repurchase.  The Company's repurchase losses for 1996 and 1995
were not material.  The Company believes any additional losses incurred under
outstanding repurchase agreements in excess of the accrual established as of
December 31, 1996, will not have a significant impact on the financial condition
of the Company.

OTHER CONTINGENCIES
Letters of Credit totaling $4,325,000 have been issued in conjunction with the
Company's self-funded workers' compensation program.

The Company is party to various legal proceedings from the normal course of
operations.  The Company has provided for anticipated losses resulting from the
litigation.  In management's opinion, the Company has adequate legal defenses
and does not believe these suits will materially affect the Company's operations
or financial position.

6.  RETIREMENT PLAN
The Company has a 401(k) retirement plan which covers substantially all
employees.  The Company has agreed to match a portion of the employee
contributions made to the


                                          30

<PAGE>

plan.  The expense for this plan for the year ended December 31, 1996, 1995 and
1994 was $227,000, $248,000 and $95,000, respectively.

7.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
The Company's results of operations in 1996 and 1995 by quarter, are as follows
(Amounts in Thousands):
                                      Quarter Ended                    Year
                      -------------------------------------------      Ended
                      Mar. 31     June 30    Sept. 30     Dec. 31     Dec. 31
                      -------     -------    --------     -------     -------

1996:
Net sales             $38,146     $45,673     $45,403     $38,917    $168,139
Gross profit            4,946       6,075       5,803       4,532      21,356
Net income                890       1,607       1,364         692       4,553
Net income per share     $.20        $.37        $.32        $.17       $1.06

1995:
Net sales             $39,146     $43,407     $41,675     $40,525    $164,753
Gross profit            4,522       6,285       6,687       6,678      24,172
Net Income                902       1,834       2,011       1,609       6,356
Net income per share     $.20        $.41        $.45        $.36       $1.42



During 1996, the Company sold its idle Georgia facility for a net after tax gain
of $345,000 or $.08 per share in the second quarter and sold its idle
Pennsylvania facility for a net after tax gain of $206,000 or $.05 per share in
the fourth quarter.



                                          31

<PAGE>

                            REPORT OF INDEPENDENT AUDITORS


Board of Directors and Shareholders
Liberty Homes, Inc.
Goshen, Indiana

We have audited the accompanying consolidated balance sheets of Liberty Homes,
Inc. and Subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996.  These
financial statements 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 financial position of Liberty Homes, Inc.
and Subsidiaries as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.



                             Crowe Chizek and Company LLP


Elkhart, Indiana
February 11, 1997


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<PAGE>

                                  BOARD OF DIRECTORS

NAME                              PRINCIPAL OCCUPATION AND EMPLOYER
Edward J. Hussey                  Chairman of the Board and President of
                                  Liberty Homes, Inc.
Edward Joseph Hussey              Vice President, Secretary and Assistant
                                  Treasurer of Liberty Homes, Inc. and
                                  Share-holder in the law firm of Hodges &
                                  Davis P.C. in Merrillville, Indiana
Michael F. Hussey                 Vice President - Finance and Assistant
                                  Secretary of Liberty Homes, Inc.
David M. Huffine                  President of Sky View Homes, Inc., Rocky
                                  Ford, Colorado
Mitchell Day                      President of Day Equipment Corporation,
                                  Goshen, Indiana

OFFICERS
    Edward J. Hussey, President
    Edward Joseph Hussey, Vice President and Secretary
    Michael F. Hussey, Vice President - Finance and Assistant Secretary
    Marc A. Dosmann, Vice President and Chief Financial Officer
    Bruce A. McMillan, Vice President - Sales
    Ron Atkins, Vice President - Purchasing
    Ralph D. Ray, Treasurer
    Brian L. Christner, Controller
    Dorothy L. Peterson, Assistant Treasurer

REGISTRAR & TRANSFER AGENT
    Harris Bank, Shareholder Services
    Chicago, Illinois
    (312) 461-3309

AUDITORS
    Crowe Chizek and Company LLP
    Elkhart, Indiana

LEGAL COUNSEL
    Hodges & Davis P.C.
    Merrillville, Indiana

    Barnes & Thornburg
    Fort Wayne, Indiana

ANNUAL REPORT ON FORM 10-K
The Liberty Homes, Inc. Annual Report on Form 10-K filed with the Securities and
Exchange Commission is available to shareholders at no charge upon written
request to Liberty Homes, Inc., PO Box 35, Goshen, Indiana  46527-0035,
Attention:  Marc A. Dosmann.


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