EXHIBIT 13.1
                                   
                                     [LOGO]
                                    FINANCIAL
                                     FEDERAL
                                   CORPORATION


[GRAPHIC] VARIOUS PHOTOS
                               1996 ANNUAL REPORT


<PAGE>


CORPORATE PROFILE

FINANCIAL FEDERAL CORPORATION IS A MAJOR, INDEPENDENT

FINANCIAL SERVICES COMPANY ENGAGED IN FINANCING

INDUSTRIAL,  COMMERCIAL AND PROFESSIONAL EQUIPMENT

THROUGH  INSTALLMENT  SALES, CAPITAL LOANS AND LEASING

PROGRAMS FOR MANUFACTURERS,  DEALERS AND USERS OF

SUCH EQUIPMENT ON A NATIONWIDE BASIS.


<PAGE>


FINANCIAL HIGHLIGHTS
(in thousands, except per share data)

<TABLE>
<CAPTION>

for years ended July 31,                     1996       1995       1994       1993       1992
-----------------------------------------------------------------------------------------------
<S>                                        <C>        <C>        <C>        <C>        <C>
Finance Receivables, net ...............   $429,698   $339,299   $268,642   $206,145   $171,817
Total Assets ...........................    433,087    342,936    271,987    209,609    175,112
Total Senior Debt ......................    310,830    249,270    184,848    134,628    107,884
Total Subordinated Debt ................      6,957     21,957     22,682     24,189     24,500
Stockholders' Equity ...................     94,191     58,075     50,523     41,727     36,426
Revenues ...............................     43,523     34,951     25,866     22,911     21,903
Net Earnings ...........................      9,610      7,209      5,944      4,968      3,760
Earnings per common share, primary .....       1.01       0.80       0.69       0.58       0.67
Earnings per common share, fully diluted       1.01       0.80       0.69       0.57       0.67
</TABLE>

[THE FOLOWING 3 TABLES WERE REPRESENTED BY BAR GRAPHS IN THE PRINTED MATERIAL]



FINANCE RECEIVABLES              REVENUES                NET EARNINGS
  (in millions)               (in millions)             (in millions)




<PAGE>

DEAR SHAREHOLDER:

[GRAPHIC] PHOTO OF CRANE

     Fiscal 1996 was the Company's best year ever. Net earnings increased by
over 33% to $9.6 million, net finance receivables increased by 27% to $430
million, net credit losses remained at minimal levels and tangible net worth
increased from $58 million to $94 million. The Company replaced, upon maturity
in September 1995, its institutional subordinated debt with senior borrowings
bearing lower rates of interest which resulted in a reduction of interest
expense for the year in excess of $750,000. Overall, funding costs were further
reduced as the Company's credit status continued to improve and the financial
community recognized Financial Federal's investment grade status. In order to
accommodate portfolio and geographic growth, the Company increased its
management, marketing, administrative and managerial staffing. The national
economy remained strong and, during the second half of our fiscal year, market
interest rates trended down. The combination of the Company's continued growth
of its receivables portfolio, favorable loss experience, strong general economic
conditions, the reduction of the Company's borrowing costs and the significant
increase in the Company's net worth, contributed to the enhancement of the
Company's earnings results for fiscal 1996.

     Fiscal 1996 was a dynamic and exciting year for Financial Federal. Many
strategic objectives were successfully completed that have positioned the
Company for significant growth.

     The capitalization and financial standing of the Company was substantially
strengthened during the year.

     o    In  December  1995 and January  1996,  Financial  Federal  Credit Inc.
          ("Credit"),   the  Company's  major  operating  subsidiary,   received
          commercial  paper  investment  grade ratings from both Fitch Investors
          Services ("F-2") and Duff & Phelps Credit Rating Company  ("D-2").  In
          addition, Fitch Investors Services assigned an investment grade rating
          of "BBB" to  Credit's  ability to meet senior  obligations.  Obtaining
          such  ratings  was  a  major  achievement  for  our  Company  and  was
          predicated  on  the  Company's   exceptional   operating  history  and
          financial  position.  To our knowledge,  in recent years,  there is no
          other  independent  financial  service  company  of our size which has
          obtained such investment grade ratings.

     o    In April, Credit privately placed $55 million of 5 1/2 year senior
          unsecured debt at an annual interest rate of 6.76% with a group of
          insurance companies led by Principal Mutual Life Insurance Company.

     o    In May, Financial Federal raised over $26 million of additional common
          equity through the successful completion of a 1.7 million share public
          offering of common stock which was managed by Prudential Securities
          and NatWest Markets.

     o    The Company's  investment grade status enabled the Company, in May, to
          commence a $100 million  dealer-placed  commercial paper program.  The
          program was  well-received  by the  investment  community  and quickly
          oversubscribed and,  therefore,  increased to $200 million in June and
          $250 million in early  September.  BA Securities  Inc. and The Chicago
          Corporation  have been engaged as dealers of the Company's  commercial
          paper. As of July 31, 1996, the Company had $190 million in commercial
          paper  outstanding,  which  represented  70% of its then money  market
          borrowing requirements.

     o    In support of its commercial paper and bank borrowings, the Company
          had $377.5 million of committed bank credit facilities at year end, of
          which over $60 million contractually expires during fiscal 1998 and
          $190 million expires during the ensuing two fiscal years. The Company
          had, as of July 31, over $120 million of unused committed bank
          facilities in excess of its bank borrowings and commercial paper
          support needs.

     o    In December, the Company declared a 3-for-2 stock split effected in
          the form of a stock dividend, which was paid in January.

     The Company's financial strength and earnings potential have never been
stronger. As of the end of the Company's fiscal year, its tangible net worth was
in excess of $94 million and is expected to exceed the $100 million mark during
fiscal 1997. Based on the Company's current capital structure and its maximum
contractual permitted debt-to-equity ratios with its lenders, it can incur over
$700 million of unsecured senior debt. Therefore, the Company, over time, is in
a position to substantially increase the size of its receivables portfolio
without the necessity of raising additional common or preferred equity, selling
or securitizing its receivables and/or placing costly subordinated debt.

                         2 FINANCIAL FEDERAL CORPORATION

<PAGE>

     In July 1996, the Company called its $7.0 million variable rate
subordinated debt due September 1, 2000, subject to the holders of same having
an option to accept replacement, fixed rate 8% subordinated debentures due March
2003. As of September 1, 1996, $4.7 million of such subordinated debt was
retired at par.

     Over 90% of the Company's receivables are concentrated in four core
business equipment categories, namely, (1) construction and material handling
and processing, (2) over-the-road vehicles including trucks, trailers, vans and
buses, (3) machine tool and manufacturing equipment, and (4) environmental waste
equipment. The Company estimates that its market share of the domestic capital
loan, financing and leasing market for such new and used equipment categories is
less than one percent. Therefore, the potential for the Company to expand its
lending, financing and leasing activities in such core categories is
substantial.

     In general, middle market businesses that avail themselves of the Company's
lending, finance and leasing services are privately owned, have a net worth in
the $250,000 to $5 million range and sales in the $2 million to $25 million
range. The average transaction when originally booked is in the range of
$140,000 and is generally scheduled to be repaid in monthly installments of
principal and interest over a 36 to 60 month period. The Company's present
self-imposed maximum lending limit to a single customer is in the $7 million
range and its single largest net receivable exposure is less than $5 million.
The Company generally has a first lien on the primary equipment which is pledged
to it as collateral. The Company focuses its lending, financing and leasing
operations on equipment that is long-lived, not subject to major technological
obsolescence, and, if need be, can be readily marketed by the Company directly
or through public auction.

     The Company operates in a very competitive business environment. Most
commercial banks offer equipment finance and/or leasing services to middle
market businesses, especially those in their franchise area. In addition, there
are numerous other finance and leasing companies, including some of the largest
in the country, with which Financial Federal competes. To date, notwithstanding
such intense competition from larger financial institutions that generally have
lower funding costs, the Company has been able to grow successfully and
profitably, which it attributes primarily to its managerial and marketing
personnel's extensive specialized industry experience and their devotion to
excel.

     To narrow the Company's funding cost disadvantage, vis-a-vis its larger
competitors, the Company, as indicated above, has taken significant steps during
fiscal 1996 to reduce its borrowing costs, primarily by accessing the commercial
paper market and obtaining an investment grade rating on its ability to meet
senior obligations. The Company continually endeavors to pursue ways to lower
its funding costs.

     The Company takes great pride in the 125 men and women who comprise its
management, marketing and operational teams; their dedication and commitment to
the Company since its founding has been most gratifying. In order to align their
interests with those of our shareholders and to focus their efforts on continued
increasing profitability, the Company has granted incentive stock options to the
vast majority of its employees. This gives the Company's employees the
opportunity to benefit from increases in the market value of the Company's
stock, providing them with a strong financial incentive consistent with the
goals of our other shareholders.

     My brother, Bernard G. Palitz, who is one of the founding members of the
Financial Federal management group, relinquished his operating duties in
November, 1995 as the senior executive in charge of the Company's Liability
Management Department and stepped down as Chairman of the Board in July.
Bernard, who just reached his 72nd year, has had a long and distinguished career
in the financial service industry. We all thank him for his untiring devotion to
the Company, its employees and shareholders.

     I wish to thank all our employees, customers, funding sources and investors
who, from the time the Company commenced business in March 1989, have
continually demonstrated great confidence in us and our management team.

     We have, in just a few short years, built an exceptionally fine Company
with a solid reputation of responsiveness, service and integrity. I am very
proud of our achievements and the loyal support we have received from our
stockholders. Financial Federal is a small but growing Company. We strive not to
be the largest in our field of expertise, but to always be the best.

/S/ CLARENCE Y. PALITZ, JR.
----------------------------
CLARENCE Y. PALITZ, JR.

President and Chief Executive Officer
September 26, 1996

                         3 FINANCIAL FEDERAL CORPORATION

<PAGE>

BUSINESS APPROACH

[GRAPHIC] PHOTO OF TRUCK

     In the dynamic and changing world of equipment financing, Financial Federal
differentiates  itself by providing the two most important  ingredients--SERVICE
and RELATIONSHIP.

     Our goal is not to be the  largest  finance  and  leasing  company,  nor to
strain our  financial and  managerial  resources to  exponentially  increase our
market  share,  but to provide our customers  with the best and most  responsive
financial  services  available.   The  Company's  management  group  strives  to
establish and nurture  long-standing and mutually  rewarding  relationships with
its customers.  While the Company's marketing  representatives  continually work
toward introducing Financial Federal's services to new customers, the Company is
also able to generate a large  percentage of its new business volume from repeat
business  with its existing  customer  base. We listen to our customers and then
custom-tailor a financial program that best meets the needs of all concerned.

[GRAPHIC] PHOTO OF CRANE

     Our experienced and  industry-knowledgeable  specialists in credit analysis
and  collateral  evaluation  understand  the  intricacies  and  nuances  of  our
customers'  businesses  and the  uses  and  valuations  of the  equipment  being
pledged, in many fields including the construction,  transportation,  production
and environmental  service industries.  We recognize that within these different
industries,  customers have  individual and varied needs.  Our management  group
must  understand  such  complexities  in order to achieve our goal of delivering
outstanding SERVICE and retaining customer RELATIONSHIPS.

     Financial  Federal  started in business  less than eight years ago,  and in
that short period of time,  through a commitment to excellence in service to its
customer  base,  it has been able to grow  steadily  and  profitably  and become
recognized as one of the finest financial SERVICE companies in the country.


                         4 FINANCIAL FEDERAL CORPORATION
<PAGE>

[GRAPHIC] Photos 

"FISCAL 1996 WAS

A DYNAMIC AND EXCITING

YEAR FOR FINANCIAL

FEDERAL . . . THE COMPANY'S 

FINANCIAL STRENGTH AND

EARNINGS POTENTIAL HAVE

NEVER BEEN GREATER."


                         5 FINANCIAL FEDERAL CORPORATION

<PAGE>

Financial Federal Corporation and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION

RESULTS OF OPERATIONS

General

The Company derives profits to the extent that its income exceeds its cost of
borrowed funds, operating and administrative expenses, and provision for
possible losses. The Company borrows funds in the wholesale markets to lend
primarily to middle market businesses throughout the United States. State usury,
lending and lien perfection rules and laws can regulate the Company's
activities. In addition, certain states require the Company to obtain licenses
in order to engage in certain types of business activities.

The Company's leasing activities are substantially identical in business terms
to its lending and financing activities, differing only in legal and tax
treatment.For financial reporting purposes, leases are treated as a financing
arrangement. Whether a transaction is characterized and documented as a lease
depends on management's evaluation of the customer's credit and the collateral,
as well as the customer's desire to lease, and other factors. The types of
equipment that the Company lends against, finances and leases, and the ongoing
operational treatment of a transaction, is generally the same, regardless of the
documentation used.

Comparison of Fiscal 1996 to Fiscal 1995

Finance income increased 25% to $43.5 million in fiscal 1996 from $35.0 million
in fiscal 1995. The increase was primarily attributable to the 24% increase in
average finance receivables outstanding to $388.0 million in1996 from $312.3
million in 1995. The growth in finance receivables was due to new financings
which totaled $334.2 million in 1996, an increase of 28% over 1995. New
financings increased as a result of the hiring of additional marketing personnel
in 1996 and favorable economic conditions.

Interest expense, which is incurred on borrowings primarily used to fund finance
receivables, increased 19% to $19.3 million in 1996 from $16.3 million in 1995.
The overall increase was mainly due to the 27% increase in average borrowings
during 1996 from 1995, offset by decreases in costs of funds and, to a lesser
extent, average market interest rates.

Since the increase in finance income exceeded the increase in interest expense,
finance income before provision for possible losses on finance receivables
increased by 30% to $24.3 million in 1996 from $18.7 million in 1995. As a
percentage of average finance receivables outstanding, finance income before
provision for possible losses increased to 6.3% in 1996 from 6.0% in 1995. The
increase was primarily due to the interest savings of approximately $750,000
from the replacement of the $15.0 million senior subordinated note, bearing a
12.27% interest rate, on September 1, 1995 with borrowings bearing lower
interest rates and the interest savings of approximately $350,000 on the debt
repaid from the net proceeds of the Company's 1.7 million share public offering
of its common stock in May 1996.

The provision for possible losses on finance receivables increased 18% to $1.7
million in 1996 from $1.5 million in 1995. The increase was primarily due to the
increase in finance receivables. See Note B(5) of Notes to Consolidated
Financial Statements for the summary of activity in the allowance for possible
losses.

Salaries and other expenses increased 23% to $7.1 million in 1996 from $5.8
million in 1995. The increase was primarily due to the hiring of additional
marketing and other personnel and salary increases.

The provision for income taxes increased to $5.8 million in 1996 from $4.4
million in 1995 due to the increase in earnings before income taxes.

Net earnings increased by 33% to $9.6 million in 1996 from $7.2 million in 1995.
Primary and fully diluted earnings per share increased by 26% to $1.01 per share
in 1996 from $0.80 per share in 1995. The increase in earnings per share was
lower than the increase in net earnings primarily due to the effect of the sale
of 1.7 million shares of the Company's common stock in a public offering in May
1996.

Comparison of Fiscal 1995 to Fiscal 1994

Finance income increased by 35% to $35.0 million in fiscal 1995 from $25.9
million in fiscal 1994. Such increase was attributable primarily to a 32%
increase in the average amount of finance receivables outstanding to $312.3
million during fiscal 1995 from $237.4 million during fiscal 1994. Additionally,
average market interest rates increased from fiscal 1994 to fiscal 1995 which
led to new business being booked at higher rates and to increases in rates on
variable rate transactions. Additional marketing personnel have been hired which
has led to increases in new business generated. To the extent new business is
generated at a greater rate than collections are made, the outstanding finance
receivables balance increases.


                         6 FINANCIAL FEDERAL CORPORATION
<PAGE>


Interest expense increased by 64% to $16.3 million in fiscal 1995 from $9.9
million in fiscal 1994. Such increase was attributable mainly to an increase in
average borrowed funds outstanding during fiscal 1995 of 28%. Additionally,
average market interest rates increased from fiscal 1994 to fiscal 1995. Of the
increase in total interest expense, approximately 60% is attributable to the
increase in average borrowings and 40% to the increase in market interest rates.

Since the dollar amount of finance income increased greater than the dollar
amount of interest expense increased during fiscal 1995, finance income before
provision for possible losses on finance receivables increased by 17% to $18.7
million in fiscal 1995 from $16.0 million in fiscal 1994.

The provision for possible losses on finance receivables remained constant at
$1.5 million for fiscal 1995 and 1994. This was attributable to management's
determination that the allowance for possible losses on finance receivables as a
percentage of finance receivables outstanding was adequate. Management
continually evaluates the allowance for possible losses in light of past and
current economic, industry, and geographic conditions. Such allowance equaled
1.85% of the finance receivables outstanding at July 31, 1995 and equaled 1.90%
of the finance receivables outstanding at July 31, 1994.

Since finance income before such provision increased more in fiscal 1995 than
such provision, net finance income increased by 19% to $17.2 million in fiscal
1995 from $14.5 million in fiscal 1994.

During the first quarter of fiscal 1995, the Company purchased from a holder of
its subordinated debentures debentures in the face amount of $725,000 for
$595,000, resulting in a gain of $130,000.

Salaries and other expenses increased by 16% to $5.8 million in fiscal 1995 from
$5.0 million in fiscal 1994. The increase was due to the hiring of additional
personnel during fiscal 1995 and, to a lesser extent, to the opening of a new
full service office in Charlotte, North Carolina during the second quarter of
fiscal 1995, as well as salary increases.

Earnings before income taxes increased by 22% to $11.6 million in fiscal 1995
from $9.5 million in fiscal 1994. The provision for income taxes increased to
$4.4 million in fiscal 1995 from $3.5 million in fiscal 1994 due to the increase
in such earnings. Net earnings increased by 21% to $7.2 million in fiscal 1995
from $5.9 million in fiscal 1994. Primary and fully diluted earnings per share
increased by 16% to $0.80 per share in fiscal 1995 from $0.69 per share in
fiscal 1994.

RECEIVABLE PORTFOLIO AND
ASSET QUALITY

Finance receivables outstanding increased $92.0 million to $437.7 million at
July 31, 1996 from $345.7 at July 31, 1995. The increase is primarily due to the
amount of new financings exceeding amounts collected. At July 31, 1996,
Financial Federal Credit Inc. ("Credit," a wholly-owned subsidiary) had $436.0
million, or 99.6%, of total finance receivables and First Federal Commercial
Inc. ("Commercial," a wholly-owned subsidiary) had the balance of finance
receivables.

The Company's finance receivables reflect certain industry and geographic
concentrations of credit risks. These concentrations arise from counterparties
having similar economic characteristics that would cause their ability to meet
their contractual obligations to the Company to be similarly affected by changes
in economic or other conditions. The major industry concentrations are:
trucking-20%, construction-17%, waste disposal-13% and cranes-11%. The major
geographic concentrations are the: southwest-27%, southeast-25%, northeast-21%
and central-17%.

Finance receivables on which the Company has suspended the recognition of
income, $5.9 million at July 31, 1996, expressed as a percentage of total
finance receivables outstanding, increased to 1.3% at July 31, 1996 from 1.0% at
July 31, 1995.

The allowance for possible losses on finance receivables, $8.0 million at July
31, 1996, expressed as a percentage of total finance receivables outstanding,
was approximately the same at July 31, 1996, 1.83%, as it was at July 31, 1995,
1.85%. The allowance is periodically reviewed by the Company's management and is
based on management's current assessment of the risks inherent in the Company's
finance receivables from national and regional economic conditions, industry
conditions, concentrations, the financial condition of individual counterparties
and other factors. Future increases in the level of the allowance may be
necessary based on future changes in these factors.


                         7 FINANCIAL FEDERAL CORPORATION
<PAGE>


Management believes that net credit losses on the Company's finance receivables
have been historically low primarily due to favorable economic and industry
conditions. Net credit losses, defined as write-downs of receivables less
subsequent recoveries, expressed as a percentage of average finance receivables
outstanding, was 0.34% in 1992, 0.31% in 1993, 0.13% in 1994, 0.08% in 1995 and
0.03% in 1996. Management does not currently expect that this trend will
continue. Increases in the Company's net credit losses would have a negative
impact on the Company's earnings through increased loss provisions.

LIQUIDITY AND CAPITAL RESOURCES

The Company's operations are dependent upon the continued availability of funds
which are used primarily for the origination or acquisition of finance
receivables and for the purchase of portfolios of finance receivables. The
Company may obtain required funds from a variety of sources, including internal
generation of funds, direct issuance of and dealer placed commercial paper,
borrowings under revolving credit facilities, sales of common and preferred
equity and placement of term debt.

The Company's total debt outstanding increased $46.6 million to $317.8 million
at July 31, 1996 from $271.2 million at July 31, 1995. The Company also
increased its stockholders' equity by $36.1 million to $94.2 million at July 31,
1996 from $58.1 million at July 31, 1995 and its net deferred income tax
liability by $2.6 million to $8.9 million at July 31, 1996 from $6.3 million at
July 31, 1995. These increases, together with increases in the Company's accrued
expenses and other liabilities, were used to fund the increase in finance
receivables.

During 1996, the Company improved its liquidity and capital structure. Credit
obtained investment grade commercial paper ratings of "D-2" from Duff & Phelps
Credit Rating Co. and "F-2" from Fitch Investors Services, Inc., which should
reduce the Company's cost of funds (without giving effect to changes in market
interest rates) and improve its access to capital. The Company completed a 1.7
million share public offering of its common stock in May 1996, receiving net
proceeds of $26.3 million which was used to repay debt. In April 1996, Credit
issued $55.0 million of senior institutional term notes maturing in September
2001. During the year, the Company increased its total committed unsecured
revolving credit facilities by $47.5 million to $377.5 million at July 31, 1996
and increased the amount of these facilities that have original terms of two or
more years by $175.0 million to $270.0 million at July 31, 1996. In the fourth
quarter of 1996, Credit established a $200.0 million commercial paper program
with recognized dealers in addition to the Company's existing direct commercial
paper programs. At July 31, 1996, $190.0 million of commercial paper was
outstanding.

In December 1995, the Company declared a three-for-two stock split effected in
the form of a stock dividend which was paid in January 1996. In August 1996, the
Company announced a $2.5 million common stock repurchase program and
subsequently acquired 74,300 shares of its common stock for $941,000.
Repurchases under this program are not expected to have a significant impact on
the Company's earnings per share.

The Company has obtained most of its borrowings through Credit and has obtained
the balance of its borrowings through Financial Federal Corporation
("Financial", the parent company). The Company may also borrow through
Commercial. The sources of the Company's borrowings are described below.

Financial and Credit are each direct issuers of commercial paper. Credit also
issues commercial paper through a $200.0 million program with recognized
dealers. All of the Company's commercial paper is unsecured and matures within
270 days. Commercial paper outstanding at July 31, 1996 bore interest at fixed
annual rates generally ranging from 5.4% to 6.0%. The Company has not obtained
commitments from any purchaser of its commercial paper regarding additional or
future purchases. It is the Company's policy to maintain aggregate unused bank
committed revolving credit facilities in an amount at least equal to commercial
paper outstanding.

At July 31, 1996, Credit had committed unsecured revolving credit facilities
with an original term of one year or less aggregating $107.5 million with ten
banks under which $31.0 million was outstanding. At July 31, 1996, Credit also
had committed unsecured revolving credit facilities with original terms ranging
from two to five years aggregating $265.0 million with seventeen banks under
which $34.9 million was outstanding, and Financial had a $5.0 million committed


                         8 FINANCIAL FEDERAL CORPORATION
<PAGE>


unsecured revolving credit facility with an original term of five years with a
bank under which no borrowings were outstanding. At July 31, 1996, $15.0 million
of long-term revolving credit facilities expire within one year. Amounts
outstanding under all of these facilities bear interest at variable rates
indexed to either domestic money market rates or LIBOR. Fees are paid to these
banks in connection with these facilities. None of the banks is contractually
obligated to renew its facility.

The following table presents information on the amounts outstanding and interest
rates of the Company's commercial paper and bank borrowings under revolving
credit facilities:

(dollars in millions)                1996      1995     1994
------------------------------------------------------------
Commercial Paper:
  Maximum amount
     outstanding during
     the year ................   $  192.5  $   25.1  $  25.6

  Average amount
   outstanding during the year       38.0      18.7     19.9

  Weighted average
    interest rate:
      During the year ........        5.8%      5.8%     4.4%
      End of the year ........        5.7       6.2      4.8

Bank borrowings:
  Maximum amount
   outstanding during the year   $  256.1  $  157.6  $  92.9

  Average amount
   outstanding during the year      178.1      94.6     74.0

  Weighted average
    interest rate:
      During the year ........        6.3%      6.5%     4.6%
      End of the year ........        6.1       6.7      5.3

At July 31, 1996, the Company reported $255.0 million of commercial paper and
bank borrowings as long-term senior debt in its financial statements based on
its long-term revolving credit facilities that expire after one year.

In April 1996, Credit issued $55.0 million of institutional term notes to
insurance companies. The notes are due September 1, 2001 and bear interest,
payable semi-annually, at the annual rate of 6.76%. Prepayments of the notes are
subject to a premium based on a yield maintenance formula.

In July 1996, Financial called its $7.0 million of variable rate subordinated
debentures at face value, offering holders the option to receive amended
debentures. As a result, $4.7 million of these debentures were repaid and $2.3
million of amended debentures were issued subsequent to year-end. The amended
debentures, due on March 1, 2003, bear interest, payable semi-annually, at an
annual rate of 8.0%, and contain a penalty for prepayments made prior to
September 1, 1999. The original debentures bore interest at the prime rate, as
defined, with minimum and maximum rates of 8.0% and 13.0%.

The institutional term notes and the bank revolving credit facilities contain
certain restrictive covenants including limitations on indebtedness,
encumbrances, investments, dividends and other distributions from Credit to
Financial, sales of assets, mergers and other business combinations, capital
expenditures and the minimum adjusted net worth of Credit.

At July 31, 1996, $43.6 million of the Company's retained earnings and
paid-in-capital was free of restrictions on dividends or other distributions to
its stockholders.

INTEREST RATES AND SENSITIVITY

The table below provides information regarding the net yield of the Company's
finance receivables, its cost of borrowed funds and the resulting net interest
spread.

                                  Year ended July 31,
                               1996      1995      1994
--------------------------------------------------------
Average yield of finance
  receivables ..........       11.2%     11.2%     10.8%
Weighted average cost of
  borrowed funds .......        6.6%      6.9%      5.4%
                               -------------------------
Net interest spread ....        4.6%      4.3%      5.4%
                               =========================


The Company's finance receivables consist of fixed rate and variable rate
transactions. At July 31, 1996, $319.2 million, or 73%, of finance receivables
provide for interest at fixed rates and $118.5 million, or 27%, of finance
receivables provide for interest at variable rates which reprice with changes in
the prime rate, as defined. Finance receivables generally have original
maturities ranging from two to five years and provide for monthly installments.
The Company experiences some prepayments of its finance receivables.


                         9 FINANCIAL FEDERAL CORPORATION
<PAGE>


At July 31, 1996, fixed rate long-term debt of $55.0 million, stockholders'
equity of $94.2 million and net deferred income tax liability of $8.9 million
totaled $158.1 million and variable rate debt totaled $262.8 million. Most of
the Company's variable rate debt reprices at regular intervals. At July 31,
1996, total commercial paper and bank borrowings outstanding of $255.8 million
was scheduled to reprice or mature as follows: $219.0 million, or 86%, within
one month, $26.8 million, or 10%, within the following two months and the
remainder, $10.0 million, or 4%, within the following six months.

Since the amount of the Company's fixed rate finance receivables exceeds the
total of its fixed rate long-term debt, stockholders' equity and net deferred
income tax liability, its net interest spread could be affected by fluctuations
in market interest rates. During 1996, the Company reduced its reliance on
variable rate debt by issuing $55.0 million of fixed rate 5 1/2 year term debt
and by increasing its stockholders' equity by $26.3 million from the sale of 1.7
million shares of common stock.

The Company does not seek to match maturities of its debt to its receivables.

NEW ACCOUNTING STANDARDS

In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." This statement requires either the recognition or disclosure of
compensation expense based on the fair value of equity instruments granted to
employees. As permitted by SFAS 123, the Company has elected to adopt the
disclosure provisions of this standard in 1997.

The Company adopted the provisions of SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan--Income Recognition and Disclosures," as of August 1, 1995.
These statements require impaired loans to be measured based on the present
value of the expected cash flows discounted at the loan's effective interest
rate or the fair value of the collateral, if the loan is collateral dependent.
Under SFAS 114, a loan is considered impaired when, based on current information
and events, it is probable that a creditor will be unable to collect all amounts
due according to the contractual terms of the loan agreement. These standards do
not apply to leases. The adoption of these standards did not have a material
effect on the Company's operating results.

STOCK PRICE HISTORY AND
DIVIDEND POLICY

The Company's common stock is traded on the American Stock Exchange under the
symbol "FIF." The table below sets forth, for the periods indicated, the high
and low closing sales prices per share of the common stock as reported by the
American Stock Exchange, adjusted for the January 1996 three-for-two stock
split.

                                                       Price Range
Fiscal year 1996                                  High                Low
---------------------------------------------------------------------------
First Quarter ended
  October 31, 1995 .....................      $   14.59           $   11.75
Second Quarter ended
  January 31, 1996 .....................      $   16.50           $   13.92
Third Quarter ended
  April 30, 1996 .......................      $   16.88           $   15.13
Fourth Quarter ended
  July 31, 1996 ........................      $   17.13           $   12.63


The Company presently has no intention of paying cash dividends in the
foreseeable future.




                        10 FINANCIAL FEDERAL CORPORATION
<PAGE>



Financial Federal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
                                                                                                               July 31,
                                                                                                    1996                    1995
------------------------------------------------------------------------------------------------------------------------------------
ASSETS

<S>                                                                                            <C>                    <C>          
Cash .................................................................................         $   2,426,000          $   3,090,000
Finance receivables ..................................................................           437,706,000            345,694,000
  Less allowance for possible losses .................................................            (8,008,000)            (6,395,000)
                                                                                               ------------------------------------
Finance receivables--net .............................................................           429,698,000            339,299,000
                                                                                               ------------------------------------
Other assets .........................................................................               963,000                547,000
                                                                                               ------------------------------------
    TOTAL ............................................................................         $ 433,087,000          $ 342,936,000
                                                                                               ====================================

LIABILITIES

Senior debt:
  Short-term ($6,816,000 due to related parties in 1995) .............................         $     830,000          $  99,270,000
  Long-term ($9,376,000 due to related parties in 1996) ..............................           310,000,000            150,000,000
Accrued interest, taxes and other liabilities ........................................            12,160,000              7,347,000
Senior subordinated note .............................................................            15,000,000
Subordinated debentures ($3,178,000 due to related parties in 1996 and 1995) .........             6,957,000              6,957,000
Deferred income taxes ................................................................             8,949,000              6,287,000
                                                                                               ------------------------------------
    Total liabilities ................................................................           338,896,000            284,861,000
                                                                                               ------------------------------------
STOCKHOLDERS' EQUITY

Preferred stock--$1 par value, authorized 500,000 shares, none issued
Common stock--$.50 par value, authorized shares: 25,000,000 in 1996 and
  10,000,000 in 1995, issued shares: 9,960,000 in 1996 and 5,580,000 in 1995 .........             4,980,000              2,790,000
Additional paid-in capital ...........................................................            58,289,000             33,201,000
Warrants--issued and outstanding 1,071,000 in 1996 and 1995 ..........................                29,000                 29,000
Retained earnings ....................................................................            30,893,000             23,495,000
Treasury stock, at cost--96,000 shares ...............................................                                   (1,440,000)
                                                                                               ------------------------------------
    Total stockholders' equity .......................................................            94,191,000             58,075,000
                                                                                               ------------------------------------
    TOTAL ............................................................................         $ 433,087,000          $ 342,936,000
                                                                                               ====================================
</TABLE>
The notes to consolidated financial statements are made a part hereof.


                        11 FINANCIAL FEDERAL CORPORATION
<PAGE>

Financial Federal Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                    Common Stock--$.50 Par Value
                                                 ---------------------------------------
                                                                              Additional
                                                 Number of                     Paid-in                    Retained       Treasury
                                                  Shares       Par Value       Capital      Warrants      Earnings        Stock
------------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>          <C>             <C>             <C>        <C>             <C>        
Balance at August 1, 1993 .................     4,854,000    $  2,427,000    $ 28,873,000    $ 85,000   $ 10,342,000               
Exercise of stock options .................       234,000         117,000       1,357,000                                          
Tax benefit relating to stock options .....                                       376,000                                          
Exercise of stock warrants in exchange for:
  Cash ....................................       170,000          85,000         871,000     (21,000)                             
  Subordinated debentures .................       274,000         137,000       1,405,000     (35,000)                             
Purchase of common stock for treasury .....                                                                             $(1,440,000)
Net earnings ..............................                                                                5,944,000               
                                               -------------------------------------------------------------------------------------
Balance at July 31, 1994 ..................     5,532,000       2,766,000      32,882,000      29,000     16,286,000     (1,440,000)
Exercise of stock options .................        48,000          24,000         282,000                                          
Tax benefit relating to stock options .....                                        37,000                                          
Net earnings ..............................                                                                7,209,000               
                                               -------------------------------------------------------------------------------------
Balance at July 31, 1995 ..................     5,580,000       2,790,000      33,201,000      29,000     23,495,000     (1,440,000)
Retirement of treasury stock ..............       (96,000)        (48,000)       (552,000)                  (840,000)     1,440,000
Exercise of stock options .................        31,000          16,000         150,000                                          
Three-for-two stock split .................     2,745,000       1,372,000                                 (1,372,000)              
Sale of common stock ......................     1,700,000         850,000      25,490,000                                          
Net earnings ..............................                                                                9,610,000               
                                               -------------------------------------------------------------------------------------
BALANCE AT JULY 31, 1996 ..................     9,960,000    $  4,980,000    $ 58,289,000    $ 29,000   $ 30,893,000    $      --
                                               =====================================================================================
</TABLE>

The notes to consolidated financial statements are made a part hereof.

                        12 FINANCIAL FEDERAL CORPORATION

<PAGE>


Financial Federal Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                         Year Ended July 31,
                                                                              1996             1995            1994
------------------------------------------------------------------------------------------------------------------------
Finance income:
<S>                                                                        <C>              <C>              <C>        
  Loan obligations ...................................                     $29,533,000      $24,654,000      $17,264,000
  Lease obligations ..................................                      13,990,000       10,297,000        8,602,000
                                                                           ---------------------------------------------
    Total finance income .............................                      43,523,000       34,951,000       25,866,000
  Interest expense ...................................                      19,271,000       16,253,000        9,886,000
                                                                           ---------------------------------------------
Finance income before provision for possible losses on
  finance receivables ................................                      24,252,000       18,698,000       15,980,000
Provision for possible losses on finance receivables .                       1,710,000        1,450,000        1,475,000
                                                                           ---------------------------------------------
    Net finance income ...............................                      22,542,000       17,248,000       14,505,000
Miscellaneous income .................................                                          130,000
Salaries and other expenses ..........................                      (7,113,000)      (5,806,000)      (5,021,000)
                                                                           ---------------------------------------------
Earnings before income taxes .........................                      15,429,000       11,572,000        9,484,000
Provision for income taxes ...........................                       5,819,000        4,363,000        3,540,000
                                                                           ---------------------------------------------
Net Earnings .........................................                     $ 9,610,000      $ 7,209,000      $ 5,944,000
                                                                           =============================================

Earnings per common share:

  Primary ............................................                     $      1.01      $      0.80      $      0.69
                                                                           =============================================

  Fully diluted ......................................                     $      1.01      $      0.80      $      0.69
                                                                           =============================================
Average number of shares used:

  Primary ............................................                       9,483,328        8,956,122        8,648,984
                                                                           =============================================

  Fully diluted ......................................                       9,508,538        8,970,057        8,649,339
                                                                           =============================================
</TABLE>

The notes to consolidated financial statements are made a part hereof.

                        13 FINANCIAL FEDERAL CORPORATION
<PAGE>


Financial Federal Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                     Year Ended July 31,
                                                                                1996             1995             1994
------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S>                                                                      <C>               <C>              <C>        
  Net earnings .................................................         $   9,610,000     $ 7,209,000      $ 5,944,000
  Adjustments to reconcile net earnings to net cash
  provided by operating activities:
      Depreciation and amortization ............................               206,000         156,000          103,000
      Provision for possible losses on finance receivables .....             1,710,000       1,450,000        1,475,000
      Amortization of deferred origination costs ...............             3,443,000       2,896,000        2,329,000
      Deferred income taxes ....................................             2,662,000       1,238,000        1,839,000
      Gain on repurchase of subordinated debenture .............                              (130,000)
      Decrease (increase) in other assets ......................              (368,000)         79,000          121,000
      Increase (decrease) in accrued interest,
        taxes and other liabilities ............................             4,813,000      (1,538,000)       3,030,000
                                                                         ----------------------------------------------
          Net cash provided by operating activities ............            22,076,000      11,360,000       14,841,000
                                                                         ----------------------------------------------
Cash flows from investing activities:
  Finance receivables:
    Originated .................................................          (358,512,000)   (261,135,000)    (226,456,000)
    Collected ..................................................           262,960,000     186,132,000      160,155,000
  Payments for office furniture and equipment ..................              (254,000)       (242,000)        (127,000)
                                                                         ----------------------------------------------
          Net cash (used in) investing activities ..............           (95,806,000)    (75,245,000)     (66,428,000)
                                                                         ----------------------------------------------
Cash flows from financing activities:
  Commercial paper:
    Maturities 90 days or less (net) ...........................           167,750,000     (10,591,000)     13,068,000
    Maturities greater than 90 days:
      Proceeds .................................................            24,866,000      21,565,000      25,929,000
      Repayments ...............................................           (14,341,000)    (20,997,000)    (31,742,000)
  Notes payable--banks (net) ...................................           (91,715,000)     74,445,000      17,965,000
  Proceeds from institutional term notes .......................            55,000,000                                      
  Term loans--banks:
    Proceeds ...................................................                            35,000,000      25,000,000
    Repayments .................................................           (80,000,000)    (35,000,000)                  
  Repayment of senior subordinated note ........................           (15,000,000)
  Repurchase of subordinated debenture .........................                              (595,000)                  
  Proceeds from sale of common stock, net ......................            26,340,000                                      
  Proceeds from exercise of:
    Stock options ..............................................               166,000         306,000       1,474,000
    Stock warrants .............................................                                               935,000
  Acquisition of treasury stock ................................                                            (1,440,000)
  Tax benefit relating to stock options ........................                                37,000         376,000
                                                                         ----------------------------------------------
          Net cash provided by financing activities ............            73,066,000      64,170,000      51,565,000
                                                                         ----------------------------------------------
Net Increase (Decrease) in Cash ................................              (664,000)        285,000         (22,000)
Cash--August 1 .................................................             3,090,000       2,805,000       2,827,000
                                                                         ----------------------------------------------
Cash--July 31 ..................................................         $   2,426,000     $ 3,090,000     $ 2,805,000
                                                                         ==============================================
                                                                                                           
Supplemental disclosures of cash flow information:

  Interest paid ................................................         $  18,163,000     $16,037,000     $ 9,787,000
                                                                         ==============================================

  Income taxes paid ............................................         $   3,003,000     $ 3,807,000     $   367,000
                                                                         ==============================================
</TABLE>

The notes to consolidated financial statements are made a part hereof.

                        14 FINANCIAL FEDERAL CORPORATION

<PAGE>

                                                            

Financial Federal Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Note A)--Summary of Significant
Accounting Policies:

(1) Principles of Consolidation--The consolidated financial statements include
the accounts of Financial Federal Corporation (Financial) and its subsidiaries,
Financial Federal Credit Inc. (Credit), First Federal Commercial Inc. and
Financial Federal Commercial Inc. (collectively, the Company). Intercompany
investments and advances have been eliminated.

(2) Business--The Company provides collateralized lending, financing and leasing
services primarily to middle-market commercial enterprises located throughout
the United States, representing diverse industries such as general construction,
road and infrastructure construction and repair, manufacturing, trucking and
waste disposal. The Company lends against, finances and leases a wide range of
income-producing and labor-saving equipment such as cranes, earth movers,
machine tools, personnel lifts, trailers and trucks.

(3) Income Recognition--The Company's finance receivables consist of loans and
other financings and noncancelable leases. All leases are recorded as direct
financing leases, where total lease payments, plus residual values recorded at
the lowest of (i) any stated purchase option, (ii) the present value at the end
of the initial lease term of rentals under any renewal options or (iii) the
estimated fair value of the equipment at the end of the lease, less the cost of
the leased equipment is recorded as unearned finance income.

Finance income is recognized over the term of receivables using the interest
method. Costs incurred to originate or acquire receivables are deferred and
amortized over the term of receivables using the interest method.

The Company suspends income recognition on finance receivables considered
impaired (full collection of principal and interest being doubtful) by
management. This typically occurs when (i) a payment is more than 120 days past
due according to contractual terms, (ii) the counterparty becomes the subject of
a bankruptcy proceeding or (iii) the underlying collateral is being liquidated.
Impaired receivables are written down to the underlying collateral's currently
estimated net liquidation value (if less than the recorded amount). Income
recognition may be resumed when management believes full collection is probable.
Any cash collected on impaired receivables is applied to the recorded
investment.

The Company charges a general provision for possible losses on finance
receivables against income in an amount to increase the allowance for possible
losses to a level that management considers appropriate. Write-downs of impaired
receivables are charged to the allowance for possible losses and subsequent
recoveries of amounts written down are credited to the allowance. The allowance
is reviewed periodically giving consideration to present and anticipated
national and regional economic conditions, industry conditions, the status of
the finance receivables, and other factors.

The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan,"
as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosures," as of August 1, 1995. These
statements require impaired loans to be measured based on the present value of
the expected cash flows discounted at the loan's effective interest rate, or the
fair value of the collateral if the loan is collateral dependent. Under SFAS
114, a loan is considered impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. These standards do not
apply to leases. The adoption of these standards did not have a material effect
on the Company's operating results.

(4) Income Taxes--The Company recognizes deferred tax assets and liabilities for
the estimated future tax effects of temporary differences between the financial
statement and tax return bases of assets and liabilities and carryforwards using
enacted tax rates. Deferred tax expense represents the net change in deferred
tax assets and liabilities during the year.

(5) Earnings Per Share--Earnings per common share is calculated by dividing net
earnings by the weighted average number of shares of common stock and common
stock equivalents outstanding during the period. Common stock equivalents
consist of dilutive stock options and warrants that are assumed to be exercised
for the calculation.

(6) Use of Estimates--The preparation of 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 estimates.

(Note B)--Finance Receivables:

(1) Finance receivables consist of installment sales and secured loans
(including line of credit arrangements), collectively referred to as loans,
which provide for interest at fixed rates or variable rates, generally


                        15 FINANCIAL FEDERAL CORPORATION
<PAGE>


indexed to the prime rate (as defined), and investments in direct financing
leases, as follows:

                                      July 31,
                                 1996           1995
--------------------------------------------------------
Loans:
  Fixed rate ............   $190,851,000   $130,706,000
  Variable rate .........    100,053,000    103,129,000
                            ---------------------------
    Total ...............    290,904,000    233,835,000
Direct financing leases .    146,802,000    111,859,000
                            ---------------------------

    Finance receivables .   $437,706,000   $345,694,000
                            ===========================

(2) The investment in direct financing leases consists of the following: 

                                       July 31,
                                 1996           1995
--------------------------------------------------------
Minimum lease
  payments receivable ..    $154,003,000   $116,128,000

Estimated unguaranteed
  residual values ......      22,526,000     21,071,000
Unearned finance income      (31,427,000)   (26,763,000)
Initial direct costs ...       1,700,000      1,423,000
                            ---------------------------
    Investment in direct
      financing leases .    $146,802,000   $111,859,000
                            ===========================


(3) Finance receivables generally provide for monthly installments of equal or
varying amounts over periods not exceeding five years. Contractual maturities of
finance receivables at July 31, 1996 are as follows:

                                                                    Direct
                               Fixed             Variable          Financing
                            Rate Loans          Rate Loans          Leases
------------------------------------------------------------------------------
Year ending
  July 31:
  1997 ...............     $ 66,041,000       $ 38,989,000       $ 54,597,000
  1998 ...............       56,130,000         27,986,000         44,151,000
  1999 ...............       40,288,000         19,288,000         31,756,000
  2000 ...............       20,335,000          9,608,000         17,400,000
  2001 ...............        7,047,000          3,541,000          5,645,000
  Thereafter .........        1,010,000            641,000            454,000
                           --------------------------------------------------
     Total ...........     $190,851,000       $100,053,000       $154,003,000
                           ==================================================

(4) The Company has suspended income recognition on finance receivables with a
recorded investment of $5,894,000 (includes $4,489,000 of impaired loans) and
$3,453,000 at July 31, 1996 and 1995, respectively. The average recorded
investment in impaired loans was $3,185,000 in 1996.

(5) The allowance for possible losses is summarized as follows:

                                         Year Ended July 31,
                               1996           1995            1994
-----------------------------------------------------------------------
Balance--August 1 ....    $  6,395,000   $  5,191,000    $  4,024,000
Provision ............       1,710,000      1,450,000       1,475,000
Write-downs ..........      (1,004,000)      (914,000)       (792,000)
Recoveries ...........         907,000        668,000         484,000
                          -------------------------------------------
Balance--July 31 .....    $ 8,008,000    $  6,395,000    $  5,191,000
                          ===========================================

(6) The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business. These financial instruments are commitments to
extend credit to customers. The Company uses the same credit policies in making
these commitments as it does for finance receivables as their credit risks are
substantially the same. At July 31, 1996 and 1995, the unused portion of these
commitments was $7,075,000 and $2,400,000, respectively.

(Note C)--Income Taxes:

(1)  The provision for income taxes comprises the following:

                                          Year Ended July 31,
                              1996           1995            1994
----------------------------------------------------------------------
Currently payable:
  Federal ............    $  2,773,000   $  2,742,000    $  1,325,000
  State and local ....         384,000        346,000
                          --------------------------------------------
    Total ............       3,157,000      3,088,000       1,325,000
Deferred .............       2,662,000      1,238,000       1,839,000
Tax benefit relating
  to stock options
(Note J) .............                         37,000         376,000
                          --------------------------------------------
    Provision for
    income taxes .....    $  5,819,00    $  4,363,000    $  3,540,000
                          ============================================


(2) Income taxes computed at the statutory federal income tax rates are
reconciled to the provision for income taxes as follows:

                                         Year Ended July 31,
                              1996           1995            1994
----------------------------------------------------------------------
Federal income tax
  at statutory rates .    $  5,313,000   $  3,934,000    $  3,225,000
State and local
  taxes (net of
  federal income
  tax benefit) .......         506,000        429,000         315,000
                          -------------------------------------------
    Provision for
    income taxes .....    $  5,819,000   $  4,363,000    $  3,540,000
                          ===========================================


                        16 FINANCIAL FEDERAL CORPORATION
<PAGE>


(3) Deferred income taxes is comprised of the tax effect of the following
temporary differences and carryforwards:

                                               July 31,
                                         1996           1995
-----------------------------------------------------------------
Deferred tax liabilities:
  Leasing transactions ..........    $ 11,069,000   $  8,243,000
  Deferred origination costs ....       1,902,000      1,555,000
                                     ---------------------------
     Total ......................      12,971,000      9,798,000
                                     ---------------------------
Deferred tax assets:
  Allowance for
     possible losses ............      (3,070,000)    (2,463,000)
  Other liabilities .............        (952,000)      (751,000)
  Alternative minimum tax
     credit carryforward ........                       (297,000)
                                     ---------------------------
     Total ......................      (4,022,000)    (3,511,000)
                                     ---------------------------
     Deferred income taxes ......    $  8,949,000   $  6,287,000
                                     ===========================
(Note D)--Debt:

Debt is summarized as follows:

                                               July 31,
                                         1996           1995
-----------------------------------------------------------------
Senior debt:
  Commercial paper ..............    $189,960,000   $ 11,685,000
  Variable rate notes ...........      65,870,000    157,585,000
  Institutional term notes ......      55,000,000
  Variable rate term loans ......                     80,000,000
                                     ---------------------------
    Total senior debt ...........     310,830,000    249,270,000
                                     ---------------------------
Subordinated debt:
  Senior subordinated
  note ..........................                     15,000,000
  Variable rate
  debentures ....................       6,957,000      6,957,000
                                     ---------------------------
    Total subordinated
       debt .....................       6,957,000     21,957,000
                                     ---------------------------
    Total debt ..................    $317,787,000   $271,227,000
                                     ===========================


(1) The Company issues commercial paper at fixed rates of interest for periods
not exceeding 270 days. At July 31, 1996 and 1995, these rates generally ranged
from 5.4% to 6.0% and 5.7% to 7.0%, respectively.

(2) At July 31, 1996, the Company had $377,500,000 of committed unsecured
revolving credit facilities with various banks which expire as follows:
$122,500,000 within one year and $255,000,000 on various dates from January 1998
through July 2001. These facilities contain certain restrictive covenants
including limitations on indebtedness, encumbrances, dividends to Financial from
Credit, capital expenditures and minimum net worth. The Company generally incurs
a fee on the unused portion of these facilities.

Outstanding borrowings which were $65,870,000 at July 31, 1996 mature within 90
days and bear interest at variable rates which are indexed to domestic money
market rates or LIBOR, at the Company's option.

(3) The institutional term notes, which are Credit's obligation, are due
September 1, 2001 and bear interest, payable semi-annually, at the annual rate
of 6.76%. Prepayments of the notes are subject to a premium based on a yield
maintenance formula. The notes contain certain restrictive covenants including
limitations on indebtedness, encumbrances, dividends to Financial and minimum
net worth. At July 31, 1996, $43,600,000 of the Company's equity was free of
dividend restrictions under these notes.

(4) In July 1996, Financial called its variable rate subordinated debentures at
face value, offering holders the option to receive amended debentures. As a
result, $4,667,000 of these debentures were repaid and $2,290,000 of amended
debentures were issued subsequent to year-end. The amended debentures, due March
1, 2003, bear interest, payable semi-annually, at an annual rate of 8.0%,
contain a penalty for prepayments made prior to September 1, 1999 and are
subordinated to senior debt and other debt designated by the Board of Directors
of Financial and to certain other liabilities as provided for in the debentures.
The original debentures bore interest at the prime rate with minimum and maximum
rates of 8.0% and 13.0%.

Officers and other related parties holding $3,178,000 of these debentures at
July 31, 1996, elected to have $997,000 of their debentures repaid and
$2,181,000 amended. In 1994, $352,000 of debentures were exchanged by related
parties in connection with the exercise of stock warrants.

In 1995, Financial repurchased a debenture with a face amount of $725,000 from a
non-related party for $595,000.

(5) At July 31, 1996, long-term senior debt (including commercial paper and bank
borrowings supported by credit facilities expiring after one year) and amended
subordinated debt are due as follows: $60,000,000 in 1998, $185,000,000 in 1999,
$5,000,000 in 2000, $5,000,000 in 2001 and $57,290,000 thereafter.

(Note E)--Stockholders' Equity:

(1) In December 1995, the Board of Directors authorized a three-for-two stock
split effected in the form of a stock dividend, payable in January 1996. Prior
period average shares outstanding, share equivalents and per share amounts have
been restated to reflect the stock split. Shares sold or acquired prior to the
split have not been restated.


                        17 FINANCIAL FEDERAL CORPORATION
<PAGE>


(2) In December 1995, the Company's stockholders approved an increase in the
number of authorized shares of common stock from 10,000,000 to 25,000,000 and an
amendment to the Company's stock option plan increasing the number of shares of
common stock available in the plan from 750,000 to 1,500,000.

(3) In May 1996, the Company sold 1,700,000 shares of its common stock in a
public offering. Net proceeds of $26,340,000 were used to repay bank borrowings.
Had this sale occurred August 1, 1995, earnings per common share, as adjusted
for the increase in net earnings from the elimination of interest expense on the
repaid debt, net of income taxes, and the increase in the average number of
shares used, would have been $0.97 in 1996.

(4) Warrants:

(a) In 1989, the Company issued warrants to purchase 750,000 shares of common
stock at $4.25 per share to its original stockholders. The warrants were
purchased for $.0033 each and expire February 1, 2001.

(b) In 1991, the Company issued warrants to purchase 321,000 shares of common
stock at $4.08 per share to its officers. The warrants were purchased for $.0833
each and expire August 31, 2001.

(c) In 1994, holders of subordinated debentures exercised warrants to purchase
444,000 shares of common stock for $2,442,000 of cash and subordinated
debentures. Related parties purchased 76,500 of these shares.

(5) In August 1996, the Company established a program to repurchase its common
stock. Total repurchases are limited to $2,500,000 under the program. As of
August 30, 1996, 74,300 shares were repurchased for $941,000. Shares repurchased
will be held in treasury for corporate purposes.

(Note F)--Lease Commitments:

The Company occupies office space under leases expiring through 2004. At July
31, 1996, minimum future annual rentals due under these leases are as follows:
$575,000 in 1997, $566,000 in 1998, $393,000 in 1999, $334,000 in 2000, $190,000
in 2001 and $427,000 thereafter. Certain of these leases provide for additional
rentals for increases in real estate taxes and other operating expenses and may
be terminated at the Company's option subject to a penalty.

Office rent expense was $550,000 in 1996, $473,000 in 1995 and $428,000 in 1994.


(Note G)--Related Party Transactions:

Commercial paper transactions with officers and other related parties are
summarized as follows:

                                    1996         1995             1994
---------------------------------------------------------------------------
Year ended July 31:
  Issued .....................$ 34,778,000   $ 55,270,000     $ 67,342,000
  Matured ....................  32,218,000     65,596,000       60,339,000
  Interest expense ...........     497,000        730,000          683,000
At July 31:
  Outstanding ................   9,376,000      6,816,000
  Accrued interest ...........      99,000        130,000

(Note H)--Concentration of Credit Risk:

The Company seeks to control its exposure to the credit risks associated with
its finance receivables through established credit policies and procedures which
include obtaining a first lien on equipment collateral on all transactions. The
Company evaluates the equipment collateral on an ongoing basis and focuses on
lending against, financing and leasing equipment collateral that has an economic
life longer than the term of the receivable, is not subject to rapid
technological obsolescence, has applications in various industries, is easily
accessible and movable and has a broad resale market. The Company may also
obtain third party guarantees and/or hold back a portion of the financing.

Concentrations of credit risks arise when counterparties have similar economic
characteristics that would cause their ability to meet contractual obligations
to be similarly affected by changes in economic or other conditions. The Company
does not have a significant concentration of such credit risks with any one
counterparty. The major concentrations of such credit risks grouped by the
industries and geographic regions of counterparties, expressed as a percentage
of finance receivables, were as follows:

                                              July 31,
                                            1996    1995
-----------------------------------------------------------
Industry:
  Trucking                                  20%     18%
  Construction                              17      17
  Waste disposal                            13      14
  Cranes                                    11      16
Geographic region:
  Southwest                                 27%     34%
  Southeast                                 25      23
  Northeast                                 21      17
  Central                                   17      18


                        18 FINANCIAL FEDERAL CORPORATION
<PAGE>


(Note I)--Fair Values of Financial Instruments:

The Company's financial instruments consist of cash, finance receivables
(excluding leases), commitments to extend credit and debt. The following
summarizes the methods used to estimate the fair value of these financial
instruments.

The carrying values of cash, commercial paper and borrowings under revolving
credit facilities approximate their fair values due to their short-term
maturities.

The carrying value of the subordinated debentures is estimated to approximate
fair value since the debentures were either repaid or replaced by debentures
with similar terms at face value in August 1996.

The fair value of the $55,000,000 of institutional term notes at July 31, 1996
is estimated at $53,300,000 based on their future cash flows discounted at a
current rate for debt with similar terms and maturity.

It is not practicable for the Company to estimate the fair value of its finance
receivables and commitments to extend credit. These financial instruments
consist of a substantial number of transactions with commercial obligors in
numerous industries and are secured by liens on various types of equipment. Each
transaction would be valued by a potential buyer based on its credit quality,
collateral value, payment history, interest rate, maturity, documentation and
other legal matters, and many other considerations which involve the subjective
judgment of the buyer. A fair market transaction would also be based on the
nature of the purchase, the documentation governing such purchase, the seller's
and buyer's view of general economic conditions, industry dynamics, the seller's
and buyer's tax considerations, and numerous other factors.

The approximate weighted average interest rate was 11.1% and 11.6% on fixed rate
loans at July 31, 1996 and 1995, respectively, and 2.8% over the prime rate on
variable rate loans at July 31, 1996 and 1995.

(Note J)--Stock Options:

The Company adopted a stock option plan in September 1989 (as amended) providing
for grants of non-qualified and incentive options to officers, directors and
employees to purchase a maximum of 1,500,000 shares of common stock. The plan
expires in September 1999 subject to earlier termination by the Board of
Directors.

The activity of the plan, adjusted to reflect the three-for-two stock split, is
summarized as follows:

                                         Number of       Exercise Price
                                         Options          Per Option
------------------------------------------------------------------------
Outstanding at                                        
  August 1, 1993 ................         559,950       $ 4.17-$11.00
    Granted (includes                                 
     replacement options) .......         183,675                9.33
    Exercised ...................        (352,200)        4.17-  4.96
    Canceled (includes                                
     replaced options) ..........         (75,750)       10.67- 11.00
                                         ---------             
Outstanding at July 31, 1994                          
  (105,600 exercisable) .........         315,675         4.17- 11.00
    Granted .....................           1,800               10.17
    Exercised ...................         (72,300)        4.17-  4.96
    Canceled ....................          (8,850)        9.33- 11.00
                                         ---------             
Outstanding at July 31, 1995                          
  (44,625 exercisable) ..........         236,325         4.96- 11.00
    Granted .....................         172,150        10.17- 15.00
    Exercised ...................         (33,675)        4.96- 11.00
    Canceled ....................         (31,725)        9.33- 11.00
                                         ---------             
Outstanding at July 31, 1996                          
  (64,988 exercisable) ..........         343,075         9.33- 15.00
                                         =========      
                                                  
All options were granted at exercise prices not less than the fair market value
of the common stock on the date of the grant. Options granted have a six year
term and vest (become exercisable) in four equal cumulative annual installments
commencing on the second anniversary of the grant date except for 75,000 options
granted to certain executive officers in 1996 which have an eight year term and
vest in eight varying annual cumulative installments. At July 31, 1996, 838,250
shares of common stock were available for future grants of options.

In June 1994, 71,475 options granted in 1993 were replaced by options with an
exercise price of $9.33 and a longer vesting period.

Certain dispositions of stock acquired through the exercise of incentive stock
options resulted in federal and state income tax benefits to the Company of
$37,000 in 1995 and $376,000 in 1994.

In November 1993, the Company acquired 96,000 optioned shares of common stock
from an officer/ director for $1,440,000. The cost was $10 per share as restated
to reflect the January 1996 stock split. These shares were retired during 1996.


In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation." This standard requires either the
recognition or disclosure of compensation expense based on the fair value of
equity instruments granted to employees. As permitted by SFAS 123, the Company
has elected to adopt the disclosure provisions of this standard in 1997.


                        19 FINANCIAL FEDERAL CORPORATION
<PAGE>

                                                           

INDEPENDENT
AUDITORS' REPORT

To the Board of Directors and Shareholders
Financial Federal Corporation

     We have audited the accompanying consolidated balance sheets of Financial
Federal Corporation and Subsidiaries as at July 31, 1996 and 1995, and the
related consolidated statements of stockholders' equity, operations and cash
flows for each of the three years in the period ended July 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Financial Federal Corporation and Subsidiaries at July 31, 1996 and 1995, and
their consolidated operating results and their cash flows for each of the three
years in the period ended July 31, 1996, in conformity with generally accepted
accounting principles.


                                                    /s/ Eisner & Lubin LLP
                                                    --------------------------- 
                                                    CERTIFIED PUBLIC ACCOUNTANTS

New York, New York
August 30, 1996

Financial Federal Corporation and Subsidiaries
SELECTED
QUARTERLY DATA

Operations for the quarters included in the years ended July 31, 1996 and 1995
are summarized as follows:

                                                                Earnings
                                                               per Share
--------------------------------------------------------------------------------
                                               Net                      Fully
                           Revenues         Earnings        Primary    Diluted
--------------------------------------------------------------------------------
Fiscal 1996, three                                
 months ended:
    October 31,
       1995 ...........   $10,175,000     $ 2,124,000     $   0.24  $   0.23
    January 31,
       1996 ...........    10,741,000       2,317,000         0.25      0.25
    April 30,
       1996 ...........    10,905,000       2,439,000         0.27      0.27
    July 31,
       1996 ...........    11,702,000       2,730,000         0.26      0.26

Fiscal 1995, three
 months ended:
    October 31,
       1994 ...........   $ 7,611,000     $ 1,706,000     $   0.19  $   0.19
    January 31,
       1995 ...........     8,464,000       1,751,000         0.19      0.19
    April 30,
       1995 ...........     9,055,000       1,835,000         0.21      0.21
    July 31,
       1995 ...........     9,821,000       1,917,000         0.21      0.21


                        20 FINANCIAL FEDERAL CORPORATION
                                                            
<PAGE>



CORPORATE DIRECTORY

Officers

Clarence Y. Palitz, Jr.
Chairman of the Board and President

Michael C. Palitz
Executive Vice President and Treasurer

Paul Sinsheimer
Executive Vice President

William M. Gallagher
Senior Vice President

Troy H. Geisser
Senior Vice President and Secretary

Richard W. Radom
Senior Vice President

Julian C. Green, Jr.
Vice President

Jeanne McDonald
Vice President

Fred J. Palumbo
Vice President

Ted Wooldridge
Administrative Vice President

David H. Hamm
Controller and Assistant Treasurer

Directors

Lawrence B. Fisher
Partner
Orrick, Herrington & Sutcliffe
Attorneys

William C. MacMillen, Jr.
President
William C. MacMillen & Co., Inc.
Investment Bankers

Bernard G. Palitz
President
Gregory Capital Corporation
Investments

Clarence Y. Palitz, Jr.
Chairman of the Board and President
Financial Federal Corporation

Michael C. Palitz
Executive Vice President and Treasurer
Financial Federal Corporation

Paul Sinsheimer
Executive Vice President
Financial Federal Corporation

Officers of
Subsidiaries Only

John V. Golio
Vice President

Daniel J. McDonough
Vice President

Donald G. Pokorny
Vice President

Luther C. Whitlock
Vice President

William J. Flaherty
Administrative Vice President

Johnie E. Christ
Regional Vice President

Thomas Fahl
Regional Vice President

James M. Keesee
Regional Vice President

Michael A. Nelson
Regional Vice President

James R. Scappi
Regional Vice President

Kevin McGinn
Assistant Vice President

Gary L. Pace
Assistant Vice President

Rodney S. Sepulvado
Assistant Vice President

Kimberly P. Walter
Assistant Vice President

Gerry H. Wilson
Assistant Vice President

Donna L. Frate
Assistant Secretary

Robert Grawl, Jr.
Assistant Secretary

John M. Impens
Assistant Secretary

Bart Chinnici
Assistant Controller

Barbara Constantino
Assistant Controller

E. Scott Megason
Assistant Controller

Headquarters

400 Park Avenue
New York, NY 10022
(212) 888-3344

Full Service Branches:

1300 Post Oak Blvd.
Houston, TX 77056
(713) 439-1177

601 Oakmont Lane
Westmont, IL 60559
(630) 986-3900

300 Frank W. Burr Blvd.
Teaneck, NJ 07666
(201) 801-0300

One University Place
8801 J. M. Keynes Drive
Charlotte, NC 28262
(704) 549-1009

1855 W. Baseline Road
Mesa, AZ 85202

Auditors

Eisner & Lubin LLP,
Certified Public Accountants,
250 Park Avenue,
New York, NY 10177

General Counsel

Orrick Herrington & Sutcliffe,
666 Fifth Avenue,
New York, NY 10103

Transfer Agent
and Registrar

The Bank of New York,
New York, NY

The annual meeting of shareholders will be held at 270 Park Avenue, New York, NY
on December 10, 1996 at 10 a.m. Eastern Time.

Corporate Information

For a copy of Form 10-K or other information about the Corporation contact:

Investor Relations
Financial Federal Corporation
400 Park Avenue
New York, NY 10022
(212) 888-3344

Designed by Curran & Connors, Inc.


<PAGE>

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                                   FINANCIAL
                                    FEDERAL
                                  CORPORATION

                                400 Park Avenue
                               New York, NY 10022