POINTS 

FAIRFIELD'S FAIRSHARE PLUS PROGRAM

Fairfield's FairShare Plus program is the primary
product offered and is a  major differentiating  feature for
the Company. FairShare Plus is a unique points-based system
that  responds  to changing  lifestyles, customer  wants and
needs and  global industry changes. The program's open-ended
structure  has the flexibility to  expand into any number of
vacation and travel areas deemed appropriate by the Company,
giving Fairfield the flexibility to incorporate other  forms
of  vacation  experiences  translated  into  symbolic  point
values. These  vacation facilities  may  include lodging  in
resort  hotels,  cruises  or  other  vacation opportunities.
Fairfield  customers benefit  from  the  array  of  vacation
opportunities  available to  them and  the freedom  to spend
their points in any number of combinations, customizing each
vacation  experience.  The  plan  provides  FairShare  Plus 
vacation owners the opportunity to  choose any resort at any
time  of  the  year,  with  any  size  room  or  condominium
available and any length of stay on a reservation basis.

HOW IT WORKS

FairShare Plus vacation owners receive  a deeded undivided
interest in real estate for  a timeshare unit or a  group of
timeshare units  with a  corresponding  annual allotment  of
points. These points  can be spent in  exchange for vacation
options  at varying point prices.  Options include location,
time of year, length of stay and unit size and  type. Points
required for each option are based on demand, and points may
be applied toward a single  extended stay or several shorter
stay vacations at  any of  Fairfield's 15  resorts with  any
unit  type  during  any  season,  according  to  established
exchange rates. Also, Fairfield makes available, on a limited
basis, the use of points to obtain a cruise vacation, a  stay
at an associate  timeshare location  or a stay  in a  luxury
hotel.

Fairfield  introduced  FairShare  Plus in 1993  and  has
experienced   increased   sales   and   enhanced   marketing
efficiencies ever since. Fairfield  has been able to broaden
the  scope of  its  sales and  marketing efforts  by selling
undivided  interests that are  converted into  points, which
then  can  be  spent  anywhere  in  the  Company's  vacation
network.  Thus,  the  sales  focus  has  become  the  entire
property  portfolio, rather than one set week each year in a
single, set location.  Prospective customers now  are buying
into a network of resorts and vacation experiences.

[This page contains 2 pictures which are described clockwise as follows:

     A rock formation near Fairfield Flagstaff, Flagstaff, Arizona;
     a sailboat in water near Fairfield Harbour, New Bern, North
     Carolina]

<PAGE>

This  new  approach  to  sales has  afforded  Fairfield  the
ability to launch off-site sales offices  in the urban areas
of Atlanta,  GA; Charlotte, NC; and Greensboro,  NC. All  of
these off-site offices have contributed to sales despite the
fact  that they  are not  located on  or near  the Company's
actual resorts. Sales  efforts also are able  to continue in
Fairfield's on-site sales offices  at locations that are not  
currently  developing  new  inventory  but  still  offer  a
constant influx of vacationers and potential customers.

An  additional impact  of FairShare  Plus to the Company's
sales offices, both  on- and  off-site, can be  seen in  the
sale of Discovery Vacations. The Discovery Vacations program
offers prospective buyers a  one-year allotment of points to
be  used as a trial  membership. This program  has been very
beneficial  for Fairfield  in providing  an assured  flow of
potential purchasers of the perennial product and lowers the
Company's marketing costs.

Finally,  the  points-based   product  introduces   numerous
opportunities for affiliations with other resort developers.
Affiliations add new resorts to Fairfield's vacation network
and broaden  the vacation experiences available  to existing
customers. Each  new resort added  makes Fairfield's product
more   attractive  and   translates  into   increased  sales
opportunities  for Fairfield. These  affiliations also provide
additional fees  to the Company, as well  as the opportunity
to franchise the Fairfield name.

The  success of  FairShare  Plus has  not only  contributed
tremendously to the growth  of the Company, it also  has had
industry-wide implications. The  popularity of  points-based
products such as FairShare Plus is evident in the fact that
Disney and  Hilton offered similar products  as they entered
the  industry. The  structure for  development, distribution
and  ownership  of  vacation  timeshare  obviously has  been
influenced  by the  demand for  flexibility and ease  of use
offered by points-based programs like FairShare Plus. It is
clear  that  FairShare  Plus has helped  to  solidify  the
Company's position as an industry leader.

[This page contains 2 charts which are described clockwise as follows:

     A bar chart of Vacation Ownership, Net for each of the quarters 
     for the years 1994, 1995 and 1996; a pie graph of 1996 Revenues]

<PAGE>


PLACES 

FAIRFIELD'S PROPERTY PORTFOLIO

Fairfield's  objective  is to  be  the  leading provider  of
innovative,   high-quality   vacation  experiences   in  the
timeshare industry  to the  broadest spectrum  of households
throughout   the  United   States.  To  capitalize   on  its
innovative FairShare Plus vacation system  and to  achieve
its objective, Fairfield has placed an emphasis on acquiring
and  developing resort properties  in destination locations.
These  resorts are in areas  with well-known attractions and
large  tourist populations.  The  advantage of  focusing  on
sites  in  destination locations  is  the  reduced need  for
developing  large-scale  amenities  to attract  vacationers,
yielding   lower  developmental   risks  and   expenses  for
Fairfield.  Furthermore,  large  populations of  prospective
customers continually pass through these areas, marking them
as  prime  areas  for  Fairfield to  operate  on-site  sales
offices which showcase the Company's property portfolio  and
contribute significantly to increased sales.

Fairfield has opened five  resorts in the destination cities  
of Branson,  MO; Myrtle Beach, SC;  Nashville, TN; Orlando,
FL; and Williamsburg, VA. Eleven of Fairfield's  properties,
including all  five destination location resorts,  have been
awarded the Gold Crown Resort designation, the highest level
of  distinction  from Resort Condomiums International (RCI),    
the leading  industry exchange
company.  Furthermore,   at   year  end,   Fairfield   owned
undeveloped property at its destination resorts on which the
present  master   plans  for   those  resorts   provide  for
approximately 778 additional units, which if sold at current
prices would represent approximately  $523 million in future
sales.

NEWER DEVELOPMENTS

FAIRFIELD MYRTLE BEACH

Fairfield's  second Myrtle Beach resort, SeaWatch Plantation,
is a 10-acre oceanfront  property, with 640 units consisting
of  a mixture of  condominiums and hotel  units. The initial
phase includes 97  units as well as a pool, lagoon and beachwalk. 
The  first building  of the  resort  was completed  in
August 1996 and the entire  first phase should be completed
in 1999. The  Myrtle Beach  area was rated  the second  most
popular  drive  destination  in  the United  States  by  the
Automobile  Association  of  America  Travel   Service  and
averages more  than 14 million visitors  per year. Fairfield
Westwinds,   Fairfield's   original   Myrtle    Beach   area
development, was built in 1989.

[This page contains 2 pictures which are described clockwise as follows:

     A forest near Fairfield Pagosa, Pagosa Springs, Colorado; a boy
     holding a fish he caught near Fairfield Pagosa, Pagosa Springs,
     Colorado]

<PAGE>

FAIRFIELD NASHVILLE

Fairfield  Nashville is  located on  19 acres  in the  music
center  of   Nashville,  TN,  adjacent  to   Opryland.  When
completed, the resort will offer approximately 254 units. At
year  end, Fairfield Nashville had 15 units completed and 31
units under construction.  Amenities at Fairfield  Nashville
include indoor  and outdoor  swimming pools, a  health club,
clubhouse, fully  equipped picnic areas and  playgrounds. As
an estimated 10 million people visit Nashville annually, the
location  of  this  resort is  consistent  with  Fairfield's
strategy to expand its vacation ownership network in popular
destination locations.

FAIRFIELD ORLANDO AT CYPRESS PALMS

Fairfield  Orlando  at Cypress  Palms  is  located in  close
proximity to  this city's  world-famous attractions  such as
Walt  Disney  World (TRADEMARK) Resort,  Epcot  Center,  MGM  Studios,
Universal Studios and Sea  World. When completed, the resort
will  include 244  units  and  a  pool  and  whirlpool  spa.
Currently, Cypress Palms has 58 units  completed and 12
units under construction. Orlando and the  surrounding areas
also  offer  other  major   amusement  parks,  exhibits  and
attractions drawing  visitors throughout the  year, many  of
whom are repeat visitors.

OTHER FAVORITES - There's Something for everyone!  

Fairfield's  expansive  array of  resorts  reaches coast to 
coast and  offers a vast  array of vacation  experiences to
meet  the different  lifestyles  and vacation  needs of  its
customer base.  Fairfield's resort  sites vary in  size from
several acres to over 18,000 acres. The locations offer many
on-site  amenities ranging  from swimming  pools  and tennis
courts, at  most  sites,   to  championship   golf  courses,
equestrian facilities and  ski slopes at some  of the larger
resorts.  Adults value  the abundance  of fine  shopping and
dining surrounding Fairfield's  resorts, and children  enjoy
Fairfield's  numerous  playgrounds,  recreation centers  and
miniature golf courses.

Fairfield's  resort properties are  rated among  the highest
quality   vacation   resorts   worldwide.  The   exceptional
amenities available  to Fairfield customers  equal those  of
fine, world-class hotels. The Company's one- and two-bedroom,
custom-built   vacation  villas   offer  size,   luxury  and
convenience  that  surpass  the  offerings of  hotels  and
vacation resorts. Many of Fairfield's units offer full-size,
fully equipped kitchens, fireplaces, private whirlpool spas,
VCRs, washers and dryers and more.

Fairfield Pagosa  in Pagosa Springs, Colorado, is a favorite
among vacationers with a  zest for active outdoor vacations.
The resort has five  lakes on the property and  is bordered
by  two-and-a-half  million  acres of  national  forests and
wilderness.  For  additional  outdoor adventures,  Fairfield
Sapphire Valley, in Sapphire,  North Carolina, lies adjacent
to the Pisgah National Forest and the Great Smokey Mountains
National  Park.  Opportunities for  family  backpacking and
hiking are virtually unlimited. 

For some of the finest horseback riding, Fairfield Glade in
Tennessee  offers  on-site  riding  stables,  and  Sapphire
Stables in  Sapphire  Valley provides horseback riders  with
peaceful  excursions  through the  picturesque countryside.
Fairfield's affiliation with JB Ranch in Ocala, Florida will
provide horseback  riding and ranching set  among a 700-unit,
country-western-theme resort.

[This pages includes 3 pictures which are described clockwise as follows:

     A picture of VOI units at Fairfield Nashville, Nashville, Tennessee;
     a picture of VOI units at Fairfield Orlando at Cypress Palms, 
     Kissimmee, Florida; a picture of VOI units at Fairfield Myrtle Beach 
     at SeaWatch Plantation, Myrtle Beach, South Carolina]

<PAGE>

For  winter lovers,  Fairfield's network  of  resorts offers
opportunities  for great downhill  and cross-country skiing.
Fairfield  Pagosa is located just  miles from Wolf Creek Ski
Area,  known  for  receiving  the  most  snow  in  Colorado.
Visitors  of Fairfield  Flagstaff enjoy  the nearby  Arizona
Snowbowl. Sapphire Valley, too,  offers skiing in the winter
months and golf the rest of the year.

Golf enthusiasts marvel at the opportunity  to spend time at
Fairfield  Glade.  Located  in  Tennessee,  Fairfield  Glade
boasts  one  27-hole and  three  18-hole  golf courses.  The
scenic banks of  the broad Neuse  River provide a  beautiful
backdrop at  Fairfield Harbour in New  Bern, North Carolina,
where  golf  is  one   of  the  resort's  main  attractions.  
Fairfield  Mountains in  Lake  Lure,  North Carolina, offers
golfing  in  some  of the  most  beautiful  settings  in the
Southeast. The  Bald Mountain and Apple  Valley golf courses
are open year-round and  are set against the  majestic Blue
Ridge  Mountains.  Almost   all  of  the  Company s   resort
locations  offer  world-class  golfing,  many  without  even
leaving the resorts' grounds.

For   family   attractions,   nothing    beats   Fairfield's
destination resorts in  Branson, Missouri, and  Williamsburg,
Virginia. Branson is hailed  as America's Country Music Show
Capital. The  area draws  the biggest  names in  country and
bluegrass music year-round to over 30 indoor theatres all on
a 10-mile  stretch.  Outdoor activities  in Branson  include
boating,  fishing,  swimming,  waterskiing,  sailing,  scuba
diving  and parasailing.  Fairfield Williamsburg  is located
just three miles from the world-famous Colonial Williamsburg
Historic Area,  10 miles  from Jamestown, the  first English-
speaking settlement,  and 15 miles from  Yorktown, where the
last  battle   of  the   American  Revolution  was   fought.
Furthermore, just three  miles from the resort  are the more
contemporary sights and thrills  of Busch Gardens' amusement
park.

Relaxation is an important  aspect of a vacation, especially
after  participating  in  all  of  the  exciting  activities
available   to   Fairfield  members.   Fairfield s  property
portfolio offers some of the finest "getaway vacation" resorts
in  the nation.  Fairfield  Ocean Ridge,  in Edisto  Island,
South Carolina,  situated on one  of the most  beautiful and
least  commercialized   beach  areas  on  the   East  Coast.
Fairfield Plantation,  in Villa Rica, Georgia,  is an entire
resort community focused on  the great Southern tradition of
living a  good life  year-round. This resort  features three
lakes,  three outdoor  swimming  pools and  its own  private
beach,  not to mention  lighted tennis courts  at the tennis
center  and  a convenient  location  just 45  miles  west of
Atlanta, Georgia.

Each resort  in Fairfield's  property portfolio has  its own
personality and  is strategically  located near popular U.S.
tourist  destinations or popular   getaway  locations across
the country. 

The quality of Fairfield's properties is matched only by the
service  the Company provides its customers. Fairfield takes
a  proactive  approach  in  keeping  customers  happy,  and
internal  surveys show  that Fairfield, in recent  years, has
maintained customer satisfaction ratings in excess of 90%.


[This page contains a picture of a lady on a golf course at Fairfield
 Bay, Fairfield Bay, Arkansas]

<PAGE>

PROPERTY PORTFOLIO

DESTINATION RESORTS  

Fairfield Branson- Branson, MO
Fairfield Myrtle Beach- Myrtle Beach, SC
Fairfield Nashville- Nashville, TN
Fairfield Orlando at Cypress Palms- Kissimmee, FL
Fairfield Williamsburg- Williamsburg, VA

REGIONAL RESORTS

Fairfield Bay- Fairfield Bay, AR
Fairfield Flagstaf- Flagstaff, AZ
Fairfield Glade- Fairfield Glade, TN
Fairfield Harbour- New Bern, NC
Fairfield Mountains- Lake Lure, NC
Fairfield Ocean Ridge- Edisto Island, SC
Fairfield Pagosa- Pagosa Springs, CO
Fairfield Plantation- Villa Rica, GA
Fairfield Sapphire Valley- Sapphire, NC
Harbortown Point- Ventura, CA

[This page contains 1 picture and 3 charts which are described clockwise
 as follows:

     A picture of a waterfall; a bar chart of Net Interest Spread for the years
     ended December 31, 1994, 1995 and 1996; a bar chart of Earnings Per Share 
     for the six months ended December 31, 1992 and the years ended December 31,
     1993, 1994, 1995 and 1996; a bar chart of Stockholders' Equity at December
     31, 1992, 1993, 1994, 1995 and 1996]

<PAGE>



COMMON STOCK PRICES

      Effective  December  20,  1995,  Fairfield's  Common  Stock  began
trading on the New  York Stock Exchange under the symbol  FFD.  Prior to
that  date, Fairfield's Common Stock  traded on The  Nasdaq Stock Market
under  the  symbol FFCI.   The  approximate  number of  recordholders of
Fairfield's Common Stock at  January 31, 1997 was 2,600. The  Company has  
paid no dividends in the past two years.

      High and low stock prices during 1996 and 1995 were as follows:

                                      1996                 1995
                                 --------------        --------------    
            Quarter Ended        High       Low        High       Low       
            -------------        ----       ---        ----       ----
            March 31          $ 9 1/4    $ 6 1/2      $6 1/8    $4 1/2   
            June 30            15 1/4      8 5/8       6         5 1/4         
            September 30       21 5/8     13 1/4       8 1/4     5 1/2         
            December 31        25 3/4     18 3/8       8 1/4     5 7/8 

     Certain  of  the  Company's  financing  arrangements  prohibit  the
Company  from paying cash dividends or making other distributions on its
Common Stock. 

              FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
                 SELECTED FINANCIAL AND OTHER DATA
            DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA 

<TABLE>
                                                                 
                                                               Six Months  
                                                                 Ended     
                                Year Ended December 31,       December 31,
                      ----------------------------------------
                        1996       1995      1994       1993      1992   
                        ----       ----      ----       ----      ----   
<S>                  <C>        <C>        <C>        <C>        <C> 
OPERATING DATA
  Revenues:          
   Vacation ownership,
    net              $114,592   $ 85,460   $ 53,085   $ 33,472   $15,255
   Lots, net            8,735      7,817      7,981      7,399     1,704
   Resort
    management         14,644     13,178     10,206      9,779     5,043
   Interest            19,994     19,111     20,366     24,089    14,670
   Other               14,513     15,209     13,709     14,270     7,062
   Gain on sale of 
    First Federal         -          -        5,200        -         -
   Savings and loan 
    operations            -          -          -       18,762    10,099
                     --------   --------   --------   --------   -------   
                     $172,478   $140,775   $110,547   $107,771   $53,833
                     ========   ========   ========   ========   =======

   Net earnings       $14,863    $ 8,029    $12,269     $7,170    $1,249
                      =======   ========    =======     ======    ======

   Net earnings 
    per share           $1.30       $.72      $1.11       $.65      $.11
                        =====       ====      =====       ====      ====
   Weighted average shares 
   outstanding     11,405,015 11,079,789 11,069,267 11,037,765 11,134,117
                   ========== ========== ========== ========== ==========

 OTHER DATA
  Cash flows provided by (used in):
    Operating 
     activities      $ 36,716   $  8,654    $12,927   $  9,500   $  6,842
    Investing 
     activities      $(21,562)  $  2,061    $(5,253)  $ 12,661   $ 45,070
    Financing 
     activities      $(10,241)  $(22,261)   $ 1,492   $(78,607)  $(34,577)
  Number of resorts        15         15         15         13         12
  Number of off-site 
     sales offices          3          2          2          1          1  

   BALANCE SHEET DATA (AT PERIOD END)
    Loans receivable,
     net             $152,069   $139,674   $139,810   $167,465   $381,844
    Total assets      253,799    215,518    224,726    245,073    586,700
    Total financing 
     arrangements      58,110     86,982    111,943    112,581    180,812
    Stockholders' 
     equity           134,299     81,227     66,935     47,148     36,962
    Book value 
     per share         $11.45      $7.64      $6.27      $4.39      $3.32
</TABLE>

   Note:     Effective   June   30,   1992,   the    Company
             implemented   "Fresh   Start    Reporting"   in
             connection with  confirmation of  the plans  of
             reorganization.   No dividends  have been  paid
             during the  previous five years.   See Note  14
             of    "Notes    to    Consolidated    Financial
             Statements"  for  discussion of  the  Company's
             contingencies.


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

  RESULTS OF OPERATIONS 

       Vacation Ownership
       ------------------
       Gross   revenues  of   vacation  ownership  interests
  ("VOIs") totaled $116.1  million, $86.2 million and  $52.9
  million for  1996, 1995  and 1994,  respectively.   During
  1996,  the Company experienced  sales increases at several
  of  its  developments, including  its  destination resorts
  located   in   Orlando,  Florida;   Nashville,  Tennessee;
  Branson,  Missouri and Myrtle  Beach, South  Carolina.  Of
  the increase  in gross  VOI  revenues from  1994 to  1995,
  $15.6 million (47%)  was attributable to additional  sales
  volumes  at  the  Company's  newest  destination   resorts
  located in  Orlando,  Florida  and  Nashville,  Tennessee,
  both of which began sales  efforts in December 1994.   The
  Company's growth  strategy  includes the  (i)  acquisition
  and   development   of  properties   in   new  destination
  locations,  (ii)  further  development   at  its  existing
  destination resorts and  (iii) expansion of its  sales and
  marketing   programs,   including  the   establishment  of
  additional off-site  sales offices.   Future  sales growth
  should be realized as the Company  continues to direct its
  opportunities  to   destination  locations  which  have  a
  higher and  more consistent stream of  potential customers
  generated by the existing attractions.

       Net VOI revenues increased to  $114.6 million for the
  year  ended December  31, 1996 from  $85.5 million in 1995
  and $53.1  million  in 1994.    The  increase in  net  VOI
  revenues  is attributable  to the  same  factors as  noted
  above,  which was partially offset, during  1996, by a net
  deferral of VOI revenues totaling  $1.5 million related to
  the percentage  of completion method  of accounting.   The
  Company recognized  a net deferral  of $.7 million  during
  1995 as compared  to net revenue recognized of $.2 million
  during 1994.   Under the  percentage of completion  method
  of  accounting,  the portion  of revenues  attributable to
  costs   incurred,   as   compared   to   total   estimated
  construction  and  selling  costs,  is recognized  in  the
  period of  sale.   The remaining revenue  is deferred  and
  recognized as remaining costs are incurred.  

       Cost of VOI  sales, as  a percentage  of related  net
  revenues,  was 25.5%, 27.9% and  28.2% for  1996, 1995 and
  1994,   respectively.    The  decrease  in  1996  resulted
  primarily  from increased  sales  of residual  fixed  week
  inventory at the  Company's more mature locations.   Sales
  of this limited  fixed week inventory are  not expected to
  occur to  this extent in  the future, but  will occur from
  time to time. <PAGE>
 

       Selling
       -------
       Selling  expenses,  including  commissions, for  both
  VOI and  lot sales, as  a percentage of related  revenues,
  were 51.1%,  54.1%  and 50.6%,  for 1996,  1995 and  1994,
  respectively.    The   decrease  from  1995  to   1996  is
  primarily attributable to efficiencies  experienced at the
  Company's  destination  resorts  in  Orlando, Florida  and
  Nashville,  Tennessee.  The increase  in  selling expenses
  from 1994 to  1995, as  a percentage of  related revenues,
  was  primarily attributable  to inefficiencies experienced
  at  these destination resorts which, as noted above, began
  sales  efforts in December  1994.   New projects typically
  experience  lower  operating  margins  in  the  "start-up"
  phase of operations  as the Company develops  its property
  owner  base  and   establishes  an  efficient  sales   and
  marketing  program  at  each  new  location.    Management
  continues to  work to  improve sales  efficiencies at  its
  newer  resorts and  future  efficiencies are  expected  as
  these  projects mature and  expand their bases of property
  owners. 

       General and Administrative
       --------------------------
       Increases  in  general  and  administrative  expenses
  during  1996   and  1995   resulted  primarily   from  the
  additional expenses incurred resulting  from the increased
  VOI sales  volumes as previously  discussed, and increased
  expenses  related  to  the  Company's  employee  incentive
  compensation/benefit  plans  (see  Note  12  of  "Notes to
  Consolidated Financial Statements").   As a percentage  of
  total   revenues,  general   and  administrative  expenses
  increased slightly to  8.8% in 1996 as compared to 8.4% in
  1995.   During 1994, general and  administrative expenses,
  as a  percentage of total  revenues, were 9.9%,  exclusive
  of the gain on sale of First Federal.

       Gain on Sale of First Federal
       -----------------------------
       In  1994, Fairfield sold 100% of the capital stock of
  First  Federal Savings and  Loan Association  of Charlotte
  ("First Federal") for  $41.0 million and recognized  a net
  gain on the sale of $5.2 million.  The gain from the  sale
  of First Federal  was not  subject to  federal income  tax
  due  to  a   permanent  tax  basis  difference   in  First
  Federal's stock and underlying goodwill.    

       Included in "Restricted cash and escrow accounts"  at
  December  31, 1996  is $2.8  million representing  certain
  assets retained and/or pledged to  the buyer to securitize
  Fairfield's obligation  to  indemnify  the  buyer  against
  general  indemnities  and  two  remaining  lawsuits/claims
  which   have   been   asserted   against  First   Federal.
  Approximately $1.5 million of this  amount is scheduled to
  be  released in  March  1997 unless  the  buyer asserts  a
  claim for indemnification. <PAGE>
 

       Interest
       --------
       Interest income  totaled $20.0 million, $19.1 million
  and $20.4  million in 1996,  1995 and 1994,  respectively.
  The increase  in  interest income  in  1996 from  1995  is
  primarily  attributable to  a  higher average  balance  of
  outstanding contracts receivable, totaling $142.8  million
  in  1996,  as   compared  to  $135.8  million   for  1995.
  Interest  income decreased in 1995, as compared to 1994, due
  to  a  higher  average  balance  of  contracts  receivable
  outstanding  in  1994  totaling   $146.2  million.     The
  weighted average  stated interest  rate of  the Company's
  contracts  receivable  was  13.6%,  13.2%   and  12.6%  at
  December 31, 1996, 1995 and  1994, respectively.  Interest
  income  is expected  to increase  in tandem  with  the net
  increase in contracts receivable. 

       Interest expense  totaled $6.8 million,  $8.6 million
  and  $10.5 million in  1996, 1995  and 1994, respectively.
  These decreases are  primarily attributable to  reductions
  in the  average outstanding  balances of  interest-bearing
  debt.    The  average  outstanding  balance  of  interest-
  bearing  debt has decreased from $138.5 million in 1994 to
  $97.4 million  in 1995  and $75.8  million in  1996.   The
  weighted  average   interest   rate  for   the   Company's
  financing   arrangements   collateralized   by   contracts
  receivable,  including  certain  fees  and  expenses,  was
  8.6%, 8.1%  and  8.4% for  the  years ended  December  31,
  1996, 1995 and 1994, respectively.   

       Other
       -----
       Other revenues  in 1996, 1995  and 1994 include  home
  sales  totaling  $8.8  million,  $6.7  million  and   $5.9
  million, respectively.   Also  included in other  revenues
  for 1996,  1995 and 1994  are cash distributions  totaling
  $.1 million, $1.6 million and  $1.2 million, respectively,
  related  to  the  Company's  35%  partnership  interest in
  Harbour Ridge, Ltd., a limited  partnership engaged in the
  development of a tract of  land in St. Lucie, Florida.  No
  additional revenues from this  partnership are anticipated
  (see Note 11 of "Notes to Consolidated Financial Statements").
  
       Other expenses for 1996, 1995  and 1994 include costs
  of home  sales, including selling expenses,  totaling $8.2
  million, $6.0 million and $5.4 million, respectively.  

       During  the  fourth  quarter  of  1996,  the  Company
  recorded a valuation  adjustment of $1.0 million  based on
  current information that  indicated the carrying  value of
  the   assets   collateralizing  the   Senior  Subordinated
  Secured Notes (the "FCI Notes") was in excess of the fair
  value.   This valuation  adjustment is  included in "Other
  expenses" in the 1996 Consolidated  Statement of Earnings.

  PROVISION FOR INCOME TAXES

       The Company  provides for income taxes  in accordance
  with Statement of Financial  Accounting Standards ("SFAS")
  No. 109,  "Accounting for Income  Taxes."  Under SFAS  No.
  109, deferred  tax assets  or  liabilities are  determined
  based  on the  difference between  the financial reporting
  and  tax basis of assets  and liabilities  and enacted tax
  rates that will  be in effect  for the  year in which  the
  differences are expected to reverse.   Additionally, under
  SFAS No.  109, a valuation  allowance must be  established
  for deferred tax  assets if, based on  available evidence,
  it is "more likely than not" that all  or a portion of the
  deferred tax assets will not be realized.

       At December 31,  1996, the Company had  net operating
  loss carryforwards  totaling $72.6  million which  reflect
  the  amount available to  offset taxable  income in future
  periods. The  Company's net  operating loss  carryforwards
  increase  primarily from the  use of  the installment sale
  method of reporting income and are substantially offset by
  an   increase  in   deferred   tax  liabilities.     Under
  limitations imposed  by Internal Revenue Code  Section 382
  ("Section 382"),  certain potential  changes in  ownership
  of  the  Company,  which  may  be  outside  the  Company's
  knowledge or control, may  restrict future utilization  of
  these  carryforwards.    More   specifically,  changes  in
  ownership occurring  within a  rolling three-year  period,
  taking  into consideration filings with the Securities and
  Exchange  Commission on Schedules  13D and  13G by holders
  of  5%  or  more  of  Fairfield's  Common  Stock,  whether
  involving the  acquisition or  disposition of  Fairfield's
  Common  Stock,  may impose  a  material limitation  on the
  Company's use  of these  carryforwards.   If an  ownership
  change triggers  the Section  382 limitations, the  annual
  limitation  imposed on the use of pre-change carryforwards
  under present law is an  amount equal to the value  of the
  Company   immediately   before   the   ownership    change
  multiplied  by  the federally  prescribed  long-term  tax-
  exempt rate  for the period  in which  the change  occurs.
  Available carryovers, if not utilized, expire as  follows:
  2005 -  $12.6 million; 2006  - $7.8 million;  2007 - $13.9
  million; 2008 -  $5.4 million; 2009 - $3.3 million; 2010 -
  $16.1 million and 2011 - $13.5 million.

       Fresh Start Reporting requires the  Company to report
  federal income tax  expense on  income before  utilization
  of  pre-confirmation net operating  loss carryforwards and
  recognition of  the benefit of pre-confirmation deductible
  temporary  differences.     Benefits  realized   from  the
  utilization   of   pre-confirmation  net   operating  loss
  carryforwards   and   recognition    of   pre-confirmation
  deductible   temporary   differences   are   recorded   as
  reductions of the valuation allowance  and as additions to
  paid-in capital.   The Company recorded benefits  from the
  utilization  of  pre-confirmation tax  attributes totaling
  $19.1 million,  $6.3 million  and $7.5  million for  1996, <PAGE>
 
  1995 and  1994, respectively.   The  Company has  reported
  operating earnings since  the effective date of  the plans
  of reorganization and management believes  that it is more
  likely  than not  that  future  taxable earnings  will  be
  sufficient  to  realize the  tax benefits  associated with
  the  future  deductible  temporary  differences  and   net
  operating loss  carryforwards prior  to their  expiration;
  therefore, the Company eliminated  the remaining valuation
  allowance in 1996.

  LIQUIDITY AND CAPITAL RESOURCES

       Cash and  cash equivalents  of the  Company increased
  $4.9 million  from December 31, 1995 to December 31, 1996.
  This increase  is primarily attributable  to $36.7 million
  of  cash  provided  by  operating  activities,  which  was
  partially offset  by  (i) $21.6  million of  cash used  in
  investing    activities    attributable    primarily    to
  originations  of  loans  receivable  exceeding   principal
  collections  and   the  construction   of  the   Company's
  corporate office at  a cost of $5.9 million and (ii) $10.2
  million  of cash used in financing activities attributable
  primarily to  the net reduction of  financing arrangements
  totaling $28.9 million, which was  partially offset by the
  proceeds from the public stock offering.  

       The Company  generates cash for  operations primarily
  from the  sale and financing  of VOIs  which include  (i)
  cash sales,  (ii) customer down payments, (iii)  principal
  collections   on  its   contracts   receivable  and   (iv)
  borrowing  availability  generated  by customer  contracts
  receivable  in amounts which  typically range  from 65% to
  75%   of  the   outstanding   balance  of   the  contracts
  receivable.   The Company  generates additional cash  from
  the  financing  of  VOI  sales  equal  to  the  difference
  between  the  interest charged  on the  customer contracts
  receivable  (which  averaged  13.6%  for  the  year  ended
  December 31, 1996)  and the interest paid  on the  related
  borrowings  (which  averaged  8.6%  for   the  year  ended
  December 31, 1996).

       Historically,   funds  from   operating  cash  flows,
  borrowings and asset sales  have been used to fund certain
  costs   which   support  the   Company's   sales   efforts
  (primarily  development  and marketing  costs).    In  the
  recent  past, the  Company  has  begun to  securitize  its
  contracts  receivable in  an effort to  lower the  cost of
  borrowed  funds and maintain  borrowing availability under
  its credit  facilities.   The Company  expects to  finance
  its  short- and  long-term  cash  needs from  (i)  contract
  payments   generated   from   its   contracts   receivable
  portfolio,  (ii)  operating cash  flows,  (iii) borrowings
  under its  credit facilities as  described below and  (iv)
  future  financings, including  additional  securitizations <PAGE>
 
  of contracts receivable.

       In  November   1996,   the   Company   completed   an
  underwritten  public offering of  900,000 shares of Common
  Stock at  a price  of $21.63 per  share (the "Offering").
  The net proceeds  from the Offering of  $17.7 million were
  used  to   repay  certain   indebtedness,  totaling   $9.1
  million,  including  accrued  interest  of  $2.7  million,
  issued  in  connection with  the  Company's reorganization
  and to temporarily pay  down the outstanding  indebtedness
  under the Company's revolving credit agreements, with  the
  remaining balance  of $3.8 million invested  in short-term
  investment grade securities  (included in "Cash and  cash
  equivalents"  in   the  Consolidated   Balance  Sheet   at
  December  31, 1996).   In February  1997, the  Company was
  able to  draw $7.9  million against  its revolving  credit
  agreements to repay, in part, the outstanding indebtedness  
  under the FCI Notes (see Note 11 of "Notes to Consolidated
  Financial Statements").    

       In  October  1996,  Fairfield  Capital   Corporation
  ("FCC"), a  wholly owned  subsidiary of  FAC, amended  its
  Credit Agreement (the "FCC Agreement")  which provides for
  total borrowings of up to $90.0 million (the "FCC  Notes")
  for  the   purchase  of  contracts  receivable   from  FAC
  pursuant to  the Amended and Restated Receivables Purchase
  Agreement,  among Fairfield  as originator,  FAC as seller
  and FCC  as purchaser.   At December  31, 1996, borrowings
  outstanding  under   the  FCC   Agreement  totaled   $29.9
  million.   The FCC Agreement  provides for two  additional
  fundings of  up  to a  total  of  $55.0 million  prior  to
  October 1997.

       At December 31,  1996, Fairfield Funding  Corporation
  ("FFC"),  a wholly owned subsidiary of FAC, had borrowings
  outstanding   totaling  $24.4  million   under  a  private
  placement of 7.6%  Notes (the "FFC Notes").  The FFC Notes
  are secured  by  and  payable  from a  pool  of  contracts
  receivable purchased from  FAC pursuant to the Receivables
  Purchase  Agreement among Fairfield  as originator, FAC as
  seller  and  FFC as  purchaser.    At December  31,  1996,
  contracts     receivable    totaling     $38.0     million
  collateralized the FFC Notes. 

       At  December 31,  1996, Fairfield  had no  borrowings
  outstanding  under  its  Amended  and  Restated  Revolving
  Credit  Agreement   (the  "FCI   Agreement").    The   FCI
  Agreement  provides for  revolving loans  of  up to  $25.0
  million,  including up  to  $7.0  million for  letters  of
  credit.   The revolving loans  mature on January 1,  1999,
  if not  extended in accordance  with the terms  of the FCI
  Agreement.  At December 31,  1996, Fairfield had borrowing
  availability  of $23.3 million, net of outstanding letters
  of credit totaling $1.7 million.

       At  December   31,  1996,   FAC  had  no   borrowings <PAGE>
 
  outstanding   under   its  Third   Amended   and  Restated
  Revolving  Credit Agreement  (the  "FAC Agreement").   The
  FAC Agreement provides for revolving loans  of up to $35.0
  million,  including up  to  $1.0  million for  letters  of
  credit.  The  revolving loans  mature on January  1, 1999,
  if not  extended in accordance  with the terms  of the FAC
  Agreement, with  Fairfield being  a guarantor  pursuant to
  the  FAC  Agreement.    At  December  31,  1996,  FAC  had
  borrowing availability of $19.1 million.

  FINANCIAL CONDITION

       Total consolidated  assets of  the Company  increased
  $38.3  million from  December  31,  1995 to  December  31,
  1996.  This increase  is primarily attributable to  (i) an
  increase in net loans receivable  of $12.4 million related
  to originations  of loans  receivable exceeding  principal
  collections, (ii) an  increase in net deferred  tax assets
  of $11.6  million attributable to  the elimination of  the
  remaining valuation allowance  related thereto (see Note 8
  of  "Notes  to  Consolidated  Financial  Statements")  and
  (iii)  a  $6.2  million  increase   in  net  property  and
  equipment  related primarily  to  the construction  of the
  Company's   corporate   office.      Total    consolidated
  liabilities  of the  Company  decreased  $14.8 million  in
  1996 due  to a  net reduction  in the Company's  financing
  arrangements of $28.9 million  which was partially  offset
  by  (i)  a $6.0  million  increase in  net  liabilities of
  assets held for sale and  (ii) a $4.1 million  increase in
  accounts payable related to increased sales volumes. 

       Total   stockholders'   equity  increased   by  $53.1
  million from December 31, 1995  to December 31, 1996.   In
  addition  to current year  net earnings  of $14.9 million,
  the  increase   in  stockholders    equity  is   primarily
  attributable   to  the   utilization  of  pre-confirmation
  income tax attributes  totaling $19.1 million and  the net
  proceeds  from the  Offering totaling  $17.7  million (see
  Notes   8  and  9  of  "Notes  to  Consolidated  Financial
  Statements"). 

  SEASONALITY

       The Company has historically experienced and  expects
  to  continue to  experience seasonal  fluctuations  in its
  gross revenues and  net earnings  from the  sale of  VOIs,
  which have been generally  higher in the second  and third
  quarters.     This  seasonality   may  cause   significant
  fluctuations  in the  quarterly operating  results of  the
  Company.   In addition,  additional material  fluctuations
  in  operating results  may  occur  due  to the  timing  of
  construction  of future  VOI inventory  and  the Company's
  use of the  percentage of completion method  of accounting
  for   recognizing   revenues  and   related   expenses  on <PAGE>
 
  incomplete buildings.

  IMPACT OF INFLATION

       Inflation  and  changing  prices   have  not  had   a
  material   impact  on  the   Company's  revenues  and  net
  earnings during  any of  the Company's  three most  recent
  years.   Due to the  current economic climate, the Company
  does not  expect that inflation  and changing prices  will
  have a  material impact on the  Company's revenues  or net
  earnings.    To  the  extent  inflationary  trends  affect
  short-term  interest  rates, a  portion  of  the Company's
  debt service  costs may be  affected as well  as the rates
  the Company charges on  its contracts receivable.   To the
  extent  permitted   by  competition,  the  Company  passes
  increased  costs on  to  its customers  through  increased
  sales prices.   <PAGE>
 

  FORWARD-LOOKING INFORMATION

       This Management's Discussion and Analysis of Financial
Condition and Results of Operations, other future filings by the 
Company with the Securities and Exchange Commission and other 
 oral and written statements by the Company and its management
 may include certain forward-looking statements, including
 (without limitation) statements with respect to anticipated
 future operating and financial performance, growth opportunities
 and growth rates, acquisition opportunities and other similar
 forecasts and statements of expectation.  Words such as "expects,"
 "anticipates," "intends," "plans," "believes," "seeks," "estimates,"
 and "should," and variations of these words and similar expressions,
 are intended to identify these forward-looking statements.
 Forward-looking statements made by the Company and its management
 are based on estimates, projections, beliefs and assumptions of
 management at the time of such statements and are not guarantees
 of future performance.  The Company disclaims any obligation to 
 update or revise any forward-looking statement based on the 
 occurence of future events, the receipt of new information, 
 or otherwise.

     Actual future performance, outcomes and results may differ
 materially from those expressed in forward-looking statements
 made by the Company and its management as a result of a number
 of risks, uncertainties and assumptions.  Representative 
 examples of these factors include (without
 limitation) general industry and economic conditions; interest 
 rate trends; cost of capital and capital requirements; 
 availability of real estate properties; competition from
 national hospitality companies; shifts in customer demand;
 changes in operating expenses, including employee wages, 
 benefits and training; governmental and public policy changes 
 and the continued availability of financing in the amounts, 
 at the terms and on the conditions necessary to support the 
 Company's future business. 

       REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS




  Stockholders and Board of Directors
  Fairfield Communities, Inc.


       We   have   audited  the   accompanying  consolidated
  balance  sheets   of  Fairfield   Communities,  Inc.   and
  subsidiaries as  of December  31, 1996  and 1995, and  the
  related    consolidated     statements    of     earnings,
  stockholders' equity and cash flows for each of the  three
  years  in  the period  ended  December  31,  1996.   These
  financial  statements  are   the  responsibility  of   the
  Company's management.   Our  responsibility is to  express
  an  opinion on  these financial  statements  based on  our
  audits.

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

       In   our   opinion,   the   consolidated    financial
  statements  referred  to  above  present  fairly,  in  all
  material respects, the consolidated financial position  of
  Fairfield Communities, Inc.  and subsidiaries at  December
  31, 1996 and 1995, and  the consolidated results of  their
  operations  and their  cash flows  for each  of the  three
  years  in   the  period  ended   December  31,  1996,   in
  conformity with generally accepted accounting principles.



  
                      ERNST & YOUNG LLP


  Little Rock, Arkansas
  January 29, 1997,
  except for Note 11, as to which the date is 
  February 28, 1997  <PAGE>
 



         FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
                  CONSOLIDATED BALANCE SHEETS
           (DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)

<TABLE>
                                          
                                                        December 31,
                                                      1996        1995 
                                                      ----        ----        
          <S>                                       <C>        <C>
          ASSETS
          Cash and cash equivalents                 $  7,008   $  2,095        
          Loans receivable, net                      152,069    139,674        
          Real estate inventories                     42,284     40,552        
          Restricted cash and escrow accounts          7,777      8,194        
          Property and equipment, net                 14,527      8,311        
          Deferred tax assets, net                    16,576      5,006        
          Other assets                                13,558     11,686        
                                                    --------   --------
                                                    $253,799   $215,518        
                                                    ========   ========
          LIABILITIES AND STOCKHOLDERS' EQUITY 
          Liabilities:
            Financing arrangements                  $ 58,110   $ 86,982        
            Deferred revenue                          20,332     19,791        
            Accounts payable                           7,171      3,074        
            Net liabilities of assets held for sale    8,293      2,267        
            Other liabilities                         25,594     22,177
                                                    --------   --------        
                                                     119,500    134,291        
                                                    --------   --------
          Stockholders' Equity:   
            Common stock, $.01 par value,
              25,000,000 shares authorized, 
              13,384,741 shares issued in 1996 
              and 12,325,848 in 1995                     134       124     
            Paid-in capital                           91,879    52,386     
            Retained earnings                         43,580    28,717     
            Unamortized value of restricted stock     (1,294)      -    
            Treasury stock, at cost, 2,335,295 
             shares in 1996 and 2,395,295 
             shares in 1995                              -         -  
                                                    --------  --------         
                                                     134,299    81,227
                                                    --------  --------
                                                    $253,799  $215,518
                                                    ========  ========
</TABLE>

          See notes to consolidated financial statements. <PAGE>
 


                 FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF EARNINGS
               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                                          
<TABLE>
                                             Year Ended December 31,
                                       ----------------------------------       
                                        1996         1995           1994
                                        ----         ----           ----
  <S>                                <C>           <C>            <C> 
  REVENUES
    Vacation ownership, net          $114,592      $ 85,460       $ 53,085 
    Lots, net                           8,735         7,817          7,981 
    Resort management                  14,644        13,178         10,206 
    Interest                           19,994        19,111         20,366 
    Other                              14,513        15,209         13,709 
    Gain on sale of First Federal, net    -             -            5,200
                                     --------      --------       -------- 
                                      172,478       140,775        110,547 
                                     --------      --------       --------
  EXPENSES
    Cost of sales:
      Vacation ownership               29,249        23,838         14,958 
      Lots                              2,068         1,970          1,855 
    Provision for loan losses           5,390         6,505          4,430 
    Selling                            63,243        50,738         31,176 
    Resort management                  12,593        11,730          8,784 
    General and administrative         15,223        11,844         10,456 
    Interest                            6,757         8,562         10,528 
    Other                              13,461        12,550         13,213 
                                     --------      --------       -------- 
                                      147,984       127,737         95,400 
                                     --------      --------       --------
  Earnings before provision 
   for income taxes                    24,494        13,038         15,147 
  Provision for income taxes            9,631         5,009          2,878
                                     --------      --------       -------- 
  Net earnings                       $ 14,863      $  8,029       $ 12,269
                                     ========      ========       ======== 
  NET EARNINGS PER SHARE                $1.30          $.72          $1.11 
                                        =====          ====          =====
WEIGHTED AVERAGE SHARES 
  OUTSTANDING                      11,405,015    11,079,789     11,069,267 
                                   ==========    ==========     ==========  
</TABLE>


         See notes to consolidated financial statements.

                    FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                               (IN THOUSANDS)  

<TABLE>
                                                           Unamortized 
                                                             value of    
                                Common  Paid-in   Retained  Restricted  
                                 Stock  Capital   Earnings    Stock    Total    
                                 -----  -------   --------    -----    -----
<S>                              <C>    <C>       <C>        <C>    <C> 
Balance, January 1, 1994         $ 124  $38,605   $ 8,419    $  -   $ 47,148   
 Net earnings                      -        -      12,269       -     12,269   
Utilization of pre-confirmation
 income tax attributes             -      7,518       -         -      7,518
                                 -----  -------   -------    ------ --------    
Balance, December 31, 1994         124   46,123    20,688       -     66,935   
 Net earnings                      -        -       8,029       -      8,029   
 Utilization of pre-confirmation
 income tax attributes             -      6,263       -         -      6,263   
                                 -----  -------   -------    ------ --------
Balance, December 31, 1995         124   52,386    28,717       -     81,227   
 Net earnings                      -        -      14,863       -     14,863   
 Utilization of pre-confirmation
  income tax attributes            -     19,108       -         -     19,108   
 Net proceeds of stock offering      9   17,728       -         -     17,737   
 Issuance of restricted stock      -      1,380       -      (1,380)     -      
 Amortization of unearned
  compensation - restricted stock  -        -         -          86       86   
 Exercise of stock warrants          1      476       -         -        477   
 Tax benefit from exercise
  of stock warrants                -        801       -         -        801
                                 -----  -------   -------   -------  -------    
Balance, December 31, 1996       $ 134  $91,879   $43,580   $(1,294)$134,299 
                                 =====  =======   =======   ======= ========  
</TABLE>

See notes to consolidated financial statements.

                    FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (IN THOUSANDS)
<TABLE>
                                                                         
                                              Year Ended December 31,           
                                       -----------------------------------
                                        1996            1995          1994
                                        ----            ----          ----
<S>                                  <C>              <C>           <C>
OPERATING ACTIVITIES:
  Net earnings                       $  14,863        $  8,029      $ 12,269
  Adjustments to reconcile 
   net earnings to net cash provided 
   by operating activities: 
    Depreciation                         2,164           1,435           923
    Amortization                         1,007             696           336
    Provision for loan losses            5,390           6,505         4,430
    Utilization of pre-confirmation 
     income tax attributes              19,108           6,263         7,518
    Earnings from unconsolidated 
     affiliates                            (88)         (1,588)       (1,236)
    Tax benefit from exercise 
     of stock warrants                     801             -             -   
    Gain on sale of First Federal          -               -          (5,200)
 Changes in operating assets and liabilities:
   Real estate inventories              (1,343)         (8,645)          220
   Other                                (5,186)         (4,041)       (6,333)
                                      --------         -------      --------
   Net cash provided by operating 
    activities                          36,716           8,654        12,927
                                      --------         -------      -------- 
INVESTING ACTIVITIES:
  Purchases of property and 
   equipment, net                       (8,306)         (3,384)         (572)
  Principal collections on 
   loans receivable                     84,888          73,943        73,189
  Originations of loans receivable    (100,535)        (79,461)      (51,877)
  Cash distributions from 
   unconsolidated affiliates               882           1,588         1,236
  Net investment activities of net 
   liabilities of assets held for sale   1,509           9,375        (9,563)
  Net cash used on sale of First Federal   -               -         (17,666)
                                      --------        --------      --------   
  Net cash (used in) provided 
   by investing activities             (21,562)          2,061        (5,253)
                                      --------        --------      -------- 
FINANCING ACTIVITIES:
  Proceeds from financing 
   arrangements                        294,012         226,870       219,744
  Repayments of financing 
   arrangements                       (322,884)       (251,831)     (220,627)
  Net proceeds of stock offering        17,737             -             -   
  Exercise of stock warrants               477             -             -   
  Net decrease in restricted
   cash and escrow accounts                417           2,700         2,375
                                     ---------       ---------     ---------
   Net cash (used in) provided 
    by financing activities            (10,241)        (22,261)        1,492
                                     ---------       ---------     ---------
Net increase (decrease) in cash 
 and cash equivalents                    4,913         (11,546)        9,166
Cash and cash equivalents, 
 beginning of year                       2,095          13,641         4,475
                                     ---------       ---------     --------- 
Cash and cash equivalents, 
 end of year                         $   7,008       $   2,095     $  13,641 
                                     =========       =========     =========   
</TABLE>


See notes to consolidated financial statements.

                   FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1996

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------   -----------------------------------------------------------
Organization
-----------
      Fairfield  Communities,   Inc.   ("Fairfield"  and   together  with   its
subsidiaries,  the "Company") is the largest vacation ownership company in the
United States in terms of property owners and vacation units constructed.  The
Company's 15 resorts are located in 11 states; five resorts are in destination
areas  with popular vacation attractions and 10 regional resorts are in scenic
locations.

      The  Company's primary business  is selling  vacation ownership interests
("VOIs"),  commonly  known as  timeshares,  primarily  through its  innovative
points-based  vacation  system,  Fairshare  Plus.    The Company  also  offers
financing for VOI  purchasers through its  wholly owned subsidiary,  Fairfield
Acceptance Corporation ("FAC"), which results in the creation of high-quality,
medium-term  contracts receivable  with attractive  yields.   FAC holds  these
contracts in  its portfolio and, in  the recent past, has  begun to securitize
its contracts receivable in an effort to lower the costs of borrowed funds and
maintain borrowing availability under its credit facilities. 

Principles of Consolidation
---------------------------

      The consolidated financial  statements include the accounts of  Fairfield
and  its wholly owned subsidiaries.  All significant intercompany balances and
transactions  have been eliminated in  consolidation.  Certain  amounts in the
consolidated financial  statements of  prior years  have been  reclassified to
conform to the 1996 presentation.  

Use of Estimates
----------------

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

Cash and Cash Equivalents
-------------------------

      The Company  considers all highly liquid  investments with  a maturity of
three months or less when purchased to be cash equivalents.

Property and Equipment
----------------------

      Property and equipment are recorded  at cost and depreciated primarily by
the straight-line method based  on the estimated useful  lives of the  assets,
ranging generally from 10 to  25 years for  buildings and  from two to  seven <PAGE>
 
years for machinery, fixtures  and equipment.  Additions and  improvements are
capitalized while maintenance and repairs are expensed as incurred.  Asset and
accumulated depreciation accounts are relieved for dispositions with resulting
gains or losses reflected in operations.  

Real Estate Inventories
-----------------------

     Real estate  inventories are valued at the lower of cost or estimated net
realizable value.  Costs include land, land improvements, capitalized interest
and a portion of the costs of amenities constructed for the use and benefit of
property owners.  

      Land and improvement costs are  allocated for the purpose of accumulating
costs to match with related sales revenues.  The Company allocates acquisition
and carrying  costs  to these  areas on  the acreage  or the  value basis,  as
appropriate.    Improvement  costs  in  each  project  are  allocated  to  the
appropriate areas on a  specific identification basis.  Certain  amenity costs
are allocated on an acreage or benefit basis, as appropriate.

      Unexpended  costs for  committed improvements  to  areas from  which lots
have been  sold are calculated using  the Company's projections of  the timing
and  cost  of work  to  be  completed, including  an  inflation  factor.   The
projections  are reviewed and refined periodically based on work completed and
current plans for development.  The effect of these revised  cost estimates is
recognized prospectively.

Allowance for Loan Losses
-------------------------
      Contracts
      ---------
      The  Company's   contracts   receivable   are   regionally   diversified.
Generally, VOIs and lots  are sold under installment contracts requiring a 15%
down payment and monthly  installments, including interest, for periods  of up
to seven years.  The Company provides for losses on contracts receivable  by a
charge against earnings at  the time of sale  at a rate based upon  historical
cancellation experience and management's estimate of future losses.  

      When a contract  is cancelled in  a year subsequent to the  year in which
the underlying sale  was recorded, the  outstanding balance, less  recoverable
costs,  is charged  to the  allowance for  loan losses.   When  a contract  is
cancelled in the same year as the related sale, all entries applicable  to the
sale  are  reversed  and  nonrecoverable  selling   expenses  are  charged  to
operations.    For  financial  statement purposes,  contracts  receivable  are
considered delinquent and fully reserved if a payment remains unpaid under the
following conditions:
                          Percent of Contract      Delinquency
                              Price Paid             Period  
                          -------------------      -----------
                          Less than 25%               90 days
                          25% but less than 50%      120 days 
                          50% and over               150 days

     Mortgages
     ---------
     The Company's  mortgages receivable consist of  a small  number of  non- <PAGE>
 
homogeneous  loans  collateralized  primarily by  real  estate  geographically
dispersed throughout the country.   The allowance for mortgages  receivable is
maintained at  a level  believed adequate  by management  based on a  periodic
evaluation  of  each  mortgage receivable.    Management's  evaluation of  the
adequacy  of this allowance  is based on past  loss experience, known inherent
risks  in the  portfolio, adverse  situations that  may affect  the borrower's
ability  to repay  (including the  timing of  future payments),  the estimated
value of  any underlying  collateral, composition  of the  mortgage receivable
portfolio, current  economic  conditions and  other  relevant factors.    This
evaluation  is  inherently  subjective   as  it  requires  material  estimates
including the amounts and timing of future cash flows.

Revenue and Profit Recognition
------------------------------
     Vacation Ownership Interests
     ---------------------------
     VOIs consist of either undivided  fee simple interests or specified fixed
week interval ownership   in fully furnished  vacation homes.  VOI  revenue is
recognized  when  a 10%  minimum down  payment  (including interest)  has been
received.  Revenue relating to sales of VOIs in projects under construction is
recognized using the percentage of completion  method.  Under this method, the
portion  of  revenues  applicable to  costs  incurred,  as  compared to  total
estimated construction and selling costs, is recognized in the period of sale.
The remaining revenue is  deferred and recognized  as the remaining costs  are
incurred.

     Deposits and Deferred Selling Costs
     -----------------------------------
     Until  a  contract  for  sale  qualifies  for  revenue  recognition,  all
payments  received are  accounted  for as  deposits.   Commissions  and  other
selling costs,  directly attributable to the sale, are deferred until the sale
is  recorded.   If  a  contract  is cancelled  before  qualifying  as a  sale,
nonrecoverable selling expenses are charged to expense  and deposits forfeited
are credited to income.

Earnings Per Share
------------------

     Earnings per  share is computed based  on the  estimated weighted average
number of common shares and common equivalent shares deemed to be outstanding.
Such shares include those shares  issued as authorized by the Company's  plans
of reorganization  plus the additional shares estimated  to be issued based on
the  resolution of the remaining allowed claims  (see Note 9).  This aggregate
number of shares has been reduced by the shares held in treasury.  

     In  prior years,  the calculation  of  fully  diluted earnings  per share
included certain contingent  shares associated  with the FCI  Notes (see  Note
11).  At December 31, 1996, management determined that it was more likely than
not that the contingent shares would not be issued and, therefore, such shares
were excluded from  the fully diluted earnings  per share calculation.   After
restatement,  the dilutive  effect of  common stock  equivalents on  the fully
diluted earnings per share calculations in both the current and prior years is
not  significant  and, therefore,  fully diluted  earnings  per share  are not
presented.

Income Taxes
------------

     The Company provides  for income taxes  in accordance  with Statement of <PAGE>
 
Financial Accounting  Standards  ("SFAS")  No.  109,  "Accounting  for  Income
Taxes."  Under SFAS No. 109, deferred tax assets or liabilities are determined
based  on the  difference between  the  financial reporting  and tax  basis of
assets and liabilities and  enacted tax rates that  will be in effect  for the
year in which the  differences are expected to  reverse.  Additionally,  under
SFAS  No. 109,  a valuation  allowance must  be established  for deferred  tax
assets if, based on available evidence, it is "more likely  than not" that all
or a portion of the deferred tax assets will not be realized.

     In connection with the Company's  1992 reorganization under Chapter 11 of
the  Bankruptcy  Code,  the Company  implemented,  as  of June  30,  1992, the
provisions  of  the  American   Institute  of  Certified  Public  Accountants' 
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("Fresh Start Reporting").  Fresh  Start Reporting
requires the  Company to report  federal income tax  expense on income  before
utilization  of   pre-confirmation  net  operating   loss  carryforwards   and
recognition   of  the   benefit  of   pre-confirmation  deductible   temporary
differences.  Benefits realized  from the utilization of  pre-confirmation net
operating loss carryforwards  and recognition  of pre-confirmation  deductible
temporary  differences are recorded  as reductions of  the valuation allowance
and as additions to paid-in capital.

Stock-Based Compensation
------------------------

     In accordance  with  the provisions  of  SFAS  No. 123, "Accounting  for
Stock-Based Compensation,"  companies can  elect  to account  for  stock-based
compensation  plans  using a  fair value  based  method or  continue measuring
compensation expense using the intrinsic value method prescribed in Accounting
Principles  Board  Opinion ("APB")  No. 25, "Accounting  for Stock  Issued to
Employees."   The Company  has elected to continue  to account for stock-based
compensation using  the intrinsic value  method and, accordingly,  the Company
will recognize no compensation expense for stock warrant grants (see Note 12).

NOTE 2 - LOANS RECEIVABLE
------   ----------------

      Loans receivable consisted of the following (In thousands):
<TABLE>
                                                                          
                                                 December 31,
                                             1996            1995
                                             ----            ----
<S>                                        <C>             <C>
Contracts                                  $154,906        $140,810
Mortgages                                    11,413          13,064
                                           --------        --------
                                            166,319         153,874
Less allowance for loan losses              (14,250)        (14,200)
                                           --------        --------
                                           $152,069        $139,674
                                           ========        ========
</TABLE>

     The weighted average  stated interest  rates on  the Company's  contracts
receivable were  13.6% and 13.2% at December  31, 1996 and 1995, respectively,
with  interest rates  on these  receivables ranging  generally from  11.75% to
16.0%.   Contractual maturities  of these  receivables within the  next five <PAGE>
 
years are  as follows:   1997 - $33.8  million; 1998 -  $26.2 million;  1999 -
$23.7 million, 2000 - $22.7 million  and 2001 - $21.6 million.   The Company's
contracts receivable  were 98.7% and  99.0% current  on a 60-day  basis as  of
December  31,  1996  and 1995,  respectively.    Amounts  charged against  the
allowance  for loan losses,  net of recoveries, totaled  $4.1 million and $3.6
million during 1996 and 1995, respectively.  

NOTE 3 - VACATION OWNERSHIP REVENUES
------   ---------------------------

      Vacation ownership revenues are summarized as follows (In thousands):
<TABLE>
                                            Year Ended December 31,
                                         -----------------------------        
                                          1996       1995        1994
                                          ----       ----        ----
<S>                                     <C>         <C>         <C>
Vacation ownership revenues             $116,101    $86,188     $52,904
  Less:  Deferred revenue on 
          current year sales, net         (4,157)    (2,648)     (1,920)
  Add:   Revenue recognized on 
          prior year sales                 2,648      1,920       2,101
                                        --------    -------     -------
                                        $114,592    $85,460     $53,085
                                        ========    =======     =======
</TABLE>
NOTE 4 - REAL ESTATE INVENTORIES
------   -----------------------

      Real estate inventories are summarized as follows (In thousands):
<TABLE>
                                                December 31,     
                                             1996         1995
                                             ----         ---- 
<S>                                        <C>          <C>
Land:
  Under development                        $16,196      $17,377  
  Undeveloped                                5,515        7,288  
                                           -------      -------
                                            21,711       24,665  
                                           -------      -------
Residential housing:      
  Vacation ownership                        16,765       13,247 
  Homes                                      3,808        2,640
                                           -------      ------- 
                                            20,573       15,887
                                           -------      ------- 
                                           $42,284      $40,552 
                                           =======      =======
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
------   ----------------------

     Property and equipment is summarized as follows (In thousands):
<TABLE>
                                                  December 31,                 
                                               1996         1995    
                                               ----         ----
<S>                                          <C>          <C> 
Land, buildings and improvements:
  Administration                             $14,087      $ 7,841         
  Lodging and other                            4,201        4,345          
Furniture, fixtures and equipment              6,231        5,220
                                             -------      -------          
                                              24,519       17,406          
Accumulated depreciation                      (9,992)      (9,095)       
                                             -------      -------           
                                             $14,527      $ 8,311         
                                             =======      =======           
</TABLE>

     The Company has operating leases  which consist primarily of (i) buildings
and  office space used  at its sites  for sales and  administrative offices and
(ii) telephone and  office equipment.   Rental expense  under operating  leases
totaled $2.6  million, $2.1 million and  $1.9 million for 1996,  1995 and 1994,
respectively.    The  future   minimum  lease  commitments  for  non-cancelable
operating leases with initial  or remaining terms in excess of  one year are as
follows: 1997 - $1.7 million; 1998 - $1.3 million; 1999 - $1.2 million;  2000 -
$.7 million and 2001 - $.2 million.

NOTE 6 - FINANCING ARRANGEMENTS
------   ----------------------             

     Financing arrangements are summarized as follows (In thousands):
<TABLE>
                                                          
                                               December 31,   
                                           1996           1995 
                                           ----           ----
<S>                                      <C>            <C> 
Notes payable collateralized by 
 contracts receivable:
   FCC Notes                             $29,944        $14,200
   FFC Notes                              24,370         47,026
Notes payable - other                      3,796         12,919            
Revolving credit agreements                  -           12,837
                                         -------        -------
                                         $58,110        $86,982
                                         =======        =======
</TABLE>

     Notes Payable Collateralized by Contracts Receivable
     ----------------------------------------------------
 
     In  October 1996,  Fairfield  Capital  Corporation ("FCC"),  a  wholly
owned  subsidiary of FAC, amended its Credit Agreement (the "FCC Agreement")
which provides for total borrowings of up to $90.0 million (the "FCC Notes")
for the  purchase of contracts receivable  from FAC pursuant to  the Amended
and Restated Receivables Purchase  Agreement, among Fairfield as originator,
FAC  as  seller and  FCC as  purchaser.   At  December 31,  1996, borrowings
outstanding  under the  FCC  Agreement  totaled  $29.9  million.    The  FCC
Agreement provides  for two additional  fundings of up  to a total  of $55.0
million prior  to October 1997.   Borrowings under the FCC  Agreement mature
principally within 84  months and bear interest  at varying rates, based  on
commercial paper  rates, subject to  an interest rate  cap of  9.2%.  As  of
December 31, 1996, the weighted  average interest rate on the FCC  Notes was
6.0%,  including fees  totaling  .375%.   At  December 31,  1996,  contracts
receivable totaling $41.1 million collateralized the FCC Notes. <PAGE>
 

    FCC  is a wholly owned  but separate corporate  entity of  FAC with its
own  separate  creditors.   In  the  event of  a  liquidation  of FCC,  such
creditors would  be entitled to satisfy  their claims from FCC  prior to any
distribution to FAC.

    At December  31, 1996, Fairfield  Funding Corporation ("FFC"), a wholly
owned subsidiary  of FAC, had borrowings outstanding  totaling $24.4 million
under  a private placement of 7.6%  Notes (the "FFC Notes").   The FFC Notes
are secured  by and payable  from a  pool of contracts  receivable purchased
from FAC pursuant to  the Receivables Purchase Agreement among  Fairfield as
originator,  FAC as  seller and  FFC as  purchaser.   At December  31, 1996,
contracts receivable totaling $38.0 million collateralized the FFC Notes. 

    At December 31, 1996 and 1995,  restricted cash accounts totaling  $2.6
million  and $3.0 million, respectively,  were required to  be maintained in
accordance with the terms  of the FCC  Notes and FFC  Notes.  Maturities  of
notes  payable collateralized by  contracts receivable within  the next five
years  are as follows:  1997 - $14.3  million; 1998 -  $11.3 million; 1999 -
$9.0 million; 2000 - $7.8 million and 2001 - $6.5 million.

     Revolving Credit Agreements
     ---------------------------

     At December  31, 1996, Fairfield  had no  borrowings outstanding  under
its Amended and  Restated Revolving Credit Agreement  (the "FCI Agreement").
The FCI  Agreement provides  for revolving  loans of  up  to $25.0  million,
including up  to $7.0 million for  letters of credit.   Borrowings under the
FCI Agreement bear interest at the  lender s base rate plus .875% (9.125% at
December 31, 1996) and are collateralized primarily by contracts receivable,
which had a  book value  of $44.1  million at December  31, 1996.   The  FCI
Agreement also  provides for an  annual facility fee  of .625% of  the total
commitment.   The revolving loans mature on January 1, 1999, if not extended
in accordance with the  terms of the FCI  Agreement.  At December  31, 1996,
Fairfield had  borrowing availability of  $23.3 million, net  of outstanding
letters of credit totaling $1.7 million.

     At  December 31,  1996, FAC  had  no  borrowings outstanding  under its
Third Amended and Restated Revolving Credit Agreement (the "FAC Agreement").
The  FAC Agreement  provides for  revolving loans  of up  to $35.0  million,
including up  to $1.0 million for  letters of credit.   Borrowings under the
FAC Agreement bear  interest at the  lender's base rate  plus .25% (8.5%  at
December 31, 1996) and are collateralized primarily by contracts receivable,
which  had a book  value of  $25.4 million  at December 31,  1996.   The FAC
Agreement  also provides  for an  annual facility  fee of  .5% of  the total
commitment.  The revolving loans mature  on January 1, 1999, if not extended
in accordance  with the terms of  the FAC Agreement, with  Fairfield being a
guarantor  pursuant to  the FAC Agreement.   At  December 31,  1996, FAC had
borrowing availability of $19.1 million.  

NOTE 7 - DEFERRED REVENUE - ESTIMATED COSTS TO DEVELOP LAND SOLD
------   -------------------------------------------------------

     At December  31, 1996, estimated cost  to complete  development work in
subdivisions  from which  lots had  been  sold totaled  $15.7 million.   The
estimated costs  to complete development work within the next five years are
as  follows:  1997 -  $.8 million; 1998  - $.5 million; 1999  - $.6 million;
2000 - $.4 million and 2001 - $.5 million. <PAGE>
 

NOTE 8 - INCOME TAXES
------   ------------

     At December 31, 1996, the  Company had net operating loss carryforwards
totaling  $72.6 million which reflect the amount available to offset taxable
income  in future periods.   The Company s net  operating loss carryforwards
increase primarily from the use of the installment sale  method of reporting
income  and are   substantially  offset  by  an  increase  in  deferred  tax
liabilities.  Under limitations imposed by Internal Revenue Code Section 382
("Section  382"),  certain potential  changes in  ownership of  the Company,
which may be outside the Company's knowledge or control, may restrict future
utilization of these carryforwards.  More specifically, changes in ownership
occurring within  a rolling  three-year  period, taking  into  consideration
filings with the Securities and Exchange Commission on Schedules 13D and 13G
by holders  of 5% or more of Fairfield's Common Stock, whether involving the
acquisition  or  disposition  of  Fairfield's  Common  Stock,  may  impose a
material limitation on  the Company's  use of  these carryforwards.   If  an
ownership change triggers the Section 382 limitations, the annual limitation
imposed  on the  use of  pre-change  carryforwards under  present law  is an
amount equal  to the value of  the Company immediately  before the ownership
change  multiplied by the federally prescribed long-term tax-exempt rate for
the  period in  which  the  change occurs.    Available  carryovers, if  not
utilized, expire as follows: 2005 - $12.6 million; 2006 - $7.8 million; 2007
-  $13.9 million; 2008  - $5.4  million; 2009 -  $3.3 million;  2010 - $16.1
million and 2011 - $13.5 million.

     Components  of  the provision  for  income  taxes  are  as follows  (In
thousands):
<TABLE>
                                            Year Ended December 31,  
                                        -----------------------------       
                                         1996        1995        1994
                                         ----        ----        ---- 
<S>                                   <C>           <C>         <C>
Current:
  Federal                             $   254       $   290     $  -      
  State                                   426           543        257 
                                      -------       -------     ------         
                                          680           833        257          
                                      -------       -------     ------
Deferred:
  Federal                               7,878         3,880      2,422        
  State                                 1,073           296        199         
                                       ------        ------     ------
                                        8,951         4,176      2,621 
                                       ------        ------     ------
                                       $9,631        $5,009     $2,878         
                                       ======        ======     ====== 
Utilization of pre-confirmation
 income tax attributes                $19,108        $6,263     $7,518
                                      =======        ======     ======
</TABLE>
          
    Components  of the  variance between  taxes  computed at  the  expected
federal statutory  income tax rate and the provision for income taxes are as
follows (In thousands):

<TABLE>
                                            Year Ended December 31,
                                        ------------------------------         
                                         1996        1995         1994
                                         ----        ----         ---- 
<S>                                    <C>          <C>         <C>
Statutory tax provision                $8,573       $4,563      $ 5,150  
State income taxes, net of
 federal benefit                          974          545          301  
Gain on sale of First Federal             -            -         (2,277)  
Other                                      84          (99)        (296)   
                                       ------       ------       ------
Provision for income taxes             $9,631       $5,009      $ 2,878
                                       ======       ======      ======= 
</TABLE>

     Significant components of the  Company's deferred tax  assets (deductible
temporary  differences)  and  deferred  tax  liabilities   (taxable  temporary
differences) consisted of the following (In thousands):

<TABLE>
                                                 December 31,
                                              1996          1995 
                                              ----          ----
<S>                                         <C>           <C>
Deferred tax assets:
  Net operating loss carryforwards          $29,146       $ 11,499
  Loan and cancellation loss reserves         5,603          5,456
  Tax over book basis in inventory 
   and fixed assets                           3,369          3,267
  Deferred revenue                            2,655          2,428
  Credit carryforwards                        1,459          2,172
  Other                                       3,190          1,806
                                            -------       --------
                                             45,422         26,628
 Valuation allowance                            -          (20,415)
                                            -------       --------
                                             45,422          6,213
                                            -------       --------
Deferred tax liabilities:
  Installment sales                          27,531            -   
  Other                                       1,315          1,207
                                            -------       -------- 
                                             28,846          1,207
                                            -------       -------- 
Net deferred tax assets                     $16,576       $  5,006
                                            =======       ========
</TABLE>

     The Company has reported operating earnings  since the effective date  of
the plans of  reorganization and management  believes that it  is more  likely
than not  that future taxable earnings  will be sufficient to  realize the tax
benefits  associated with the future deductible  temporary differences and net
operating loss carryforwards prior to their expiration; therefore, the Company
eliminated the remaining valuation allowance in 1996.

NOTE 9 - STOCKHOLDERS' EQUITY
------   --------------------

     The  Company is  authorized to issue  25,000,000 shares  of Common Stock,
par  value  $.01 per  share.    In November  1996,  the  Company completed  an
underwritten public offering of 900,000 shares  of Common Stock at a price of
$21.63 per  share (the "Offering").   The  net proceeds from  the Offering  of
$17.7  million were used to repay certain indebtedness, totaling $9.1 million,
issued  in connection with the Company s reorganization and to temporarily pay
down  the  outstanding  indebtedness  under  the  Company's  revolving  credit
agreements,  with the remaining balance of $3.8 million invested in short-term
investment grade securities (see also Note 11).   If the Offering and the use <PAGE>
 
of the proceeds therefrom had taken place on January 1, 1996, net earnings per
share would have been $1.23 for the year ended December 31, 1996.  

     As  of December 31,  1996, the  Company has  issued 13,384,741  shares of
Common Stock,  of which 2,335,295 were  held in treasury.   In accordance with
the  plans  of reorganization,  the Company  will  issue additional  shares as
certain remaining unsecured claims are resolved.  The ultimate amount of these
claims and the  timing of the resolution  of the claims is  largely within the
control of the Bankruptcy  Court.  However, based upon  available information,
Fairfield  presently estimates  that  an additional  680,420 shares  of Common
Stock will be issued to holders of unsecured resolved claims.  

     In  December 1996,  the Company issued,  from treasury,  60,000 shares of
Common Stock to the Chief Executive Officer subject to restriction and risk of
forfeiture (the "Restricted Stock").   The Restricted  Stock was issued at  no
cost  to  the  Chief Executive  Officer,  in  substitution  for certain  other
compensation  arrangements, and vests as to one-half  of the shares on each of
the first and second anniversaries of  the date of grant.  At issuance  of the
Restricted  Stock, unearned compensation equivalent to the market value at the
date  of grant was charged to stockholders   equity and will be amortized over
the restricted period.

     The Company  is authorized to issue  5,000,000 shares  of preferred stock
par value  $.01 per share. One  million shares of preferred  stock, which have
been designated as  the Series  A Junior Participating  Preferred Stock,  have
been reserved  for possible  issuance in  connection  with Fairfield's  Rights
Agreement as  discussed below.   The rights and  preferences of the  remaining
shares of  authorized but  unissued Preferred Stock  are to be  established by
Fairfield's Board of Directors at the time of issuance.

     In 1992,  Fairfield adopted  a Rights  Agreement which  provides for  the
issuance of one right for each outstanding share of Fairfield's  Common Stock.
The rights,  which entitle  the holder  to  purchase from  Fairfield one  one-
hundredth of a  share of Series A Junior Participating  Preferred Stock at $25
per share, become exercisable (i) ten business days after a person becomes the
beneficial  holder of  20% or  more of  Fairfield's Common  Stock or  (ii) ten
business days following the commencement of  a tender or exchange offer for at
least  20% of Fairfield's  Common Stock.   Fairfield may redeem  the rights at
$.01 per right under certain circumstances.  The rights expire on September 1,
2002.

     Certain  of  the Company's  financing  arrangements  contain  restrictive
covenants  relating to the maintenance  of certain financial  ratios and other
financial  requirements.  Under the most restrictive covenants, the Company is
prohibited from paying dividends  or making other distributions on  its Common
Stock.

NOTE 10 - FAIRFIELD ACCEPTANCE CORPORATION
-------   --------------------------------

      Condensed consolidated  financial information  for FAC  is summarized  as
follows (In thousands):

                      CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
                                                 December 31,            
                                           1996               1995
                                           ----               ----
<S>                                      <C>                <C>
ASSETS     
 Cash                                    $    462           $    312       
 Loans receivable, net                     96,760            101,359     
 Restricted cash                            2,622              2,957     
 Due from parent                              -                3,187     
 Other assets                               2,279              1,511
                                         --------           --------     
                                         $102,123           $109,326
                                         ========           ========     
LIABILITIES AND EQUITY
 Financing arrangements                  $ 54,314           $ 70,073     
 Accrued interest and other liabilities       586                688     
 Due to parent                              2,554                -        
 Equity                                    44,669             38,565
                                         --------           --------     
                                         $102,123           $109,326     
                                         ========           ========
</TABLE>

                 CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
                                          Year Ended December 31,   
                                      ------------------------------           
                                       1996        1995        1994
                                       ----        ----        ---- 
<S>                                  <C>         <C>         <C>  
Revenues                             $16,565     $15,009     $13,644
Expenses                               6,649       8,103       8,382
                                     -------     -------     -------
Earnings before provision
 for income taxes                      9,916       6,906       5,262
Provision for income taxes             3,812       2,656       2,015
                                     -------     -------     ------- 
Net earnings                         $ 6,104     $ 4,250     $ 3,247
                                     =======     =======     ======= 
</TABLE>

     In  accordance with the terms of the Third Amended and Restated Operating
Agreement (the "Operating Agreement"),  FAC is permitted to purchase  eligible
receivables from  Fairfield  for a  price  equal to  $.94  per $1.00  of  such
receivables.  Fairfield is  required by the Operating Agreement  to repurchase
defaulted  receivables  from  FAC at  a  price  equal  to  $.94 per  $1.00  or
substitute  an eligible  receivable on  the basis  of $.85  per $1.00  of such
receivables.  During 1996  and 1995, FAC purchased receivables  from Fairfield
with  outstanding  principal balances  of  $42.6  million and  $38.1  million,
respectively.  

NOTE 11 - NET LIABILITIES OF ASSETS HELD FOR SALE
-------   ---------------------------------------

    At December 31,  1996, assets  held for  sale consisted  of those  assets
collateralizing  the  Senior Subordinated  Secured  Notes  (the "FCI  Notes").
These assets included  (i) certain  of the Company's  real estate  inventories
located at its Pointe Alexis development  in Tarpon Springs, Florida, (ii) the
Company's  30% partnership interest in Sugar Island limited partnership in St.
Croix, U.  S. Virgin Islands and (iii)  the Company's 35% partnership interest
in Harbour  Ridge limited  partnership in Stuart,  Florida (collectively,  the
"Collateral" ).   During  the fourth  quarter of  1996, the Company  recorded a
valuation  adjustment  of  $1.0  million based  on  current  information  that
indicated the carrying  value of  the Collateral  was in  excess of  the fair <PAGE>
 
value.  This valuation adjustment is included in "Other expenses" in the 1996
Consolidated Statement of Earnings. 

     In February 1997,  the Company transferred cash  of $7.9 million in cash
and, on the maturity date, further transferred the Collateral with an estimated
fair value of $7.2 million, in settlement of the FCI Notes.  The Company has
been advised that certain holders of the FCI Notes and/or the indenture trustee
may contest the Company's method of satisfying this obligation, be either (a)
disputing the Company's right to transfer the Collateral, seeking instead a cash
payment of $7.2 million, plus interest, or (b) disputing the $7.9 million cash
transfer, seeking instead the issuance of 588,235 shares of the Company's Common
Stock, previously reserved for issuance if a deficiency resulted on the FCI 
Notes at maturity.  Under the indenture for the FCI Notes, the noteholders are
entitled to retain a premium of up to $2.0 million in the event that the 
collateral securing the FCI notes transferred at maturity (including any Common
Stock of the Company) exceeds the amount of the FCI Notes.

     Net liabilities  of assets held for  sale consisted of  the following (In
thousands):
<TABLE>
                                          December 31,
                                        1996        1995     
                                        ----        ----
<S>                                   <C>        <C>
Collateral for FCI Notes              $  6,493   $  8,423   
Other                                      -        4,096
                                      --------   --------   
                                         6,493     12,519
FCI Notes                              (14,786)   (14,786)
                                      --------   --------
                                      $ (8,293)  $ (2,267)
                                      ========   ========
</TABLE>

NOTE 12 - EMPLOYEE BENEFIT PLANS
-------   ----------------------
     Savings/Profit Sharing Plan
     ---------------------------  

     The Savings/Profit  Sharing Plan  (the "Plan")  covers substantially  all
employees with  one year  or more of  credited service,  and participants  are
fully  vested after  seven years  of credited  service.   The Plan  includes a
profit sharing feature, with  annual employer discretionary contributions, and
a 401(k) feature,  which allows  employee elected salary  deferrals, with  the
Company currently matching a portion of such deferrals.  The amount charged to
expense  related  to the  Plan  totaled $1.2  million,  $0.6 million  and $0.7
million for 1996, 1995 and 1994, respectively.  

     Excess Benefit Plan
     -------------------
 
     The Excess Benefit Plan is  a non-qualified, unfunded plan established to
provide  qualifying   employees  with  benefits  to   compensate  for  certain
limitations imposed  by federal law on the amount of compensation which may be
considered in  determining employer  contributions  to participants'  accounts
under  the Savings/Profit  Sharing  Plan.   Participants'  accounts under  the
Excess Benefit Plan are credited  with amounts that, except for the  limits of
the Internal Revenue Code,  would have been contributed to  such participants'
accounts under the Savings/Profit Sharing  Plan.  Participants' accounts under
the  Excess Benefit  Plan vest  in accordance  with  the vesting  schedule for
profit  sharing accounts under the  Savings/Profit Sharing Plan.   Interest is
credited  to the participants' accounts annually.  The expense associated with
the Excess Benefit Plan totaled $0.1 million for each of 1996, 1995 and 1994.

     Retirement Plan
     ---------------

     The Key  Employee  Retirement Plan  (the  "Retirement  Plan") is  a  non-
qualified, unfunded plan  established to provide certain senior  executives of
the  Company   with  retirement   benefits.     Under  the  Retirement   Plan,
participants' accounts are credited on each  January 1 by a percentage of each
participants' preceding  year's  total cash compensation.   In  general,  the  
benefit percentage can range from 0% to 20%, depending on  the Company's three-
year moving average  rate of  return on stockholders'  equity.   Participants'
accounts are  fully vested after seven years of service or upon the occurrence
of  a change in control of the  Company, death of the participant, termination
of employment due to total disability or retirement on or after the age 55, in
each  case   while  employed  by  the  Company.     Interest  is  credited  to
participants' accounts monthly.   The expense  associated with the  Retirement
Plan totaled $0.3 million for each of 1996, 1995 and 1994.

     Warrant Plan
     ------------

     The Company's 1992 Warrant Plan, as  amended, (the "1992 Plan")  provides
for  the grant  of non-qualified  stock warrants to  purchase up  to 1,000,000
shares of Common Stock  at prices not less than the fair  market value of such
shares at the  date of grant. The stock warrants  generally become exercisable
over one to five years  from the date of grant and must  be exercisable within
ten years  from the grant date.   The following table  summarizes the activity
under the 1992 Plan:
<TABLE>
                                                       Weighted Average
                                  Shares                Price Per Share 
                         ------------------------  -------------------------
                         1996      1995     1994     1996     1995      1994
                         ----      ----     ----     ----     ----      ---- 
<S>                    <C>        <C>      <C>      <C>       <C>      <C>     
Outstanding at beginning
 of period              868,000   818,000  800,000  $3.24     $3.06    $3.00
nted                    144,000    58,000   18,000   8.92      6.00     5.50   
Exercised              (153,000)      -        -     3.11      N/A      N/A    
Forfeited               (33,000)   (8,000)     -     3.75      3.94     N/A   
                       --------   -------  -------
Outstanding at end 
of period               826,000   868,000  818,000   4.26      3.24     3.06 
                       ========   =======  =======                       
Exercisable at 
 end of period          490,000   543,000  352,500             
                       ========   =======  ======= 
Reserved for future 
 warrants                21,000   132,000  182,000             
                       ========   =======  =======
</TABLE>

     The  following table  summarizes information  concerning  outstanding and
exercisable stock warrants as of December 31, 1996:

               Options Outstanding                     Options Exercisable
----------------------------------------------------- -----------------------  

                             Weighted
                              Average        Weighted               Weighted
                             Remaining       Average                 Average 
  Range of        Number    Contractual      Exercise   Number      Exercise 
Exercise Prices Outstanding    Life           Price    Exercisable    Price
--------------  -----------    ----           -----    -----------    -----
  $ 3 - $10       805,000    6.9 years       $ 3.77      490,000      $3.18 
  $20 - $30        21,000    9.9 years        22.00          -           -   
                  -------                                -------
                  826,000                                490,000  
                  =======                                =======

    The Company has elected to account for  the stock warrants as  prescribed
by the provisions of APB  No. 25.  Accordingly, because the  exercise price of
the Company s stock warrants equal the market price of the underlying stock at
date of grant, no compensation expense is recognized.  Pro forma  information  
regarding  net earnings and earnings per share  as required by SFAS No. 123 is
not presented as the effect of applying the fair value method to the Company s
stock warrants  results in net  earnings and  earnings per share  that do  not
differ materially from the amounts reported.  

NOTE 13 - SUPPLEMENTAL INFORMATION
-------   ------------------------

     Other revenues in  1996, 1995 and 1994  include home sales  totaling $8.8
million, $6.7 million and  $5.9 million, respectively.  Also included in other
revenues for 1996, 1995 and 1994  are cash distributions totaling $.1 million,
$1.6  million and  $1.2 million,  respectively, related  to the  Company's 35%
partnership  interest in Harbour Ridge, Ltd., a limited partnership engaged in
the development of a tract of land in St. Lucie, Florida.  

     Other  expenses for  1996, 1995  and 1994  include costs  of  home sales,
including selling  expenses,  totaling $8.2  million,  $6.0 million  and  $5.4
million,  respectively.  Interest  paid for 1996, 1995  and 1994 totaled $11.7
million,  $9.3 million  and $20.5 million,  respectively.   Of the  amount for
1994, $9.0 million related to First Federal.

     Included in  other assets  at December  31, 1996  and 1995  are (i)  $2.9
million and $5.1 million, respectively related  to the assets of the Company's
life insurance subsidiary and (ii)  unamortized capitalized financing costs of
$2.3 million and $1.5 million, respectively.  Included in other liabilities at
December 31, 1996  and 1995 are  (i) accruals totaling  $8.9 million and  $4.6
million,  respectively, related  to the  Company's employee benefit  plans and
(ii) $1.5 million and  $2.9 million, respectively, related to  the liabilities
of the Company's life insurance subsidiary. 

     In 1994,  the Company  sold 100%  of the  capital stock of  First Federal
Savings  and Loan Association of Charlotte ("First Federal") for $41.0 million
and recognized a net gain on the sale of $5.2 million.  The gain from the sale
of First Federal was not subject to  federal income tax due to a permanent tax
basis difference in First  Federal's stock and underlying goodwill.   Included
in  Restricted cash and escrow accounts" at December 31, 1996 and 1995 is $2.8
million and  $2.9 million, respectively, representing  certain assets retained
and/or  pledged to  the  buyer  to  securitize  the  Company s  obligation  to
indemnify   the   buyer  against   general   indemnities   and  two   existing
lawsuits/claims which have been  asserted against First Federal. Approximately
$1.5 million of this  amount is scheduled to be released  in March 1997 unless
the buyer asserts a claim for indemnification.  

NOTE 14 - CONTINGENCIES
-------   -------------

     In June  1992, the  Pagosa  Lakes Property  Owners Association ("PLPOA")
filed an adversary proceeding in the Bankruptcy Court for the Eastern District
of  Arkansas, Western  Division (the "Bankruptcy Court")  asserting equitable
ownership or lien interests in certain  recreational amenities, including golf
courses.   In March 1994,  the Bankruptcy Court  issued its decision upholding
Fairfield s ownership  of  the Pagosa  recreational  amenities, subject  to  a
restrictive covenant allowing Pagosa  property owners and their guests  to use
the  recreational  amenities.    The United  States  District  Court,  Eastern
District  of  Arkansas,  Western  Division  ("District  Court")  affirmed  the
Bankruptcy Court's order  in its entirety, by order  dated September 25, 1995.
The PLPOA appealed the District Court s decision to the United States Court of
Appeals  for  the  Eighth Circuit,  which  on  October 2,  1996,  affirmed the
District Court's decision in its entirety and, on November 6, 1996, denied the
PLPOA's petition for rehearing.   The period for the  PLPOA to seek review by  
the  United States  Supreme Court  has  expired making  the Court  of Appeal's
decision final.

    In July  1993  and September  1993,  two  lawsuits (the  "Recreation  Fee
Litigation") were filed by 29  individuals and a company against Fairfield  in
the  District Court  of  Archuleta  County,  Colorado.    The  Recreation  Fee
Litigation, which seeks certification as class actions, alleges that Fairfield
and its predecessors in  interest wrongfully imposed an annual  recreation fee
on owners of lots, condominiums, townhouses, VOIs and single family residences
in Fairfield's Pagosa,  Colorado development.   The amount  of the  recreation
fee, which was adopted in August 1983, is $180 per lot, condominium, townhouse
and single  family residence subject  to the fee and  $360 per unit  for VOIs.
The Recreation Fee Litigation in general seeks (a) a declaratory judgment that
the  recreation  fee  is invalid;  (b)  the  refund,  with  interest,  of  the
recreation  fees which were  allegedly improperly collected  by Fairfield; (c)
damages arising from  Fairfield's allegedly improper  attempts to collect  the
recreation fee (i) in  an amount of not less  than $1,000 per lot in  one case
and (ii)  in an unstated amount in  the other case; (d)  punitive damages; and
(e) recovery of costs and expenses, including attorneys' fees.   The court has
not yet ruled on whether or not the  Recreation Fee Litigation will be allowed
to proceed as  class actions.   Because of  the nature  of the litigation  and
uncertainty  concerning  the time  period covered  by the  suits' allegations,
Fairfield is unable  to determine with any certainty  the dollar amount sought
by plaintiffs, but believes it to be material.

    In  November  1993,  Fairfield  filed  an  adversary  proceeding  in  the
Bankruptcy Court, alleging  that the  Recreation Fee  Litigation violates  the
discharge granted to Fairfield in its Chapter 11 bankruptcy reorganization and
the  injunction  issued by  the Bankruptcy  Court  against prosecution  of any
claims discharged in the bankruptcy proceedings.  By orders and opinions dated
September  29, 1994,  the  Bankruptcy  Court  decided  motions  filed  by  the
plaintiffs  in  the  Recreation  Fee Litigation,  in  response  to Fairfield's
adversary  proceeding.  The Bankruptcy Court retained jurisdiction over one of
the lawsuits  (the Storm lawsuit) and  determined that any purchaser  of a lot
from Fairfield  and its predecessors prior to August 14, 1992 would be limited
to a pre-confirmation cause of action.   The Bankruptcy Court determined  that
it did  not have jurisdiction over  the second lawsuit (the  Daleske lawsuit),
involving eight individuals and  one company, due to prior proceedings  in the
case in  Colorado federal district  court, which ruled that  the plaintiffs in
this  lawsuit  had  post-confirmation  causes of  action,  although  all  nine
plaintiffs are believed to have purchased their lots prior to August 14, 1992.
Fairfield has appealed the Bankruptcy Court's decision in the Daleske lawsuit,
and the plaintiffs  in the Storm lawsuit have appealed  the Bankruptcy Court's
decision in that case, to the District Court.  The Colorado State Court stayed
further  proceedings in the Recreation  Fee Litigation pending  the outcome of
the appeals to the District Court.   Two additional related lawsuits have also
been filed in  the Archuleta County District Court, raising similar issues and
demands as the Storm and  Daleske cases.  The  Fiedler case, filed in  October
1994, was filed individually, while the second of these new cases, the Lobdell
case, was filed  in November 1994, as  a proported class action.   In February
1995,  Fairfield filed an adversary proceeding in the Bankruptcy Court against
the  Fiedler  and  the Lobdell  plaintiffs,  seeking  relief  similar to  that
requested  in  the  Storm and  Daleske  adversary  proceeding.   The  Colorado
District  Court has  stayed proceedings  in the  Lobdell case.   The  Colorado
District Court entered summary judgment against Fairfield in the Fiedler case,  
holding  that the individual lot in question  is not subject to the recreation
fee, based upon facts unique to the Fiedler case.  Fairfield  has appealed the
summary  judgment decision  in the  Fiedler  case.   The Bankruptcy  Court has
determined, by  decision dated  September  18, 1995,  that  it does  not  have
jurisdiction  in  the Fiedler  case, but  also  determined that  it  does have
jurisdiction in  the Lobdell case, based  upon similar reasoning to  the Storm
case.   Both  the  Fiedler and  the Lobdell  cases have  been appealed  to the
District  Court and oral argument was held on April 22, 1996.  No decision has
been rendered by the District Court on these appeals.

    Fairfield intends  to defend  vigorously the  Recreation Fee  Litigation,
and the two related cases, including any attempt to certify a class in  any of
these cases.  Fairfield  has previously implemented recreation fee  charges at
certain other of its resort sites which are not subject to the pending action.
In December 1993, Charlotte T.  Curry, who, with her husband, purchased a
lot from Fairfield  under an  installment sale contract  subsequently sold  to
First Federal, filed suit against First Federal, currently pending in Superior
Court  in  Mecklenburg County,  North Carolina,  alleging breach  of contract,
breach  of fiduciary  duty and  unfair trade  practices.   In April  1994, the
complaint  was  amended, (a)  adding  Fairfield  as  a party,  (b)  adding  an
additional  count against both Fairfield  and First Federal alleging violation
of  the  North  Carolina's  Racketeer  Influenced  and  Corrupt  Organizations
("RICO") Statute and (c) adding a count against Fairfield alleging fraud.  The
litigation,  which seeks  class action certification,  contests the  method by
which Fairfield calculated refunds  for lot purchasers whose installment  sale
contracts  were cancelled due to  failure to complete  payment of the deferred
sales  price  for  the  lot.   Most  installment  lot  sale  contracts require
Fairfield to  refund to a defaulting  purchaser the amount paid  in principal,
after deducting the greater of (a) 15% of the purchase price of the lot or (b)
Fairfield's  actual damages.   The  plaintiff disputes  Fairfield's  method of
calculating damages, which has  historically included certain sales, marketing
and other expenses.   In the  case of Ms.  Curry's lot,  the amount of  refund
claimed as having been improperly retained is approximately $3,600.  The Curry
lawsuit seeks damages, punitive  damages, treble damages under North  Carolina
law for unfair trade  practices and RICO, prejudgment interest  and attorney's
fees and costs.  By order dated July 6, 1994, the court dismissed  Ms. Curry's
claims for  (a) breach  of contract,  due to the  statute of  limitations, (b)
breach of fiduciary duty, due to the  lack of a fiduciary duty and the statute
of limitations,  (c) fraud, due to  the statute of limitations,  and (d) RICO,
due to failure  to state a claim.  The court,  by order dated August 16, 1994,
dismissed Ms. Curry's only remaining claim against Fairfield, for unfair trade
practices, subject to possible  appeal rights.   By order filed September  15,
1995, the  court denied the plaintiff's  motion for class  certification.  The
plaintiff appealed the  denial of  the motion for  class certification to  the
North Carolina  Court of Appeals,  which dismissed  the appeal by  order dated
January  8, 1997.   Subsequently, the  plaintiff requested  that the Supreme
Court of  North Carolina  grant discretionary review  of the  decision denying
class certification.

     Under  the  Stock Purchase  Agreement  for  the  sale  of First  Federal,
Fairfield agreed  to indemnify the  buyer against  any liability in  the Curry
litigation.   While Fairfield is no  longer a defendant in  the litigation, it
intends to  coordinate the defense of  this lawsuit with the  counsel who have
been representing  First Federal, to  defend the Curry  litigation vigorously.
Fairfield also has cancelled defaulted  lot installment sales contracts  owned
by it and its subsidiaries (other than  First Federal), using the same method <PAGE>
 
of calculating refunds as is at issue in the Curry litigation.

     The Company is involved in various other lawsuits and litigation matters on
an ongoing basis as a result of its day-to-day operations.  However, the Company
does not believe that any of these other or any threatened lawsuits and 
litigation matters will have a materially adverse effect on the Company's 
financial position or results of operations.

NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
-------   -----------------------------------

     The fair  value estimates presented herein  are based  on relevant market
information.   As  these  estimates  are  subjective  in  nature  and  involve
uncertainties and significant judgment, they are not necessarily indicative of
the amount that the Company  could realize on a current market  exchange.  The
fair value disclosures for financial instruments are as follows:

      Cash  and cash equivalents:   The carrying amounts  reported in the
      consolidated  balance  sheets  approximate  their  fair  values  at
      December 31, 1996 and 1995.
            
      Restricted  cash and escrow accounts:  The estimated fair values of
      restricted  cash  and  escrow accounts  approximate  their carrying
      amounts at December 31, 1996 and 1995.

      Loans receivable:   The carrying amounts of loans receivable  are a
      reasonable estimate of  their fair values at December 31,  1996 and
      1995 based on valuation models  using risk adjusted interest  rates
      and historical prepayment experiences.
            
      Financing  arrangements:   The  carrying amounts  of  the Company's
      borrowings  with variable  interest rates  approximated their  fair
      values  at December 31, 1996 and  1995. The carrying amounts of the
      Company's  borrowings  with  fixed  interest  rates  totaled  $25.7
      million  and  $56.8  million   at  December  31,  1996  and   1995,
      respectively.   The fair values  of these borrowings  totaled $25.2
      million  and  $56.4  million   at  December  31,  1996   and  1995,
      respectively,   and  were  estimated  using  discounted  cash  flow
      analyses based on the Company's current borrowing rates for similar
      types of borrowing arrangements. <PAGE>
 

NOTE 16 - UNAUDITED CONSOLIDATED QUARTERLY FINANCIAL DATA
-------   -----------------------------------------------
 
Dollars in thousands, except per share data

<TABLE>
                                         Year Ended December 31, 1996
                                     ----------------------------------        
                                      First   Second    Third     Fourth 
                                     Quarter  Quarter  Quarter    Quarter
                                     -------  -------  -------    -------
<S>                                  <C>      <C>      <C>        <C>
Total revenues                       $29,767  $48,523  $49,201    $44,987
Total expenses                        26,624   40,413   40,599     40,348
                                     -------  -------  -------    ------- 
Earnings before provision 
 for income taxes                      3,143    8,110    8,602      4,639
Provision for income taxes             1,250    3,171    3,389      1,821
                                     -------  -------  -------    --------
Net earnings                         $ 1,893  $ 4,939  $ 5,213    $ 2,818
                                     =======  =======  =======    =======
Net earnings per share                  $.17     $.44     $.46       $.24
                                        ====     ====     ====       ====
</TABLE>
                                                                            
<TABLE>
                                         Year Ended December 31, 1995   
                                     ------------------------------------      
                                      First    Second    Third     Fourth 
                                     Quarter   Quarter  Quarter    Quarter
                                     -------   -------  -------    -------
<S>                                  <C>       <C>      <C>        <C>
Total revenues                       $24,254   $37,463  $42,618    $36,440
Total expenses                        24,009    33,218   37,369     33,141
                                     -------   -------  -------    -------
Earnings before provision 
 for income taxes                        245     4,245    5,249      3,299
Provision for income taxes                93     1,613    1,995      1,308
                                     -------   -------  -------    -------    
Net earnings                         $   152   $ 2,632  $ 3,254    $ 1,991
                                     =======   =======  =======    =======
Net earnings per share                  $.01      $.24     $.29       $.18
                                        ====      ====     ====       ====
</TABLE>

Certain amounts in the consolidated  financial statements of  prior quarters for
1996 and 1995 have been reclassified to conform  to the  1996 fourth  quarter <PAGE>
 
presentation. <PAGE>