ACTEL CORPORATION

                      SELECTED CONSOLIDATED FINANCIAL DATA
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                --------------------------------------------------------------------
                                                    1996          1995          1994          1993          1992
                                                ------------  ------------  ------------  ------------  ------------
<S>                                             <C>           <C>           <C>           <C>           <C>
Statements of Operations Data:
Net revenues.................................   $    148,779  $    108,516  $     76,007  $     59,598  $     44,049
Costs and expenses:
   Cost of revenues..........................         64,420        52,517        33,349        26,389        19,269
   Research and development..................         23,934        20,560        14,406        10,953         8,868
   Selling, general, and administrative......         38,395        27,364        19,699        16,708        13,567
   Patent litigation settlement (1)..........             --            --            --            --         2,000
   In-process research and development (2)...
                                                          --        16,600            --            --            --
                                                ------------  ------------  ------------  ------------  ------------
         Total costs and expenses............        126,749       117,041        67,454        54,050        43,704
                                                ------------  ------------  ------------  ------------  ------------
Income (loss) from operations................         22,030        (8,525)        8,553         5,548           345
Interest expense.............................            (13)          (93)         (232)         (559)         (718)
Interest income and other, net...............          1,068           846           935           569           221
                                                ------------  ------------  ------------  ------------  ------------
Income (loss) before taxes...................         23,085        (7,772)        9,256         5,558          (152)
Tax provision (benefit)......................          8,147        (6,640)        1,389           555           148
                                                ------------  ------------  ------------  ------------  ------------
Net income (loss)............................   $     14,938  $     (1,132) $      7,867  $      5,003  $       (300)
                                                ============  ============  ============  ============  ============
Net income (loss) per share..................   $       0.70  $     (0.07)  $       0.45  $       0.32  $     (0.11)
                                                ============  ============  ============  ============  ============
Shares used in computing net income (loss)
   per share.................................         21,485        17,367        17,579        15,811         2,740
                                                ============  ============  ============  ============  ============
</TABLE>
<TABLE>
<CAPTION>
                                                                            December 31,
                                                --------------------------------------------------------------------
                                                    1996          1995          1994          1993          1992
                                                ------------  ------------  ------------  ------------  ------------
 <S>                                            <C>           <C>           <C>           <C>           <C>
 Consolidated Balance Sheet Data:
 Working capital.............................   $     55,397  $     39,867  $     35,971  $     32,330  $     11,912
 Total assets................................        136,712       107,119        67,855        61,130        29,357
 Long-term obligations (3)...................             --            --            72           926         4,142
 Redeemable convertible preferred stock......         18,147        18,147            --            --        33,359
 Total shareholders' equity (deficit)........         69,357        50,920        49,311        40,223       (20,166)

-----------------------------------------------------------
<FN>
    (1)   Represents  a  charge  incurred  in the  fourth  quarter  of  1992  in
          connection with the settlement of patent litigation.

    (2)   Represents  a  charge  incurred  in  the  first  quarter  of  1995  in
          connection  with the Company's  acquisition of the field  programmable
          gate array business of Texas Instruments Incorporated.

    (3)   Includes  the  long-term  portion  of  notes  payable,  capital  lease
          obligations, and settlement payable.
</FN>
</TABLE>

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

     Actel Corporation is the world's leading supplier of  antifuse-based  field
programmable gate arrays ("FPGAs") and associated  software  development  tools.
FPGAs are used by  designers of  communication,  computer,  industrial  control,
military/aerospace, and other electronic systems to differentiate their products
and get them to market faster.

Results of Operations

     The following table sets forth certain financial data from the Consolidated
Statements of Operations expressed as a percentage of net revenues:
<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                            ----------------------------------------
                                                                                1996          1995          1994
                                                                            ------------  ------------  ------------
<S>                                                                            <C>           <C>           <C>
Net revenues.............................................................      100.0%        100.0%        100.0%
Cost of revenues.........................................................       43.3          48.4          43.9
                                                                            ------------  ------------  ------------
Gross margin.............................................................       56.7          51.6          56.1
Research and development.................................................       16.1          19.0          19.0
Selling, general, and administrative.....................................       25.8          25.2          25.9
In-process research and development......................................        --           15.3          --
                                                                            ------------  ------------  ------------
Income (loss) from operations............................................       14.8          (7.9)         11.2
Interest and other income, net...........................................        0.7           0.7           1.0
                                                                            ------------  ------------  ------------
Income (loss) before taxes...............................................       15.5          (7.2)         12.2
Tax provision (benefit)..................................................        5.5          (6.2)          1.8
                                                                            ------------  ------------  ------------
Net income (loss)........................................................       10.0%         (1.0)%        10.4%
                                                                            ============  ============  ============
</TABLE>

     Acquisition of TI Antifuse FPGA Business

     On March 31, 1995,  the Company  completed its  acquisition of the antifuse
FPGA business of Texas Instruments  Incorporated  ("TI"), the only second-source
supplier of the Company's  products,  in a  transaction  accounted for using the
purchase method.  As consideration for the business  acquired,  the Company paid
$10.0 million in cash and issued  1,000,000  shares of Series A Preferred Stock.
The Preferred  Stock was valued for purposes of the transaction at $18.9 million
and is convertible  into 2,631,578  shares of Common Stock. The Company expensed
the in-process  research and development  acquired in the transaction,  taking a
pretax charge of $16.6 million  against income in the first quarter of 1995. See
Note 13 of Notes to Consolidated  Financial  Statements.  The Company  allocated
$4.4 million of the purchase price to intangible assets (i.e., the customer base
and goodwill acquired),  which are being amortized over five years. Amortization
expense for the year ended December 31, 1996, was $0.9 million.

     As a result of the acquisition,  the revenues of the business acquired from
TI are included  (beginning with the second quarter of 1995) in the net revenues
of the Company.  The Company  assumed and  subsequently  fulfilled TI's backlog,
which consisted  primarily of lower-margin ACT 1 and ACT 2 products with average
selling prices  generally lower than those charged by the Company for comparable
products.  These  product mix and average  selling price  influences  negatively
affected the Company's gross margin for 1995 and the absence of these influences
positively  affected  the  Company's  gross margin for 1996.  In  addition,  the
Company ceased receiving  royalties  (which had no associated  costs) from TI on
sales  of  FPGAs  following  the  acquisition.  See  Notes 3 and 13 of  Notes to
Consolidated Financial Statements.

     Net Revenues

     Net revenues for fiscal 1996 were $148.8  million,  increasing 37% over net
revenues for fiscal 1995.  This compares with an increase in net revenues of 43%
for fiscal 1995 over fiscal 1994.  The  Company's  acquisition  of TI's antifuse
FPGA business had a negative  influence on net revenues for the first quarter of
1995 and a positive effect on net revenues for subsequent quarters. Accordingly,
the  year-over-year  growth rates in net revenues for both 1996 and 1995 are not
indicative of future results.

     The Company  derives its revenues  primarily from the sale of FPGAs,  which
accounted  for 97% of net revenues for 1996,  compared with 95% for 1995 and 91%
for 1994. The Company also derives revenues from the sale of development systems
and receipt of royalties.

     Net  revenues  from  the  sale of FPGAs  for  1996  increased  41% over net
revenues from the sale of FPGAs for 1995.  This compares with an increase of 50%
in net  revenues  from the sale of FPGAs for 1995 over  1994.  The growth in net
revenues  from the sale of FPGAs for 1996 over 1995 was due  primarily  to a 39%
increase in unit sales coupled with a 7% increase in the overall average selling
price of FPGAs.  The increase in the overall  average selling price of FPGAs for
1996 was due principally to proportionately  greater unit sales of the Company's
newer ACT 3, XL, DX, and RH product  families,  which  generally  command higher
average  selling  prices  than  the  Company's  older  ACT 1 and  ACT 2  product
families.  The growth in net revenues  from the sale of FPGAs for 1995 over 1994
was due primarily to a 67% increase in unit sales, which was offset in part by a
decline of 10% in the overall average selling price of FPGAs. The decline in the
overall  average  selling  price of FPGAs for 1995 was due  principally  to TI's
aggressive second-source pricing in the first quarter of 1995 and the subsequent
fulfillment  by the  Company of TI's  backlog  of  products  with lower  average
selling prices.

     As is typical in the semiconductor  industry, the average selling prices of
the Company's  products  generally  decline over the lives of such products.  To
increase  revenues,  the  Company  seeks to  increase  unit  sales  of  existing
products,  principally  by  reducing  prices,  and to  introduce  and  sell  new
products. No assurance can be given that these efforts will be successful.

     Over the last three fiscal years, sales to distributors have increased as a
percentage of the Company's net revenues.  The Company's principal  distributors
for 1996 were Wyle Electronics Marketing Group and Pioneer-Standard Electronics,
Inc.  in  North  America  and  Arrow  Electronics,  Inc.  and  Zeus  Electronics
(collectively,  "Arrow") worldwide.  The following table sets forth, for each of
the last three years,  the  percentage  of revenues  derived from all  customers
accounting for 10% or more of net revenues in any of such years:

                                            1996          1995          1994
                                        ------------  ------------  ------------
Wyle.................................        14%           14%           15%
Arrow................................        14            12             3
Pioneer..............................        11            11            15

Arrow was added as a distributor in June 1994.  The Company  generally does
not recognize revenue on a sale to a distributor  until the distributor  resells
the product to its customer.

     Sales to  customers  outside  the United  States for 1996,  1995,  and 1994
accounted for 33%, 38%, and 32% of net revenues,  respectively.  Of these export
sales, the largest portion was derived from European customers.

     Gross Margin

     Gross  margin for 1996 was 57% of net  revenues,  compared  with 52% of net
revenues  for 1995 and 56% of net revenues for 1994.  The  improvement  in gross
margin for 1996 over 1995 resulted  primarily from the Company's  acquisition of
TI's FPGA business,  which has positively  influenced the Company's net revenues
and overall  average  selling  price.  The Company's  gross margin for 1996 also
benefited  from improved  manufacturing  yields;  the generation of an increased
percentage of net revenues from sales of the Company's  newer product  families,
which command higher margins; and appreciation in the value of the United States
dollar versus the Japanese yen, in which some of the Company's  wafer  purchases
are denominated.

     The  decline  in  gross  margin  for  1995   compared  with  1994  resulted
principally  from  reduced  average  selling  prices,  due  principally  to TI's
aggressive  second-source  pricing before the acquisition and the fulfillment by
the  Company  of TI's  backlog  after  the  acquisition;  increased  costs for a
significant portion of the Company's wafer supplies attributable to depreciation
in the value of the United  States  dollar  versus the Japanese yen; and reduced
royalty revenue following the Company's acquisition of TI's FPGA business.

     The  Company's  gross  margin  for 1994  was  adversely  affected  by stiff
second-source  competition from TI and a sharp drop in royalties,  which have no
associated costs.

     As is  typical in the  semiconductor  industry,  margins  on the  Company's
products  generally  decline  as the  average  selling  prices of such  products
decline.  The  Company  seeks to  offset  margin  erosion  by  selling  a higher
percentage of new products,  which tend to have higher  margins than more mature
products,  and by reducing costs. The Company seeks to reduce costs by improving
wafer yields, negotiating price reductions with suppliers,  increasing the level
and efficiency of its testing and packaging  operations,  achieving economies of
scale by means of higher  production  levels,  and  increasing the number of die
produced per wafer by shrinking the die size of its  products.  No assurance can
be given that these efforts will be successful. The capability of the Company to
shrink  the die  size of its  FPGAs is  dependent  on the  availability  of more
advanced  manufacturing   processes.   Due  to  the  custom  steps  involved  in
manufacturing  antifuse  FPGAs,  the  Company  typically  obtains  access to new
manufacturing  processes later than its competitors using standard manufacturing
processes.

     Research and Development

     Research and development  expenditures for 1996 were $23.9 million,  or 16%
of net revenues,  compared with $20.6 million, or 19% of net revenues,  for 1995
and  $14.4  million,  or 19% of net  revenues,  for  1994.  While  research  and
development   expenditures  for  1996  increased  by  16%  compared  with  1995,
expenditures  declined as a percentage of net revenues due to economies of scale
resulting  from the  expanded  scope of the  Company's  operations.  The Company
currently  intends  to boost the level of its  expenditures  to  accelerate  the
introduction of new products. As a result, research and development expenditures
may increase as a percentage of net revenues.

     The Company's research and development consists of circuit design, software
development,  and  process  technology  activities.  The Company  believes  that
continued  substantial  investment  in research and  development  is critical to
maintaining  a strong  technological  position in the industry  and,  therefore,
expects to continue increasing its research and development expenditures.  Since
the Company's  antifuse FPGAs are manufactured using a customized  process,  the
Company's  research and development  expenditures will probably always be higher
as a percentage of net revenues than that of its major competitors.

     Selling, General, and Administrative

     Selling,  general, and administrative expenses for 1996 were $38.4 million,
or 26% of net revenues, compared with $27.4 million, or 25% of net revenues, for
1995 and $19.7  million,  or 26% of net revenues,  for 1994. The increase in the
rate of selling,  general,  and  administrative  spending for 1996 compared with
1995  resulted  primarily  from  an  increased  level  of  sales  and  marketing
activities in support of new products. The Company currently intends to continue
its heightened level of sales and marketing activity in support of new products.
In addition,  the Company  believes  that its legal  expenses will increase as a
percentage of net  revenues,  principally  because of the  Company's  continuing
litigation  with  QuickLogic  Corporation.  See Note 12 of Notes to Consolidated
Financial  Statements.   As  a  result,  selling,  general,  and  administrative
expenditures may continue to increase as a percentage of net revenues.

     In-Process Research and Development

     The $16.6 million pretax charge for in-process research and development for
1995 resulted from a write-off  taken in the first quarter of 1995 in connection
with the Company's acquisition of TI's antifuse FPGA business.  The value of the
in-process research and development was established by an independent  valuation
specialist.

     Tax Provision

     The Company's effective tax rate for 1996 was 35%.  Significant  components
affecting  the  effective  tax rate  include  benefits of federal  research  and
development  credits, and the recognition of certain deferred tax assets subject
to valuation allowances as of December 31, 1995.

     The  Company  recorded  a  credit  for  income  taxes  for  1995 due to the
realization of deferred tax assets previously  subject to valuation  allowances.
The  Company  recorded  additional  deferred  tax assets of  approximately  $3.0
million  related  to the  1995  charge  for  acquired  in-process  research  and
development, the realization of which is dependent upon the generation of future
taxable income.

     For  1994,  the  Company's  provision  for  taxes  was  less  than the U.S.
statutory rate due primarily to the realization of tax net operating  losses and
tax credit carryforwards.

Financial Condition, Liquidity, and Capital Resources

     The Company's total assets were $136.7 million at the end of 1996, compared
with  $107.1  million  at the end of 1995.  The  increase  in total  assets  was
attributable principally to the expanded scope of the Company's operations.  The
following table sets forth certain financial data from the Consolidated  Balance
Sheets expressed as the percentage change from the end of fiscal 1995 to the end
of fiscal 1996:
<TABLE>
<CAPTION>
                                                                                              Percentage Change
                                                                                              From 1995 to 1996
                                                                                          --------------------------
<S>                                                                                                  <C>
Cash, cash equivalents, and short-term investments.....................................              45.9%
Accounts receivable, net...............................................................              65.7
Inventories............................................................................              (3.2)
Property and equipment, net............................................................               1.9
Total assets...........................................................................              27.6
Total current liabilities..............................................................              29.3
Shareholders' equity...................................................................              36.2
</TABLE>

     Cash, Cash Equivalents, and Short-Term Investments

     The Company's cash, cash equivalents, and short-term investments were $29.2
million at the end of 1996,  compared with $20.0 million at the end of 1995. The
amount  of  cash,  cash  equivalents,   and  short-term   investments  increased
principally  because of cash  provided by  operations,  including  net income of
$14.9 million for 1996.

     In 1996, the Company made a final payment of approximately $2.9 million for
an equity  interest in Chartered  Semiconductor  Manufacturing  Ltd  ("Chartered
Semiconductor"),   a  semiconductor   manufacturer  located  in  Singapore,  and
purchased an additional equity interest in Chartered Semiconductor,  pursuant to
a contractual right of first refusal, for approximately $0.7 million. See Note 5
of Notes to  Consolidated  Financial  Statements.  The Company  presently has no
material financial  obligations to its current wafer suppliers.  However,  wafer
manufacturers are increasingly demanding financial support from customers in the
form of equity  investments and advance  purchase price deposits,  which in some
cases are substantial. Should the Company require additional capacity, it may be
required to incur significant expenditures to secure such capacity.

     The Company believes that the availability of adequate financial  resources
is a substantial  competitive factor. To take advantage of opportunities as they
arise, or to withstand  adverse  business  conditions  should they occur, it may
become  prudent or necessary for the Company to raise  additional  capital.  The
Company  intends to  monitor  the  availability  and cost of  potential  capital
resources, including equity, debt, and off-balance sheet financing arrangements,
with a view toward  raising  additional  capital on terms that are acceptable to
the  Company.  No  assurance  can be given that  additional  capital will become
available on acceptable terms.

     Notwithstanding  the  foregoing,  the Company  believes that existing cash,
cash  equivalents,   and  short-term   investments,   together  with  cash  from
operations, will be sufficient to meet its cash requirements for 1997. A portion
of available cash may be used for investment in or acquisition of  complementary
businesses, products, or technologies.

     Accounts Receivable

     The  Company's  net accounts  receivable  were $29.5  million at the end of
1996,  compared with $17.8  million at the end of 1995.  This increase of 66% in
net  accounts  receivable  compares  unfavorably  with the 37%  increase  in net
revenues for 1996 compared with 1995. The Company believes that its net accounts
receivable for 1996 increased  more than net revenues  principally  because of a
greater concentration of shipments at the end of 1996. In addition,  the Company
transitioned  to a new  management  information  system in the fourth quarter of
1996 and experienced  difficulties  in reconciling  data between the old and the
new systems  during the  transition,  which  resulted in some loss of collection
efforts of accounts receivable.

     Inventories

     The Company's  inventories were $26.8 million at the end of 1996,  compared
with $27.7 million at the end of 1995.  Although  inventories  declined in 1996,
they were still  higher  than  desired at the end of 1996.  Since the  Company's
FPGAs are  manufactured  using  customized  steps that are added to the standard
manufacturing  processes  of its  independent  wafer  suppliers,  the  Company's
manufacturing  cycle is longer and hence more difficult to adjust in response to
changing demands or delivery  schedules.  The Company believes that it will take
several  more  quarters to bring  inventories  back to a desired  level,  and no
assurance can be given that its efforts will be successful.  Excess  inventories
increase the risk of  obsolescence,  represent a  non-productive  use of capital
resources,  increase  handling  costs,  and delay  realization  of the price and
performance benefits associated with more advanced manufacturing processes.

     Property and Equipment

     The  Company's  net property and  equipment was $16.0 million at the end of
1996,  compared with $15.7 million at the end of 1995. The Company invested $7.8
million in property and equipment in 1996,  compared with $10.1 million in 1995.
Depreciation  and  amortization  of property and equipment were $5.9 million for
1996, compared with $3.8 million for 1995. Capital  expenditures during the past
two years have been primarily for leasehold  improvements  and for  engineering,
manufacturing,  and office  equipment.  The  Company  anticipates  that  capital
expenditures will increase in 1997 due to increased levels of operations.

     Current Liabilities

     The Company's  total current  liabilities  were $49.2 million at the end of
1996,  compared with $38.1  million at the end of 1995.  The increase in current
liabilities  was  attributable  principally  to an increase  of $8.2  million in
deferred  income  on  shipments  to  distributors,  which in turn was due to the
Company's increased level of operations.

     Shareholders' Equity

     Shareholders'  equity was $69.4  million at the end of 1996,  compared with
$50.9  million  at the end of  1995.  The  increase  included  net cash of $17.6
million from operating activities and net proceeds of $3.0 million from the sale
of common stock under employee stock plans.

Employees

     At the end of 1996, the Company had 356 full-time employees,  including 113
in marketing,  sales, and customer support; 122 in research and development;  94
in  operations;  and 27 in  administration  and finance.  This compares with 297
full-time  employees  at the end of 1995,  an increase of 20%.  Net revenues per
employee  was  approximately  $418,000  for 1996,  compared  with  approximately
$365,000 for 1995.

Impact of Recently Issued Accounting Standards

     In October 1995, the Financial  Accounting Standards Board issued Financial
Accounting  Standards No. 123,  "Accounting for Stock-Based  Compensation" ("FAS
123").  The  Company  has  elected  to account  for  employee  stock  options in
accordance  with  Accounting  Principles  Board  Opinion No. 25 and to adopt the
"disclosure  only"  alternative  described  in FAS  123.  See Note 9 of Notes to
Consolidated Financial Statements.

Quarterly Information

     The following table presents certain  unaudited  quarterly results for each
of the eight  quarters in the period ended  December 31, 1996. In the opinion of
management, this information has been presented on the same basis as the audited
consolidated  financial statements appearing elsewhere in this Annual Report and
all necessary  adjustments  (consisting only of normal recurring  accruals) have
been  included  in the  amounts  stated  below to present  fairly the  unaudited
quarterly  results  when  read in  conjunction  with  the  audited  consolidated
financial statements of the Company and notes thereto. These quarterly operating
results,  however, are not necessarily  indicative of the results for any future
period.

<TABLE>
<CAPTION>
                                                                             Three Months Ended
                                         ------------------------------------------------------------------------------------------
                                          Dec. 31,   Sept. 30,   June 30,   Mar. 31,    Dec. 31,   Sept. 30,   June 30,   Mar. 31,
                                            1996       1996        1996       1996        1995       1995        1995       1995
                                         ---------   --------   ----------  ---------  ----------  ---------  ----------  ---------
                                                                  (in thousands, except per share amounts)
<S>                                      <C>         <C>        <C>         <C>        <C>         <C>        <C>         <C>
Statements of Operations Data:
Net revenues...........................  $  39,027   $ 38,014   $   36,694  $  35,043  $   32,553  $  29,834  $   26,611  $  19,518
Cost of revenues.......................     16,381     16,164       16,105     15,769      15,234     14,416      13,243      9,624
                                         ---------   --------   ----------  ---------  ----------  ---------  ----------  ---------
Gross profit...........................     22,646     21,850       20,589     19,274      17,319     15,418      13,368      9,894
Research and development...............      5,855      6,417        5,650      6,011       5,802      5,430       4,885      4,443
Selling, general, and administrative...     10,651      9,854        9,582      8,308       7,849      7,244       6,904      5,367
In-process research and development (1)         --         --           --         --          --         --          --     16,600
                                         ---------   --------   ----------  ---------  ----------  ---------  ----------  ---------
Income (loss) from operations..........      6,140      5,579        5,357      4,955       3,668      2,744       1,579    (16,516)
Net income (loss)......................  $   4,153   $  3,905   $    3,606  $   3,277  $    3,878  $   2,935  $    1,683  $  (9,628)
Net income (loss) per share............  $    0.19   $   0.18   $     0.17  $    0.16  $     0.19  $    0.14  $     0.08  $   (0.56)
                                         =========   ========   ==========  =========  ==========  =========  ==========  =========
Shares used in computing net income
  (loss) per share.....................     21,893     21,475       21,467     21,068      20,808     21,082      20,581     17,200
                                         =========   ========   ==========  =========  ==========  =========  ==========  =========
</TABLE>
<TABLE>
<CAPTION>
                                                                             Three Months Ended
                                         ------------------------------------------------------------------------------------------
                                          Dec. 31,   Sept. 30,   June 30,   Mar. 31,    Dec. 31,   Sept. 30,   June 30,   Mar. 31,
                                            1996       1996        1996       1996        1995       1995        1995       1995
                                         ---------   --------   ----------  ---------  ----------  ---------  ----------  ---------
<S>                                        <C>         <C>        <C>         <C>        <C>         <C>        <C>         <C>
As a Percentage of Net Revenues:
Net revenues...........................    100.0%      100.0%     100.0%      100.0%     100.0%      100.0%     100.0%      100.0%
Cost of revenues.......................     42.0        42.5       43.9        45.0       46.8        48.3       49.8        49.3
                                         ---------   --------   ----------  ---------  ----------  ---------  ----------  ---------
Gross margin...........................     58.0        57.5       56.1        55.0       53.2        51.7       50.2        50.7
Research and development...............     15.0        16.9       15.4        17.2       17.8        18.2       18.4        22.8
Selling, general, and administrative...     27.3        25.9       26.1        23.7       24.1        24.3       25.9        27.5
In-process research and development (1)     --          --          --         --          --         --          --         85.0
                                         ---------   --------   ----------  ---------  ----------  ---------  ----------  ---------
Income (loss) from operations..........     15.7        14.7       14.6        14.1       11.3         9.2        5.9       (84.6)
Net income (loss)......................     10.6        10.3        9.8         9.4       11.9         9.8        6.3       (49.3)

------------------------------------------------------------------
<FN>
    (1)   Represents  a  charge   incurred  in  connection  with  the  Company's
          acquisition of TI's FPGA business.
</FN>
</TABLE>

                                ACTEL CORPORATION

                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)
<TABLE>
<CAPTION>
                                                                                                 December 31,
                                                                                          --------------------------
                                                                                              1996          1995
                                                                                          ------------  ------------
                                                       ASSETS
<S>                                                                                       <C>           <C>
Current assets:
   Cash and cash equivalents...........................................................   $      3,543  $     17,691
   Short-term investments..............................................................         25,626         2,296
   Accounts receivable, net............................................................         29,495        17,805
   Inventories.........................................................................         26,848        27,726
   Deferred income taxes...............................................................         16,677        10,304
   Other current assets................................................................          2,416         2,097
                                                                                          ------------  ------------
         Total current assets..........................................................        104,605        77,919
Property and equipment, net............................................................         15,973        15,674
Investment in Chartered Semiconductor..................................................         10,680         7,069
Other assets...........................................................................          5,454         6,457
                                                                                          ------------  ------------
                                                                                          $    136,712  $    107,119
                                                                                          ============  ============
</TABLE>
<TABLE>
<CAPTION>

                                        LIABILITIES AND SHAREHOLDERS' EQUITY
<S>                                                                                       <C>           <C>
Current liabilities:
   Accounts payable....................................................................   $      9,933  $     11,995
   Accrued salaries and employee benefits..............................................          5,967         3,108
   Other accrued liabilities...........................................................          5,922         3,735
   Deferred income.....................................................................         27,386        19,148
   Capital lease obligations...........................................................             --            66
                                                                                          ------------  ------------
         Total current liabilities.....................................................         49,208        38,052

Commitments and contingencies

Redeemable convertible preferred stock (Series A), $.001 par value, $25.00 liquidation
   preference; 1,000,000 shares authorized; 1,000,000 shares issued and outstanding....         18,147        18,147

Shareholders' equity:
   Preferred stock, $.001 par value; 4,000,000 shares authorized; none issued and
     outstanding.......................................................................             --            --
   Common stock, $.001 par value; 30,000,000 shares authorized; 17,991,503 and
     17,561,758 shares issued and outstanding at December 31, 1996 and 1995,
     respectively......................................................................             18            18
   Additional paid-in capital..........................................................         63,133        59,638
   Accumulated earnings (deficit)......................................................          6,206        (8,736)
                                                                                          ------------  ------------
         Total shareholders' equity....................................................         69,357        50,920
                                                                                          ------------  ------------
                                                                                          $    136,712  $    107,119
                                                                                          ============  ============

</TABLE>

                                ACTEL CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                            ----------------------------------------
                                                                                1996          1995          1994
                                                                            ------------  ------------  ------------
<S>                                                                         <C>           <C>           <C>
Net revenues.............................................................   $    148,779  $    108,516  $     76,007
Costs and expenses:
   Cost of revenues......................................................         64,420        52,517        33,349
   Research and development..............................................         23,934        20,560        14,406
   Selling, general, and administrative..................................         38,395        27,364        19,699
   In-process research and development...................................             --        16,600            --
                                                                            ------------  ------------  ------------
         Total costs and expenses........................................        126,749       117,041        67,454
                                                                            ------------  ------------  ------------
Income (loss) from operations............................................         22,030        (8,525)        8,553
Interest expense.........................................................            (13)          (93)         (232)
Interest income and other, net...........................................          1,068           846           935
                                                                            ------------  ------------  ------------
Income (loss) before taxes...............................................         23,085        (7,772)        9,256
Tax provision (benefit)..................................................          8,147        (6,640)        1,389
                                                                            ------------  ------------  ------------
Net income (loss)........................................................   $     14,938  $     (1,132) $      7,867
                                                                            ============  ============  ============
Net income (loss) per share..............................................   $       0.70  $     (0.07)  $       0.45
                                                                            ============  ============  ============
Shares used in computing net income (loss) per share.....................         21,485        17,367        17,579
                                                                            ============  ============  ============
</TABLE>

                                ACTEL CORPORATION

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                               Additional       Note      Accumulated       Total
                                                                 Paid-In     Receivable    Earnings/    Shareholders'
                                                Common Stock     Capital    from Officer   (Deficit)       Equity
                                                ------------  ------------  ------------  ------------  ------------
<S>                 <C> <C>                     <C>           <C>           <C>           <C>           <C>
Balance at December 31, 1993.................   $         17  $     55,794  $       (113) $    (15,475) $     40,223
Issuance of 306,313 common shares under
   employee stock plans and exercise of
   warrants, net of repurchases..............             --         1,344            --            --         1,344
Repayment of note receivable from officer....             --            --           113            --           113
Securities valuation adjustment..............             --            --            --          (404)         (404)
Tax benefit from exercise of stock options...             --           168            --            --           168
Net income...................................             --            --            --         7,867         7,867
                                                ------------  ------------  ------------  ------------  ------------
Balance at December 31, 1994.................             17        57,306            --        (8,012)       49,311
Issuance of 455,393 common shares under
   employee stock plans......................              1         1,894            --            --         1,895
Securities valuation adjustment..............             --            --            --           408           408
Tax benefit from exercise of stock options...             --           438            --            --           438
Net loss.....................................             --            --            --        (1,132)       (1,132)
                                                ------------  ------------  ------------  ------------  ------------
Balance at December 31, 1995.................             18        59,638            --        (8,736)       50,920
Issuance of 429,745 common shares under
   employee stock plans......................             --         2,955            --            --         2,955
Securities valuation adjustment..............             --            --            --             4             4
Tax benefit from exercise of stock options...             --           540            --            --           540
Net income...................................             --            --            --        14,938        14,938
                                                ------------  ------------  ------------  ------------  ------------
Balance at December 31, 1996.................   $         18  $     63,133  $         --  $      6,206  $     69,357
                                                ============  ============  ============  ============  ============
</TABLE>

                                ACTEL CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                            ----------------------------------------
                                                                                1996          1995          1994
                                                                            ------------  ------------  ------------
<S>                                                                         <C>           <C>           <C>
Operating activities:
   Net income (loss).....................................................   $     14,938  $     (1,132) $      7,867
   Adjustments to reconcile  net income (loss) to net cash provided by
     operating activities:
     Depreciation and amortization.......................................          6,755         4,412         3,696
     In-process research and development.................................             --        16,600            --
     Changes in operating assets and liabilities:
       Accounts receivable...............................................        (11,690)       (4,973)       (3,658)
       Inventories.......................................................            878        (9,095)       (6,139)
       Deferred income taxes.............................................         (6,373)       (9,394)         (583)
       Other current assets..............................................           (319)        2,710           (93)
       Accounts payable and accrued liabilities..........................          5,140         8,058           438
       Deferred income...................................................          8,238        10,802         2,335
       Settlement payable................................................             --            --        (2,000)
                                                                            ------------  ------------  ------------
   Net cash provided by operating activities.............................         17,567        17,988         1,863

Investing activities:
   Purchase of TI FGPA business..........................................             --       (10,000)           --
   Purchases of property and equipment...................................         (7,786)      (10,111)       (5,638)
   Purchases of short-term investments...................................        (49,429)           --       (21,285)
   Sales and maturities of short-term investments........................         26,096        16,761        30,304
   Investment in Chartered Semiconductor.................................         (3,611)       (3,033)       (4,036)
   Other assets..........................................................            126        (2,629)          (10)
                                                                            ------------  ------------  ------------
   Net cash used in investing activities.................................        (34,604)       (9,012)         (665)

Financing activities:
   Sale of common stock, net of repurchases..............................          2,955         1,895         1,383
   Proceeds from line of credit..........................................             --         4,500            --
   Payments on line of credit............................................             --        (4,500)           --
   Repayment of note receivable from officer.............................             --            --           113
   Principal payments under notes payable and capital lease obligations..            (66)         (494)       (1,612)
                                                                            ------------  ------------  ------------
   Net cash provided by (used in) financing activities...................          2,889         1,401          (116)

Net increase (decrease) in cash and cash equivalents.....................        (14,148)       10,377         1,082
Cash and cash equivalents, beginning of year.............................         17,691         7,314         6,232
                                                                            ------------  ------------  ------------
Cash and cash equivalents, end of year...................................   $      3,543  $     17,691  $      7,314
                                                                            ============  ============  ============
Supplemental  disclosures of cash flows  information and non-cash
   investing and financing activities:
   Cash paid during the year for interest................................   $          2  $         88  $        225
   Cash paid during the year for taxes...................................         12,370         4,593         1,066
Tax benefits from exercise of stock options..............................            540           438           168
Preferred stock issued as partial consideration for the TI FPGA
   Business, net of estimated future issuance costs......................             --        18,147            --
</TABLE>

                               ACTEL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    Organization and Summary of Significant Accounting Policies

     Actel  Corporation  (the  "Company")  was  incorporated  under  the laws of
California on October 17, 1985. The Company designs, develops, and markets field
programmable  gate arrays ("FPGAs") and associated  development  system software
and programming hardware.  Net revenues from the sale of FPGAs accounted for 97%
of the Company's  net revenues for 1996,  compared with 95% for 1995 and 91% for
1994. FPGAs are logic integrated  circuits,  which adapt the microprocessing and
memory  capabilities  of  electronic  systems  to  specific  applications.   The
Company's  operating  results  are  therefore  subject  to a  variety  of  risks
characteristic  of the  semiconductor  industry,  including booking and shipment
uncertainties,  wafer yield fluctuations,  and price erosion, as well as general
economic  conditions.  FPGAs are used by designers of  communication,  computer,
industrial  control,   military/aerospace,   and  other  electronic  systems  to
differentiate  their products and get them to market faster.  Information on the
Company's sales by geographic area is included in Note 11.

     Advertising and Promotion Costs

     The Company's policy is to expense  advertising and promotion costs as they
are  incurred.   The   Company's   advertising   and  promotion   expenses  were
approximately $3,595,000,  $2,736,000,  and $2,498,000 for 1996, 1995, and 1994,
respectively.

     Basis of Presentation

     The consolidated  financial  statements include the accounts of the Company
and its wholly-owned  subsidiaries.  All significant  intercompany  accounts and
transactions have been eliminated in consolidation.

     The Company's fiscal year ends on the Sunday closest to December 31. Fiscal
1996, 1995, and 1994 ended on December 29, 1996,  December 31, 1995, and January
1, 1995, respectively.  For ease of presentation,  December 31 has been utilized
as the fiscal year-end in the consolidated financial statements and accompanying
notes.

     Cash  Equivalents,  Short-Term  Investments,  and Fair  Value of  Financial
Instruments

     For financial statement  purposes,  the Company considers all highly liquid
debt  instruments  purchased  with a  maturity  of  three  months  or less  when
purchased to be cash equivalents.  Short-term  investments consisted principally
of municipal  obligations  in 1996 and  principally  of commercial  paper,  U.S.
government obligations,  and corporate obligations in 1995. Cash equivalents and
short-term  investments are recorded at fair value,  with  unrealized  gains and
losses reported in a separate component of shareholders' equity. Fair values are
estimated  based on quoted market prices or pricing  models using current market
rates.

     The Company enters into foreign exchange  forward  contracts with financial
institutions  primarily to protect against  currency  exchange risks  associated
with certain firmly committed  transactions.  The fair value of foreign exchange
forward  contracts  are based on quoted market  prices.  At December 31, 1996, a
total of approximately  $1,200,000 of foreign  exchange  forward  contracts were
outstanding.  The  difference  between  the fair value and cost of such  foreign
currency exchange forward contracts is not material.  The Company does not hedge
for speculative purposes.

     The  Company  believes  that  the  dividend,  redemption,  and  liquidation
preferences  of its  outstanding  shares of Series A Preferred  Stock (which are
described  in Note 3) have  nominal  value  and,  therefore,  that the shares of
Series A Preferred Stock have a fair value that approximates the market value of
the Common  Stock into which the Series A Preferred  Stock is  convertible.  The
1,000,000 shares of Series A Preferred Stock outstanding are convertible into an
aggregate of 2,631,578  shares of Common  Stock.  The fair value of the Series A
Preferred  Stock is based  on the  underlying  value  of the  Common  Stock  and
discounted for the voting,  registration,  and  marketability  restrictions.  At
December  31,  1996,  the  fair  value  of the  Series  A  Preferred  Stock  was
approximately $49,474,000. See Note 13.

     Concentration of Credit Risk

     Financial   instruments   that   potentially   subject   the   Company   to
concentrations of credit risk consist  principally of cash investments and trade
receivables.  The  Company  invests  in  securities  of A, A1, or P1 grade.  The
Company  manufactures  and  sells  its  products  to  customers  in  diversified
industries.  The Company performs  ongoing credit  evaluations of its customers'
financial condition and generally requires no collateral. Three of the Company's
domestic  distributors  accounted  for  approximately  14%,  14%, and 11% of the
Company's net revenues for 1996. The same three domestic distributors  accounted
in the  aggregate for  approximately  37% of the Company's net revenues for 1995
and 33% for 1994.

     Impact of Recently Issued Accounting Standards

     In October 1995, the Financial  Accounting Standards Board issued Financial
Accounting  Standards No. 123,  "Accounting for Stock-Based  Compensation" ("FAS
123").  The  Company  has  elected  to account  for  employee  stock  options in
accordance  with  Accounting  Principles  Board  Opinion No. 25 and to adopt the
"disclosure only" alternative described in FAS 123.

     Inventories

     Inventories are stated at the lower of cost (first-in, first-out) or market
(net  realizable  value).  Given the  volatility of the market for the Company's
products,  the Company makes  inventory  provisions for  potentially  excess and
obsolete inventory based on backlog and forecast demand.  However,  such backlog
demand is subject to revisions,  cancellations, and rescheduling.  Actual demand
will  inevitably  differ  from  such  backlog  and  forecast  demand,  and  such
differences  may be material to the  financial  statements.  Excess  inventories
increase the risk of  obsolescence,  represent a  non-productive  use of capital
resources,  increase  handling  costs,  and delay  realization  of the price and
performance benefits associated with more advanced manufacturing processes.

     Long-Lived Assets

     In the first  quarter of 1996,  the Company  adopted  Financial  Accounting
Standards No. 121,  "Accounting for the Impairment of Long-Lived  Assets and for
Long-Lived  Assets Disposed Of" ("FAS 121"). FAS 121 requires  impairment losses
to be recorded  on  long-lived  assets used in  operations  when  indicators  of
impairment are present and the undiscounted cash flows estimated to be generated
by those  assets  are less  than  the  assets'  carrying  amounts.  The  Company
evaluates  the net  realizable  value of  long-lived  assets each quarter on the
basis of discounted  cash flows in accordance with FAS 121 and to date has found
no impairment.

     Net Income (Loss) Per Share

     Net income (loss) per share is computed  using the weighted  average number
of common and dilutive  common  equivalent  shares from  redeemable  convertible
preferred  stock  (using the  if-converted  method)  and from stock  options and
warrants  (using the treasury stock  method).  Shares used in computing net loss
per share for 1995 excludes common equivalent shares because the effect of their
inclusion would be  anti-dilutive.  Fully diluted shares have not been presented
as part of the  consolidated  financial  statements  because the  difference  is
insignificant.

     Off-Balance-Sheet Risk

     The Company enters into foreign  exchange  contracts to hedge firm purchase
commitments denominated in foreign currencies. Gains and losses on the contracts
adjust the cost basis in the goods purchased.  At December 31, 1996, the Company
had foreign exchange contracts maturing in January and February 1997 to purchase
Japanese  yen for  approximately  $1,200,000  at an average  rate of 109 yen per
dollar.

     In addition,  the Company had  approximately  $883,000  outstanding under a
standby letter of credit at December 31, 1996.

     Property and Equipment

     Property and equipment are carried at cost less  accumulated  depreciation.
Depreciation and amortization  have been provided on a straight-line  basis over
the following estimated useful lives:

Equipment......................................   2 to 5 years
Furniture and fixtures.........................   3 to 5 years
Leasehold improvements.........................   Estimated useful life or lease
                                                  term, whichever is shorter

     Revenue Recognition

     Revenue from product shipped to customers is generally recorded at the time
of  shipment.   Revenue  related  to  products  shipped  subject  to  customers'
evaluation is recognized upon final  acceptance.  Shipments to distributors  are
made under agreements  allowing certain rights of return and price protection on
unsold merchandise.  For that reason, the Company defers recognition of revenues
and related  cost of revenues  on sales of products to  distributors  until such
products are sold by the distributor. Royalty income is recognized upon the sale
of products subject to royalties.

     Use of Estimates

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

2.   Balance Sheet Detail
<TABLE>
<CAPTION>
                                                                                                 December 31,
                                                                                          --------------------------
                                                                                              1996          1995
                                                                                          ------------  ------------
                                                                                                (in thousands)
<S>                                                                                       <C>           <C>
Accounts receivable:
    Trade accounts receivable..........................................................   $     30,128  $     18,372
    Allowance for doubtful accounts....................................................           (633)         (567)
                                                                                          ------------  ------------
                                                                                          $     29,495  $     17,805
                                                                                          ============  ============
 Inventories:
    Purchased parts and raw materials..................................................   $      1,792  $      1,357
    Work-in-process....................................................................         17,080        18,326
    Finished goods.....................................................................          7,976         8,043
                                                                                          ------------  ------------
                                                                                          $     26,848  $     27,726
                                                                                          ============  ============
 Property and equipment:
    Equipment..........................................................................   $     27,539  $     25,512
    Furniture and fixtures.............................................................          2,088         1,603
    Leasehold improvements.............................................................          4,210         2,402
                                                                                          ------------  ------------
                                                                                                33,837        29,517
    Accumulated depreciation and amortization..........................................        (17,864)      (13,843)
                                                                                          ------------  ------------
                                                                                          $     15,973   $    15,674
                                                                                          ============  ============
</TABLE>

     Depreciation  expense  was  approximately   $5,879,000,   $3,755,000,   and
$3,696,000 for 1996, 1995, and 1994, respectively.

3.   Purchase of TI FPGA Business

     On February 12, 1995, the Company entered into an Asset Purchase  Agreement
with Texas  Instruments  Incorporated  ("TI") under which TI agreed to convey to
the Company all tangible and intangible assets and intellectual  property rights
necessary to operate TI's antifuse FPGA business (the "TI FPGA  Business").  The
acquisition was completed on March 31, 1995, in a transaction accounted for as a
purchase.  The Company acquired approximately  $9,100,000 of inventory,  prepaid
research  and  development,  and other  credits  receivable.  The  Company  also
acquired  certain fixed assets used in the TI FPGA Business.  Beginning with the
second quarter of 1995, the Company's net revenues  included the revenues of the
TI FPGA Business, but no longer included royalties from TI.

     As  consideration  for the TI FPGA Business,  the Company  assumed  certain
liabilities,  paid  $10,000,000 in cash, and issued 1,000,000 shares of Series A
Preferred  Stock  (valued  at  approximately  $18,947,000  for  purposes  of the
transaction),  which are convertible  into 2,631,578 shares of Common Stock. See
Note 13.  The total  purchase  price  booked by the  Company  was  approximately
$28,947,000,  of which  approximately  $16,600,000  of  in-process  research and
development  was charged against income in the first quarter of 1995. The amount
was established by an independent valuation specialist.  The remaining amount of
consideration,   approximately  $4,400,000,  represents  the  valuation  of  the
customer base and goodwill acquired,  was allocated to intangible assets, and is
being amortized over a five-year period. Amortization expense for the year ended
December 31, 1996, was $876,000.

     The following  unaudited pro forma results of operations for 1995 are as if
the  acquisition  of the TI FPGA  Business had  occurred as of the  beginning of
1995, and includes  certain  estimated  adjustments,  including  amortization of
intangibles,  lost interest  income,  and  utilization  of prepaid  research and
development.  The pro forma  information  excludes  the  one-time  write-off  of
approximately  $16,600,000  of  in-process  research  and  development  and  tax
benefits.  The pro forma information has been prepared for comparative  purposes
only and does not purport to be indicative of what operating  results would have
been if the  acquisition had actually taken place at the beginning of 1995 or of
future operating results.

                                                                   Year Ended
                                                               December 31, 1995
                                                               -----------------
Net revenues..... ..........................................   $     115,555,000
Net income..................................................          11,039,000
Earnings per share..........................................                0.53

     Foundry Credit

     Under the Asset Purchase  Agreement,  TI agreed to provide the Company with
$5,375,000  of  inventory  and  $6,000,000  of credit  toward  the  purchase  of
additional inventory (the "Foundry Credit").  The Foundry Credit was first to be
applied to any inventory transferred by TI in excess of $5,375,000.  Any balance
was then to be applied as a 10% reduction  against the Company's  future payment
obligations  under the Supply Agreement between the parties dated April 1, 1995,
pursuant to which TI agreed to provide foundry services to the Company for three
years.  After applying the Foundry Credit to the inventory received from TI, the
Company  recorded  approximately  $2,400,000  as "Other  Current  Assets"  to be
applied as a 10% reduction  against the cash due on future  inventory  purchases
under the Supply Agreement.  As of December 31, 1996, the Foundry Credit balance
was approximately $500,000.

     Research and Development Credit

     In connection with the Company's  acquisition of the TI FPGA Business,  the
parties entered into a Development Agreement dated April 1, 1995, under which TI
agreed to perform  certain  development  work for the Company and granted to the
Company a credit (the "R&D  Credit")  to fund the  development  activities.  The
Company estimated that the value of the R&D Credit to the Company at the time of
the acquisition was $1,000,000,  which the Company  recorded as prepaid Research
and Development. As of December 31, 1996, the R&D Credit was zero.

     Rights, Preferences, and Privileges of Series A Preferred Stock

     Currently,  TI is the only holder of Series A Preferred  Stock.  Holders of
Series A Preferred  Stock are entitled to receive,  when, as, and if declared by
the Board of Directors  and subject to the rights of  outstanding  shares of any
other series of Preferred Stock,  non-cumulative  dividends at a rate determined
by the Board,  prior to any payment of dividends to the holders of Common Stock;
provided,  however,  that dividends may be paid on shares of the Common Stock if
dividends shall have been  concurrently paid on all shares of Series A Preferred
Stock in an amount per share equal to the aggregate dividends that would be then
payable in respect of the number of shares of Common Stock into which a share of
Series A Preferred Stock is then  convertible.  The Series A Preferred Stock may
be  converted  into Common  Stock at any time at the option of the holder.  Each
share of Series A  Preferred  Stock may be  converted  into  2.631578  shares of
Common  Stock.  Shares of  Series A  Preferred  Stock  must be  redeemed  by the
Company,  in whole or in part,  at the  election of the holder  thereof,  in the
event of certain  mergers or change in control  transactions  occurring prior to
April  1,  1997,  for $25 per  share  (which  is equal  to  $9.50  per  share of
underlying  Common  Stock) plus any accrued or  declared  and unpaid  dividends.
Holders of Series A Preferred  Stock have a  liquidation  preference  of $25 per
share plus any accrued or  declared  and unpaid  dividends.  In the event of the
liquidation,  dissolution, or winding up of the Company, the holders of Series A
Preferred  Stock are entitled to receive  such amount  before any payment may be
made to the holders of Common  Stock.  The approval of the holders of a majority
of the Series A Preferred  Stock is required for any  amendment to the Company's
Articles of  Incorporation  or Bylaws that would  adversely  change or alter the
rights,  preferences, or privileges of the Series A Preferred Stock, increase or
decrease the authorized number of shares of Series A Preferred Stock, or provide
for the  creation  of any new  class  or  series  of  shares  with  dividend  or
liquidation  rights superior to or on parity with the Series A Preferred  Stock.
On all other matters  submitted for a vote of the  Company's  shareholders,  and
except as  otherwise  required by law,  the holders of Series A Preferred  Stock
shall not be entitled to vote. See Note 13.

4.   Investments

     Management determines the appropriate  classification of debt securities at
the time of purchase and re-evaluates  such designation as of each balance sheet
date.   At  December  31,  1996,   all  debt   securities   are   designated  as
available-for-sale.  Available-for-sale  securities  are  carried at fair value,
with the  unrealized  gains and losses  reported in  shareholders'  equity.  The
amortized cost of debt securities in this category is adjusted for  amortization
of premiums  and  accretion  of discounts  to  maturity.  Such  amortization  is
included in interest and other income. Realized gains and losses and declines in
value judged to be other than  temporary on  available-for-sale  securities  are
included in interest  income and other.  The cost of securities sold is based on
the  specific  identification  method.  Interest  and  dividends  on  securities
classified as available-for-sale are included in interest income and other.

     The following is a summary of available-for-sale securities at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
                                                                              Gross         Gross
                                                                            Unrealized    Unrealized    Estimated
                                                                 Cost         Gains         Losses     Fair Values
                                                             ------------  ------------  ------------  ------------
                                                                                 (in thousands)
<S>                                                          <C>           <C>           <C>           <C>
December 31, 1996
   Municipal obligations included in short-term
     investments and cash equivalents......................  $     25,618  $          8  $         --  $     25,626
                                                             ============  ============  ============  ============
December 31, 1995
   U.S. government obligations.............................  $      8,422  $          5  $         (1) $      8,426
   Commercial paper........................................         3,978            --            --         3,978
   Other...................................................         3,000            --            --         3,000
                                                             ------------  ------------  ------------  ------------
   Amounts included in short-term investments and cash
     equivalents...........................................  $          5  $         (1) $     15,404  $     15,400
                                                             ============  ============  ============  ============
</TABLE>

     There were no realized  gains or losses in 1996.  Gross  realized gains and
(losses) were approximately $4,000 and ($8,000), respectively, for 1995.

     The  adjustments  to net  unrealized  gains  and  (losses)  on  investments
included as a separate component of shareholders'  equity totaled  approximately
$4,000 and $408,000 for 1996 and 1995, respectively.

     The expected maturities of the Company's  investments at December 31, 1996,
are shown below.  Expected  maturities  may differ from  contractual  maturities
because the issuers of the securities  may have the right to prepay  obligations
without prepayment penalties.

 Available-for-sale (in thousands):
    Due in one year or less......................................   $      3,921
    Due after one year...........................................         21,705
                                                                    ------------
                                                                    $     25,626
                                                                    ============

5.   Investment in Chartered Semiconductor

     In  February  1994,  the  Company  entered  into  an  agreement  to  invest
approximately   $10,000,000  in  Chartered   Semiconductor   Manufacturing   Ltd
("Chartered Semiconductor"), a semiconductor company located in Singapore. Under
the terms of the  agreement,  the  Company has  acquired  an equity  interest in
Chartered Semiconductor of less than 2%. The investment was payable in Singapore
dollars, with the initial installment of approximately  $2,000,000 paid in March
1994, the second installment of approximately $2,000,000 paid in September 1994,
the third  installment of  approximately  $3,000,000 paid in March 1995, and the
last installment of approximately  $2,900,000 paid in January 1996. In 1996, the
Company  purchased an  additional  equity  interest in Chartered  Semiconductor,
pursuant to a contractual right of first refusal, for approximately $698,000.

6.   Line of Credit

     The Company has a line of credit with a bank that  provides for  borrowings
not to exceed  $10,000,000.  The agreement  contains  covenants that require the
Company to  maintain  certain  financial  ratios and levels of net worth.  As of
December 31, 1996, the Company was in compliance with the covenants for the line
of credit.  Borrowing  against  the line of credit  bear  interest at the bank's
prime rate. There were no borrowings  against the line of credit at December 31,
1996. The line of credit, which expires in May 1997, may be terminated by either
party upon not less than thirty days' prior written notice.

7.   Commitments

     The   Company   leases  its   facilities   and  certain   equipment   under
non-cancellable  lease agreements.  The principal facility lease expires in June
1998, and provides for two consecutive  five-year renewal options. The equipment
leases are accounted for as operating leases.  The lease terms expire at various
dates through  September  2001.  All of these leases  require the Company to pay
property taxes,  insurance,  and maintenance and repair costs.  During 1996, the
Company  satisfied all of its capital lease  obligations.  Assets recorded under
capital leases as of December 31, 1995, were as follows:

Equipment, furniture, and fixtures...............................   $      1,260
Accumulated depreciation and amortization.......................         (1,113)
                                                                    ------------
                                                                    $        147
                                                                    ============

     Future  minimum  lease  payments  under all  non-cancellable  leases are as
follows:

                                                                     Operating
                                                                       Leases
                                                                    ------------
1997.............................................................   $      1,988
1998.............................................................          1,373
1999.............................................................            804
2000.............................................................            682
2001.............................................................            455
                                                                    ------------
Total minimum lease payments.....................................   $      5,302
                                                                    ============

     Rental  expense  under  operating  leases  was  approximately   $1,615,000,
$1,193,000,   and   $967,000   for   1996,   1995,   and   1994,   respectively.

8.   Retirement Plan

     Effective  December 10, 1987,  the Company  adopted a tax deferred  savings
plan for the  benefit of  qualified  employees.  The plan is designed to provide
employees with an accumulation of funds at retirement.  Qualified  employees may
elect each quarter to have salary reduction  contributions made to the plan. The
Company may make  contributions  to the plan at the  discretion  of the Board of
Directors. To date, no contributions have been made by the Company.

9.   Stock-Based Compensation

     The Company has elected to follow  Accounting  Principles Board Opinion No.
25,  "Accounting  for  Stock  Issued  to  Employees"  ("APB  25"),  and  related
Interpretations  in  accounting  for its  employee  stock  options  because,  as
discussed below,  the alternative fair value accounting  provided for under FASB
Statement  No. 123,  "Accounting  for Stock  Based  Compensation"  ("FAS  123"),
requires the use of option  valuation  models that were not developed for use in
valuing  employee  stock  options.  Under APB 25, when the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation is recognized.

     Stock Option Plans

     The Company has  adopted  stock  options  plans  under which  officers  and
employees may be granted either incentive stock options or nonqualified  options
to purchase the  Company's  common  shares.  As of December 31, 1996,  6,497,747
shares of common stock were reserved for issuance under these plans.  On January
5, 1996,  the  Compensation  Committee of the Board of Directors  authorized the
Company to  exchange  stock  options  granted  under  these  plans and having an
exercise  price  greater  than  $10.625  for options  with an exercise  price of
$10.625 (the fair market value of the Company's stock on January 5, 1996). Under
the terms of this stock option repricing,  no portion of any repriced option was
exercisable  until July 5, 1996.  Options  representing  the right to purchase a
total of 1,093,639 shares of common stock were repriced.

     The Company has also  adopted a Directors'  Stock Option Plan,  under which
directors  who are not  employees  of the  Company  may be granted  nonqualified
options to purchase  the  Company's  common  shares.  As of December  31,  1996,
110,000 shares of common stock were reserved for issuance under such plan.

     The Company  grants stock  options  under its plans at a price equal to the
fair  value of the  Company's  common  stock on the date of  grant.  Subject  to
continued service, options generally vest over a period of four years and expire
ten years from the date of grant.

     The following  table  summarizes  the Company's  stock option  activity and
related information for the three years ended December 31, 1996:
<TABLE>
<CAPTION>
                                             1996                        1995                        1994
                                  --------------------------  --------------------------  --------------------------
                                                   Weighted                    Weighted                    Weighted
                                                    Average                     Average                     Average
                                    Number of      Exercise      Number of     Exercise      Number of     Exercise
                                     Shares          Price         Shares        Price         Shares        Price
                                  -------------  -----------  --------------  ----------  --------------  ----------
<S>                                   <C>        <C>               <C>        <C>              <C>        <C>
Outstanding at January 1.......       2,506,331  $    10.17        1,588,565  $     6.42       1,222,864  $     4.79
Granted........................       2,633,911        14.24       1,315,860       12.96         603,209        8.34
Exercised......................        (204,344)        6.60        (270,365)       2.25        (149,530)       1.32
Cancelled......................      (1,393,062)       12.79        (127,729)       8.99         (87,978)       5.64
                                  -------------  -----------  --------------  ----------  --------------  ----------
Outstanding at December 31.....       3,542,836        12.38       2,506,331       10.17       1,588,565        6.42
                                  =============  ===========  ==============  ==========  ==============  ==========
</TABLE>

     The following table summarizes  information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
                                                                         December 31, 1996
                                                --------------------------------------------------------------------
                                                          Options Outstanding                 Options Exercisable
                                                ----------------------------------------   -------------------------
                                                                 Weighted
                                                                 Average      Weighted                    Weighted
                                                                Remaining     Average                     Average
                                                  Number of      Contract     Exercise      Number of     Exercise
           Range of Exercise Prices                 Shares         Life        Price          Shares       Price
---------------------------------------------    -----------   ----------   ------------   -----------  ------------
<C>                                                <C>         <C>          <C>                <C>      <C>
$    1.80    -  $   7.63.....................        485,160   6.75 years   $       6.06       236,139  $       4.51
     8.00    -     10.50.....................        534,794   7.32                 8.69       190,342          8.61
                   10.63.....................      1,023,910   9.01                10.63       246,687         10.63
    11.75    -     14.88.....................        803,052   9.42                14.51        15,520         14.01
    15.00    -     22.50.....................        695,920   9.40                19.74         3,256         15.80
     1.80    -     22.50.....................      3,542,836   8.61                12.38       691,944          8.09
</TABLE>

The  weighted-average  grant-date  fair value of options granted during 1996 and
1995 were $4.92 and $6.11, respectively.

     Employee Stock Purchase Plan

     The Company has adopted an Employee Stock Purchase Plan (the "ESPP"), under
which  eligible  employees  may  designate  not  more  than  10% of  their  cash
compensation to be deducted each pay period for the purchase of common stock (up
to a maximum of $25,000  worth of common stock in any year).  As of December 31,
1996,  900,000 shares of common stock were reserved for issuance under the ESPP.
The ESPP is  administered  over offering  periods of up to 24 months each,  with
each offering period divided into four  consecutive  six-month  purchase periods
beginning August 1 and February 1 of each year. On the last business day of each
purchase  period,  shares of common stock are purchased with employees'  payroll
deductions  accumulated  during the six months at a price per share equal to 85%
of the  market  price of the  common  stock on the first  day of the  applicable
offering  period or the last day of the  purchase  period,  whichever  is lower.
There were  225,401 and 185,028  shares  issued under the ESPP in 1996 and 1995,
respectively,  and 346,284  remained  available  for issuance as of December 31,
1996.

     Pro Forma Disclosures

     Pro forma information regarding net income/(loss) and net income/(loss) per
share is  required  by FAS 123,  which also  requires  that the  information  be
determined  as if the Company  has  accounted  for its  employee  stock  options
granted  subsequent to December 31, 1994 under the fair value  method.  The fair
value  for  these  options  was  estimated  at  the  date  of  grant  using  the
Black-Scholes pricing model with the following weighted-average  assumptions for
1996 and 1995,  respectively:  risk-free  interest rates of 5.84% and 6.55%;  no
dividend yield;  volatility factor of the expected market price of the Company's
common stock of 50%; and a weighted average expected life of the options of four
years.

     The  Black-Scholes   option  valuation  model  was  developed  for  use  in
estimating the fair value of traded options,  which have no vesting restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions,  including  the  expected  stock price
volatility.  Because the Company's  employee stock options have  characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  in
management's  opinion the existing models do not necessarily  provide a reliable
single measure of the fair value of its employee stock options.

     For  purposes of pro forma  disclosures,  the  estimated  fair value of the
options is amortized to expense over the options' vesting period.  The Company's
pro forma information is as follows:

                                                       Year Ended December 31,
                                                     --------------------------
                                                          1996          1995
                                                     ------------  ------------
                                                     (in thousands, except per
                                                            share amounts)

Pro forma net income (loss).......................   $     10,452  $     (2,780)
Pro forma earnings (loss) per share...............           0.50         (0.16)

Because FAS 123 is applicable only to options granted subsequent to December 31,
1994, its pro forma effect will not be fully reflected until  subsequent  years.
The effects on pro forma  disclosures  of applying  FAS 123 are not likely to be
representative of the effects on pro forma disclosures in future years.

10.  Tax Provision (Benefit)

     The tax provision (benefit) consists of:
<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                            ----------------------------------------
                                                                                1996          1995          1994
                                                                            ------------  ------------  ------------
                                                                                         (in thousands)

<S>                                                                         <C>           <C>           <C>
Federal - current........................................................   $     12,150  $      4,113  $      1,480
Federal - deferred.......................................................         (5,571)       (8,977)         (910)
State - current..........................................................          2,460         1,149           694
State - deferred.........................................................         (1,089)       (3,044)           --
Foreign - current........................................................            197           119           125
                                                                            ------------  ------------  ------------
                                                                            $      8,147  $     (6,640) $      1,389
                                                                            ============  ============  ============
</TABLE>

     The  tax  provision   (benefit)   reconciles  to  the  amount  computed  by
multiplying  income  (loss)  before tax by the U.S.  statutory  rate as follows:
<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                            ----------------------------------------
                                                                                1996          1995          1994
                                                                            ------------  ------------  ------------
                                                                                         (in thousands)

<S>                                                                         <C>           <C>           <C>
Provision (benefit) at statutory rate....................................   $      8,079  $     (2,719) $      3,147
Benefit of operating loss carryforward...................................             --            --        (1,620)
Change in valuation allowance............................................           (432)       (2,396)         (679)
Federal research credits.................................................           (425)         (937)         (300)
State taxes, net of federal benefit......................................            891          (813)          459
Other....................................................................             34           225           382
                                                                            ------------  ------------  ------------
Tax provision (benefit)..................................................   $      8,147  $     (6,640) $      1,389
                                                                            ============  ============  ============
</TABLE>

     Significant components of the Company's deferred tax assets and liabilities
for     federal     and    state     income     taxes     are    as     follows:
<TABLE>
<CAPTION>
                                                                                                 December 31,
                                                                                          --------------------------
                                                                                              1996          1995
                                                                                          ------------  ------------
                                                                                                (in thousands)
<S>                                                                                       <C>           <C>
Deferred tax assets:
        Distributor reserve............................................................   $     11,033  $      7,682
        Charge for in-process research expenses........................................          5,962         6,411
        Inventories....................................................................          3,293         1,716
        Other, net.....................................................................          2,453         1,170
                                                                                          ------------  ------------
                                                                                                22,741        16,979
        Valuation allowance............................................................         (3,046)       (3,478)
                                                                                          ------------  ------------
                Net deferred tax assets................................................   $     19,695  $     13,501
                                                                                          ============  ============

Deferred tax liabilities:
        Depreciation...................................................................   $        104  $        570
                                                                                          ------------  ------------
                Net deferred tax liabilities...........................................   $        104  $        570
                                                                                          ============  ============
</TABLE>

The valuation allowance decreased by approximately $2,396,000 during 1995.

11.  Industry and Geographic Information

     The Company operates in a single industry segment.  The Company markets its
products  in the  United  States  and in  foreign  countries  through  its sales
personnel,  independent sales representatives,  and distributors.  The Company's
geographic sales are as follows:
<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                  ----------------------------------------------------------------------------------
                                             1996                        1995                        1994
                                  --------------------------  --------------------------  --------------------------
                                                          (in thousands, except percentages)

<S>                               <C>               <C>       <C>               <C>       <C>               <C>
United States..................   $     99,131       67%      $     67,156       62%      $     51,951       68%
Export:
     Europe....................         26,105       18             18,706       17             10,626       14
     Japan.....................         15,340       10             13,238       12              9,070       12
     Other international.......          8,203        5              9,416        9              4,360        6
                                  ------------  ------------  ------------  ------------  ------------  ------------
                                  $    148,779      100%      $    108,516      100%      $     76,007      100%
                                  ============  ============  ============  ============  ============  ============
</TABLE>

12.  Patent Infringement

     In January 1994, the Company brought a patent infringement  lawsuit against
QuickLogic   Corporation   ("QuickLogic"),   which  in  turn  brought  a  patent
infringement  counterclaim  against  the  Company in May 1995.  The  parties are
currently  engaged in  discovery  and motion  proceedings.  Although the Company
believes that it has  meritorious  claims and defenses in this matter,  and that
its  resolution  will not have a  materially  adverse  effect  on the  Company's
business,  financial  position,  or results of  operations,  no assurance can be
given to that effect.

     As is typical  in the  semiconductor  industry,  the  Company  has been and
expects to be from time to time  notified  of claims  that it may be  infringing
patents owned by others.  No assurance can be given that such claims against the
Company will not result in litigation. All litigation, whether or not determined
in favor of the Company,  can result in  significant  expense to the Company and
can divert the efforts of the Company's technical and management  personnel from
productive tasks.

     Although the Company has obtained patents covering  elements of its circuit
architecture and certain techniques for manufacturing its antifuse, no assurance
can be given that the  Company's  patents will be determined to be valid or that
the claims of QuickLogic or any assertions of  infringement by other parties (or
claims for indemnity from customers resulting from any infringement claims) will
not succeed.  In the event of an adverse  ruling in the  QuickLogic  case or any
other  litigation  involving  intellectual  property,  the Company  could suffer
significant  (and possibly  treble)  monetary  damages.  The Company may also be
required to discontinue  the use of certain  processes;  cease the  manufacture,
use, and sale of infringing  products;  expend significant  resources to develop
non-infringing   technology;  or  obtain  licenses  under  patents  that  it  is
infringing.  Any of these outcomes could have a materially adverse effect on the
Company's business, financial condition, and/or results of operations.

12.  Subsequent Event

     On March 12, 1997, TI converted all of the  outstanding  shares of Series A
Preferred Stock into 2,631,578 shares of Common Stock.


                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


THE BOARD OF DIRECTORS AND SHAREHOLDERS

ACTEL CORPORATION



     We have  audited  the  accompanying  consolidated  balance  sheets of Actel
Corporation  as of  December  31, 1996 and 1995,  and the  related  consolidated
statements of operations,  cash flows, and shareholders'  equity 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 financial statements referred to above present fairly,
in  all  material  respects,   the  consolidated  financial  position  of  Actel
Corporation  at December 31, 1996 and 1995 and the  consolidated  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.

                                        /s/ Ernst & Young LLP

San Jose, California
March 14, 1997

                                  STOCK LISTING

     Actel's common stock has been traded on the  over-the-counter  market since
the Company's  initial public offering (IPO) on August 2, 1993, and is quoted on
the NASDAQ National Market System under the symbol "ACTL." The Company has never
paid cash dividends on its common stock and has no present plans to do so.

     On March 12,  1997,  there  were 317  shareholders  of  record.  Since many
shareholders  have their  shares  held of record in the name of their  brokerage
firm, the actual number of  shareholders is estimated by the Company to be about
4,800.

     During the last two years,  the quarterly  high and low sale prices for the
common stock were:

                       1996                                High          Low
---------------------------------------------------   ------------  ------------
First Quarter......................................   $     17.125  $      9.00
Second Quarter.....................................         21.875        14.50
Third Quarter......................................         20.25         12.375
Fourth Quarter.....................................         24.625        16.25

                       1997                                High          Low
---------------------------------------------------   ------------  ------------
First Quarter......................................   $     13.875  $      8.00
Second Quarter.....................................         14.875        10.125
Third Quarter......................................          21.00        12.375
Fourth Quarter.....................................          18.375       10.25